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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANIES
Investment Company Act file number 811-07452
AIM Variable Insurance Funds
(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 100 Houston, Texas 77046
(Address of principal executive offices) (Zip code)
Philip A. Taylor 11 Greenway Plaza, Suite 100 Houston, Texas 77046
(Name and address of agent for service)
Registrant’s telephone number, including area code: (713) 626-1919
Date of fiscal year end: 12/31
Date of reporting period: 12/31/09
Item 1. Reports to Stockholders.
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AIM V.I. Basic Balanced Fund
Annual Report to Shareholders § December 31, 2009
![(GRAPHIC OF MOUNTAIN)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943401.gif)
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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2009, AIM V.I. Basic Balanced Fund, excluding variable product issuer charges, outperformed its broad market, style-specific and peer group indexes.
Drivers of equity performance were largely stock specific. We attribute the Fund’s outperformance versus its indexes mainly to above-market returns from several of our investments in the financials and information technology (IT) sectors. Select investments in financials were also among the largest detractors from Fund performance. The Fund’s fixed income holdings also posted gains and outperformed the Barclays Capital U.S. Aggregate Index during the year.6
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 33.84 | % | ||
Series II Shares | 33.54 | |||
S&P 500 Index6 (Broad Market Index) | 26.47 | |||
Custom Basic Balanced Indexn (Style-Specific Index) | 14.81 | |||
Lipper VUF Mixed-Asset Target Allocation Moderate Funds Index6 (Peer Group Index) | 23.13 |
6 | Lipper Inc.; § Invesco, Lipper Inc. |
How we invest
We seek to create wealth by maintaining a long-term investment horizon and investing in companies that are selling at a significant discount to their estimated intrinsic value. We believe intrinsic value represents the inherent business value of portfolio holdings based on our estimates of future company cash flow. Intrinsic value calculations are estimates and, as a result, market price may never reflect intrinsic value estimates, especially for an entire portfolio. Conversely, we consider selling a stock for any of the following reasons — a stock is trading significantly above our estimate of intrinsic value; a permanent, fundamental deterioration results in a reduction in estimated intrinsic value with inadequate upside potential or unexpected deterioration in financial strength; or to capitalize on a more attractive investment opportunity. The Fund’s philosophy is based on key elements that we believe have extensive empirical evidence:
§ | Company intrinsic values can be reasonably estimated. Importantly, this estimated fair business value is independent of the company’s stock price. | |
§ | Market prices are more volatile than business values, partly because investors regularly overreact to negative news. | |
§ | Long-term investment results are a function of the level and growth of business value in the portfolio. |
Since our application of this strategy is highly disciplined and relatively unique, it is important to understand the benefits and limitations of our process. First, the investment strategy is intended to preserve your capital while growing it at above-market rates over the long term. Second, our investments have little in common with popular stock market indexes and most of our peers. And third, the Fund’s short-term relative performance will naturally be different than the stock market and peers and have little information value since we simply don’t own the same stocks.
Our fixed income portfolio investment process is accomplished through the use of top-down strategies involving duration management, yield-curve positioning and sector allocation.
Market conditions and your Fund
The year 2009 was truly a tale of two markets. During the first few months of the year, equity markets declined steeply as severe problems in credit markets and a deteriorating outlook for corporate earnings led to a global recession. However, the U.S. economy began to show signs that the contraction was subsiding, and equity markets rapidly reversed direction beginning in March 2009 and rallied strongly for the rest of the year. Bond yields also moved higher as economic uncertainties appeared to be stabilizing. The expanded risk appetites shifted demand from Treasuries to non-government securities during the year.
In this environment, sectors with the highest returns in the broad market as represented by the S&P 500 Index included more economically sensitive sectors such as information technology and consumer discretionary.1 Conversely, sectors with the lowest returns included less economically sensitive sectors such as consumer staples and health care.1
While financial-market stress has eased significantly, we believe overall equity market valuations remain attractive. Our investment results can be lumpy during periods like this, but historically these types of markets have yielded attractive opportunities for future capital growth.
ASML, the world’s leading provider of lithography systems for the semiconductor industry, was among the Fund’s top contributors during the year. Despite a difficult business environment, a recent sales rebound and improved cost trends returned the company to profitability and improved its outlook for 2010.
The financials sector outperformed during much of 2009 as investors contemplated an eventual end, or at least an abatement, to the global credit crisis. Our investments in Morgan Stanley and XL Capital posted double-and triple-digit gains, respectively, and made significant contributions to Fund performance. Morgan Stanley’s stock rose by over 90% during the year. Investors reacted favorably to the announcement of a joint venture between the company and Citigroup in which Morgan Stanley bought Citi’s Smith Barney unit and combined it with its own global wealth management group. The new joint venture, called Morgan Stanley Smith Barney, is the industry’s leading wealth management business.
Portfolio Composition
By security type, based on total investments
Common Stocks & Other Equity Interests | 72.8 | % | ||
Bonds & Notes | 10.2 | |||
U.S. Government Sponsored | ||||
Mortgage-Backed Securities | 8.1 | |||
Asset-Backed Securities | 4.7 | |||
U.S. Treasury Securities | 2.1 | |||
U.S. Government Sponsored | ||||
Agency Securities | 0.4 | |||
Money Market Funds | 1.7 | |||
Total Net Assets | $ | 34.4million | ||
Total Number of Holdings* | 196 | |||
Top 10 Equity Holdings* | ||||
1. ASML Holding N.V. | 3.9 | % | ||
2. UnitedHealth Group Inc. | 3.1 | |||
3. Moody’s Corp. | 2.7 | |||
4. XL Capital Ltd.-Class A | 2.5 | |||
5. Robert Half International, Inc. | 2.5 | |||
6. Bank of America Corp. | 2.4 | |||
7. American Express Co. | 2.4 | |||
8. Omnicom Group Inc. | 2.3 | |||
9. Dell Inc. | 2.2 | |||
10 Illinois Tool Works Inc. | 2.1 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* | Excluding money market fund holdings. |
AIM V.I. Basic Balanced Fund
After declining significantly in 2008 due to credit-related issues, specialty insurance provider XL Capital’s stock rebounded from its early-2009 lows, gaining over 400% during the year as investor concerns abated. We continue to believe the company is undervalued despite its significant rebound.
In addition to these investments, a legal settlement the Fund received from the Tyco International class action lawsuit was a meaningful contributor to 2009 results. The legal settlement was in addition to the stock’s 65% gain during 2009.
While many financial stocks performed well, Citigroup’s stock fell by more than 45% during the year. In February, Citigroup took the dramatic step of recapitalizing the company via a preferred-for-common exchange. The result bolstered Citigroup’s capital position to among the strongest in the world, but diluted our estimate of per-share intrinsic value severely.
The Fund’s fixed income holdings also posted gains during the year and outperformed the Barclays Capital U.S. Aggregate Index.1 The outperformance was mainly due to our overweight positions in investment grade corporate bonds and structured securities. An underweight position in U.S. government securities also aided relative performance as investor preference for credit risk dampened demand for U.S. government bonds.
Our valuation analysis suggested the recent market stress produced some of the most compelling valuation opportunities in recent history. As a consequence, our turnover was higher than normal during the year as we tried to exploit those opportunities.
Context for results
The crisis environment that characterized 2008 and part of 2009 has abated since the market’s March low. This process was favorable to the Fund and shifted investor attention to the valuation opportunities created by the crisis and exploited by our investment process. We continue to believe the valuation opportunity captured by the Fund remains very attractive despite record appreciation since March 2009. But a self-sustaining economic recovery is a necessary precondition to further normalization of equity values.
Since the market low in March, valuation spreads have tightened from record-wide levels and, consequently, the difference between price and our estimate of portfolio value also has declined. However, despite the sharp market increase, the Fund’s price-to-value ratio remains very attractive versus history, but substantially less than at the recent market low. Shareholders should not expect the magnitude of recent outperformance to be repeated in the next 12 months. While we think portfolio values remain compelling, the next phase of any market recovery could prove more muted.
Portfolio assessment
We believe the single most important indicator of the way the Fund is positioned for potential future success is not our historical investment results or popular statistical measures, but rather the difference between current market prices and the Fund’s estimated intrinsic value — the aggregate business value of the portfolio based on our estimate of intrinsic value for each individual holding.
At the close of the quarter, the difference between the market price and the estimated intrinsic value of the Fund remained high versus history, according to our estimation. While there is no assurance that market value will ever reflect our estimate of the Fund’s intrinsic value, we believe the large gap between price and estimated intrinsic value may cause above-average capital appreciation as capital markets normalize.
In closing
Markets experienced a strong recovery during 2009, and the Fund significantly outperformed its indexes. While we do not expect a repeat of 2009’s results in 2010, we do believe the Fund’s price-to-value ratio remains very attractive versus history.
We continue to work hard to protect and grow the Fund’s estimated intrinsic value. We thank you for your investment and for sharing our long-term investment perspective.
1 | Lipper Inc. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
![(PHOTO OF BRET STANLEY)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943402.jpg)
Bret Stanley
Chartered Financial Analyst, senior portfolio manager, is lead manager of AIM V.I. Basic Balanced Fund. He began his investment career in 1988. Mr. Stanley earned a B.B.A. in finance from The University of Texas at Austin and an M.S. in finance from the University of Houston.
![(PHOTO OF CYNTHIA BRIEN)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943403.jpg)
Cynthia Brien
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Basic Balanced Fund. She joined Invesco Aim in 1996. Ms. Brien earned a B.B.A. from The University of Texas at Austin.
![(PHOTO OF CHUCK BURGE)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943404.jpg)
Chuck Burge
Senior portfolio manager, is manager of AIM V.I. Basic Balanced Fund. He joined Invesco in 2002. Mr. Burge earned a B.S. in economics from Texas A&M University and an M.B.A. in finance and accounting from Rice University.
![(PHOTO OF R. CANON COLEMAN II)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943405.jpg)
R. Canon Coleman II
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Basic Balanced Fund. He began his investment career in 1996 and joined Invesco Aim in 2000. Mr. Coleman earned a B.S. and an M.S. in accounting from the University of Florida. He also earned an M.B.A. from the Wharton School at the University of Pennsylvania.
![(PHOTO OF MATTHEW SEINSHEIMER)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943406.jpg)
Matthew Seinsheimer
Chartered Financial Analyst, senior portfolio manager, is manager of AIM V.I. Basic Balanced Fund. He began his investment career in 1992 and joined Invesco Aim in 1998. He earned a B.B.A. in finance from Southern Methodist University and an M.B.A. from The University of Texas at Austin.
![(PHOTO OF MICHAEL SIMON)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943407.jpg)
Michael Simon
Chartered Financial Analyst, senior portfolio manager, is manager of AIM V.I. Basic Balanced Fund. He began his investment career in 1989 and joined Invesco Aim in 2001. Mr. Simon earned a B.B.A. in finance from Texas Christian University and an M.B.A. from the University of Chicago.
Assisted by the Basic Value Team
AIM V.I. Basic Balanced Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment — Oldest Share Class since Inception
Index data from 4/30/98, Fund data from 5/1/98
![(LINE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943408.gif)
1. Lipper Inc.
2. Invesco, Lipper Inc.
Past performance cannot guarantee comparable future results.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000.
Average Annual Total Returns
As of 12/31/09
As of 12/31/09
Series I Shares | ||||
Inception (5/1/98) | 1.32 | % | ||
10 Years | –1.45 | |||
5 Years | -0.36 | |||
1 Year | 33.84 | |||
Series II Shares | ||||
10 Years | -1.68 | % | ||
5 Years | -0.61 | |||
1 Year | 33.54 |
Series II shares’ inception date is January 24, 2002. Returns since that date are historical. All other returns are the blended returns of the historical performance of Series II shares since their inception and the 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 1, 1998. 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 adviser 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 net 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 0.91% and 1.16%, respectively.1 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 1.35% and 1.60%, 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. Basic Balanced 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 the 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 adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. |
AIM V.I. Basic Balanced Fund
AIM V.I. Basic Balanced Fund’s investment objective is long-term growth of capital and current income.
§ | Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets. | |
§ | Unless otherwise noted, all data provided by Invesco. |
Principal risks of investing in the Fund
The values of convertible securities in which the Fund invests may be affected by market interest rates, the risk that the issuer may default on interest or principal payments, and the value of the underlying common stock into which these securities may be converted.
Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, relative lack of information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
The prices of securities held by the Fund may decline in response to market risks.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Custom Basic Balanced Index, created by Invesco Aim to serve as a benchmark for AIM Basic Balanced Fund, is composed of the following indexes: Russell 1000® Value (60%) and Barclays Capital U.S. Aggregate (40%). The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. An investment cannot be made directly in an index.
The Lipper VUF Mixed-Asset Target Allocation Moderate Funds Index is an unmanaged index considered representative of mixed-asset target allocation moderate variable insurance underlying funds tracked by Lipper.
The Barclays Capital U.S. Aggregate Index is an unmanaged index considered representative of the U.S. investment-grade, fixed-rate bond market.
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 the peer group reflects fund expenses; performance of a market index does not.
Other information
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
AIM V.I. Basic Balanced Fund
Schedule of Investments(a)
December 31, 2009
Shares | Value | |||||||
Common Stocks & Other Equity Interests–72.77% | ||||||||
Advertising–4.06% | ||||||||
Interpublic Group of Cos., Inc. (The)(b) | 82,907 | $ | 611,854 | |||||
Omnicom Group Inc. | 20,117 | 787,580 | ||||||
1,399,434 | ||||||||
Asset Management & Custody Banks–1.38% | ||||||||
State Street Corp. | 10,887 | 474,020 | ||||||
Brewers–1.13% | ||||||||
Molson Coors Brewing Co.–Class B | 8,631 | 389,776 | ||||||
Casinos & Gaming–1.50% | ||||||||
International Game Technology | 27,607 | 518,183 | ||||||
Communications Equipment–1.83% | ||||||||
Nokia Corp.–ADR (Finland) | 49,054 | 630,344 | ||||||
Computer Hardware–2.15% | ||||||||
Dell Inc.(b) | 51,596 | 740,919 | ||||||
Construction Materials–1.33% | ||||||||
Cemex S.A.B. de C.V.–ADR (Mexico)(b) | 38,777 | 458,344 | ||||||
Consumer Finance–3.44% | ||||||||
American Express Co. | 20,111 | 814,898 | ||||||
SLM Corp.(b) | 32,833 | 370,028 | ||||||
1,184,926 | ||||||||
Data Processing & Outsourced Services–2.89% | ||||||||
Alliance Data Systems Corp.(b) | 9,652 | 623,423 | ||||||
Western Union Co. (The) | 19,656 | 370,515 | ||||||
993,938 | ||||||||
Diversified Capital Markets–1.10% | ||||||||
UBS AG (Switzerland)(b) | 24,428 | 378,878 | ||||||
Education Services–0.30% | ||||||||
Apollo Group, Inc.–Class A(b) | 1,684 | 102,017 | ||||||
Electronic Manufacturing Services–3.40% | ||||||||
Flextronics International Ltd. (Singapore)(b) | 71,563 | 523,125 | ||||||
Tyco Electronics Ltd. (Switzerland) | 26,341 | 646,672 | ||||||
1,169,797 | ||||||||
General Merchandise Stores–1.79% | ||||||||
Target Corp. | 12,764 | 617,395 | ||||||
Health Care Equipment–1.00% | ||||||||
Baxter International Inc. | 5,870 | 344,452 | ||||||
Home Improvement Retail–1.48% | ||||||||
Home Depot, Inc. (The) | 17,607 | 509,371 | ||||||
Hotels, Resorts & Cruise Lines–0.86% | ||||||||
Marriott International, Inc.–Class A | 10,809 | 294,545 | ||||||
Household Appliances–1.07% | ||||||||
Whirlpool Corp. | 4,581 | 369,503 | ||||||
Human Resource & Employment Services–2.48% | ||||||||
Robert Half International, Inc. | 31,959 | 854,264 | ||||||
Industrial Conglomerates–1.37% | ||||||||
Tyco International Ltd. | 13,220 | 471,690 | ||||||
Industrial Machinery–3.64% | ||||||||
Illinois Tool Works Inc. | 15,066 | 723,017 | ||||||
Ingersoll-Rand PLC (Ireland) | 14,850 | 530,739 | ||||||
1,253,756 | ||||||||
Investment Banking & Brokerage–1.61% | ||||||||
Morgan Stanley | 18,681 | 552,958 | ||||||
Managed Health Care–5.04% | ||||||||
Aetna Inc. | 20,861 | 661,294 | ||||||
UnitedHealth Group Inc. | 35,298 | 1,075,883 | ||||||
1,737,177 | ||||||||
Movies & Entertainment–0.89% | ||||||||
Walt Disney Co. (The) | 9,540 | 307,665 | ||||||
Oil & Gas Drilling–0.42% | ||||||||
Transocean Ltd.(b) | 1,759 | 145,645 | ||||||
Oil & Gas Equipment & Services–2.69% | ||||||||
Halliburton Co. | 15,128 | 455,202 | ||||||
Weatherford International Ltd.(b) | 26,207 | 469,367 | ||||||
924,569 | ||||||||
Other Diversified Financial Services–5.18% | ||||||||
Bank of America Corp. | 55,670 | 838,390 | ||||||
Citigroup Inc. | 73,749 | 244,109 | ||||||
JPMorgan Chase & Co. | 16,795 | 699,848 | ||||||
1,782,347 | ||||||||
Packaged Foods & Meats–0.95% | ||||||||
Unilever N.V. (Netherlands) | 10,069 | 327,935 | ||||||
Property & Casualty Insurance–2.52% | ||||||||
XL Capital Ltd.–Class A | 47,359 | 868,090 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Basic Balanced Fund
Shares | Value | |||||||
Regional Banks–1.20% | ||||||||
Fifth Third Bancorp | 42,480 | $ | 414,180 | |||||
Research & Consulting Services–1.01% | ||||||||
Dun & Bradstreet Corp. | 4,118 | 347,436 | ||||||
Semiconductor Equipment–5.96% | ||||||||
ASML Holding N.V. (Netherlands) | 39,881 | 1,354,622 | ||||||
KLA-Tencor Corp. | 19,277 | 697,056 | ||||||
2,051,678 | ||||||||
Specialized Finance–2.73% | ||||||||
Moody’s Corp. | 35,039 | 939,045 | ||||||
Specialty Stores–1.50% | ||||||||
Staples, Inc. | 20,983 | 515,972 | ||||||
Systems Software–2.87% | ||||||||
CA, Inc. | 14,638 | 328,770 | ||||||
Microsoft Corp. | 21,668 | 660,657 | ||||||
989,427 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $23,469,178) | 25,059,676 | |||||||
Principal | ||||||||
Amount | ||||||||
Bonds & Notes–10.24% | ||||||||
Aerospace & Defense–0.15% | ||||||||
BAE Systems Holdings Inc., Sr. Unsec. Gtd. Notes, 4.95%, 06/01/14(c) | $ | 20,000 | 20,566 | |||||
6.38%, 06/01/19(c) | 30,000 | 31,943 | ||||||
52,509 | ||||||||
Airlines–0.06% | ||||||||
Delta Air Lines, Inc., Series A, Pass Through Ctfs., 7.75%, 12/17/19 | 20,000 | 20,687 | ||||||
Asset Management & Custody Banks–0.05% | ||||||||
Bank of New York Mellon Corp. (The), Sr. Unsec. Notes, 4.30%, 05/15/14 | 15,000 | 15,804 | ||||||
Automotive Retail–0.19% | ||||||||
AutoZone Inc., Sr. Unsec. Unsub. Notes, 5.88%, 10/15/12 | 60,000 | 65,003 | ||||||
Brewers–0.15% | ||||||||
Anheuser-Busch InBev Worldwide Inc., Sr. Unsec. Gtd. Unsub. Notes, 5.38%, 01/15/20(c) | 50,000 | 51,032 | ||||||
Broadcasting–0.27% | ||||||||
COX Communications Inc., Sr. Unsec. Bonds, 8.38%, 03/01/39(c) | 30,000 | 36,838 | ||||||
Sr. Unsec. Global Notes, 5.45%, 12/15/14 | 20,000 | 21,479 | ||||||
COX Enterprises Inc., Sr. Unsec. Notes, 7.88%, 09/15/10(c) | 35,000 | 36,415 | ||||||
94,732 | ||||||||
Cable & Satellite–0.03% | ||||||||
Time Warner Cable Inc., Sr. Unsec. Gtd. Unsub. Notes, 5.00%, 02/01/20 | 10,000 | 9,764 | ||||||
Consumer Finance–0.06% | ||||||||
Capital One Bank USA N.A., Sr. Unsec. Global Notes, 5.75%, 09/15/10 | 20,000 | 20,602 | ||||||
Diversified Banks–0.73% | ||||||||
Barclays Bank PLC (United Kingdom), Sr. Unsec. Unsub. Global Notes, 6.75%, 05/22/19 | 55,000 | 61,974 | ||||||
Lloyds TSB Bank PLC (United Kingdom), Sr. Unsec. Unsub. Floating Rate Medium-Term Euro Notes, 3.78%, 04/17/14(d) | 58,500 | 61,094 | ||||||
Standard Chartered PLC (United Kingdom), Sr. Notes, 5.50%, 11/18/14(c) | 100,000 | 105,473 | ||||||
Wachovia Corp.–Series G, Sr. Unsec. Medium-Term Notes, 5.50%, 05/01/13 | 20,000 | 21,414 | ||||||
249,955 | ||||||||
Electric Utilities–0.65% | ||||||||
Carolina Power & Light Co., Sec. First Mortgage Bonds, 5.30%, 01/15/19 | 15,000 | 15,675 | ||||||
DCP Midstream LLC, Sr. Unsec. Notes, 7.88%, 08/16/10 | 85,000 | 88,625 | ||||||
Ohio Power Co., Series 1, Sr. Unsec. Notes, 5.38%, 10/01/21 | 50,000 | 50,831 | ||||||
PPL Electric Utilities Corp., Sec. First Mortgage Bonds, 6.25%, 05/15/39 | 50,000 | 52,780 | ||||||
Virginia Electric & Power Co., Sr. Unsec. Unsub. Notes, 5.00%, 06/30/19 | 15,000 | 15,188 | ||||||
223,099 | ||||||||
Gold–0.29% | ||||||||
Barrick Australian Finance Pty Ltd. (Australia), Unsec. Gtd. Unsub. Global Notes, 4.95%, 01/15/20 | 50,000 | 49,478 | ||||||
Newmont Mining Corp., Sr. Unsec. Gtd. Notes, 5.13%, 10/01/19 | 50,000 | 50,342 | ||||||
99,820 | ||||||||
Health Care Distributors–0.08% | ||||||||
CareFusion Corp., Sr. Unsec. Notes, 6.38%, 08/01/19(c) | 25,000 | 27,123 | ||||||
Health Care Equipment–0.09% | ||||||||
Boston Scientific Corp., Sr. Unsec. Unsub. Notes, 6.00%, 01/15/20 | 30,000 | 30,828 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Basic Balanced Fund
Principal | ||||||||
Amount | Value | |||||||
Health Care Services–0.22% | ||||||||
Express Scripts Inc., Sr. Unsec. Gtd. Global Notes, 6.25%, 06/15/14 | $ | 70,000 | $ | 76,827 | ||||
Hotels, Resorts & Cruise Lines–0.21% | ||||||||
Hyatt Hotels Corp., Sr. Unsec. Unsub. Notes, 5.75%, 08/15/15(c) | 70,000 | 72,205 | ||||||
Housewares & Specialties–0.06% | ||||||||
Newell Rubbermaid Inc., Sr. Unsec. Unsub. Notes, 4.00%, 05/01/10 | 20,000 | 20,170 | ||||||
Integrated Telecommunication Services–1.01% | ||||||||
AT&T Inc., Sr. Unsec. Unsub. Global Notes, 6.55%, 02/15/39 | 25,000 | 26,522 | ||||||
British Telecommunications PLC (United Kingdom), Sr. Unsec. Unsub. Global Notes, 9.13%, 12/15/10 | 50,000 | 53,582 | ||||||
Cellco Partnership/Verizon Wireless Capital LLC, Sr. Unsec. Unsub. Global Notes, 3.75%, 05/20/11 | 60,000 | 61,924 | ||||||
DirecTV Holdings LLC/DirecTV Financing Co. Inc., Sr. Unsec. Gtd. Unsub. Global Notes, 7.63%, 05/15/16 | 40,000 | 43,800 | ||||||
Koninklijke KPN N.V. (Netherlands), Sr. Unsec. Unsub. Global Bonds, 8.00%, 10/01/10 | 40,000 | 41,936 | ||||||
Telecom Italia Capital S.A. (Italy), Sr. Unsec. Gtd. Unsub. Global Notes, 4.88%, 10/01/10 | 40,000 | 40,950 | ||||||
Windstream Georgia Communications Corp., Sr. Unsec. Deb., 6.50%, 11/15/13 | 79,000 | 78,161 | ||||||
346,875 | ||||||||
Investment Banking & Brokerage–0.49% | ||||||||
Morgan Stanley, Sr. Unsec. Medium-Term Global Notes, 6.00%, 05/13/14 | 40,000 | 43,018 | ||||||
Series F, Sr. Unsec. Medium-Term Global Notes, 5.95%, 12/28/17 | 100,000 | 104,414 | ||||||
TD Ameritrade Holding Corp., Sr. Unsec. Gtd. Unsub. Notes, 4.15%, 12/01/14 | 20,000 | 19,797 | ||||||
167,229 | ||||||||
Life & Health Insurance–0.58% | ||||||||
MetLife Inc., Sr. Unsec. Global Notes, 7.72%, 02/15/19 | 75,000 | 88,103 | ||||||
Monumental Global Funding II, Sr. Sec. Unsub. Notes, 5.65%, 07/14/11(c) | 25,000 | 25,994 | ||||||
Protective Life Corp., Sr. Unsec. Notes, 7.38%, 10/15/19 | 50,000 | 50,358 | ||||||
Prudential Financial Inc., Series D, Sr. Unsec. Unsub. Medium-Term Notes, 7.38%, 06/15/19 | 30,000 | 33,921 | ||||||
198,376 | ||||||||
Managed Health Care–0.14% | ||||||||
UnitedHealth Group Inc., Sr. Unsec. Unsub. Notes, 5.25%, 03/15/11 | 45,000 | 46,850 | ||||||
Mortgage Backed Securities–0.37% | ||||||||
U.S. Bank N.A., Sr. Unsec. Unsub. Medium-Term Global Notes, 5.92%, 05/25/12 | 119,237 | 126,658 | ||||||
Movies & Entertainment–0.10% | ||||||||
Time Warner Cable Inc., Sr. Unsec. Gtd. Unsub. Global Notes, 6.75%, 07/01/18 | 30,000 | 33,180 | ||||||
Multi-Line Insurance–0.13% | ||||||||
Liberty Mutual Group Inc., Sr. Unsec. Notes, 5.75%, 03/15/14(c) | 45,000 | 44,352 | ||||||
Multi-Utilities–0.23% | ||||||||
Dominion Resources Inc., Sr. Unsec. Unsub. Notes, 5.20%, 08/15/19 | 30,000 | 30,489 | ||||||
Massachusetts Electric Co., Sr. Unsec. Notes, 5.90%, 11/15/39(c) | 50,000 | 49,656 | ||||||
80,145 | ||||||||
Oil & Gas Exploration & Production–0.39% | ||||||||
Anadarko Petroleum Corp., Sr. Unsec. Notes, 7.63%, 03/15/14 | 70,000 | 80,458 | ||||||
EOG Resources Inc., Sr. Unsec. Unsub. Notes, 5.63%, 06/01/19 | 35,000 | 37,614 | ||||||
Petrobras International Finance Co. (Cayman Islands), Sr. Unsec. Gtd. Unsub. Global Notes, 6.88%, 01/20/40 | 15,000 | 15,344 | ||||||
133,416 | ||||||||
Oil & Gas Storage & Transportation–0.29% | ||||||||
Spectra Energy Capital LLC, Sr. Unsec. Gtd. Notes, 5.65%, 03/01/20 | 50,000 | 50,827 | ||||||
Transcontinental Gas Pipe Line Co. LLC, Series B, Sr. Unsec. Unsub. Global Notes, 7.00%, 08/15/11 | 45,000 | 48,552 | ||||||
99,379 | ||||||||
Other Diversified Financial Services–1.52% | ||||||||
Bank of America Corp., Sr. Unsec. Unsub. Global Notes, 6.50%, 08/01/16 | 20,000 | 21,609 | ||||||
Bear Stearns Cos. LLC (The), Sr. Unsec. Unsub. Floating Rate Notes, 0.68%, 07/19/10(d) | 180,000 | 180,415 | ||||||
Citigroup Inc., Sr. Unsec. Medium-Term Notes, 5.50%, 10/15/14 | 40,000 | 40,649 | ||||||
Countrywide Home Loans Inc., Series L, Sr. Unsec. Gtd. Unsub. Medium-Term Global Notes, 4.00%, 03/22/11 | 15,000 | 15,470 | ||||||
General Electric Capital Corp., Sr. Unsec. Unsub. Global Notes, 5.90%, 05/13/14 | 75,000 | 81,859 | ||||||
JPMorgan Chase & Co., Sr. Unsec. Unsub. Global Notes, 4.75%, 05/01/13 | 65,000 | 68,702 | ||||||
6.30%, 04/23/19 | 20,000 | 22,202 | ||||||
Merrill Lynch & Co. Inc., Sr. Unsec. Medium-Term Notes, 6.88%, 04/25/18 | 85,000 | 92,006 | ||||||
Twin Reefs Pass-Through Trust, Floating Rate Pass Through Ctfs., 1.39%, (Acquired 12/07/04; Cost $90,000)(c)(d)(e)(f) | 90,000 | 293 | ||||||
523,205 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Basic Balanced Fund
Principal | ||||||||
Amount | Value | |||||||
Packaged Foods & Meats–0.09% | ||||||||
Kraft Foods Inc., Sr. Unsec. Unsub. Global Notes, 5.63%, 11/01/11 | $ | 30,000 | $ | 31,941 | ||||
Paper Packaging–0.12% | ||||||||
Bemis Co. Inc., Sr. Unsec. Unsub. Notes, 5.65%, 08/01/14 | 40,000 | 42,747 | ||||||
Paper Products–0.08% | ||||||||
International Paper Co., Sr. Unsec. Unsub. Global Bonds, 7.50%, 08/15/21 | 25,000 | 28,026 | ||||||
Pharmaceuticals–0.11% | ||||||||
Mead Johnson Nutrition Co., Sr. Unsec. Gtd. Unsub. Notes, 4.90%, 11/01/19(c) | 40,000 | 39,345 | ||||||
Property & Casualty Insurance–0.07% | ||||||||
CNA Financial Corp., Sr. Unsec. Unsub. Notes, 7.35%, 11/15/19 | 25,000 | 25,224 | ||||||
Publishing–0.12% | ||||||||
Reed Elsevier Capital Inc., Sr. Unsec. Gtd. Unsub. Global Notes, 6.75%, 08/01/11 | 40,000 | 42,866 | ||||||
Regional Banks–0.18% | ||||||||
PNC Capital Trust C, Jr. Unsec. Gtd. Sub. Floating Rate Trust Pfd. Capital Securities, 0.83%, 06/01/28(d) | 100,000 | 61,293 | ||||||
Research & Consulting Services–0.39% | ||||||||
ERAC USA Finance Co., Unsec. Gtd. Notes, 5.80%, 10/15/12(c) | 130,000 | 136,182 | ||||||
Retail REIT’s–0.09% | ||||||||
WT Finance Aust Pty Ltd./ Westfield Capital/WEA Finance LLC, Sr. Unsec. Gtd. Notes, 4.38%, 11/15/10(c) | 30,000 | 30,588 | ||||||
Soft Drinks–0.07% | ||||||||
Coca-Cola Amatil Ltd. (Australia), Sr. Gtd. Notes, 3.25%, 11/02/14(c) | 25,000 | 24,767 | ||||||
Steel–0.17% | ||||||||
ArcelorMittal (Luxembourg), Sr. Unsec. Unsub. Global Notes, 9.00%, 02/15/15 | 15,000 | 17,494 | ||||||
7.00%, 10/15/39 | 40,000 | 42,401 | ||||||
59,895 | ||||||||
Trading Companies & Distributors–0.06% | ||||||||
GATX Corp., Sr. Unsec. Notes, 4.75%, 10/01/12 | 20,000 | 20,551 | ||||||
Wireless Telecommunication Services–0.15% | ||||||||
American Tower Corp., Sr. Unsec. Notes, 4.63%, 04/01/15(c) | 30,000 | 30,320 | ||||||
Vodafone Group PLC (United Kingdom), Sr. Unsec. Unsub. Global Notes, 5.50%, 06/15/11 | 20,000 | 21,114 | ||||||
51,434 | ||||||||
Total Bonds & Notes (Cost $3,503,743) | 3,524,684 | |||||||
U.S. Government Sponsored Mortgage-Backed Securities–8.08% | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–2.03% | ||||||||
Pass Through Ctfs., 7.00%, 06/01/15 to 06/01/32 | 77,417 | 85,909 | ||||||
7.50%, 11/01/30 to 05/01/31 | 14,788 | 16,623 | ||||||
6.50%, 08/01/32 | 3,980 | 4,299 | ||||||
5.50%, 01/01/35 to 02/01/37 | 410,456 | 431,695 | ||||||
Pass Through Ctfs., TBA, 4.50%, 01/01/40(g) | 160,000 | 159,650 | ||||||
698,176 | ||||||||
Federal National Mortgage Association (FNMA)–5.09% | ||||||||
Pass Through Ctfs., 7.50%, 11/01/15 to 03/01/31 | 71,628 | 82,203 | ||||||
7.00%, 02/01/16 to 09/01/32 | 21,237 | 23,284 | ||||||
6.50%, 07/01/16 to 10/01/35 | 65,433 | 71,424 | ||||||
6.00%, 01/01/17 to 03/01/37 | 254,318 | 270,198 | ||||||
5.50%, 03/01/21 | 972 | 1,031 | ||||||
8.00%, 08/01/21 to 12/01/23 | 12,542 | 14,238 | ||||||
Pass Through Ctfs., TBA, 4.00%, 01/01/25(g) | 50,000 | 50,305 | ||||||
4.50%, 01/01/25 to 01/01/40(g) | 250,000 | 254,156 | ||||||
5.00%, 01/01/25 to 01/01/40(g) | 600,000 | 617,641 | ||||||
5.50%, 01/01/40(g) | 200,000 | 209,375 | ||||||
6.00%, 01/01/40(g) | 150,000 | 158,883 | ||||||
1,752,738 | ||||||||
Government National Mortgage Association (GNMA)–0.96% | ||||||||
Pass Through Ctfs., 7.50%, 06/15/23 to 10/15/31 | 28,354 | 31,990 | ||||||
8.50%, 11/15/24 | 28,750 | 33,168 | ||||||
8.00%, 08/15/25 | 7,578 | 8,705 | ||||||
6.50%, 03/15/29 to 01/15/37 | 238,820 | 257,915 | ||||||
331,778 | ||||||||
Total U.S. Government Sponsored Mortgage-Backed Securities (Cost $2,726,499) | 2,782,692 | |||||||
Asset-Backed Securities–4.74% | ||||||||
Bear Stearns Adjustable Rate Mortgage Trust, Series 2003-6, Class 1A3, Variable Rate Pass Through Ctfs., 4.52%, 08/25/33(d) | 43,430 | 39,963 | ||||||
Bear Stearns Commercial Mortgage Securities, Series 2004-PWR6, Class A6, Pass Through Ctfs., 4.83%, 11/11/41 | 80,000 | 78,136 | ||||||
Series 2005-PWR8, Class A4, Pass Through Ctfs., 4.67%, 06/11/41 | 45,000 | 43,116 | ||||||
Series 2006-PW11, Class A4, Variable Rate Pass Through Ctfs., 5.46%, 03/11/39(d) | 100,000 | 97,918 | ||||||
Series 2006-T24, Class A4, Pass Through Ctfs., 5.54%, 10/12/41 | 50,000 | 49,800 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Basic Balanced Fund
Principal | ||||||||
Amount | Value | |||||||
Chase Issuance Trust, Series 2007-A17, Class A, Pass Through Ctfs., 5.12%, 10/15/14 | $ | 80,000 | $ | 86,236 | ||||
Series 2009-A3, Class A3, Pass Through Ctfs., 2.40%, 06/17/13 | 50,000 | 50,772 | ||||||
Citibank Credit Card Issuance Trust, Series 2009-A5, Class A5, Pass Through Ctfs., 2.25%, 12/23/14 | 50,000 | 49,760 | ||||||
Citigroup Mortgage Loan Trust Inc., Series 2004-UST1, Class A4, Variable Rate Pass Through Ctfs., 3.11%, 08/25/34(d) | 102,366 | 97,587 | ||||||
Countrywide Asset-Backed Ctfs., Series 2007-4, Class A1B, Pass Through Ctfs., 5.81%, 09/25/37 | 53,842 | 53,141 | ||||||
GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4A, Pass Through Ctfs., 4.75%, 07/10/39 | 125,000 | 121,205 | ||||||
Honda Auto Receivables Owner Trust, Series 2009-2, Class A3, Pass Through Ctfs., 2.79%, 01/15/13 | 45,000 | 45,845 | ||||||
LB-UBS Commercial Mortgage Trust, Series 2001-WM, Class A2, Pass Through Ctfs., 6.53%, 07/14/16(c) | 80,000 | 84,273 | ||||||
Morgan Stanley Capital I, Series 2005-HQ7, Class A4, Variable Rate Pass Through Ctfs., 5.21%, 11/14/42(d) | 60,000 | 59,249 | ||||||
Series 2005-T19, Class A4A, Pass Through Ctfs., 4.89%, 06/12/47 | 80,000 | 78,156 | ||||||
Series 2008-T29, Class A1, Pass Through Ctfs., 6.23%, 01/11/43 | 50,151 | 51,372 | ||||||
Nissan Auto Receivables Owner Trust, Series 2006-B, Class A4, Pass Through Ctfs., 5.22%, 11/15/11 | 24,632 | 24,834 | ||||||
Option One Mortgage Securities Corp., Series 2007-4A, Floating Rate Notes, 0.33%, 04/25/12 (Acquired 05/11/07; Cost $47,228)(c)(d) | 47,228 | 18,891 | ||||||
Structured Asset Securities Corp., Series 2007-OSI, Class A2, Floating Rate Pass Through Ctfs., 0.32%, 06/25/37(d) | 82,154 | 74,803 | ||||||
USAA Auto Owner Trust, Series 2006-2, Class A4, Pass Through Ctfs., 5.37%, 02/15/12 | 28,293 | 28,620 | ||||||
Series 2009-1, Class A3, Pass Through Ctfs., 3.02%, 06/17/13 | 80,000 | 81,772 | ||||||
Wachovia Bank Commercial Mortgage Trust, Series 2005-C18, Class A4, Pass Through Ctfs., 4.94%, 04/15/42 | 100,000 | 97,367 | ||||||
Series 2005-C21, Class A4, Variable Rate Pass Through Ctfs., 5.21%, 10/15/44(d) | 40,000 | 39,868 | ||||||
WaMu Mortgage Pass Through Ctfs., Series 2003-AR8, Class A, Floating Rate Pass Through Ctfs., 2.85%, 08/25/33(d) | 80,415 | 74,656 | ||||||
Wells Fargo Mortgage Backed Securities Trust, Series 2004-K, Class 1A2, Floating Rate Pass Through Ctfs., 4.46%, 07/25/34(d) | 28,229 | 27,057 | ||||||
Series 2004-Z, Class 2A1, Floating Rate Pass Through Ctfs., 3.24%, 12/25/34(d) | 84,508 | 79,423 | ||||||
Total Asset-Backed Securities (Cost $1,584,384) | 1,633,820 | |||||||
U.S. Treasury Securities–2.05% | ||||||||
U.S. Treasury Notes–1.31% | ||||||||
1.50%, 12/31/13(h) | 260,000 | 253,216 | ||||||
3.63%, 08/15/19 | 200,000 | 196,781 | ||||||
449,997 | ||||||||
U.S. Treasury Bonds–0.74% | ||||||||
5.38%, 02/15/31 | 195,000 | 215,688 | ||||||
4.50%, 08/15/39 | 40,000 | 39,138 | ||||||
254,826 | ||||||||
Total U.S. Treasury Securities (Cost $731,802) | 704,823 | |||||||
U.S. Government Sponsored Agency Securities–0.37% | ||||||||
Federal National Mortgage Association (FNMA)–0.37% | ||||||||
Unsec. Global Notes, 2.63%, 11/20/14 (Cost $129,316) | 130,000 | 128,944 | ||||||
Shares | ||||||||
Money Market Funds–4.75% | ||||||||
Liquid Assets Portfolio–Institutional Class(i) | 817,852 | 817,852 | ||||||
Premier Portfolio–Institutional Class(i) | 817,852 | 817,852 | ||||||
Total Money Market Funds (Cost $1,635,704) | 1,635,704 | |||||||
TOTAL INVESTMENTS–103.00% (Cost $33,780,626) | 35,470,343 | |||||||
OTHER ASSETS LESS LIABILITIES–(3.00)% | (1,034,375 | ) | ||||||
NET ASSETS–100.00% | $ | 34,435,968 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt | |
Ctfs. | – Certificates | |
Deb. | – Debentures | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
REIT | – Real Estate Investment Trust | |
Sec. | – Secured | |
Sr. | – Senior | |
Sub. | – Subordinated | |
TBA | – To Be Announced | |
Unsec. | – Unsecured | |
Unsub. | – Unsubordinated |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Basic Balanced Fund
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) | 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 December 31, 2009 was $866,256, which represented 2.52% of the Fund’s Net Assets. | |
(d) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on December 31, 2009. | |
(e) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The value of this security at December 31, 2009 represented 0.00% of the Fund’s Net Assets. | |
(f) | Perpetual bond with no specified maturity date. | |
(g) | Security purchased on forward commitment basis. This security is subject to dollar roll transactions. See Note 1I. | |
(h) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1L and Note 4. | |
(i) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Basic Balanced Fund
Statement of Assets and Liabilities
December 31, 2009
Assets: | ||||
Investments, at value (Cost $32,144,922) | $ | 33,834,639 | ||
Investments in affiliated money market funds, at value and cost | 1,635,704 | |||
Total investments, at value (Cost $33,780,626) | 35,470,343 | |||
Cash | 11,478 | |||
Foreign currencies, at value (Cost $29) | 29 | |||
Receivables for: | ||||
Investments sold | 553,559 | |||
Variation margin | 1,003 | |||
Dividends and interest | 81,793 | |||
Investment for trustee deferred compensation and retirement plans | 26,095 | |||
Total assets | 36,144,300 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 1,591,383 | |||
Fund shares reacquired | 9,213 | |||
Accrued fees to affiliates | 28,665 | |||
Accrued other operating expenses | 44,446 | |||
Trustee deferred compensation and retirement plans | 34,625 | |||
Total liabilities | 1,708,332 | |||
Net assets applicable to shares outstanding | $ | 34,435,968 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 52,439,410 | ||
Undistributed net investment income | 565,392 | |||
Undistributed net realized gain (loss) | (20,265,546 | ) | ||
Unrealized appreciation | 1,696,712 | |||
$ | 34,435,968 | |||
Net Assets: | ||||
Series I | $ | 31,252,709 | ||
Series II | $ | 3,183,259 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 3,594,958 | |||
Series II | 367,609 | |||
Series I: | ||||
Net asset value per share | $ | 8.69 | ||
Series II: | ||||
Net asset value per share | $ | 8.66 | ||
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Interest | $ | 512,882 | ||
Dividends (net of foreign withholding taxes of $9,942) | 398,023 | |||
Dividends from affiliated money market funds | 9,649 | |||
Total investment income | 920,554 | |||
Expenses: | ||||
Advisory fees | 233,130 | |||
Administrative services fees | 112,052 | |||
Custodian fees | 15,133 | |||
Distribution fees — Series II | 7,142 | |||
Transfer agent fees | 9,399 | |||
Trustees’ and officers’ fees and benefits | 20,730 | |||
Professional services fees | 52,765 | |||
Other | 23,578 | |||
Total expenses | 473,929 | |||
Less: Fees waived | (186,272 | ) | ||
Net expenses | 287,657 | |||
Net investment income | 632,897 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains (losses) from securities sold to affiliates of $(36,057)) | (4,973,379 | ) | ||
Foreign currencies | 1,704 | |||
Futures contracts | (25,539 | ) | ||
Swap agreements | (67,891 | ) | ||
(5,065,105 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 13,443,957 | |||
Foreign currencies | (66 | ) | ||
Futures contracts | (10,023 | ) | ||
Swap agreements | 60,365 | |||
13,494,233 | ||||
Net realized and unrealized gain | 8,429,128 | |||
Net increase in net assets resulting from operations | $ | 9,062,025 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Basic Balanced Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 632,897 | $ | 1,486,455 | ||||
Net realized gain (loss) | (5,065,105 | ) | (4,422,833 | ) | ||||
Change in net unrealized appreciation (depreciation) | 13,494,233 | (18,183,564 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 9,062,025 | (21,119,942 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (1,432,717 | ) | (1,806,595 | ) | ||||
Series II | (137,986 | ) | (174,919 | ) | ||||
Total distributions from net investment income | (1,570,703 | ) | (1,981,514 | ) | ||||
Share transactions-net: | ||||||||
Series I | (3,151,421 | ) | (10,390,808 | ) | ||||
Series II | (329,105 | ) | (377,217 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (3,480,526 | ) | (10,768,025 | ) | ||||
Net increase (decrease) in net assets | 4,010,796 | (33,869,481 | ) | |||||
Net assets: | ||||||||
Beginning of year | 30,425,172 | 64,294,653 | ||||||
End of year (includes undistributed net investment income of $565,392 and $1,524,533, respectively) | $ | 34,435,968 | $ | 30,425,172 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. Basic Balanced Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is long-term growth of capital and current income.
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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, 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 ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
AIM V.I. Basic Balanced Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds 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 adviser. | ||
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 adviser 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. |
AIM V.I. Basic Balanced Fund
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. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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, including the Fund’s servicing agreements, 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. | ||
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 — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts 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. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, |
AIM V.I. Basic Balanced Fund
realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. | ||
L. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). 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. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, 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. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. 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. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. 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, total return, index, currency exchange rate and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. | |
Interest rate, total return, 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 or return of an underlying asset, in a particular foreign currency, or in a “basket” of securities representing a particular index. | ||
A CDS is an agreement between two parties (“Counterparties”) to exchange the credit risk of an issuer. A buyer of a CDS is said to buy protection by paying a fixed payment over the life of the agreement and in some situations an upfront payment 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 eligible bonds issued by the 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 a fixed payment over the life of the agreement and an upfront payment, if applicable. 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 “par value” or the full notional value of the referenced obligation, and the Fund would receive the eligible bonds issued by the reference entity. In turn, these bonds may be sold in order to realize a recovery value. Alternatively, the seller of the CDS and its counterparty may agree to net the notional amount and the market value of the bonds and make a cash payment equal to the difference to the buyer of protection. 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. In connection with these agreements, cash and securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default under the swap agreement or bankruptcy/insolvency of a party to the swap agreement. | ||
Implied credit spreads represent the current level at which protection could be bought or sold given the terms of the existing CDS contract and serve as an indicator of the current status of the payment/performance risk of the CDS. An implied spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets. | ||
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 accrues for the fixed payment stream and amortizes upfront payments, if any, 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. The Fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the value of the contract. The risk may be mitigated by having a master netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to cover the Fund’s exposure to the counterparty. 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. Such risks involve the possibility that a swap is difficult to sell or liquidate; the counterparty does not honor its obligations under the agreement and unfavorable interest rates and market fluctuations. | ||
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. |
AIM V.I. Basic Balanced Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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 Adviser had contractually agreed to waive advisory fees to the extent necessary so that the advisory fees payable by the Fund (based on the Fund’s average daily net assets) do not exceed the annual rate of:
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% | ||
Effective January 1, 2010, through at least April 30, 2011, the Adviser 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 | .62% | ||
Next $250 million | 0 | .605% | ||
Next $500 million | 0 | .59% | ||
Next $1.5 billion | 0 | .575% | ||
Next $2.5 billion | 0 | .56% | ||
Next $2.5 billion | 0 | .545% | ||
Next $2.5 billion | 0 | .53% | ||
Over $10 billion | 0 | .515% | ||
Under the terms of a master sub-advisory agreement approved by shareholders of the Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time.
Further, the Adviser has contractually agreed, through at least June 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2009, the Adviser waived advisory fees of $186,272.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $62,052 for services provided by insurance companies.
AIM V.I. Basic Balanced 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 year ended December 31, 2009, 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 year ended December 31, 2009, 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, IAIS and/or IADI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 25,340,758 | $ | 1,354,622 | $ | — | $ | 26,695,380 | ||||||||
U.S. Treasury Debt Securities | — | 704,823 | — | 704,823 | ||||||||||||
U.S. Government Sponsored Agency Securities | — | 2,911,636 | — | 2,911,636 | ||||||||||||
Corporate Debt Securities | — | 3,524,684 | — | 3,524,684 | ||||||||||||
Asset-Backed Securities | — | 1,633,820 | — | 1,633,820 | ||||||||||||
25,340,758 | 10,129,585 | — | 35,470,343 | |||||||||||||
Other Investments* | 7,061 | 7,061 | ||||||||||||||
Total Investments | $ | 25,347,819 | $ | 10,129,585 | $ | — | $ | 35,477,404 | ||||||||
* | Other Investments includes futures, which are included at unrealized appreciation. |
NOTE 4—Derivative Investments
Effective with the beginning of the Fund’s fiscal year, the Fund has implemented new required disclosures about derivative instruments and hedging activities in accordance with GAAP. GAAP has 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. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of December 31, 2009:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Interest rate risk | ||||||||
Futures contracts(a) | $ | 19,052 | $ | (11,991 | ) | |||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets & Liabilities. |
AIM V.I. Basic Balanced Fund
Effect of Derivative Instruments for the year ended December 31, 2009
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||||||
Statement of Operations | ||||||||
Swap | ||||||||
Futures* | Agreements* | |||||||
Realized Gain (Loss) | ||||||||
Credit risk | $ | — | $ | (67,891 | ) | |||
Interest rate risk | (25,539 | ) | — | |||||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Credit risk | $ | — | $ | 60,365 | ||||
Interest rate risk | (10,023 | ) | — | |||||
Total | $ | (35,562 | ) | $ | (7,526 | ) | ||
* | The average value of futures and swap agreements outstanding during the period was $623,643 and $1,291,667, respectively. |
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Month/ | Appreciation | ||||||||||||||
Contract | Contracts | Commitment | Value | (Depreciation) | ||||||||||||
U.S. Treasury 2 Year Notes | 4 | March-2010/Long | $ | 865,063 | $ | (3,884 | ) | |||||||||
U.S. Treasury 5 Year Notes | 1 | March-2010/Long | 114,383 | (1,824 | ) | |||||||||||
U.S. Treasury Long Bonds | 1 | March-2010/Long | 115,375 | (6,283 | ) | |||||||||||
Subtotal | $ | 1,094,821 | $ | (11,991 | ) | |||||||||||
U.S. Treasury 10 Year Notes | 5 | March-2010/Short | (577,266 | ) | 19,052 | |||||||||||
Total | $ | 517,555 | $ | 7,061 | ||||||||||||
NOTE 5—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 adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2009, the Fund engaged in securities purchases of $151,114 and securities sales of $162,669, which resulted in net realized gains (losses) of $(36,057).
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $2,835 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, 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, not to exceed the contractually agreed upon rate.
AIM V.I. Basic Balanced Fund
NOTE 8—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2009 and 2008:
2009 | 2008 | |||||||
Ordinary income | $ | 1,570,703 | $ | 1,981,514 | ||||
Tax Components of Net Assets at Period-End:
2009 | ||||
Undistributed ordinary income | $ | 604,144 | ||
Net unrealized appreciation — investments | 920,447 | |||
Net unrealized appreciation (depreciation) — other investments | (65 | ) | ||
Temporary book/tax differences | (36,627 | ) | ||
Post-October deferrals | (42,950 | ) | ||
Capital loss carryforward | (19,448,391 | ) | ||
Shares of beneficial interest | 52,439,410 | |||
Total net assets | $ | 34,435,968 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2010 | $ | 10,514,572 | ||
December 31, 2016 | 3,766,236 | |||
December 31, 2017 | 5,167,583 | |||
Total capital loss carryforward | $ | 19,448,391 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2009 was $15,977,702 and $20,533,496, 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 | $ | 3,637,796 | ||
Aggregate unrealized (depreciation) of investment securities | (2,717,349 | ) | ||
Net unrealized appreciation of investment securities | $ | 920,447 | ||
Cost of investments for tax purposes is $34,549,896. |
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions, paydowns on mortgage-backed securities and swap agreements, on December 31, 2009, undistributed net investment income was decreased by $21,335, undistributed net realized gain (loss) was increased by $21,335. This reclassification had no effect on the net assets of the Fund.
AIM V.I. Basic Balanced Fund
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended December 31, | ||||||||||||||||
2009(a) | 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 349,171 | $ | 2,595,538 | 213,379 | $ | 1,989,301 | ||||||||||
Series II | 32,625 | 248,311 | 39,073 | 381,508 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 168,555 | 1,432,717 | 265,676 | 1,806,595 | ||||||||||||
Series II | 16,291 | 137,986 | 25,837 | 174,919 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (972,587 | ) | (7,179,676 | ) | (1,426,183 | ) | (14,186,704 | ) | ||||||||
Series II | (98,463 | ) | (715,402 | ) | (99,172 | ) | (933,644 | ) | ||||||||
Net increase (decrease) in share activity | (504,408 | ) | $ | (3,480,526 | ) | (981,390 | ) | $ | (10,768,025 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 82% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or advisor, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | |||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 6.81 | $ | 0.15 | $ | 2.14 | $ | 2.29 | $ | (0.41 | ) | $ | 8.69 | 33.84 | % | $ | 31,253 | 0.90 | %(d) | 1.50 | %(d) | 2.06 | %(d) | 57 | % | |||||||||||||||||||||||
Year ended 12/31/08 | 11.81 | 0.31 | (4.84 | ) | (4.53 | ) | (0.47 | ) | 6.81 | (38.32 | ) | 27,596 | 0.91 | 1.35 | 3.11 | 50 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 11.92 | 0.28 | (0.01 | ) | 0.27 | (0.38 | ) | 11.81 | 2.20 | 59,000 | 0.91 | 1.18 | 2.31 | 47 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 10.99 | 0.25 | 0.91 | 1.16 | (0.23 | ) | 11.92 | 10.55 | 84,212 | 0.91 | 1.15 | 2.16 | 44 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 10.59 | 0.18 | 0.38 | 0.56 | (0.16 | ) | 10.99 | 5.29 | 90,633 | 0.95 | 1.15 | 1.68 | 44 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 6.78 | 0.13 | 2.13 | 2.26 | (0.38 | ) | 8.66 | 33.54 | 3,183 | 1.15 | (d) | 1.75 | (d) | 1.81 | (d) | 57 | ||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 11.73 | 0.28 | (4.79 | ) | (4.51 | ) | (0.44 | ) | 6.78 | (38.46 | ) | 2,829 | 1.16 | 1.60 | 2.86 | 50 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 11.84 | 0.25 | (0.01 | ) | 0.24 | (0.35 | ) | 11.73 | 1.94 | 5,295 | 1.16 | 1.43 | 2.06 | 47 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 10.91 | 0.22 | 0.91 | 1.13 | (0.20 | ) | 11.84 | 10.36 | 5,878 | 1.16 | 1.40 | 1.91 | 44 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 10.53 | 0.15 | 0.37 | 0.52 | (0.14 | ) | 10.91 | 4.91 | 5,870 | 1.20 | 1.40 | 1.43 | 44 | |||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $28,227 and $2,857 for Series I and Series II shares, respectively. |
AIM V.I. Basic Balanced Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Basic Balanced Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. Basic Balanced Fund (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for the each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 10, 2010
Houston, Texas
AIM V.I. Basic Balanced 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 July 1, 2009 through December 31, 2009.
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 | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,223.40 | $ | 5.04 | $ | 1,020.67 | $ | 4.58 | 0.90 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,223.50 | 6.45 | 1,019.41 | 5.85 | 1.15 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. Basic Balanced Fund
Tax Information |
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2009:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 32.71% | |||
U.S. Treasury Obligations* | 1.09% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
AIM V.I. Basic Balanced Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Trustee and/ | ||||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | None | |||||
Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | ||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co- Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC | None | |||||
Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||||
Frank S. Bayley — 1939 Trustee | 2001 | Retired | None | |||||
Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | ||||||||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans Scholars Foundation and Executive Committee, United States Golf Association | |||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) | Board of Nature’s Sunshine Products, Inc. | |||||
Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | ||||||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) | Administaff | |||||
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | ||||||||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired | None | |||||
Lewis F. Pennock — 1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||||
Larry Soll — 1942 Trustee | 2004 | Retired | None | |||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired | None | |||||
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) |
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers — (continued)
Trustee and/ | ||||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC | N/A | |||||
Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | ||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® | N/A | |||||
Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | ||||||||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | N/A | |||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) | N/A | |||||
Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) | N/A | |||||
Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® | N/A | |||||
Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. | N/A | |||||
Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 100 | Invesco Advisers, Inc. | Invesco Aim Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 100 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Independent Trustees | Invesco Aim Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-2
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AIM V.I. Basic Value Fund
Annual Report to Shareholders § December 31, 2009
Annual Report to Shareholders § December 31, 2009
![(IMAGE)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6942401.jpg)
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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2009, AIM V.I. Basic Value Fund, excluding variable product issuer charges, outperformed the S&P 500 Index, the Russell 1000 Value Index and the Lipper VUF Large-Cap Value Funds Index.
Drivers of performance were largely stock specific. We attribute the Fund’s outperformance versus its indexes mainly to above-market returns from several of our investments in the financials and information technology sectors. Select investments in financials were also among the largest detractors from Fund performance during the year.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 48.00 | % | ||
Series II Shares | 47.74 | |||
S&P 500 Index6 (Broad Market Index) | 26.47 | |||
Russell 1000 Value Index6 (Style-Specific Index) | 19.69 | |||
Lipper VUF Large-Cap Value Funds Index6 (Peer Group Index) | 23.53 |
6 | Lipper Inc. |
How we invest
We seek to create wealth by maintaining a long-term investment horizon and investing in companies that are selling at a significant discount to their estimated intrinsic value. We believe intrinsic value represents the inherent business value of portfolio holdings based on our estimates of future company cash flow. Intrinsic value calculations are estimates and, as a result, market price may never reflect intrinsic value estimates, especially for an entire portfolio. Conversely, we consider selling a stock for any of the following reasons — a stock is trading significantly above our estimate of intrinsic value; a permanent, fundamental deterioration results in a reduction in estimated intrinsic value with inadequate upside potential or unexpected deterioration in financial strength; or to capitalize on a more attractive investment opportunity. The Fund’s philosophy is based on key elements that we believe have extensive empirical evidence:
n | Company intrinsic values can be reasonably estimated. Importantly, this estimated fair business value is independent of the company’s stock price. | |
n | Market prices are more volatile than business values, partly because investors regularly overreact to negative news. | |
n | Long-term investment results are a function of the level and growth of business value in the portfolio. |
Since our application of this strategy is highly disciplined and relatively unique, it is important to understand the benefits and limitations of our process. First, the investment strategy is intended to preserve your capital while growing it at above-market rates over the long term. Second, our investments have little in common with popular stock market indexes and most of our peers. And third, the Fund’s short-term relative performance will naturally be different than the stock market and peers and have little information value since we simply don’t own the same stocks.
Market conditions and your Fund
The year 2009 was truly a tale of two markets. During the first few months of the year, equity markets declined steeply as severe problems in the credit markets and a deteriorating outlook for corporate earnings led to a global recession. However, the U.S. economy began to show signs that the contraction was subsiding, and equity markets rapidly reversed direction beginning in March 2009, and rallied strongly for the rest of the year.
In this environment, sectors with the highest returns in the broad market as represented by the S&P 500 Index included more economically sensitive sectors such as information technology and consumer discretionary.1 Conversely, sectors with the lowest returns included less economically sensitive sectors such as consumer staples and health care.1
While financial-market stress has eased significantly, we believe overall equity market valuations remain attractive. Our investment results can be lumpy during periods like this, but historically these types of markets have yielded attractive opportunities for future capital growth.
ASML, the world’s leading provider of lithography systems for the semiconductor industry, was among the Fund’s top contributors during the year. Despite a difficult business environment, a recent sales rebound and improved cost trends have returned the company to profitability and improved its outlook for 2010.
The financials sector outperformed during much of 2009 as investors contemplated an eventual end, or at least an abatement, to the global credit crisis. Our investments in Morgan Stanley and XL Capital posted double- and triple-digit gains, respectively, and made significant contributions to Fund performance. Morgan Stanley’s stock rose by over 90% during the year. Investors reacted
Portfolio Composition
By sector
By sector
Information Technology | 25.7 | % | ||
Financials | 25.5 | |||
Consumer Discretionary | 17.7 | |||
Industrials | 11.5 | |||
Health Care | 8.7 | |||
Energy | 4.0 | |||
Consumer Staples | 2.7 | |||
Materials | 1.6 | |||
Money Market Funds | ||||
Plus Other Assets Less Liabilities | 2.6 |
Top 10 Equity Holdings*
1. ASML Holding N.V. | 5.3 | % | ||
2. UnitedHealth Group Inc. | 4.3 | |||
3. Moody’s Corp. | 3.7 | |||
4. XL Capital Ltd.-Class A | 3.5 | |||
5. Robert Half International, Inc. | 3.4 | |||
6. Bank of America Corp. | 3.2 | |||
7. American Express Co. | 3.2 | |||
8. Omnicom Group Inc. | 3.1 | |||
9. Dell Inc. | 2.9 | |||
10. KLA-Tencor Corp. | 2.7 | |||
Total Net Assets | $360.2 million | |||
Total Number of Holdings* | 45 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* | Excluding money market fund holdings. |
AIM V.I. Basic Value Fund
favorably to the announcement of a joint venture between the company and Citigroup in which Morgan Stanley bought Citi’s Smith Barney unit and combined it with its own global wealth management group. The new joint venture, called Morgan Stanley Smith Barney, is the industry’s leading wealth management business.
After declining significantly in 2008 due to credit-related issues, specialty insurance provider XL Capital’s stock rebounded from its early-2009 lows, gaining over 400% during the year as investor concerns abated. We continue to believe the company is undervalued despite its significant rebound.
In addition to these investments, a legal settlement the Fund received from the Tyco International class action lawsuit was a meaningful contributor to 2009 results. The legal settlement was in addition to the stock’s 65% gain during 2009.
While many financial stocks performed well, Citigroup’s stock fell by more than 45% during the year. In February, Citigroup took the dramatic step of recapitalizing the company via a preferred-for-common exchange. The action bolstered Citigroup’s capital position to among the strongest in the world, but diluted our estimate of per-share intrinsic value severely.
Our valuation analysis suggested the recent market stress produced some of the most compelling valuation opportunities in recent history. As a consequence, our turnover was higher than normal during the year as we tried to exploit those opportunities.
Context for results
The crisis environment that characterized 2008 and part of 2009 has abated since the market’s March 2009 low. This process was favorable to the Fund and shifted investor attention to the valuation opportunities created by the crisis and exploited by our investment process. We continue to believe the valuation opportunity captured by the Fund remains very attractive despite record appreciation since March 9, 2009. But a self-sustaining economic recovery is a necessary precondition to further normalization of equity values.
Since the market low in March, valuation spreads have tightened from record-wide levels and, consequently, the difference between price and our estimate of portfolio value also has declined. However, despite the sharp market increase, the Fund’s price-to-value ratio remains very attractive versus history, but substantially less than at the recent market low. Shareholders should not expect the magnitude of recent outperformance to be repeated in the next 12 months. While we think portfolio values remain compelling, the next phase of any market recovery could prove more muted.
Portfolio assessment
We believe the single most important indicator of the way the Fund is positioned for potential future success is not our historical investment results or popular statistical measures, but rather the difference between current market prices and the Fund’s estimated intrinsic value — the aggregate business value of the portfolio based on our estimate of intrinsic value for each individual holding.
At the close of the quarter, the difference between the market price and the estimated intrinsic value of the Fund remained high versus history, according to our estimation. While there is no assurance that market value will ever reflect our estimate of the Fund’s intrinsic value, we believe the large gap between price and estimated intrinsic value may cause above-average capital appreciation as capital markets normalize.
In closing
Markets experienced a strong recovery during 2009, and the Fund significantly outperformed its indexes. While we do not expect a repeat of 2009’s results in 2010, we do believe the Fund’s price-to-value ratio remains very attractive versus history.
We continue to work hard to protect and grow the Fund’s estimated intrinsic value. We thank you for your investment and for sharing our long-term investment perspective.
1 Lipper Inc.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
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Bret Stanley
Chartered Financial Analyst, senior portfolio manager, is lead manager of AIM V.I. Basic Value Fund. He began his investment career in 1988 and joined Invesco Aim in 1998. Mr. Stanley earned a B.B.A. in finance from The University of Texas at Austin and an M.S. in finance from the University of Houston.
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R. Canon Coleman II
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Basic Value Fund. He began his investment career in 1996 and joined Invesco Aim in 2000. Mr. Coleman earned a B.S. and an M.S. in accounting from the University of Florida. He also earned an M.B.A. from the Wharton School at the University of Pennsylvania.
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Matthew Seinsheimer
Chartered Financial Analyst, senior portfolio manager, is manager of AIM V.I. Basic Value Fund. He began his investment career in 1992 and joined Invesco Aim in 1998. He earned a B.B.A. in finance from Southern Methodist University and an M.B.A. from The University of Texas at Austin.
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Michael Simon
Chartered Financial Analyst, senior portfolio manager, is manager of AIM V.I. Basic Value Fund. He began his investment career in 1989 and joined Invesco Aim in 2001. Mr. Simon earned a B.B.A. in finance from Texas Christian University and an M.B.A. from the University of Chicago.
Assisted by the Basic Value Team
AIM V.I. Basic Value Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment — Oldest Share Classes since Inception
Index data from 8/31/01, Fund data from 9/10/01
Index data from 8/31/01, Fund data from 9/10/01
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1 | Lipper Inc. |
Past performance cannot guarantee comparable future results.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000.
Average Annual Total Returns
As of 12/31/09
Series I Shares | ||||
Inception (9/10/01) | 0.34 | % | ||
5 Years | -2.80 | |||
1 Year | 48.00 | |||
Series II Shares | ||||
Inception (9/10/01) | 0.11 | % | ||
5 Years | -3.02 | |||
1 Year | 47.74 |
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 adviser 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 1.03% and 1.28%, 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. Basic Value 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 the 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 adviser.
AIM V.I. Basic Value Fund
AIM V.I. Basic Value Fund’s investment objective is long-term growth of capital.
n | Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
Principal risks of investing in the Fund
The Fund may use enhanced investment techniques such as derivatives. The principal risk of derivatives is that the fluctuations in their values may not correlate perfectly with the overall securities markets. Derivatives are subject to counterparty risk — the risk that the other party will not complete the transaction with the Fund.
Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, relative lack of information, relatively low market liquidity, and the potential lack of strict financial and accounting controls and standards.
Leveraging entails risks such as magnifying changes in the value of the portfolio’s securities.
Since 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.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
The prices of securities held by the Fund may decline in response to market risks.
The Fund invests in “value” stocks, which can continue to be inexpensive for long periods of time and may never realize their full value.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Large-Cap Value Funds Index is an unmanaged index considered representative of large-cap value variable insurance underlying funds tracked by Lipper.
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 the peer group reflects fund expenses; performance of a market index does not.
Other information
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
AIM V.I. Basic Value Fund
Schedule of Investments(a)
December 31, 2009
Shares | Value | |||||||
Common Stocks & Other Equity Interests–97.42% | ||||||||
Advertising–5.38% | ||||||||
Interpublic Group of Cos., Inc. (The)(b) | 1,136,842 | $ | 8,389,894 | |||||
Omnicom Group Inc. | 280,235 | 10,971,200 | ||||||
19,361,094 | ||||||||
Asset Management & Custody Banks–1.74% | ||||||||
State Street Corp. | 143,637 | 6,253,955 | ||||||
Brewers–1.53% | ||||||||
Molson Coors Brewing Co.–Class B | 121,937 | 5,506,675 | ||||||
Casinos & Gaming–1.98% | ||||||||
International Game Technology | 379,936 | 7,131,399 | ||||||
Communications Equipment–2.34% | ||||||||
Nokia Corp.–ADR (Finland) | 654,878 | 8,415,182 | ||||||
Computer Hardware–2.94% | ||||||||
Dell Inc.(b) | 737,963 | 10,597,149 | ||||||
Construction Materials–1.59% | ||||||||
Cemex S.A.B. de C.V.–ADR (Mexico)(b) | 485,373 | 5,737,109 | ||||||
Consumer Finance–4.65% | ||||||||
American Express Co. | 284,129 | 11,512,907 | ||||||
SLM Corp.(b) | 463,847 | 5,227,556 | ||||||
16,740,463 | ||||||||
Data Processing & Outsourced Services–3.77% | ||||||||
Alliance Data Systems Corp.(b) | 135,717 | 8,765,961 | ||||||
Western Union Co. | 255,400 | 4,814,290 | ||||||
13,580,251 | ||||||||
Diversified Capital Markets–1.39% | ||||||||
UBS AG (Switzerland)(b) | 323,414 | 5,016,151 | ||||||
Education Services–0.36% | ||||||||
Apollo Group, Inc.–Class A(b) | 21,609 | 1,309,073 | ||||||
Electronic Manufacturing Services–4.59% | ||||||||
Flextronics International Ltd. (Singapore)(b) | 1,004,957 | 7,346,236 | ||||||
Tyco Electronics Ltd. (Switzerland) | 373,813 | 9,177,109 | ||||||
16,523,345 | ||||||||
General Merchandise Stores–2.52% | ||||||||
Target Corp. | 187,832 | 9,085,434 | ||||||
Home Improvement Retail–1.90% | ||||||||
Home Depot, Inc. (The) | 235,978 | 6,826,844 | ||||||
Hotels, Resorts & Cruise Lines–1.07% | ||||||||
Marriott International, Inc.–Class A | 141,147 | 3,846,256 | ||||||
Household Appliances–1.45% | ||||||||
Whirlpool Corp. | 64,729 | 5,221,041 | ||||||
Human Resource & Employment Services–3.35% | ||||||||
Robert Half International, Inc. | 451,487 | 12,068,248 | ||||||
Industrial Conglomerates–1.94% | ||||||||
Tyco International Ltd. | 196,285 | 7,003,449 | ||||||
Industrial Machinery–4.87% | ||||||||
Illinois Tool Works Inc. | 200,439 | 9,619,068 | ||||||
Ingersoll-Rand PLC (Ireland) | 221,225 | 7,906,581 | ||||||
17,525,649 | ||||||||
Investment Banking & Brokerage–2.14% | ||||||||
Morgan Stanley | 259,965 | 7,694,964 | ||||||
Life Sciences Tools & Services–1.96% | ||||||||
Waters Corp.(b) | 114,129 | 7,071,433 | ||||||
Managed Health Care–6.77% | ||||||||
Aetna Inc. | 281,638 | 8,927,924 | ||||||
UnitedHealth Group Inc. | 506,785 | 15,446,807 | ||||||
24,374,731 | ||||||||
Movies & Entertainment–1.15% | ||||||||
Walt Disney Co. (The) | 127,964 | 4,126,839 | ||||||
Oil & Gas Drilling–0.58% | ||||||||
Transocean Ltd.(b) | 25,119 | 2,079,853 | ||||||
Oil & Gas Equipment & Services–3.46% | ||||||||
Halliburton Co. | 202,090 | 6,080,888 | ||||||
Weatherford International Ltd.(b) | 355,410 | 6,365,393 | ||||||
12,446,281 | ||||||||
Other Diversified Financial Services–6.81% | ||||||||
Bank of America Corp. | 766,156 | 11,538,310 | ||||||
Citigroup Inc. | 1,013,903 | 3,356,019 | ||||||
JPMorgan Chase & Co. | 231,199 | 9,634,062 | ||||||
24,528,391 | ||||||||
Packaged Foods & Meats–1.16% | ||||||||
Unilever N.V. (Netherlands) | 128,827 | 4,195,739 | ||||||
Property & Casualty Insurance–3.48% | ||||||||
XL Capital Ltd.–Class A | 683,750 | 12,533,137 | ||||||
Regional Banks–1.60% | ||||||||
Fifth Third Bancorp | 592,404 | 5,775,939 | ||||||
Research & Consulting Services–1.30% | ||||||||
Dun & Bradstreet Corp. (The) | 55,457 | 4,678,907 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Basic Value Fund
Shares | Value | |||||||
Semiconductor Equipment–8.01% | ||||||||
ASML Holding N.V. (Netherlands) | 563,414 | $ | 19,137,255 | |||||
KLA-Tencor Corp. | 269,072 | 9,729,644 | ||||||
28,866,899 | ||||||||
Specialized Finance–3.70% | ||||||||
Moody’s Corp. | 497,878 | 13,343,130 | ||||||
Specialty Stores–1.92% | ||||||||
Staples, Inc. | 280,750 | 6,903,642 | ||||||
Systems Software–4.02% | ||||||||
CA, Inc. | 217,374 | 4,882,220 | ||||||
Microsoft Corp. | 315,040 | 9,605,570 | ||||||
14,487,790 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $319,608,514) | 350,856,442 | |||||||
Money Market Funds–3.19% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 5,754,937 | 5,754,937 | ||||||
Premier Portfolio–Institutional Class(c) | 5,754,937 | 5,754,937 | ||||||
Total Money Market Funds (Cost $11,509,874) | 11,509,874 | |||||||
TOTAL INVESTMENTS–100.61% (Cost $331,118,388) | 362,366,316 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.61)% | (2,213,069 | ) | ||||||
NET ASSETS–100.00% | $ | 360,153,247 | ||||||
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) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Basic Value Fund
Statement of Assets and Liabilities
December 31, 2009
Assets: | ||||
Investments, at value (Cost $319,608,514) | $ | 350,856,442 | ||
Investments in affiliated money market funds, at value and cost | 11,509,874 | |||
Total investments, at value (Cost $331,118,388) | 362,366,316 | |||
Receivables for: | ||||
Fund shares sold | 35,952 | |||
Dividends | 202,956 | |||
Investment for trustee deferred compensation and retirement plans | 18,830 | |||
Total assets | 362,624,054 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 1,575,219 | |||
Fund shares reacquired | 374,169 | |||
Amount due custodian | 106,286 | |||
Accrued fees to affiliates | 301,399 | |||
Accrued other operating expenses | 38,146 | |||
Trustee deferred compensation and retirement plans | 75,588 | |||
Total liabilities | 2,470,807 | |||
Net assets applicable to shares outstanding | $ | 360,153,247 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 412,789,540 | ||
Undistributed net investment income | 1,482,421 | |||
Undistributed net realized gain (loss) | (85,366,642 | ) | ||
Unrealized appreciation | 31,247,928 | |||
$ | 360,153,247 | |||
Net Assets: | ||||
Series I | $ | 226,281,592 | ||
Series II | $ | 133,871,655 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 37,811,853 | |||
Series II | 22,505,992 | |||
Series I: | ||||
Net asset value per share | $ | 5.98 | ||
Series II: | ||||
Net asset value per share | $ | 5.95 | ||
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Dividends (net of foreign withholding taxes of $138,628) | $ | 4,753,103 | ||
Dividends from affiliated money market funds (includes securities lending income of $171,900) | 227,978 | |||
Total investment income | 4,981,081 | |||
Expenses: | ||||
Advisory fees | 2,175,457 | |||
Administrative services fees | 835,778 | |||
Custodian fees | 15,058 | |||
Distribution fees — Series II | 327,562 | |||
Transfer agent fees | 32,761 | |||
Trustees’ and officers’ fees and benefits | 29,148 | |||
Other | 39,741 | |||
Total expenses | 3,455,505 | |||
Less: Fees waived | (16,169 | ) | ||
Net expenses | 3,439,336 | |||
Net investment income | 1,541,745 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains (losses) from securities sold to affiliates of $(2,099)) | (33,151,807 | ) | ||
Foreign currencies | 29,945 | |||
(33,121,862 | ) | |||
Change in net unrealized appreciation of investment securities | 158,453,793 | |||
Net realized and unrealized gain | 125,331,931 | |||
Net increase in net assets resulting from operations | $ | 126,873,676 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Basic Value Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,541,745 | $ | 4,405,070 | ||||
Net realized gain (loss) | (33,121,862 | ) | (49,252,859 | ) | ||||
Change in net unrealized appreciation (depreciation) | 158,453,793 | (280,398,576 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 126,873,676 | (325,246,365 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (3,201,037 | ) | (2,317,576 | ) | ||||
Series II | (1,368,809 | ) | (1,044,721 | ) | ||||
Total distributions from net investment income | (4,569,846 | ) | (3,362,297 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | — | (50,134,173 | ) | |||||
Series II | — | (40,634,468 | ) | |||||
Total distributions from net realized gains | — | (90,768,641 | ) | |||||
Share transactions-net: | ||||||||
Series I | (1,497,408 | ) | (7,248,339 | ) | ||||
Series II | (45,220,456 | ) | 7,590,709 | |||||
Net increase (decrease) in net assets resulting from share transactions | (46,717,864 | ) | 342,370 | |||||
Net increase (decrease) in net assets | 75,585,966 | (419,034,933 | ) | |||||
Net assets: | ||||||||
Beginning of year | 284,567,281 | 703,602,214 | ||||||
End of year (includes undistributed net investment income of $1,482,421 and $4,480,578, respectively) | $ | 360,153,247 | $ | 284,567,281 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. Basic Value Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is long-term growth of capital.
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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on 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 ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
AIM V.I. Basic Value Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, 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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
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 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 adviser. | ||
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 adviser 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. |
AIM V.I. Basic Value Fund
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. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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, including the Fund’s servicing agreements, 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. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could 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, if any. | |
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 — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts 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. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
AIM V.I. Basic Value Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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 Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended December 31, 2009, the Adviser waived advisory fees of $16,169.
At the request of the Trustees of the Trust, Invesco Ltd. Agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $82,535 for accounting and fund administrative services and reimbursed $753,243 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 year ended December 31, 2009, 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 year ended December 31, 2009, 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, IAIS and/or IADI.
AIM V.I. Basic Value Fund
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 343,229,060 | $ | 19,137,256 | $ | — | $ | 362,366,316 | ||||||||
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 adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2009, the Fund engaged in securities purchases of $194,147 and securities sales of $956,181, which resulted in net realized gains (losses) of $(2,099).
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $3,472 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, 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, not to exceed the contractually agreed upon rate.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2009 and 2008:
2009 | 2008 | |||||||
Ordinary income | $ | 4,569,846 | $ | 12,265,002 | ||||
Long-term capital gain | — | 81,865,936 | ||||||
Total distributions | $ | 4,569,846 | $ | 94,130,938 | ||||
AIM V.I. Basic Value Fund
Tax Components of Net Assets at Period-End:
2009 | ||||
Undistributed ordinary income | $ | 1,565,754 | ||
Net unrealized appreciation — investments | 20,464,257 | |||
Temporary book/tax differences | (77,030 | ) | ||
Post-October deferrals | (1,635,168 | ) | ||
Capital loss carryforward | (72,954,106 | ) | ||
Shares of beneficial interest | 412,789,540 | |||
Total net assets | $ | 360,153,247 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 40,544,207 | ||
December 31, 2017 | 32,409,899 | |||
Total capital loss carryforward | $ | 72,954,106 | ||
* | 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 year ended December 31, 2009 was $69,432,845 and $116,215,297, 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 | $ | 57,919,028 | ||
Aggregate unrealized (depreciation) of investment securities | (37,454,771 | ) | ||
Net unrealized appreciation of investment securities | $ | 20,464,257 | ||
Cost of investments for tax purposes is $341,902,059. |
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions, on December 31, 2009, undistributed net investment income was increased by $29,944 and undistributed net realized gain (loss) was decreased by $29,944. This reclassification had no effect on the net assets of the Fund.
AIM V.I. Basic Value Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended | Year ended | |||||||||||||||
December 31, 2009(a) | December 31, 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 7,249,578 | $ | 36,341,584 | 1,778,569 | $ | 13,914,876 | ||||||||||
Series II | 6,780,957 | 32,543,999 | 2,620,573 | 20,597,994 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 550,953 | 3,201,037 | 12,700,181 | 52,451,749 | ||||||||||||
Series II | 236,818 | 1,368,809 | 10,165,656 | 41,679,189 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (8,478,204 | ) | (41,040,029 | ) | (7,399,923 | ) | (73,614,964 | ) | ||||||||
Series II | (15,711,336 | ) | (79,133,264 | ) | (5,649,845 | ) | (54,686,474 | ) | ||||||||
Net increase (decrease) in share activity | (9,371,234 | ) | $ | (46,717,864 | ) | 14,215,211 | $ | 342,370 | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 65% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, 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 and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco 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.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income | unrealized) | operations | income | gains | Distributions | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 4.10 | $ | 0.03 | (c) | $ | 1.94 | $ | 1.97 | $ | (0.09 | ) | $ | — | $ | (0.09 | ) | $ | 5.98 | 48.00 | % | $ | 226,282 | 0.98 | %(d) | 0.99 | %(d) | 0.59 | %(d) | 23 | % | |||||||||||||||||||||||||
Year ended 12/31/08 | 12.73 | 0.10 | (c) | (6.68 | ) | (6.58 | ) | (0.09 | ) | (1.96 | ) | (2.05 | ) | 4.10 | (51.77 | ) | 157,693 | 1.03 | 1.03 | 0.99 | 58 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.35 | 0.07 | (c) | 0.17 | 0.24 | (0.08 | ) | (0.78 | ) | (0.86 | ) | 12.73 | 1.62 | 399,974 | 0.96 | 0.99 | 0.52 | 25 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 12.37 | 0.07 | (c) | 1.54 | 1.61 | (0.05 | ) | (0.58 | ) | (0.63 | ) | 13.35 | 13.12 | 489,352 | 0.97 | 1.02 | 0.54 | 15 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 11.84 | 0.05 | 0.63 | 0.68 | (0.01 | ) | (0.14 | ) | (0.15 | ) | 12.37 | 5.74 | 487,332 | 0.97 | 1.02 | 0.38 | 16 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 4.07 | 0.02 | (c) | 1.92 | 1.94 | (0.06 | ) | — | (0.06 | ) | 5.95 | 47.74 | 133,872 | 1.23 | (d) | 1.24 | (d) | 0.34 | (d) | 23 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 12.62 | 0.07 | (c) | (6.61 | ) | (6.54 | ) | (0.05 | ) | (1.96 | ) | (2.01 | ) | 4.07 | (51.90 | ) | 126,874 | 1.28 | 1.28 | 0.74 | 58 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.24 | 0.04 | (c) | 0.16 | 0.20 | (0.04 | ) | (0.78 | ) | (0.82 | ) | 12.62 | 1.36 | 303,628 | 1.21 | 1.24 | 0.27 | 25 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 12.26 | 0.04 | (c) | 1.54 | 1.58 | (0.02 | ) | (0.58 | ) | (0.60 | ) | 13.24 | 12.94 | 339,457 | 1.22 | 1.27 | 0.29 | 15 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 11.76 | 0.02 | 0.62 | 0.64 | 0.00 | (0.14 | ) | (0.14 | ) | 12.26 | 5.43 | 363,393 | 1.22 | 1.27 | 0.13 | 16 | ||||||||||||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $184,342 and $131,025 for Series I and Series II shares, respectively. |
AIM V.I. Basic Value Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Basic Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. Basic Value Fund (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for the each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 10, 2010
Houston, Texas
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 July 1, 2009, through December 31, 2009.
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 | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,269.50 | $ | 5.61 | $ | 1,020.27 | $ | 4.99 | 0.98 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,271.20 | 7.04 | 1,019.00 | 6.26 | 1.23 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. Basic Value Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2009:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 100.00% |
* | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
AIM V.I. Basic Value Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Trustee and/ | ||||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | None | |||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co- Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | None | |||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||||
Frank S. Bayley — 1939 Trustee | 2001 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | None | |||||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans Scholars Foundation and Executive Committee, United States Golf Association | |||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | Board of Nature’s Sunshine Products, Inc. | |||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | Administaff | |||||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired | None | |||||
Lewis F. Pennock — 1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||||
Larry Soll — 1942 Trustee | 2004 | Retired | None | |||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) | None |
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers — (continued)
Name, Year of Birth and | Trustee and/ | |||||||
Position(s) Held with the | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Trust | Since | During Past 5 Years | Held by Trustee | |||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | |||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | N/A | |||||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | N/A | |||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | |||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 100 | Invesco Advisers, Inc. | Invesco Aim Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 100 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Independent Trustees | Invesco Aim Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-2
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AIM V.I. Capital Appreciation Fund
Annual Report to Shareholders § December 31, 2009
Annual Report to Shareholders § December 31, 2009
![(IMAGE)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6942501.jpg)
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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2009, AIM V.I. Capital Appreciation Fund’s Series I shares produced double-digit positive returns but underperformed the Fund’s style-specific index, the Russell 1000 Growth Index. Much of the Fund’s underperformance was due its defensive posture as well as stock selection across sectors. The Fund’s Series I shares also underperformed the broad market, represented by the S&P 500 Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 21.08 | % | ||
Series II Shares | 20.72 | |||
S&P 500 Index6 (Broad Market Index) | 26.47 | |||
Russell 1000 Growth Index6(Style-Specific Index) | 37.21 | |||
Lipper VUF Multi-Cap Growth Funds Category Average6 (Peer Group) | 40.72 |
6 | Lipper Inc. |
How we invest
We believe a growth investment strategy is an essential component of a diversified portfolio.
Our investment process seeks to identify companies that generate sustainable revenue, earnings and cash flow growth that is not fully reflected in investor expectations or equity valuations.
We begin with a quantitative model that ranks companies based on a set of growth, quality and valuation factors. This proprietary model provides an objective approach to identifying new investment opportunities.
Our stock selection process is based on a rigorous three-step process that includes fundamental, valuation and timeliness analysis. Importantly, we search for compelling growth companies in all areas of the market, including many sectors that are not traditionally identified as growth sectors.
Our fundamental analysis focuses on identifying industries and companies with strong fundamental drivers of high-quality growth in revenues, earnings and cash flow. Our valuation analysis focuses on identifying attractively valued stocks based on their growth potential over a two- to three-year time horizon. Our timeliness analysis employs moving average analysis and other selected factors to identify the timeliness of a stock transaction.
We carefully construct the portfolio with a goal to minimize unnecessary risk. We seek to accomplish this goal by diversifying portfolio holdings across countries, sectors, industries and market capitalizations. Additionally, we avoid building concentrated position sizes and expect to hold numerous stocks in the portfolio. Our target holding period is two to three years for each stock.
We consider selling a stock when it no longer meets our investment criteria, based on:
n | Deteriorating fundamental business prospects. | |
n | Declining quantitative rank. | |
n | Negative changes to the investment thesis. | |
n | Finding a more attractive opportunity. |
Market conditions and your Fund
The year was truly a tale of two markets. During the second half of 2008 and the first two months of 2009, equity markets declined steeply as severe problems in the credit markets, a rapidly deteriorating housing market, rising energy and food prices and a deteriorating outlook for corporate earnings led to a global recession. However, the U.S. economy began to show signs that the contraction was moderating, and equity markets rapidly reversed direction beginning in March 2009, rallying strongly through most of the remaining months of the year.
In this environment, indexes measuring the performance of large-, mid- and small-cap stocks all had positive returns, with mid-caps outperforming large- and small-cap stocks.1 In terms of investment style, growth stocks generally outperformed value stocks.1 Sectors with the highest returns in the broad market as represented by the S&P 500 Index included economically sensitive sectors such as information technology (IT), materials and consumer discretionary.1
While the Fund underperformed the Russell 1000 Growth Index for the year as a whole, it held up much better during the first two months of 2009. During those two months, the Fund benefited from a very defensive posture, with significant overweights in less economically sensitive sectors such as consumer staples and health care, and sizable underweights in economically sensitive sectors such as consumer discretionary and IT. Additionally, the Fund had a larger than normal cash position because we used cash as a defensive tool.
Portfolio Composition
By sector
By sector
Information Technology | 34.5 | % | ||
Consumer Discretionary | 15.2 | |||
Health Care | 12.6 | |||
Industrials | 11.9 | |||
Financials | 6.8 | |||
Energy | 6.5 | |||
Consumer Staples | 4.8 | |||
Materials | 2.4 | |||
Telecommunication Services | 1.9 | |||
Utilities | 0.4 | |||
Money Market Funds Plus Other Assets Less Liabilities | 3.0 |
Top 10 Equity Holdings*
1. Google Inc.-Class A | 2.8 | % | ||
2. Apple Inc. | 2.4 | |||
3. Gilead Sciences, Inc. | 2.3 | |||
4. Research In Motion Ltd. | 2.2 | |||
5. QUALCOMM Inc. | 2.0 | |||
6. United Technologies Corp. | 2.0 | |||
7. KDDI Corp. | 1.9 | |||
8. Microsoft Corp. | 1.8 | |||
9. International Business Machines Corp. | 1.8 | |||
10. Check Point Software Technologies Ltd. | 1.7 | |||
Total Net Assets | $705.6 million | |||
Total Number of Holdings* | 124 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security. | ||
* | Excluding money market fund holdings. |
AIM V.I. Capital Appreciation Fund
However, the Fund began to underperform the Russell 1000 Growth Index when equity markets hit a bottom and began rallying in March. Fund underperformance was driven primarily by two factors. First, much of the Fund’s underperformance was driven by its defensive posture within and across sectors as economically sensitive stocks outperformed following the March low. Second, the Fund underperformed its style-specific index because it did not own many of the lower-quality, highly levered companies that outperformed during the market rebound. Our investment approach specifically avoids companies with these traits because over the long term they tend to perform poorly.
Over the course of the year, the Fund underperformed its style-specific index by the widest margin in the IT sector, due to both stock selection and a significant underweight position. Within this sector, the Fund did not own many of the lower quality companies that performed strongly during the stock market rally. Despite underperforming in this sector, all five of the Fund’s top contributors were IT holdings: Microsoft, Google, Research in Motion, Cognizant Technology Solutions and Apple.
Another area of weakness for the Fund during the year was the consumer staples sector. Within this sector, underperformance was driven by an overweight position and stock selection. Our overweight position detracted from Fund performance because many of these defensive stocks underperformed as investors rotated into economically sensitive stocks during the market rebound. Within this sector, consumer products maker Procter & Gamble and grocery store operator Kroger were two of the leading detractors from Fund performance. Both holdings were sold due to deteriorating fundamentals.
The Fund underperformed in several other sectors, largely driven by stock selection. Sectors in which the Fund had the greatest underperformance included financials, health care, telecommunication services, consumer discretionary and industrials. The Fund’s larger than normal cash position also was a detractor from performance when equity markets improved.
The Fund outperformed the Russell 1000 Growth Index in two sectors: utilities and materials. Outperformance in the utilities sector was due to an underweight position. Outperformance in the materials sector was driven primarily by strong stock selection.
We began to reposition the portfolio in May, moving into economically sensitive holdings that we believed would perform well in a more stable economic environment. This repositioning included a significant reduction in the defensive health care and consumer staples sectors, as well as a reduction in the Fund’s cash position. We rotated into economically sensitive sectors including IT, consumer discretionary and energy.
As we’ve discussed, the stock market experienced heavy volatility during the year covered by this report. We would like to caution investors against making investment decisions based on short-term performance. As always, we recommend that you consult a financial adviser to discuss your individual financial program.
We thank you for your commitment to AIM V.I. Capital Appreciation Fund.
1 Lipper Inc.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
![(PHOTO OF ROBERT LLOYD)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6942502.jpg)
Robert Lloyd
Chartered Financial Analyst, senior portfolio manager, is lead manager of AIM V.I. Capital Appreciation Fund. He joined Invesco Aim in 2000 and was named a portfolio manager in 2001. Mr. Lloyd earned a B.B.A. from the University of Notre Dame and an M.B.A. from the University of Chicago.
![(PHOTO OF RYAN AMERMAN)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6942503.jpg)
Ryan Amerman
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Capital Appreciation Fund. He joined Invesco Aim in 1996. Mr. Amerman earned a B.B.A. from Stephen F. Austin State University and an M.B.A. with an emphasis in finance from the University of St. Thomas.
Assisted by the Large/Multi-Cap Growth Team
AIM V.I. Capital Appreciation Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment — Oldest Share Class since Inception
Index data from 4/30/93, Fund data from 5/5/93
Index data from 4/30/93, Fund data from 5/5/93
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1 | Lipper Inc. |
Past performance cannot guarantee comparable future results.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on.
Average Annual Total Returns
As of 12/31/09
As of 12/31/09
Series I Shares | ||||
Inception (5/5/93) | 5.57 | % | ||
10 Years | -4.30 | |||
5 Years | -2.03 | |||
1 Year | 21.08 | |||
Series II Shares | ||||
10 Years | -4.54 | % | ||
5 Years | -2.28 | |||
1 Year | 20.72 |
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 adviser 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 0.92% and 1.17%, 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 adviser.
AIM V.I. Capital Appreciation Fund
AIM V.I. Capital Appreciation Fund’s investment objective is growth of capital.
n | Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. |
Principal risks of investing in the Fund
Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, relative lack of information, relatively low market liquidity, and the potential lack of strict financial and accounting controls and standards.
Since 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.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
The prices of securities held by the Fund may decline in response to market risks.
Investing in a fund that invests in smaller companies involves risks not associated with investing in more established companies, such as business risk, stock price fluctuations and illiquidity.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Russell 1000® Growth Index is an unmanaged index considered representative of large-cap growth stocks. The Russell 1000 Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
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.
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 the peer group reflects fund expenses; performance of a market index does not.
Other information
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
AIM V.I. Capital Appreciation Fund
Schedule of Investments(a)
December 31, 2009
Shares | Value | |||||||
Common Stocks & Other Equity Interests–97.01% | ||||||||
Aerospace & Defense–4.02% | ||||||||
General Dynamics Corp. | 49,368 | $ | 3,365,417 | |||||
Goodrich Corp. | 57,235 | 3,677,349 | ||||||
Honeywell International Inc. | 94,570 | 3,707,144 | ||||||
Rockwell Collins, Inc. | 66,296 | 3,670,146 | ||||||
United Technologies Corp. | 200,535 | 13,919,134 | ||||||
28,339,190 | ||||||||
Air Freight & Logistics–0.48% | ||||||||
Expeditors International of Washington, Inc. | 97,859 | 3,398,643 | ||||||
Airlines–0.76% | ||||||||
Delta Air Lines, Inc.(b) | 218,563 | 2,487,247 | ||||||
UAL Corp.(b)(c) | 223,734 | 2,888,406 | ||||||
5,375,653 | ||||||||
Apparel Retail–1.75% | ||||||||
Aeropostale, Inc.(b) | 36,217 | 1,233,189 | ||||||
American Eagle Outfitters, Inc. | 134,814 | 2,289,141 | ||||||
Gap, Inc. (The) | 293,523 | 6,149,307 | ||||||
Men’s Wearhouse, Inc. (The) | 127,299 | 2,680,917 | ||||||
12,352,554 | ||||||||
Application Software–0.43% | ||||||||
Adobe Systems Inc.(b) | 82,563 | 3,036,667 | ||||||
Asset Management & Custody Banks–0.79% | ||||||||
BlackRock, Inc. | 11,367 | 2,639,417 | ||||||
T. Rowe Price Group Inc. | 55,162 | 2,937,377 | ||||||
5,576,794 | ||||||||
Auto Parts & Equipment–1.54% | ||||||||
Autoliv, Inc. (Sweden) | 57,258 | 2,482,707 | ||||||
BorgWarner, Inc. | 42,373 | 1,407,631 | ||||||
Gentex Corp. | 98,344 | 1,755,441 | ||||||
Johnson Controls, Inc. | 192,555 | 5,245,198 | ||||||
10,890,977 | ||||||||
Automobile Manufacturers–0.66% | ||||||||
Toyota Motor Corp. (Japan) | 110,600 | 4,648,451 | ||||||
Automotive Retail–0.37% | ||||||||
AutoZone, Inc.(b) | 16,571 | 2,619,378 | ||||||
Biotechnology–3.45% | ||||||||
Amgen Inc.(b) | 144,379 | 8,167,520 | ||||||
Gilead Sciences, Inc.(b) | 373,187 | 16,151,533 | ||||||
24,319,053 | ||||||||
Shares | ||||||||
Communications Equipment–5.72% | ||||||||
Cisco Systems, Inc.(b) | 449,922 | 10,771,133 | ||||||
QUALCOMM Inc. | 306,972 | 14,200,525 | ||||||
Research In Motion Ltd. (Canada)(b) | 227,536 | 15,367,781 | ||||||
40,339,439 | ||||||||
Computer & Electronics Retail–0.31% | ||||||||
Best Buy Co., Inc. | 54,731 | 2,159,685 | ||||||
Computer Hardware–5.42% | ||||||||
Apple Inc.(b) | 78,664 | 16,587,091 | ||||||
Dell Inc.(b) | 211,446 | 3,036,365 | ||||||
Hewlett-Packard Co. | 118,673 | 6,112,846 | ||||||
International Business Machines Corp. | 95,446 | 12,493,881 | ||||||
38,230,183 | ||||||||
Computer Storage & Peripherals–0.38% | ||||||||
QLogic Corp.(b) | 97,354 | 1,837,070 | ||||||
STEC Inc.(b)(c) | 49,971 | 816,526 | ||||||
2,653,596 | ||||||||
Construction & Engineering–0.50% | ||||||||
Fluor Corp. | 78,245 | 3,524,155 | ||||||
| ||||||||
Construction, Farm Machinery & Heavy Trucks–0.31% | ||||||||
Komatsu Ltd. (Japan) | 106,200 | 2,214,773 | ||||||
Consumer Finance–0.42% | ||||||||
American Express Co. | 72,672 | 2,944,669 | ||||||
Data Processing & Outsourced Services–2.24% | ||||||||
Alliance Data Systems Corp.(b)(c) | 56,548 | 3,652,435 | ||||||
MasterCard, Inc.–Class A | 22,680 | 5,805,626 | ||||||
Visa Inc.–Class A | 72,782 | 6,365,514 | ||||||
15,823,575 | ||||||||
Department Stores–2.46% | ||||||||
J.C. Penney Co., Inc. | 295,634 | 7,866,821 | ||||||
Kohl’s Corp.(b) | 176,017 | 9,492,597 | ||||||
17,359,418 | ||||||||
Diversified Metals & Mining–2.05% | ||||||||
BHP Billiton Ltd. (Australia) | 90,452 | 3,463,787 | ||||||
Freeport-McMoRan Copper & Gold Inc. | 81,659 | 6,556,401 | ||||||
Rio Tinto PLC (United Kingdom) | 82,443 | 4,445,233 | ||||||
14,465,421 | ||||||||
Education Services–0.52% | ||||||||
Apollo Group, Inc.–Class A(b) | 60,901 | 3,689,383 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Capital Appreciation Fund
Shares | Value | |||||||
Electrical Components & Equipment–1.09% | ||||||||
Cooper Industries PLC (Ireland) | 180,753 | $ | 7,707,308 | |||||
Electronic Components–0.85% | ||||||||
Corning Inc. | 310,336 | 5,992,588 | ||||||
Electronic Manufacturing Services–1.44% | ||||||||
Flextronics International Ltd. (Singapore)(b) | 799,264 | 5,842,620 | ||||||
Tyco Electronics Ltd. (Switzerland) | 176,017 | 4,321,217 | ||||||
10,163,837 | ||||||||
Environmental & Facilities Services–0.60% | ||||||||
Waste Management, Inc. | 125,734 | 4,251,067 | ||||||
Footwear–0.59% | ||||||||
NIKE, Inc.–Class B | 62,938 | 4,158,314 | ||||||
Gas Utilities–0.39% | ||||||||
EQT Corp. | 62,933 | 2,764,017 | ||||||
General Merchandise Stores–1.22% | ||||||||
Dollar Tree, Inc.(b) | 178,940 | 8,642,802 | ||||||
Health Care Distributors–0.39% | ||||||||
McKesson Corp. | 44,209 | 2,763,063 | ||||||
Health Care Equipment–2.66% | ||||||||
Baxter International Inc. | 159,743 | 9,373,719 | ||||||
Medtronic, Inc. | 141,119 | 6,206,414 | ||||||
Varian Medical Systems, Inc.(b) | 68,359 | 3,202,619 | ||||||
18,782,752 | ||||||||
Health Care Services–2.34% | ||||||||
Express Scripts, Inc.(b) | 108,595 | 9,388,038 | ||||||
Laboratory Corp. of America Holdings(b) | 34,403 | 2,574,720 | ||||||
Medco Health Solutions, Inc.(b) | 70,687 | 4,517,606 | ||||||
16,480,364 | ||||||||
Home Improvement Retail–2.30% | ||||||||
Home Depot, Inc. (The) | 255,446 | 7,390,053 | ||||||
Lowe’s Cos., Inc. | 377,561 | 8,831,152 | ||||||
16,221,205 | ||||||||
Homefurnishing Retail–0.40% | ||||||||
Bed Bath & Beyond Inc.(b) | 72,693 | 2,808,131 | ||||||
Hotels, Resorts & Cruise Lines–0.97% | ||||||||
Carnival Corp.(b)(d) | 215,057 | 6,815,156 | ||||||
Household Products–0.53% | ||||||||
Colgate-Palmolive Co. | 45,324 | 3,723,367 | ||||||
Human Resource & Employment Services–0.32% | ||||||||
Robert Half International, Inc. | 85,445 | 2,283,945 | ||||||
Hypermarkets & Super Centers–1.97% | ||||||||
Costco Wholesale Corp. | 138,735 | 8,208,950 | ||||||
Wal-Mart Stores, Inc. | 106,096 | 5,670,831 | ||||||
13,879,781 | ||||||||
Industrial Conglomerates–0.31% | ||||||||
McDermott International, Inc.(b) | 90,477 | 2,172,353 | ||||||
Industrial Machinery–1.48% | ||||||||
Illinois Tool Works Inc. | 54,128 | 2,597,603 | ||||||
Ingersoll-Rand PLC (Ireland) | 177,559 | 6,345,958 | ||||||
Valmont Industries, Inc. | 18,813 | 1,475,880 | ||||||
10,419,441 | ||||||||
Integrated Oil & Gas–2.27% | ||||||||
Exxon Mobil Corp. | 108,500 | 7,398,615 | ||||||
Occidental Petroleum Corp. | 106,101 | 8,631,316 | ||||||
16,029,931 | ||||||||
Internet Retail–1.59% | ||||||||
Amazon.com, Inc.(b) | 56,623 | 7,616,926 | ||||||
Priceline.com Inc.(b) | 16,422 | 3,588,207 | ||||||
11,205,133 | ||||||||
Internet Software & Services–3.12% | ||||||||
Google Inc.–Class A(b) | 32,060 | 19,876,559 | ||||||
VeriSign, Inc.(b) | 88,296 | 2,140,295 | ||||||
22,016,854 | ||||||||
Investment Banking & Brokerage–2.27% | ||||||||
Charles Schwab Corp. (The) | 273,873 | 5,154,290 | ||||||
Goldman Sachs Group, Inc. (The) | 43,338 | 7,317,188 | ||||||
Jefferies Group, Inc.(b) | 148,423 | 3,522,078 | ||||||
15,993,556 | ||||||||
IT Consulting & Other Services–1.83% | ||||||||
Amdocs Ltd.(b) | 133,196 | 3,800,082 | ||||||
Cognizant Technology Solutions Corp.–Class A(b) | 201,872 | 9,144,801 | ||||||
12,944,883 | ||||||||
Life Sciences Tools & Services–0.67% | ||||||||
Thermo Fisher Scientific, Inc.(b) | 99,137 | 4,727,844 | ||||||
Managed Health Care–0.85% | ||||||||
UnitedHealth Group Inc. | 195,815 | 5,968,441 | ||||||
Oil & Gas Drilling–0.47% | ||||||||
Transocean Ltd.(b) | 40,056 | 3,316,637 | ||||||
Oil & Gas Equipment & Services–2.13% | ||||||||
Baker Hughes Inc. | 64,479 | 2,610,110 | ||||||
Cameron International Corp.(b) | 113,486 | 4,743,715 | ||||||
Halliburton Co. | 87,086 | 2,620,418 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Capital Appreciation Fund
Shares | Value | |||||||
Oil & Gas Equipment & Services–(continued) | ||||||||
Schlumberger Ltd. | 44,126 | $ | 2,872,161 | |||||
Weatherford International Ltd.(b) | 122,794 | 2,199,240 | ||||||
15,045,644 | ||||||||
Oil & Gas Exploration & Production–1.58% | ||||||||
Apache Corp. | 40,493 | 4,177,663 | ||||||
Devon Energy Corp. | 95,037 | 6,985,219 | ||||||
11,162,882 | ||||||||
Other Diversified Financial Services–0.89% | ||||||||
JPMorgan Chase & Co. | 151,199 | 6,300,462 | ||||||
Packaged Foods & Meats–0.72% | ||||||||
General Mills, Inc. | 36,166 | 2,560,914 | ||||||
Kellogg Co. | 46,803 | 2,489,920 | ||||||
5,050,834 | ||||||||
Pharmaceuticals–2.30% | ||||||||
Abbott Laboratories | 131,467 | 7,097,904 | ||||||
Johnson & Johnson | 85,347 | 5,497,200 | ||||||
Shire PLC (United Kingdom) | 184,319 | 3,603,821 | ||||||
16,198,925 | ||||||||
Property & Casualty Insurance–0.84% | ||||||||
ACE Ltd. (Switzerland)(b) | 118,193 | 5,956,927 | ||||||
Railroads–1.22% | ||||||||
Norfolk Southern Corp. | 59,970 | 3,143,628 | ||||||
Union Pacific Corp. | 85,307 | 5,451,117 | ||||||
8,594,745 | ||||||||
Restaurants–0.49% | ||||||||
Krispy Kreme Doughnuts Inc.–Wts., expiring 03/02/12(e) | 1,194 | 71 | ||||||
McDonald’s Corp. | 55,563 | 3,469,354 | ||||||
3,469,425 | ||||||||
Semiconductor Equipment–2.17% | ||||||||
Applied Materials, Inc. | 175,743 | 2,449,858 | ||||||
ASML Holding N.V. (Netherlands) | 296,814 | 10,081,761 | ||||||
KLA-Tencor Corp. | 77,290 | 2,794,806 | ||||||
15,326,425 | ||||||||
Semiconductors–5.75% | ||||||||
Altera Corp. | 288,181 | 6,521,536 | ||||||
Intel Corp. | 542,923 | 11,075,629 | ||||||
NVIDIA Corp.(b) | 178,752 | 3,339,087 | ||||||
PMC-Sierra, Inc.(b) | 175,563 | 1,520,376 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd.–ADR (Taiwan) | 715,545 | 8,185,835 | ||||||
Texas Instruments Inc. | 151,561 | 3,949,680 | ||||||
Xilinx, Inc. | 238,388 | 5,974,003 | ||||||
40,566,146 | ||||||||
Soft Drinks–1.60% | ||||||||
PepsiCo, Inc. | 186,067 | 11,312,874 | ||||||
Specialized Finance–1.59% | ||||||||
CME Group Inc. | 17,811 | 5,983,605 | ||||||
IntercontinentalExchange Inc.(b) | 46,649 | 5,238,683 | ||||||
11,222,288 | ||||||||
Steel–0.40% | ||||||||
United States Steel Corp. | 50,951 | 2,808,419 | ||||||
Systems Software–5.11% | ||||||||
Check Point Software Technologies Ltd. (Israel)(b) | 356,066 | 12,063,516 | ||||||
McAfee Inc.(b) | 275,955 | 11,195,494 | ||||||
Microsoft Corp. | 420,250 | 12,813,423 | ||||||
36,072,433 | ||||||||
Trading Companies & Distributors–0.55% | ||||||||
W.W. Grainger, Inc. | 39,840 | 3,857,707 | ||||||
Trucking–0.23% | ||||||||
Con-way Inc. | 46,965 | 1,639,548 | ||||||
Wireless Telecommunication Services–1.94% | ||||||||
KDDI Corp. (Japan) | 2,593 | 13,678,286 | ||||||
Total Common Stocks & Other Equity Interests (Cost $571,843,171) | 684,458,397 | |||||||
Money Market Funds–2.93% | ||||||||
Liquid Assets Portfolio–Institutional Class(f) | 10,337,472 | 10,337,472 | ||||||
Premier Portfolio–Institutional Class(f) | 10,337,472 | 10,337,472 | ||||||
Total Money Market Funds (Cost $20,674,944) | 20,674,944 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–99.94% (Cost $592,518,115) | 705,133,341 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–0.79% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $5,600,870)(f)(g) | 5,600,870 | 5,600,870 | ||||||
TOTAL INVESTMENTS–100.73% (Cost $598,118,985) | 710,734,211 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.73)% | (5,146,931 | ) | ||||||
NET ASSETS–100.00% | $ | 705,587,280 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Capital Appreciation Fund
Investment Abbreviations:
ADR | – American Depositary Receipt | |
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 December 31, 2009. | |
(d) | Each unit represents one common share and one trust share. | |
(e) | Non-income producing security acquired through a corporate action. | |
(f) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(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
December 31, 2009
Assets: | ||||
Investments, at value (Cost $571,843,171)* | $ | 684,458,397 | ||
Investments in affiliated money market funds, at value and cost | 26,275,814 | |||
Total investments, at value (Cost $598,118,985) | 710,734,211 | |||
Receivables for: | ||||
Investments sold | 1,997,898 | |||
Fund shares sold | 139,963 | |||
Dividends | 422,071 | |||
Investment for trustee deferred compensation and retirement plans | 121,472 | |||
Other assets | 389 | |||
Total assets | 713,416,004 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 861,309 | |||
Amount due custodian | 521,132 | |||
Collateral upon return of securities loaned | 5,600,870 | |||
Accrued fees to affiliates | 530,411 | |||
Accrued other operating expenses | 45,297 | |||
Trustee deferred compensation and retirement plans | 269,705 | |||
Total liabilities | 7,828,724 | |||
Net assets applicable to shares outstanding | $ | 705,587,280 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,019,339,851 | ||
Undistributed net investment income | 4,136,629 | |||
Undistributed net realized gain (loss) | (430,504,426 | ) | ||
Unrealized appreciation | 112,615,226 | |||
$ | 705,587,280 | |||
Net Assets: | ||||
Series I | $ | 512,540,420 | ||
Series II | $ | 193,046,860 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 25,211,105 | |||
Series II | 9,650,211 | |||
Series I: | ||||
Net asset value per share | $ | 20.33 | ||
Series II: | ||||
Net asset value per share | $ | 20.00 | ||
* | At December 31, 2009, securities with an aggregate value of $5,337,699 were on loan to brokers. |
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Dividends (net of foreign withholding taxes of $98,318) | $ | 10,959,149 | ||
Dividends from affiliated money market funds (includes securities lending income of $17,917) | 157,977 | |||
Total investment income | 11,117,126 | |||
Expenses: | ||||
Advisory fees | 4,026,479 | |||
Administrative services fees | 1,667,726 | |||
Custodian fees | 19,617 | |||
Distribution fees–Series II | 435,691 | |||
Transfer agent fees | 65,661 | |||
Trustees’ and officers’ fees and benefits | 42,174 | |||
Other | 68,440 | |||
Total expenses | 6,325,788 | |||
Less: Fees waived and expense offset arrangement(s) | (38,338 | ) | ||
Net expenses | 6,287,450 | |||
Net investment income | 4,829,676 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains (losses) from securities sold to affiliates of $(171,528)) | (94,026,800 | ) | ||
Foreign currencies | (39,694 | ) | ||
(94,066,494 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 214,318,100 | |||
Foreign currencies | (23,348 | ) | ||
214,294,752 | ||||
Net realized and unrealized gain | 120,228,258 | |||
Net increase in net assets resulting from operations | $ | 125,057,934 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Capital Appreciation Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 4,829,676 | $ | 3,196,615 | ||||
Net realized gain (loss) | (94,066,494 | ) | (106,704,909 | ) | ||||
Change in net unrealized appreciation (depreciation) | 214,294,752 | (443,131,750 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 125,057,934 | (546,640,044 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (2,958,538 | ) | — | |||||
Series II | (485,149 | ) | — | |||||
Total distributions from net investment income | (3,443,687 | ) | — | |||||
Share transactions-net: | ||||||||
Series I | (68,162,037 | ) | (183,737,135 | ) | ||||
Series II | (16,738,294 | ) | (36,720,561 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (84,900,331 | ) | (220,457,696 | ) | ||||
Net increase (decrease) in net assets | 36,713,916 | (767,097,740 | ) | |||||
Net assets: | ||||||||
Beginning of year | 668,873,364 | 1,435,971,104 | ||||||
End of year (includes undistributed net investment income of $4,136,629 and $2,790,334, respectively) | $ | 705,587,280 | $ | 668,873,364 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. Capital Appreciation Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is growth of capital.
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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on 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 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, |
AIM V.I. Capital Appreciation Fund
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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
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 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 adviser. | ||
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 adviser 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 |
AIM V.I. Capital Appreciation Fund
results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | ||
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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, including the Fund’s servicing agreements, 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. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could 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, if any. | |
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 — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts 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. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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% | ||
AIM V.I. Capital Appreciation Fund
Through December 31, 2009, the Adviser 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 Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees and/or reimburse expenses during the period under this limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended December 31, 2009, the Adviser waived advisory fees of $37,855.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $159,557 for accounting and fund administrative services and reimbursed $1,508,169 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 year ended December 31, 2009, 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 year ended December 31, 2009, 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, IAIS and/or IADI.
AIM V.I. Capital Appreciation Fund
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 672,201,920 | $ | 38,532,291 | $ | — | $ | 710,734,211 | ||||||||
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 adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2009, the Fund engaged in securities purchases of $2,988,284 and securities sales of $1,237,331, which resulted in net realized gains (losses) of $(171,528).
NOTE 5—Expense Offset Arrangement(s)
The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the year ended December 31, 2009, the Fund received credits from this arrangement, which resulted in the reduction of the Fund’s total expenses of $483.
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $4,332 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, 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, not to exceed the contractually agreed upon rate.
AIM V.I. Capital Appreciation Fund
NOTE 8—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2009 and 2008:
2009 | 2008 | |||||||
Ordinary income | $ | 3,443,687 | $ | — | ||||
Tax Components of Net Assets at Period-End:
2009 | ||||
Undistributed ordinary income | $ | 4,448,535 | ||
Net unrealized appreciation–investments | 107,336,833 | |||
Temporary book/tax differences | (278,980 | ) | ||
Post-October deferrals | (32,926 | ) | ||
Capital loss carryforward | (425,226,033 | ) | ||
Shares of beneficial interest | 1,019,339,851 | |||
Total net assets | $ | 705,587,280 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
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 $425,226,034 of capital loss carryforward in the fiscal year ending December 31, 2010.
The Fund has a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2010 | $ | 140,535,268 | ||
December 31, 2011 | 56,312,951 | |||
December 31, 2017 | 228,377,814 | |||
Total capital loss carryforward | $ | 425,226,033 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2009 was $532,037,731 and $580,161,471, 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 | $ | 121,004,403 | ||
Aggregate unrealized (depreciation) of investment securities | (13,667,570 | ) | ||
Net unrealized appreciation of investment securities | $ | 107,336,833 | ||
Cost of investments for tax purposes is $603,397,378. |
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of expired capital loss carryforward and foreign currency transactions, on December 31, 2009, undistributed net investment income was decreased by $39,694, undistributed net realized gain (loss) was increased by $8,302,172 and shares of beneficial interest decreased by $8,262,478. This reclassification had no effect on the net assets of the Fund.
AIM V.I. Capital Appreciation Fund
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended December 31, | ||||||||||||||||
2009(a) | 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,264,061 | $ | 22,171,261 | 1,708,428 | $ | 40,436,878 | ||||||||||
Series II | 874,710 | 15,048,701 | 1,300,851 | 26,652,962 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 149,045 | 2,958,538 | — | — | ||||||||||||
Series II | 24,828 | 485,149 | — | — | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (5,328,522 | ) | (93,291,836 | ) | (9,585,390 | ) | (224,174,013 | ) | ||||||||
Series II | (1,893,167 | ) | (32,272,144 | ) | (2,724,387 | ) | (63,373,523 | ) | ||||||||
Net increase (decrease) in share activity | (4,909,045 | ) | $ | (84,900,331 | ) | (9,300,498 | ) | $ | (220,457,696 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 51% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, 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 and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | (losses) on | Dividends | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||
value, | investment | securities (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | |||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | (loss) | unrealized) | operations | income | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 16.89 | $ | 0.14 | (c) | $ | 3.42 | $ | 3.56 | $ | (0.12 | ) | $ | 20.33 | 21.08 | % | $ | 512,540 | 0.90 | %(d) | 0.91 | %(d) | 0.79 | %(d) | 85 | % | ||||||||||||||||||||||
Year ended 12/31/08 | 29.37 | 0.09 | (c) | (12.57 | ) | (12.48 | ) | — | 16.89 | (42.49 | ) | 492,079 | 0.91 | 0.91 | 0.37 | 103 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 26.22 | 0.01 | 3.14 | 3.15 | — | 29.37 | 12.01 | 1,086,677 | 0.88 | 0.88 | 0.03 | 71 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 24.67 | 0.01 | 1.55 | 1.56 | (0.01 | ) | 26.22 | 6.34 | 1,204,559 | 0.91 | 0.91 | 0.06 | 120 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 22.69 | 0.03 | 1.97 | 2.00 | (0.02 | ) | 24.67 | 8.79 | 822,899 | 0.89 | 0.89 | 0.11 | 97 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 16.61 | 0.09 | (c) | 3.35 | 3.44 | (0.05 | ) | 20.00 | 20.72 | 193,047 | 1.15 | (d) | 1.16 | (d) | 0.54 | (d) | 85 | |||||||||||||||||||||||||||||||
Year ended 12/31/08 | 28.95 | 0.03 | (c) | (12.37 | ) | (12.34 | ) | — | 16.61 | (42.63 | ) | 176,794 | 1.16 | 1.16 | 0.12 | 103 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 25.91 | (0.07 | ) | 3.11 | 3.04 | — | 28.95 | 11.73 | 349,294 | 1.13 | 1.13 | (0.22 | ) | 71 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 24.43 | (0.05 | ) | 1.53 | 1.48 | — | 25.91 | 6.06 | 371,316 | 1.16 | 1.16 | (0.19 | ) | 120 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 22.50 | (0.03 | ) | 1.96 | 1.93 | — | 24.43 | 8.58 | 339,190 | 1.14 | 1.14 | (0.14 | ) | 97 | ||||||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $475,970 and $174,277 for Series I and Series II shares, respectively. |
AIM V.I. Capital Appreciation Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Capital Appreciation Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. Capital Appreciation Fund, (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
February 10, 2010
Houston, Texas
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 July 1, 2009 through December 31, 2009.
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 | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,178.70 | $ | 4.94 | $ | 1,020.67 | $ | 4.58 | 0.90 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,177.40 | 6.31 | 1,019.41 | 5.85 | 1.15 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. Capital Appreciation Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisers.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2009:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 100.00% |
* | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
AIM V.I. Capital Appreciation Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Trustee and/ | ||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||
Interested Persons | ||||||
Martin L. Flanagan1 —1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | None | |||
Philip A. Taylor2 —1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | None | |||
Independent Trustees | ||||||
Bruce L. Crockett —1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||
Bob R. Baker —1936 Trustee | 2004 | Retired | None | |||
Frank S. Bayley—1939 Trustee | 2001 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | None | |||
James T. Bunch —1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans Scholars Foundation and Executive Committee, United States Golf Association | |||
Albert R. Dowden—1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) | Board of Nature’s Sunshine Products, Inc. | |||
Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | ||||||
Jack M. Fields —1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) | Administaff | |||
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | ||||||
Carl Frischling —1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||
Prema Mathai-Davis —1950 Trustee | 1998 | Retired | None | |||
Lewis F. Pennock —1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||
Larry Soll —1942 Trustee | 2004 | Retired | None | |||
Raymond Stickel, Jr. —1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) | None |
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers — (continued)
Trustee and/ | ||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||
Other Officers | ||||||
Russell C. Burk—1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||
John M. Zerr —1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | |||
Lisa O. Brinkley —1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | N/A | |||
Kevin M. Carome —1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | N/A | |||
Sheri Morris —1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||
Karen Dunn Kelley —1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | |||
Lance A. Rejsek—1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® | N/A | |||
Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||
Todd L. Spillane —1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s
sub-advisers.
sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 100 | Invesco Advisers, Inc. | Invesco Aim Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 100 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Independent Trustees | Invesco Aim Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
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AIM V.I. Capital Development Fund
Annual Report to Shareholders n December 31, 2009
Annual Report to Shareholders n December 31, 2009
![(IMAGE)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6942601.jpg)
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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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
Management’s Discussion of Fund Performance
Performance summary
For the fiscal year ended December 31, 2009, AIM V.I. Capital Development Fund had positive double-digit returns but underperformed the Fund’s style-specific benchmark, the Russell Midcap Growth Index. Underperformance was driven primarily by stock selection in several sectors.
The Fund, excluding variable product issuer charges, outperformed the broad market as represented by the S&P 500 Index as mid-cap stocks generally outperformed large-cap stocks.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 42.37 | % | ||
Series II Shares | 41.99 | |||
S&P 500 Index6 (Broad Market Index) | 26.47 | |||
Russell Midcap Growth Index6 (Style-Specific Index) | 46.29 | |||
Lipper VUF Mid-Cap Growth Funds Index6 (Peer Group Index) | 45.97 |
6 | Lipper Inc. |
How we invest
We believe a growth investment strategy is an essential component of a diversified portfolio.
Our investment process combines fundamental and quantitative analysis to uncover companies exhibiting long-term, sustainable revenue, earnings and cash flow growth that is not yet reflected by the stock’s market price.
Our quantitative model ranks companies based on a set of fundamental, valuation and timeliness factors. This quantitative model is designed to identify stocks with the highest probability of meeting our team’s investment criteria. Stocks that are ranked highest by our quantitative model are the focus of our fundamental research efforts.
Our fundamental analysis focuses on identifying companies and industries with strong drivers of growth. To accomplish this goal, we develop a fully integrated financial model to gain a more complete understanding of the financial health of each investment candidate. Additionally, our research involves due diligence of the company, which includes a detailed analysis of the strategic plans of the company’s management team. We also analyze key competitors, customers and suppliers to assess the overall attractiveness and growth potential of the industry.
Risk management plays an important role in portfolio construction, as our target portfolio attempts to limit volatility and downside risk. We seek to accomplish this goal by investing in sectors, industries and companies with attractive fundamental prospects. We limit the Fund’s sector exposure and also seek to minimize stock-specific risk by building a diversified portfolio.
We consider selling a stock for any of the following reasons:
n | There is a change in fundamentals, market capitalization or deterioration in the timeliness profile. |
n | The price target set at purchase has been reached. | |
n | The investment thesis is no longer valid. | |
n | Insider selling indicates potential issues. |
Market conditions and your Fund
The fiscal year was truly a tale of two markets. During the second half of 2008 and the first two months of 2009, equity markets experienced steep declines as severe problems in credit markets, a rapidly deteriorating housing market, rising energy and food prices and a deteriorating outlook for corporate earnings led to a global economic recession. However, the U.S. economy began to show signs that the economic contraction was moderating, and equity markets rapidly reversed direction beginning in March 2009 and rallied strongly for most of the remaining months in the fiscal year.
In this environment, indexes measuring the performance of large-, mid- and small-cap stocks all had positive returns, with mid-cap stocks outperforming large- and small-cap stocks.1 In terms of investment style, growth stocks outperformed value stocks.1 The sectors with the highest returns in the broad market as represented by the S&P 500 Index included more economically sensitive sectors such as information technology (IT), materials and consumer discretionary.1
The Fund had double-digit absolute returns, but underperformed the Russell Midcap Growth Index during the fiscal year. The Fund underperformed by the widest margin in the utilities, health care, materials and consumer discretionary sectors. The Fund’s cash position also detracted from relative performance as equity markets rallied. Some of this underperformance was offset by outperformance in other sectors, including financials and IT.
Portfolio Composition
By sector
By sector
Information Technology | 22.8 | % | ||
Consumer Discretionary | 16.7 | |||
Industrials | 16.5 | |||
Health Care | 11.2 | |||
Energy | 10.5 | |||
Financials | 8.8 | |||
Materials | 5.7 | |||
Consumer Staples | 2.5 | |||
Utilities | 1.3 | |||
Telecommunication Services | 1.2 | |||
Money Market Funds Plus Other Assets Less Liabilities | 2.8 |
Top 10 Equity Holdings*
1. Continental Resources, Inc. | 1.9 | % | ||
2. Cognizant Technology Solutions Corp.-Class A | 1.5 | |||
3. KLA-Tencor Corp. | 1.5 | |||
4. Nordstrom, Inc. | 1.4 | |||
5. Marvell Technology Group Ltd. | 1.4 | |||
6. Solera Holdings Inc. | 1.4 | |||
7. Check Point Software Technologies Ltd. | 1.4 | |||
8. Alliance Data Systems Corp. | 1.3 | |||
9. Jarden Corp. | 1.3 | |||
10. Walter Energy, Inc. | 1.2 |
Top Five Industries*
1. Semiconductors | 5.9 | % | ||
2. Oil & Gas Exploration & Production | 4.9 | |||
3. Application Software | 3.7 | |||
4. Apparel, Accessories & Luxury Goods | 3.5 | |||
5. Oil & Gas Equipment & Services | 3.4 | |||
Total Net Assets | $176.1 million | |||
Total Number of Holdings* | 99 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* | Excluding money market fund holdings. |
AIM V.I. Capital Development Fund
The Fund underperformed most significantly in the utilities sector, driven by stock selection. Despite reasonable stock valuation, NRG Energy spent much of the year defending itself against a hostile takeover and had double-digit losses in its share price, which detracted from Fund performance during the fiscal year.
The Fund also underperformed in the health care sector. Within this sector, key detractors from performance included contract research organization holding Pharmaceutical Product Development, as well as health insurer Humana. While we sold the Fund’s position in Humana due to deteriorating fundamentals, we continued to own Pharmaceutical Product Development at the close of the reporting period.
In the materials sector, underperformance was driven by stock selection and an overweight position. One of the leading detractors from Fund performance was glass container manufacturer
Owens-Illinois.
Underperformance in the consumer discretionary sector was also driven by stock selection. Within this sector, one of the leading detractors from Fund performance was Gildan Activewear, a company that manufactures and markets blank T-shirts and golf shirts for private label use. We used proceeds from the sale of Gildan to purchase additional shares of undergarment maker Hanes-brands, which was among the Fund’s leading contributors to performance during the year. Additionally, consumer products maker Jarden was the top contributor to Fund performance during the fiscal year.
Some of this underperformance was offset by outperformance in other sectors. The Fund outperformed the Russell Midcap Growth Index by the widest margin in the financials sector. Within this sector, one area of strength for the Fund was its capital markets holdings. Many of these holdings had strong performance as economic and stock market conditions improved dramatically after the market rebound. Fund holding Morgan Stanley was a key contributor to performance. We sold this holding during the summer because the strong recovery of the shares caused the market capitalization to exceed our mid-cap mandate.
The Fund also outperformed the Russell Midcap Growth Index in the IT sector, driven by stock selection. One of the leading contributors to Fund performance was hard-disk maker Western Digital, a holding that was up more than 200% during the fiscal year. One other IT holding, IT services provider Cognizant Technology Solutions, was among the Fund’s top contributors to performance.
During the year, we increased the Fund’s exposure to more economically sensitive sectors including energy, IT and consumer discretionary. The largest reduction was in the more defensive health care sector.
As we’ve discussed, the stock market experienced significant volatility during the year. We would like to caution investors against making investment decisions based on short-term performance. As always, we recommend that you consult a financial adviser to discuss your individual financial program.
We thank you for your commitment to AIM V.I. Capital Development Fund.
1 | Lipper Inc. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
![(PHOTO OF PAUL RASPLICKA)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6942602.jpg)
Paul Rasplicka
Chartered Financial Analyst, senior portfolio manager, is lead manager of AIM V.I. Capital Development Fund. Mr. Rasplicka has been associated with the adviser and/or its affiliates since 1994. He began his investment career in 1982 as an equity research analyst. A native of Denver, Mr. Rasplicka is a magna cum laude graduate of the University of Colorado in Boulder with a B.S. in business administration. He earned an M.B.A. from the University of Chicago. He is a Chartered Investment Counselor.
![(PHOTO OF BRENT LIUM)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6942603.jpg)
Brent Lium
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Capital Development Fund. He joined Invesco in 1999 in its corporate associate program and joined Invesco Aim in 2003. Mr. Lium earned a B.B.A. from Texas A&M University and an M.B.A. from The University of Texas at Austin.
Assisted by the Mid Cap Growth Team
AIM V.I. Capital Development Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment — Oldest Share Class since Inception
Index data from 4/30/98, Fund data from 5/1/98
Index data from 4/30/98, Fund data from 5/1/98
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1 | Lipper Inc. |
Past performance cannot guarantee comparable future results.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on.
Average Annual Total Returns
As of 12/31/09
As of 12/31/09
Series I Shares | ||||
Inception (5/1/98) | 3.96 | % | ||
10 Years | 2.80 | |||
5 Years | 1.32 | |||
1 Year | 42.37 | |||
Series II Shares | ||||
10 Years | 2.55 | % | ||
5 Years | 1.06 | |||
1 Year | 41.99 |
Series II shares’ inception dates 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 1, 1998.
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 adviser 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 net 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 1.11% and 1.36%, respectively.1,2 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 1.12% and 1.37%, 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 Development 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 the 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 adviser.
1 | Total annual operating expenses less any contractual fee waivers by the adviser in effect through at least April 30, 2011. See current prospectus for more information. | |
2 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2010. See current prospectus for more information. |
AIM V.I. Capital Development Fund
AIM V.I. Capital Development Fund’s investment objective is long-term growth of capital.
n | Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
Principal risks of investing in the Fund
Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market
The Fund invests in “growth” stocks, which may be more volatile than other investment styles because growth stocks are more sensitive to investor perceptions of an issuing company’s growth potential.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
Stocks fall into three broad market capitalization categories — large, medium, and small. Investing primarily in one category carries the risk that, due to current market conditions, that category may be out of favor with investors. Small and mid-sized companies may tend to be more vulnerable to adverse developments and more volatile than larger companies. Investments in small and mid-sized companies may involve special risks, including those associated with dependence on a small management group, little of no operating history, little or no track record of success, and limited product lines, market and financial resources. Also, there may be less publicly available information about the issuers of the securities or less market interest in such securities than in the case of larger companies, each of which can cause significant price volatility. The securities of small and mid-sized companies may be illiquid, restricted as to resale, or may trade less frequently and in smaller volume than more widely held securities, which may make it difficult for fund to establish or close out a position in these securities at prevailing market prices.
The prices of securities held by the Fund may decline in response to market risks.
The Fund may engage in active and frequent trading of portfolio securities to achieve its investment objective. If a fund does trade in this way, it may incur increased costs, which can lower the actual return of the fund. Active trading may also increase short term gains and losses, which may affect taxes that must be paid.
The prices of initial public offering (IPO) securities may go up and down more than prices of equity securities of companies with longer trading histories. In addition, companies offering securities in IPOs may have less experienced management or limited operating histories. There can be no assurance that the Fund will have favorable IPO investment opportunities.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Russell Midcap® Growth Index is an unmanaged index considered representative of mid-cap growth stocks. The Russell Midcap Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Mid-Cap Growth Funds Index is an unmanaged index considered representative of mid-cap growth variable insurance underlying funds tracked by Lipper.
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 the peer group reflects fund expenses; performance of a market index does not.
Other information
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
AIM V.I. Capital Development Fund
Schedule of Investments(a)
December 31, 2009
Shares | Value | |||||||
Common Stocks & Other Equity Interests–97.19% | ||||||||
Aerospace & Defense–1.05% | ||||||||
Goodrich Corp. | 28,802 | $ | 1,850,529 | |||||
Air Freight & Logistics–0.90% | ||||||||
C.H. Robinson Worldwide, Inc. | 26,971 | 1,584,007 | ||||||
Apparel Retail–2.00% | ||||||||
American Eagle Outfitters, Inc. | 99,524 | 1,689,918 | ||||||
Ross Stores, Inc. | 42,885 | 1,831,618 | ||||||
3,521,536 | ||||||||
Apparel, Accessories & Luxury Goods–3.53% | ||||||||
Carter’s, Inc.(b) | 78,781 | 2,068,001 | ||||||
Coach, Inc. | 56,508 | 2,064,237 | ||||||
Hanesbrands, Inc.(b) | 86,686 | 2,090,000 | ||||||
6,222,238 | ||||||||
Application Software–3.68% | ||||||||
Adobe Systems Inc.(b) | 50,358 | 1,852,167 | ||||||
Autodesk, Inc.(b) | 85,389 | 2,169,735 | ||||||
Solera Holdings Inc. | 68,339 | 2,460,887 | ||||||
6,482,789 | ||||||||
Asset Management & Custody Banks–1.94% | ||||||||
Affiliated Managers Group, Inc.(b) | 32,192 | 2,168,131 | ||||||
State Street Corp. | 28,740 | 1,251,340 | ||||||
3,419,471 | ||||||||
Automotive Retail–0.42% | ||||||||
Advance Auto Parts, Inc. | 18,203 | 736,857 | ||||||
Biotechnology–2.26% | ||||||||
Talecris Biotherapeutics Holdings Corp.(b) | 83,972 | 1,870,056 | ||||||
United Therapeutics Corp.(b) | 40,115 | 2,112,055 | ||||||
3,982,111 | ||||||||
Casinos & Gaming–0.90% | ||||||||
International Game Technology | 84,319 | 1,582,668 | ||||||
Coal & Consumable Fuels–1.15% | ||||||||
CONSOL Energy Inc. | 40,573 | 2,020,535 | ||||||
Communications Equipment–0.76% | ||||||||
Brocade Communications Systems, Inc.(b) | 174,273 | 1,329,703 | ||||||
Lantronix Inc.–Wts., expiring 02/09/11(c) | 576 | 0 | ||||||
1,329,703 | ||||||||
Shares | ||||||||
Computer Storage & Peripherals–3.33% | ||||||||
NetApp, Inc.(b) | 57,585 | 1,980,348 | ||||||
QLogic Corp.(b) | 96,236 | 1,815,973 | ||||||
Western Digital Corp.(b) | 46,770 | 2,064,896 | ||||||
5,861,217 | ||||||||
Construction, Farm Machinery & Heavy Trucks–0.55% | ||||||||
Bucyrus International, Inc. | 17,049 | 961,052 | ||||||
Consumer Finance–0.50% | ||||||||
Discover Financial Services | 59,618 | 876,981 | ||||||
Data Processing & Outsourced Services–1.32% | ||||||||
Alliance Data Systems Corp.(b)(d) | 35,904 | 2,319,039 | ||||||
Department Stores–2.43% | ||||||||
Macy’s, Inc. | 103,933 | 1,741,917 | ||||||
Nordstrom, Inc. | 67,422 | 2,533,719 | ||||||
4,275,636 | ||||||||
Distributors–1.09% | ||||||||
LKQ Corp.(b) | 97,860 | 1,917,077 | ||||||
Diversified Metals & Mining–2.00% | ||||||||
Freeport-McMoRan Copper & Gold Inc. | 16,462 | 1,321,734 | ||||||
Walter Energy, Inc. | 29,197 | 2,198,826 | ||||||
3,520,560 | ||||||||
Diversified Support Services–1.16% | ||||||||
Copart, Inc.(b) | 55,916 | 2,048,203 | ||||||
Education Services–2.90% | ||||||||
Apollo Group, Inc.–Class A(b) | 27,885 | 1,689,273 | ||||||
Capella Education Co.(b) | 24,927 | 1,877,003 | ||||||
ITT Educational Services, Inc.(b) | 16,059 | 1,541,022 | ||||||
5,107,298 | ||||||||
Electrical Components & Equipment–2.15% | ||||||||
Cooper Industries PLC (Ireland) | 45,271 | 1,930,355 | ||||||
Regal-Beloit Corp. | 35,734 | 1,856,024 | ||||||
3,786,379 | ||||||||
Electronic Components–1.13% | ||||||||
Amphenol Corp.–Class A | 43,152 | 1,992,759 | ||||||
Environmental & Facilities Services–0.97% | ||||||||
Republic Services, Inc. | 60,408 | 1,710,151 | ||||||
Fertilizers & Agricultural Chemicals–1.17% | ||||||||
Intrepid Potash, Inc.(b) | 70,518 | 2,057,010 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Capital Development Fund
Shares | Value | |||||||
Health Care Equipment–2.14% | ||||||||
American Medical Systems Holdings, Inc.(b) | 104,955 | $ | 2,024,582 | |||||
NuVasive, Inc.(b) | 19,641 | 628,119 | ||||||
ResMed Inc.–CDI(b) | 210,407 | 1,120,771 | ||||||
3,773,472 | ||||||||
Health Care Facilities–1.34% | ||||||||
Psychiatric Solutions, Inc.(b) | 45,463 | 961,088 | ||||||
VCA Antech, Inc.(b) | 55,896 | 1,392,928 | ||||||
2,354,016 | ||||||||
Health Care Services–1.62% | ||||||||
Express Scripts, Inc.(b) | 19,525 | 1,687,936 | ||||||
Fresenius Medical Care AG & Co. KGaA–ADR (Germany) | 22,007 | 1,166,591 | ||||||
2,854,527 | ||||||||
Hotels, Resorts & Cruise Lines–1.06% | ||||||||
Marriott International, Inc.–Class A | 68,755 | 1,873,574 | ||||||
Household Products–1.46% | ||||||||
Church & Dwight Co., Inc. | 15,002 | 906,871 | ||||||
Energizer Holdings, Inc.(b) | 27,133 | 1,662,710 | ||||||
2,569,581 | ||||||||
Housewares & Specialties–1.32% | ||||||||
Jarden Corp. | 75,025 | 2,319,023 | ||||||
Human Resource & Employment Services–1.04% | ||||||||
Robert Half International, Inc. | 68,799 | 1,838,997 | ||||||
Independent Power Producers & Energy Traders–1.33% | ||||||||
KGEN Power Corp. (Acquired 01/12/07; Cost $2,219,196)(b)(e) | 158,514 | 951,084 | ||||||
NRG Energy, Inc.(b) | 59,064 | 1,394,501 | ||||||
2,345,585 | ||||||||
Industrial Machinery–0.45% | ||||||||
Flowserve Corp. | 8,317 | 786,206 | ||||||
Investment Banking & Brokerage–2.04% | ||||||||
Lazard Ltd.–Class A | 42,533 | 1,614,978 | ||||||
TD Ameritrade Holding Corp.(b) | 102,238 | 1,981,372 | ||||||
3,596,350 | ||||||||
IT Consulting & Other Services–1.48% | ||||||||
Cognizant Technology Solutions Corp.–Class A(b) | 57,695 | 2,613,584 | ||||||
Life & Health Insurance–2.18% | ||||||||
Aflac, Inc. | 43,536 | 2,013,540 | ||||||
Lincoln National Corp. | 73,522 | 1,829,227 | ||||||
3,842,767 | ||||||||
Shares | ||||||||
Life Sciences Tools & Services–1.65% | ||||||||
Pharmaceutical Product Development, Inc. | 50,708 | 1,188,596 | ||||||
Thermo Fisher Scientific, Inc.(b) | 35,938 | 1,713,883 | ||||||
2,902,479 | ||||||||
Managed Health Care–1.56% | ||||||||
Aetna Inc. | 56,956 | 1,805,505 | ||||||
Aveta, Inc. (Acquired 12/21/05-02/21/06; Cost $2,162,718)(b)(e) | 157,251 | 943,506 | ||||||
2,749,011 | ||||||||
Marine–0.49% | ||||||||
Genco Shipping & Trading Ltd.(b)(d) | 38,308 | 857,333 | ||||||
Metal & Glass Containers–1.01% | ||||||||
Owens-Illinois, Inc.(b) | 54,188 | 1,781,160 | ||||||
Multi-Line Insurance–1.00% | ||||||||
Genworth Financial Inc.–Class A(b) | 154,761 | 1,756,537 | ||||||
Oil & Gas Drilling–1.08% | ||||||||
Noble Corp. | 46,664 | 1,899,225 | ||||||
Oil & Gas Equipment & Services–3.38% | ||||||||
Baker Hughes Inc. | 40,209 | 1,627,660 | ||||||
Core Laboratories N.V. (Netherlands) | 12,074 | 1,426,181 | ||||||
Key Energy Services, Inc.(b) | 217,389 | 1,910,849 | ||||||
Petroleum Geo-Services A.S.A. (Norway)(b) | 87,725 | 995,160 | ||||||
5,959,850 | ||||||||
Oil & Gas Exploration & Production–4.92% | ||||||||
Cabot Oil & Gas Corp. | 42,921 | 1,870,926 | ||||||
Continental Resources, Inc.(b) | 76,864 | 3,296,697 | ||||||
SandRidge Energy, Inc.(b) | 172,639 | 1,627,986 | ||||||
Southwestern Energy Co.(b) | 38,679 | 1,864,328 | ||||||
8,659,937 | ||||||||
Personal Products–1.01% | ||||||||
Estee Lauder Cos. Inc. (The)–Class A | 36,759 | 1,777,665 | ||||||
Pharmaceuticals–0.63% | ||||||||
Shire PLC–ADR (United Kingdom) | 19,011 | 1,115,946 | ||||||
Real Estate Services–1.12% | ||||||||
CB Richard Ellis Group, Inc.–Class A(b) | 145,736 | 1,977,638 | ||||||
Research & Consulting Services–2.17% | ||||||||
Equifax Inc. | 56,021 | 1,730,489 | ||||||
IHS Inc.–Class A(b) | 38,204 | 2,093,961 | ||||||
3,824,450 | ||||||||
Security & Alarm Services–1.05% | ||||||||
Corrections Corp. of America(b) | 75,092 | 1,843,509 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Capital Development Fund
Shares | Value | |||||||
Semiconductor Equipment–2.61% | ||||||||
ASML Holding N.V.–New York Shares (Netherlands) | 59,763 | $ | 2,037,321 | |||||
KLA-Tencor Corp. | 70,597 | 2,552,787 | ||||||
4,590,108 | ||||||||
Semiconductors–5.88% | ||||||||
Altera Corp. | 96,891 | 2,192,643 | ||||||
Avago Technologies Ltd. (Singapore)(b) | 107,142 | 1,959,627 | ||||||
Marvell Technology Group Ltd.(b) | 119,080 | 2,470,910 | ||||||
ON Semiconductor Corp.(b) | 210,952 | 1,858,487 | ||||||
Xilinx, Inc. | 74,579 | 1,868,950 | ||||||
10,350,617 | ||||||||
Specialty Chemicals–0.99% | ||||||||
Albemarle Corp. | 48,002 | 1,745,833 | ||||||
Steel–0.56% | ||||||||
Steel Dynamics, Inc. | 55,745 | 987,801 | ||||||
Systems Software–2.57% | ||||||||
Check Point Software Technologies Ltd. (Israel)(b) | 71,751 | 2,430,924 | ||||||
McAfee Inc.(b) | 51,708 | 2,097,794 | ||||||
4,528,718 | ||||||||
Tires & Rubber–1.03% | ||||||||
Goodyear Tire & Rubber Co. (The)(b) | 128,749 | 1,815,361 | ||||||
Trading Companies & Distributors–2.04% | ||||||||
MSC Industrial Direct Co., Inc.–Class A | 37,957 | 1,783,979 | ||||||
W.W. Grainger, Inc. | 18,738 | 1,814,401 | ||||||
3,598,380 | ||||||||
Trucking–2.50% | ||||||||
Con-way Inc. | 43,793 | 1,528,814 | ||||||
Heartland Express, Inc. | 86,108 | 1,314,869 | ||||||
J.B. Hunt Transport Services, Inc. | 48,459 | 1,563,772 | ||||||
4,407,455 | ||||||||
Wireless Telecommunication Services–1.19% | ||||||||
American Tower Corp.–Class A(b) | 48,518 | 2,096,463 | ||||||
Total Common Stocks & Other Equity Interests (Cost $131,666,859) | 171,158,964 | |||||||
Money Market Funds–2.83% | ||||||||
Liquid Assets Portfolio–Institutional Class(f) | 2,492,651 | 2,492,651 | ||||||
Premier Portfolio–Institutional Class(f) | 2,492,651 | 2,492,651 | ||||||
Total Money Market Funds (Cost $4,985,302) | 4,985,302 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.02% (Cost $136,652,161) | 176,144,266 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–1.14% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $2,007,347)(f)(g) | 2,007,347 | 2,007,347 | ||||||
TOTAL INVESTMENTS–101.16% (Cost $138,659,508) | 178,151,613 | |||||||
OTHER ASSETS LESS LIABILITIES–(1.16)% | (2,044,890 | ) | ||||||
NET ASSETS–100.00% | $ | 176,106,723 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt | |
CDI | – Chess Depositary Instruments | |
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) | Non-income producing security acquired through a corporate action. | |
(d) | All or a portion of this security was out on loan at December 31, 2009. | |
(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 December 31, 2009 was $1,894,590, which represented 1.08% of the Fund’s Net Assets. | |
(f) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(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
December 31, 2009
Assets: | ||||
Investments, at value (Cost $131,666,859)* | $ | 171,158,964 | ||
Investments in affiliated money market funds, at value and cost | 6,992,649 | |||
Total investments, at value (Cost $138,659,508) | 178,151,613 | |||
Receivables for: | ||||
Fund shares sold | 317,798 | |||
Dividends | 84,243 | |||
Investment for trustee deferred compensation and retirement plans | 27,039 | |||
Total assets | 178,580,693 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 175,230 | |||
Amount due custodian | 39,972 | |||
Collateral upon return of securities loaned | 2,007,347 | |||
Accrued fees to affiliates | 168,677 | |||
Accrued other operating expenses | 35,447 | |||
Trustee deferred compensation and retirement plans | 47,297 | |||
Total liabilities | 2,473,970 | |||
Net assets applicable to shares outstanding | $ | 176,106,723 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 213,236,580 | ||
Undistributed net investment income (loss) | (49,367 | ) | ||
Undistributed net realized gain (loss) | (76,572,595 | ) | ||
Unrealized appreciation | 39,492,105 | |||
$ | 176,106,723 | |||
Net Assets: | ||||
Series I | $ | 81,866,013 | ||
Series II | $ | 94,240,710 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 7,249,202 | |||
Series II | 8,574,846 | |||
Series I: | ||||
Net asset value per share | $ | 11.29 | ||
Series II: | ||||
Net asset value per share | $ | 10.99 | ||
* | At December 31, 2009, securities with an aggregate value of $1,953,483 were on loan to brokers. |
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Dividends (net of foreign withholding taxes of $17,012) | $ | 1,037,943 | ||
Dividends from affiliated money market funds (includes securities lending income of $11,811) | 34,187 | |||
Total investment income | 1,072,130 | |||
Expenses: | ||||
Advisory fees | 1,170,016 | |||
Administrative services fees | 432,015 | |||
Custodian fees | 17,979 | |||
Distribution fees — Series II | 212,310 | |||
Transfer agent fees | 32,044 | |||
Trustees’ and officers’ fees and benefits | 24,628 | |||
Other | 55,195 | |||
Total expenses | 1,944,187 | |||
Less: Fees waived | (13,027 | ) | ||
Net expenses | 1,931,160 | |||
Net investment income (loss) | (859,030 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains (losses) from securities sold to affiliates of $(178,242)) | (13,260,577 | ) | ||
Foreign currencies | (1,151 | ) | ||
(13,261,728 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 69,400,504 | |||
Foreign currencies | (46 | ) | ||
69,400,458 | ||||
Net realized and unrealized gain | 56,138,730 | |||
Net increase in net assets resulting from operations | $ | 55,279,700 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Capital Development Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (859,030 | ) | $ | (1,261,640 | ) | ||
Net realized gain (loss) | (13,261,728 | ) | (60,191,471 | ) | ||||
Change in net unrealized appreciation (depreciation) | 69,400,458 | (79,981,636 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 55,279,700 | (141,434,747 | ) | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | — | (12,491,698 | ) | |||||
Series II | — | (16,383,949 | ) | |||||
Total distributions from net realized gains | — | (28,875,647 | ) | |||||
Share transactions-net: | ||||||||
Series I | (5,484,404 | ) | (13,664,818 | ) | ||||
Series II | (16,147,547 | ) | (14,156,607 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (21,631,951 | ) | (27,821,425 | ) | ||||
Net increase (decrease) in net assets | 33,647,749 | (198,131,819 | ) | |||||
Net assets: | ||||||||
Beginning of year | 142,458,974 | 340,590,793 | ||||||
End of year (includes undistributed net investment income (loss) of $(49,367) and $(51,174), respectively) | $ | 176,106,723 | $ | 142,458,974 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. Capital Development Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is long-term growth of capital.
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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on 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 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, |
AIM V.I. Capital Development Fund
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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
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 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 adviser. | ||
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 adviser 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 |
AIM V.I. Capital Development Fund
results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | ||
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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, including the Fund’s servicing agreements, 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. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could 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, if any. | |
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 — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts 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. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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% | ||
AIM V.I. Capital Development Fund
Through at least April 30, 2011, the Adviser 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 Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2009, the Adviser waived advisory fees of $13,027.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $382,015 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 year ended December 31, 2009, 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 year ended December 31, 2009, 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, IAIS and/or IADI.
AIM V.I. Capital Development Fund
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 175,261,863 | $ | 995,160 | $ | 1,894,590 | $ | 178,151,613 | ||||||||
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 adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2009, the Fund engaged in securities purchases of $742,152 and securities sales of $2,101,155, which resulted in net realized gains (losses) of $(178,242).
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $3,124 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, 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, not to exceed the contractually agreed upon rate.
AIM V.I. Capital Development Fund
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2009 and 2008:
2009 | 2008 | |||||||
Ordinary income | $ | — | $ | 3,219,994 | ||||
Long-term capital gain | — | 25,655,653 | ||||||
Total distributions | $ | — | $ | 28,875,647 | ||||
Tax Components of Net Assets at Period-End:
2009 | ||||
Net unrealized appreciation — investments | $ | 39,219,077 | ||
Temporary book/tax differences | (49,367 | ) | ||
Capital loss carryforward | (76,299,567 | ) | ||
Shares of beneficial interest | 213,236,580 | |||
Total net assets | $ | 176,106,723 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 49,840,811 | ||
December 31, 2017 | 26,458,756 | |||
Total capital loss carryforward | $ | 76,299,567 | ||
* | 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 year ended December 31, 2009 was $153,584,890 and $174,276,569, 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 | $ | 43,301,545 | ||
Aggregate unrealized (depreciation) of investment securities | (4,082,468 | ) | ||
Net unrealized appreciation of investment securities | $ | 39,219,077 | ||
Cost of investments for tax purposes is $138,932,536. |
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of net operating losses, on December 31, 2009, undistributed net investment income (loss) was increased by $860,837, undistributed net realized gain (loss) was increased by $185,026 and shares of beneficial interest decreased by $1,045,863. This reclassification had no effect on the net assets of the Fund.
AIM V.I. Capital Development Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended | Year ended | |||||||||||||||
December 31, 2009(a) | December 31, 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 2,458,503 | $ | 21,351,970 | 785,197 | $ | 11,424,370 | ||||||||||
Series II | 1,455,369 | 12,521,899 | 1,469,827 | 22,038,946 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 1,624,408 | 12,491,698 | ||||||||||||
Series II | — | — | 2,184,526 | 16,383,949 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (3,021,088 | ) | (26,836,374 | ) | (2,542,695 | ) | (37,580,886 | ) | ||||||||
Series II | (3,276,615 | ) | (28,669,446 | ) | (3,554,464 | ) | (52,579,502 | ) | ||||||||
Net increase (decrease) in share activity | (2,383,831 | ) | $ | (21,631,951 | ) | (33,201 | ) | $ | (27,821,425 | ) | ||||||
(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 adviser, 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 and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco 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.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | on securities | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||
value, | investment | (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | |||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | realized | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | (loss) | unrealized) | operations | gains | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 7.93 | $ | (0.04 | )(c) | $ | 3.40 | $ | 3.36 | $ | — | $ | 11.29 | 42.37 | % | $ | 81,866 | 1.10 | %(d) | 1.11 | %(d) | (0.41 | )%(d) | 102 | % | |||||||||||||||||||||||
Year ended 12/31/08 | 18.85 | (0.05 | )(c) | (8.88 | ) | (8.93 | ) | (1.99 | ) | 7.93 | (47.03 | ) | 61,986 | 1.10 | 1.11 | (0.38 | ) | 99 | ||||||||||||||||||||||||||||||
Year ended 12/31/07 | 18.43 | (0.10 | )(c) | 2.14 | 2.04 | (1.62 | ) | 18.85 | 10.84 | 149,776 | 1.05 | 1.06 | (0.47 | ) | 109 | |||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 16.09 | (0.07 | ) | 2.73 | 2.66 | (0.32 | ) | 18.43 | 16.52 | 148,668 | 1.08 | 1.09 | (0.48 | ) | 119 | |||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 14.68 | (0.04 | ) | 1.45 | 1.41 | — | 16.09 | 9.61 | 117,674 | 1.09 | 1.09 | (0.22 | ) | 125 | ||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 7.74 | (0.06 | )(c) | 3.31 | 3.25 | — | 10.99 | 41.99 | 94,241 | 1.35 | (d) | 1.36 | (d) | (0.66 | )(d) | 102 | ||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 18.53 | (0.09 | )(c) | (8.71 | ) | (8.80 | ) | (1.99 | ) | 7.74 | (47.13 | ) | 80,473 | 1.35 | 1.36 | (0.63 | ) | 99 | ||||||||||||||||||||||||||||||
Year ended 12/31/07 | 18.19 | (0.15 | )(c) | 2.11 | 1.96 | (1.62 | ) | 18.53 | 10.55 | 190,815 | 1.30 | 1.31 | (0.72 | ) | 109 | |||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 15.92 | (0.10 | ) | 2.69 | 2.59 | (0.32 | ) | 18.19 | 16.26 | 128,990 | 1.33 | 1.34 | (0.73 | ) | 119 | |||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 14.57 | (0.07 | ) | 1.42 | 1.35 | — | 15.92 | 9.27 | 83,388 | 1.34 | 1.34 | (0.47 | ) | 125 | ||||||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $71,078 and $84,924 for Series I and Series II shares, respectively. |
AIM V.I. Capital Development Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Capital Development Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. Capital Development Fund, (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
February 10, 2010
Houston, Texas
AIM V.I. Capital Development 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 July 1, 2009, through December 31, 2009.
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 | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,265.70 | $ | 6.28 | $ | 1,019.66 | $ | 5.60 | 1.10 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,264.70 | 7.71 | 1,018.40 | 6.87 | 1.35 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. Capital Development Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Trustee and/ | ||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||
Interested Persons | ||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | None | |||
Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | ||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co- Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | None | |||
Independent Trustees | ||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||
Frank S. Bayley — 1939 Trustee | 2001 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | None | |||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans Scholars Foundation and Executive Committee, United States Golf Association | |||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | Board of Nature’s Sunshine Products, Inc. | |||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | Administaff | |||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired | None | |||
Lewis F. Pennock — 1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||
Larry Soll — 1942 Trustee | 2004 | Retired | None | |||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) | None |
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers — (continued)
Trustee and/ | ||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||
Other Officers | ||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC | N/A | |||
Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | ||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® | N/A | |||
Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | ||||||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® | N/A | |||
Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | ||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) | N/A | |||
Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | ||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® | N/A | |||
Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 100 | Invesco Advisers, Inc. | Invesco Aim Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 100 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Independent Trustees | Invesco Aim Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-2
![(INVESCO AIM LOGO)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6942700.gif)
AIM V.I. Core Equity Fund
Annual Report to Shareholders § December 31, 2009
Annual Report to Shareholders § December 31, 2009
![(IMAGE)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6942701.gif)
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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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
Management’s Discussion of Fund Performance
Performance summary
For the 12 months ended December 31, 2009, AIM V.I. Core Equity Fund’s results, excluding variable product issuer charges, compared favorably to the broad market as measured by the S&P 500 Index, and were generally in line with those of the Fund’s style-specific benchmark, the Russell 1000 Index. The Fund’s comparative results were driven by stock selection in the energy and health care sectors. Stock selection in the information technology (IT) sector was the largest detractor relative to the Russell 1000 Index. However, IT was the largest contributor to the Fund’s absolute returns. Other contributors to the Fund’s absolute returns were holdings in the health care, energy and industrials sectors.
The Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 28.30 | % | ||
Series II Shares | 27.98 | |||
S&P 500 Index6 (Broad Market Index) | 26.47 | |||
Russell 1000 Index6 (Style-Specific Index) | 28.43 | |||
Lipper VUF Large-Cap Core Funds Index6 (Peer Group Index) | 29.06 |
6 | Lipper Inc. |
How we invest
We seek to manage your Fund as what we term a “conservative cornerstone” — a stable foundational component of a well-diversified portfolio of assets that may provide attractive upside participation during buoyant equity markets and downside protection during weak equity markets. As part of a well-diversified asset allocation strategy, the Fund is intended to complement more aggressive or cyclical investments.
We conduct thorough fundamental research of companies and their businesses to gain a deeper understanding of their prospects, growth potential and return on invested capital (ROIC) characteristics. The process we use to identify potential investments for the Fund includes three phases: financial analysis, business analysis and valuation analysis.
Portfolio Composition
By sector
By sector
Information Technology | 21.7 | % | ||
Health Care | 16.9 | |||
Financials | 12.3 | |||
Industrials | 12.3 | |||
Consumer Staples | 8.7 | |||
Energy | 8.1 | |||
Consumer Discretionary | 2.5 | |||
Telecommunication Services | 2.2 | |||
Materials | 1.2 | |||
Money Market Funds Plus Other Assets Less Liabilities | 14.1 | |||
Total Net Assets | $ | 1.5 billion | ||
Total Number of Holdings* | 67 |
Financial analysis provides insights into historical returns on invested capital, a key indicator of business quality, and historical capital allocation, a key indicator of management quality. Business analysis, which evaluates the competitive landscape and any structural or cyclical business opportunities or threats, allows us to identify key revenue, profit and return drivers of the company. Both the financial and business analyses serve as a basis to construct valuation models. In our valuation analysis, we use three primary techniques, including discounted cash flow, traditional valuation multiples and net asset value.
We consider selling a stock when it exceeds our target price, we have not seen a demonstrable improvement in fundamentals or a more compelling investment opportunity exists.
Top 10 Equity Holdings*
1. Progressive Corp. (The) | 2.8 | % | ||
2. American Express Co. | 2.7 | |||
3. Microsoft Corp. | 2.6 | |||
4. Symantec Corp. | 2.4 | |||
5. Agilent Technologies, Inc. | 2.4 | |||
6. Comcast Corp.-Class A | 2.2 | |||
7. Nokia Corp.-ADR | 2.0 | |||
8. Berkshire Hathaway Inc.-Class A | 2.0 | |||
9. Motorola, Inc. | 1.9 | |||
10. Automatic Data Processing, Inc. | 1.8 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* | Excluding money market fund holdings. |
Market conditions and your Fund
The year covered by this report was characterized by two dramatically different market environments. In early 2009, equity markets declined steeply as credit markets froze and risk premiums rose dramatically in response to the global recession. As central banks coordinated easing efforts and companies cut costs aggressively, access to liquidity improved and market valuations in both the credit and equity markets recovered from the March lows.
Major equity indexes generated positive returns for the year, and economically sensitive sectors such as the IT, consumer discretionary and materials sectors delivered the highest returns for the year, while traditionally defensive telecommunication services, consumer staples and utilities sectors had some of the lowest returns.1
The primary contributor to the Fund’s results was American Express, the world’s largest issuer of credit-cards as measured by purchase volume. The stock had previously suffered due to investor fears about credit losses following the financial crisis. The sell-off provided us an opportunity to add to our position in the company, which reported stabilization in credit card delinquencies and charge-offs by the second half of the year. The company also repurchased the preferred shares it issued to the U.S. Treasury under the government’s Troubled Asset Relief Program (TARP), which we considered a validation of the firm’s stability.
Another large contributor was industrial conglomerate Tyco International, which operates in a variety of dissimilar industries such as security solutions, fire protection and fluid valves. The market downturn provided us an opportunity to build a larger position in the stock as it traded lower. As conditions improved later in the year, the company reported good operating results due to improving margins and solid retention rates, and the stock performed well amid improving economic sentiment.
While the Fund was underexposed to financials during the financial crisis, we took the opportunity to invest in what we viewed as higher quality banks. However, some of these names — including Wells Fargo and BB&T — continued to lag the market in 2009 and negatively affected results.
AIM V.I. Core Equity Fund
Wells Fargo’s late-2008 acquisition of distressed bank Wachovia boosted both its size and scale, but also added to its exposure to troubled loans. During the year, Wells Fargo reduced its dividend, and we believed the action was prudent to preserve capital. The company is experiencing healthy deposit growth and has been able to deploy capital at favorable price spreads. We believe it is well managed with a sound deposit base, a history of conservative underwriting standards and deep customer relationships. In our view, this business model is poised to gain market share in the revamped global financial system.
Generally, we believe BB&T is a well-capitalized survivor of the credit crisis, as evidenced by the fact that it passed the federal “stress test” and repaid funds advanced under the TARP program. While credit losses for BB&T rose in 2009 (and, we believe, will likely continue to rise), we attributed the poor performance of BB&T more to the industry-wide downdraft than to company-specific factors. Nonetheless, we eliminated our position in BB&T, as we perceived better relative opportunities elsewhere in the sector.
Another detractor from results was managed care provider UnitedHealth Group. The company faced heightened uncertainty due to the controversial health care reform package being considered by Congress. Though not yet enacted, the potential legislation was viewed as unfavorable to health care providers as it could fundamentally alter the competitive landscape for health insurance in the U.S. We eliminated this position during the year.
Our cash weighting fluctuated during the year as we took advantage of market turmoil to invest in high quality companies that we believed had been unduly punished. As many of these companies rallied sharply in the second half of 2009, we used the opportunity to take profits. Thus, the Fund’s cash weighting was up to approximately 14% of total assets at the end of the year. Our cash holdings benefited the Fund during the market downturn, but muted returns during the rally.
Maintaining a conservative approach is an enduring part of our investment strategy. In the face of significant market volatility, we sought judicious long-term investments in high quality businesses that are not heavily dependent on external sources of financing. At the end of the year, our largest sector weightings were in IT and health care. Our allocation to the consumer discretionary sector remained low, as we believed it will be difficult for many of these companies to recover to pre-crisis earnings levels in the near term.
We have recently endured one of the most challenging economic periods in recent history, and while the apparent end to the recession is encouraging, we believe that a long and perhaps uneven recovery lies ahead. Indeed, much of the recent economic improvement has been due to a reduced rate of deterioration, and a number of questions remain concerning employment, consumer spending, housing and the eventual removal of fiscal and monetary stimulus. For this reason, we believe that equity markets will remain trendless and volatility is likely to continue for the foreseeable future.
Regardless of market conditions, our goal remains the same: to serve as a conservative cornerstone for investors’ portfolios, seeking to provide upside participation with downside protection, so that over a full market cycle the Fund may deliver favorable investment results with reduced risk.
1 | Lipper Inc. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
![(PHOTO OF RONALD SLOAN)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6942702.jpg)
Ronald Sloan
Chartered Financial Analyst, senior portfolio manager, is lead manager of AIM V.I. Core Equity Fund. Mr. Sloan has worked in the investment industry since 1971 and joined Invesco Aim in 1998. Mr. Sloan attended the University of Missouri, where he earned both a B.S. in business administration and an M.B.A.
![(PHOTO OF TYLER DANN II)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6942703.jpg)
Tyler Dann II
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Core Equity Fund. Mr. Dann joined Invesco Aim in 2004. He serves on the board of directors of the National Association of Petroleum Investment Analysts and is a member of the CFA Society of San Francisco. He earned an A.B. from Princeton University.
![(PHOTO OF BRIAN NELSON)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6942704.jpg)
Brian Nelson
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Core Equity Fund. He began his investment career in 1988 and joined Invesco Aim in 2004. He earned a B.A. from the University of California-Santa Barbara and is a member of the CFA Society of San Francisco.
Assisted by the Mid/Large Cap Core Team
Assisted by the Mid/Large Cap Core Team
AIM V.I. Core Equity Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment — Oldest Share Class since Inception
Index data from 4/30/94, Fund data from 5/2/94
Index data from 4/30/94, Fund data from 5/2/94
![(LINE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6942705.gif)
Past performance cannot guarantee comparable future results.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on.
Average Annual Total Returns
As of 12/31/09
As of 12/31/09
Series I Shares | ||||
Inception (5/2/94) | 7.51 | % | ||
10 Years | –1.06 | |||
5 Years | 3.56 | |||
1 Year | 28.30 | |||
Series II Shares | ||||
10 Years | –1.30 | % | ||
5 Years | 3.31 | |||
1 Year | 27.98 |
Series II shares’ inception date is October 24, 2001. Returns since that date are historical. All other returns are the blended returns of the historical performance of the fund’s Series II shares since their inception and the restated historical performance of Series I shares (for periods prior to inception of the Series II shares) adjusted to reflect the Rule 12b-1 fees applicable to the Series II shares. The inception date of Series I shares is May 2, 1994. 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 adviser 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 net 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 0.90% and 1.15%, respectively.1 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 0.91% and 1.16%, 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. Core Equity 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 adviser.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2010. See current prospectus for more information. |
AIM V.I. Core Equity Fund
AIM V.I. Core Equity Fund’s investment objective is growth of capital.
§ Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets.
§ Unless otherwise noted, all data provided by Invesco.
§ Unless otherwise noted, all data provided by Invesco.
Principal risks of investing in the Fund
To the extent the Fund holds cash or cash equivalents rather than equity securities for risk management purposes, the Fund may not achieve its investment objective.
Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, relative lack of information, relatively low market liquidity, and the potential lack of strict financial and accounting controls and standards.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
The prices of securities held by the Fund may decline in response to market risks.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Russell 1000® Index is an unmanaged index considered representative of large-cap stocks. The Russell 1000 Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Large-Cap Core Funds Index is an unmanaged index considered representative of large-cap core variable insurance underlying funds tracked by Lipper.
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 the peer group reflects fund expenses; performance of a market index does not.
Other information
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
AIM V.I. Core Equity Fund
Schedule of Investments(a)
December 31, 2009
Shares | Value | |||||||
| ||||||||
Common Stocks & Other Equity Interests–85.83% | ||||||||
Aerospace & Defense–3.51% | ||||||||
Lockheed Martin Corp. | 115,688 | $ | 8,717,091 | |||||
Northrop Grumman Corp. | 369,857 | 20,656,513 | ||||||
United Technologies Corp. | 331,399 | 23,002,405 | ||||||
52,376,009 | ||||||||
Air Freight & Logistics–0.93% | ||||||||
United Parcel Service, Inc.–Class B | 242,647 | 13,920,658 | ||||||
Asset Management & Custody Banks–1.41% | ||||||||
Legg Mason, Inc. | 696,330 | 21,001,313 | ||||||
Biotechnology–1.87% | ||||||||
Amgen Inc.(b) | 38,635 | 2,185,582 | ||||||
Genzyme Corp.(b) | 315,091 | 15,442,610 | ||||||
Gilead Sciences, Inc.(b) | 236,742 | 10,246,194 | ||||||
27,874,386 | ||||||||
Cable & Satellite–2.23% | ||||||||
Comcast Corp.–Class A | 1,973,196 | 33,268,085 | ||||||
Communications Equipment–5.49% | ||||||||
Cisco Systems, Inc.(b) | 979,082 | 23,439,223 | ||||||
Motorola, Inc.(b) | 3,649,910 | 28,323,302 | ||||||
Nokia Corp.–ADR (Finland) | 2,343,261 | 30,110,904 | ||||||
81,873,429 | ||||||||
Computer Hardware–1.14% | ||||||||
Fujitsu Ltd. (Japan) | 2,637,000 | 16,963,984 | ||||||
Computer Storage & Peripherals–1.15% | ||||||||
EMC Corp.(b) | 985,134 | 17,210,291 | ||||||
Consumer Finance–2.65% | ||||||||
American Express Co. | 975,361 | 39,521,628 | ||||||
Data Processing & Outsourced Services–1.79% | ||||||||
Automatic Data Processing, Inc. | 623,348 | 26,691,761 | ||||||
Diversified Banks–1.72% | ||||||||
U.S. Bancorp | 594,972 | 13,392,820 | ||||||
Wells Fargo & Co. | 451,085 | 12,174,784 | ||||||
25,567,604 | ||||||||
Drug Retail–3.22% | ||||||||
CVS Caremark Corp. | 784,285 | 25,261,820 | ||||||
Walgreen Co. | 618,259 | 22,702,470 | ||||||
47,964,290 | ||||||||
Education Services–0.33% | ||||||||
Apollo Group, Inc.–Class A(b) | 80,000 | 4,846,400 | ||||||
Electronic Equipment & Instruments–2.36% | ||||||||
Agilent Technologies, Inc.(b) | 1,131,790 | 35,164,715 | ||||||
Electronic Manufacturing Services–1.35% | ||||||||
Tyco Electronics Ltd. (Switzerland) | 818,818 | 20,101,982 | ||||||
Environmental & Facilities Services–1.42% | ||||||||
Waste Management, Inc. | 626,335 | 21,176,386 | ||||||
Food Retail–1.52% | ||||||||
Kroger Co. (The) | 1,105,770 | 22,701,458 | ||||||
Health Care Equipment–4.46% | ||||||||
Baxter International Inc. | 182,134 | 10,687,623 | ||||||
Boston Scientific Corp.(b) | 1,701,227 | 15,311,043 | ||||||
Covidien PLC (Ireland) | 467,079 | 22,368,413 | ||||||
Medtronic, Inc. | 411,431 | 18,094,736 | ||||||
66,461,815 | ||||||||
Health Care Supplies–1.42% | ||||||||
Alcon, Inc. | 129,215 | 21,236,485 | ||||||
Hypermarkets & Super Centers–1.47% | ||||||||
Wal-Mart Stores, Inc. | 409,683 | 21,897,556 | ||||||
Industrial Conglomerates–4.40% | ||||||||
3M Co. | 322,422 | 26,654,627 | ||||||
Koninklijke (Royal) Philips Electronics N.V. (Netherlands) | 659,562 | 19,526,586 | ||||||
Tyco International Ltd. | 544,294 | 19,420,410 | ||||||
65,601,623 | ||||||||
Industrial Gases–1.20% | ||||||||
Air Products & Common Chemicals, Inc. | 220,271 | 17,855,167 | ||||||
Industrial Machinery–1.18% | ||||||||
Danaher Corp. | 234,045 | 17,600,184 | ||||||
Insurance Brokers–0.74% | ||||||||
Marsh & McLennan Cos., Inc. | 498,428 | 11,005,290 | ||||||
Integrated Telecommunication Services–0.76% | ||||||||
AT&T Inc. | 401,272 | 11,247,654 | ||||||
Life Sciences Tools & Services–1.40% | ||||||||
Thermo Fisher Scientific, Inc.(b) | 438,771 | 20,924,989 | ||||||
Managed Health Care–1.36% | ||||||||
WellPoint Inc.(b) | 347,600 | 20,261,604 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Core Equity Fund
Shares | Value | |||||||
Office Electronics–0.86% | ||||||||
Xerox Corp. | 1,518,840 | $ | 12,849,386 | |||||
Oil & Gas Equipment & Services–2.39% | ||||||||
Baker Hughes Inc. | 125,447 | 5,078,095 | ||||||
BJ Services Co. | 1,086,843 | 20,215,280 | ||||||
Tenaris S.A.–ADR (Argentina) | 241,927 | 10,318,186 | ||||||
35,611,561 | ||||||||
Oil & Gas Exploration & Production–4.45% | ||||||||
Apache Corp. | 182,018 | 18,778,797 | ||||||
Chesapeake Energy Corp. | 326,931 | 8,460,974 | ||||||
EOG Resources, Inc. | 200,833 | 19,541,051 | ||||||
XTO Energy, Inc. | 421,858 | 19,629,053 | ||||||
66,409,875 | ||||||||
Oil & Gas Refining & Marketing–0.31% | ||||||||
Valero Energy Corp. | 275,000 | 4,606,250 | ||||||
Oil & Gas Storage & Transportation–0.94% | ||||||||
Williams Cos., Inc. (The) | 666,149 | 14,042,421 | ||||||
Packaged Foods & Meats–1.35% | ||||||||
Cadbury PLC (United Kingdom) | 1,567,619 | 20,180,860 | ||||||
Personal Products–1.01% | ||||||||
Avon Products, Inc. | 479,130 | 15,092,595 | ||||||
Pharmaceuticals–6.35% | ||||||||
Allergan, Inc. | 380,114 | 23,950,983 | ||||||
Johnson & Johnson | 194,981 | 12,558,726 | ||||||
Pfizer Inc. | 684,528 | 12,451,565 | ||||||
Roche Holding AG (Switzerland) | 138,074 | 23,465,257 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 395,596 | 22,224,583 | ||||||
94,651,114 | ||||||||
Property & Casualty Insurance–4.80% | ||||||||
Berkshire Hathaway Inc.–Class A(b) | 297 | 29,462,400 | ||||||
Progressive Corp. (The)(b) | 2,339,655 | 42,090,394 | ||||||
71,552,794 | ||||||||
Railroads–0.89% | ||||||||
Union Pacific Corp. | 207,130 | 13,235,607 | ||||||
Regional Banks–0.96% | ||||||||
PNC Financial Services Group, Inc. | 272,188 | 14,368,805 | ||||||
Semiconductors–2.54% | ||||||||
Intel Corp. | 942,791 | 19,232,936 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan) | 9,297,823 | 18,650,852 | ||||||
37,883,788 | ||||||||
Systems Software–5.01% | ||||||||
Microsoft Corp. | 1,270,621 | 38,741,234 | ||||||
Symantec Corp.(b) | 2,012,299 | 36,000,029 | ||||||
74,741,263 | ||||||||
Wireless Telecommunication Services–1.49% | ||||||||
Vodafone Group PLC (United Kingdom) | 9,589,366 | 22,215,369 | ||||||
Total Common Stocks & Other Equity Interests (Cost $1,182,702,819) | 1,279,758,434 | |||||||
Preferred Stocks–0.11% | ||||||||
Household Products–0.11% | ||||||||
Henkel AG & Co. KGaA (Germany)–Pfd. (Cost $1,785,965) | 33,359 | 1,734,390 | ||||||
Money Market Funds–13.41% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 99,964,153 | 99,964,153 | ||||||
Premier Portfolio–Institutional Class(c) | 99,964,153 | 99,964,153 | ||||||
Total Money Market Funds (Cost $199,928,306) | 199,928,306 | |||||||
TOTAL INVESTMENTS–99.35% (Cost $1,384,417,090) | 1,481,421,130 | |||||||
OTHER ASSETS LESS LIABILITIES–0.65% | 9,676,539 | |||||||
NET ASSETS–100.00% | $ | 1,491,097,669 | ||||||
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) | Non-income producing security. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Core Equity Fund
Statement of Assets and Liabilities
December 31, 2009
Assets: | ||||
Investments, at value (Cost $1,184,488,784) | $ | 1,281,492,824 | ||
Investments in affiliated money market funds, at value and cost | 199,928,306 | |||
Total investments, at value (Cost $1,384,417,090) | 1,481,421,130 | |||
Foreign currencies, at value (Cost $3,369,002) | 3,441,962 | |||
Receivables for: | ||||
Investments sold | 3,263,453 | |||
Fund shares sold | 3,737,380 | |||
Dividends | 1,357,593 | |||
Foreign currency contracts outstanding | 679,271 | |||
Investment for trustee deferred compensation and retirement plans | 120,746 | |||
Other assets | 191 | |||
Total assets | 1,494,021,726 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 1,498,150 | |||
Amount due custodian | 8,084 | |||
Accrued fees to affiliates | 924,945 | |||
Accrued other operating expenses | 96,859 | |||
Trustee deferred compensation and retirement plans | 396,019 | |||
Total liabilities | 2,924,057 | |||
Net assets applicable to shares outstanding | $ | 1,491,097,669 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,756,417,663 | ||
Undistributed net investment income | 12,774,531 | |||
Undistributed net realized gain (loss) | (375,833,460 | ) | ||
Unrealized appreciation | 97,738,935 | |||
$ | 1,491,097,669 | |||
Net Assets: | ||||
Series I | $ | 1,456,822,232 | ||
Series II | $ | 34,275,437 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 58,465,826 | |||
Series II | 1,385,135 | |||
Series I: | ||||
Net asset value per share | $ | 24.92 | ||
Series II: | ||||
Net asset value per share | $ | 24.75 | ||
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Dividends (net of foreign withholding taxes of $820,196) | $ | 23,300,710 | ||
Dividends from affiliated money market funds (includes securities lending income of $63,888) | 840,834 | |||
Interest | 858,994 | |||
Total investment income | 25,000,538 | |||
Expenses: | ||||
Advisory fees | 8,255,366 | |||
Administrative services fees | 3,553,642 | |||
Custodian fees | 126,845 | |||
Distribution fees–Series II | 66,351 | |||
Transfer agent fees | 77,300 | |||
Trustees’ and officers’ fees and benefits | 65,963 | |||
Other | 113,058 | |||
Total expenses | 12,258,525 | |||
Less: Fees waived | (242,120 | ) | ||
Net expenses | 12,016,405 | |||
Net investment income | 12,984,133 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains (losses) from securities sold to affiliates of $(92,309)) | (114,458,507 | ) | ||
Foreign currencies | 216,781 | |||
Foreign currency contracts | (4,620,057 | ) | ||
(118,861,783 | ) | |||
Change in net unrealized appreciation of: | ||||
Investment securities | 442,389,822 | |||
Foreign currencies | 40,807 | |||
Foreign currency contracts | 3,449,722 | |||
445,880,351 | ||||
Net realized and unrealized gain | 327,018,568 | |||
Net increase in net assets resulting from operations | $ | 340,002,701 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Core Equity Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 12,984,133 | $ | 23,768,262 | ||||
Net realized gain (loss) | (118,861,783 | ) | (18,360,869 | ) | ||||
Change in net unrealized appreciation (depreciation) | 445,880,351 | (629,967,536 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 340,002,701 | (624,560,143 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (23,923,292 | ) | (37,970,942 | ) | ||||
Series II | (459,176 | ) | (580,118 | ) | ||||
Total distributions from net investment income | (24,382,468 | ) | (38,551,060 | ) | ||||
Share transactions-net: | ||||||||
Series I | (182,712,672 | ) | (315,589,332 | ) | ||||
Series II | 4,143,838 | (32,094 | ) | |||||
Net increase (decrease) in net assets resulting from share transactions | (178,568,834 | ) | (315,621,426 | ) | ||||
Net increase (decrease) in net assets | 137,051,399 | (978,732,629 | ) | |||||
Net assets: | ||||||||
Beginning of year | 1,354,046,270 | 2,332,778,899 | ||||||
End of year (includes undistributed net investment income of $12,774,531 and $23,956,084, respectively) | $ | 1,491,097,669 | $ | 1,354,046,270 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. Core Equity Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is growth of capital.
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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on 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 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, |
AIM V.I. Core Equity Fund
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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
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 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 adviser. | ||
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 adviser 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 |
AIM V.I. Core Equity Fund
results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | ||
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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, including the Fund’s servicing agreements, 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. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could 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, if any. | |
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 — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts 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. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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 Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
AIM V.I. Core Equity Fund
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended December 31, 2009, the Adviser waived advisory fees of $242,120.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $321,664 for accounting and fund administrative services and reimbursed $3,231,978 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 year ended December 31, 2009, 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 year ended December 31, 2009, 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, IAIS and/or IADI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 1,378,210,419 | $ | 103,210,711 | $ | — | $ | 1,481,421,130 | ||||||||
Other Investments* | 679,271 | — | — | 679,271 | ||||||||||||
Total Investments | $ | 1,378,889,690 | $ | 103,210,711 | $ | — | $ | 1,482,100,401 | ||||||||
* | Other Investments include foreign currency contracts which are included at unrealized appreciation. |
AIM V.I. Core Equity Fund
NOTE 4—Derivative Investments
Effective with the beginning of the Fund’s fiscal year end, the Fund has implemented new required disclosures about derivative instruments and hedging activities in accordance with GAAP. GAAP has 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. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of December 31, 2009:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign Currency Contracts(a) | $ | 679,271 | $ | — | ||||
(a) | Values are disclosed on the Statement of Assets and Liabilities under Foreign currency contracts outstanding. |
Effect of Derivative Instruments for the year ended December 31, 2009
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Foreign Currency | ||||
Contracts* | ||||
Realized Gain (Loss) | ||||
Currency risk | $ | (4,620,057 | ) | |
Change in Unrealized Appreciation | ||||
Currency risk | 3,449,722 | |||
Total | $ | (1,170,335 | ) | |
* | The average value of foreign currency contracts outstanding during the period was $24,462,380. |
Open Foreign Currency Contracts | ||||||||||||||||||||
Settlement | Contract to | Unrealized | ||||||||||||||||||
Date | Deliver | Receive | Value | Appreciation | ||||||||||||||||
3/04/10 | GBP | 13,150,000 | USD | 21,919,735 | $ | 21,240,464 | $ | 679,271 | ||||||||||||
Currency Abbreviations: | ||
GBP — British Pound Sterling | ||
USD — U.S. Dollar |
NOTE 5—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 adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2009, the Fund engaged in securities sales of $1,083,654, which resulted in net realized gains (losses) of $(92,309).
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $5,979 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
AIM V.I. Core Equity 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, 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, not to exceed the contractually agreed upon rate.
NOTE 8—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2009 and 2008:
2009 | 2008 | |||||||
Ordinary income | $ | 24,382,468 | $ | 38,551,060 | ||||
Tax Components of Net Assets at Period-End:
2009 | ||||
Undistributed ordinary income | $ | 13,178,405 | ||
Net unrealized appreciation — investments | 89,321,892 | |||
Net unrealized appreciation — other investments | 55,623 | |||
Temporary book/tax differences | (403,874 | ) | ||
Capital loss carryforward | (367,472,040 | ) | ||
Shares of beneficial interest | 1,756,417,663 | |||
Total net assets | $ | 1,491,097,669 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net realized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
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 $367,472,040 of capital loss carryforward in the fiscal year ending December 31, 2010.
The Fund has a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2010 | $ | 157,184,467 | ||
December 31, 2011 | 21,217,854 | |||
December 31, 2017 | 189,069,719 | |||
Total capital loss carryforward | $ | 367,472,040 | ||
* | 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 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2009 was $250,433,302 and $500,393,245, 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 | $ | 198,790,615 | ||
Aggregate unrealized (depreciation) of investment securities | (109,468,723 | ) | ||
Net unrealized appreciation of investment securities | $ | 89,321,892 | ||
Cost of investments for tax purposes is $1,392,099,238. |
AIM V.I. Core Equity Fund
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of expired capital loss carryforward, on December 31, 2009, undistributed net investment income was increased by $216,782, undistributed net realized gain (loss) was increased by $33,051,034 and shares of beneficial interest decreased by $33,267,816. This reclassification had no effect on the net assets of the Fund.
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended | Year ended | |||||||||||||||
December 31, 2009(a) | December 31, 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 3,599,291 | $ | 75,638,826 | 4,038,365 | $ | 99,125,887 | ||||||||||
Series II | 497,105 | 10,793,298 | 303,531 | 7,308,692 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 975,664 | 23,923,292 | 1,942,248 | 37,970,942 | ||||||||||||
Series II | 18,850 | 459,176 | 29,872 | 580,118 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (13,469,940 | ) | (282,274,790 | ) | (17,562,746 | ) | (452,686,161 | ) | ||||||||
Series II | (348,530 | ) | (7,108,636 | ) | (319,907 | ) | (7,920,904 | ) | ||||||||
Net increase (decrease) in share activity | (8,727,560 | ) | $ | (178,568,834 | ) | (11,568,637 | ) | $ | (315,621,426 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 55% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, 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 and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | |||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 19.75 | $ | 0.19 | $ | 5.39 | $ | 5.58 | $ | (0.41 | ) | $ | 24.92 | 28.30 | % | $ | 1,456,822 | 0.88 | %(d) | 0.90 | %(d) | 0.96 | %(d) | 21 | % | |||||||||||||||||||||||
Year ended 12/31/08 | 29.11 | 0.33 | (9.11 | ) | (8.78 | ) | (0.58 | ) | 19.75 | (30.14 | ) | 1,330,161 | 0.89 | 0.90 | 1.26 | 36 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 27.22 | 0.42 | 1.80 | 2.22 | (0.33 | ) | 29.11 | 8.12 | 2,298,007 | 0.87 | 0.88 | 1.44 | 45 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 23.45 | 0.34 | 3.58 | 3.92 | (0.15 | ) | 27.22 | 16.70 | 2,699,252 | 0.89 | 0.89 | 1.35 | 45 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 22.60 | 0.24 | 0.96 | 1.20 | (0.35 | ) | 23.45 | 5.31 | 1,246,529 | 0.89 | 0.89 | 1.08 | 52 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 19.62 | 0.14 | 5.34 | 5.48 | (0.35 | ) | 24.75 | 27.98 | 34,275 | 1.13 | (d) | 1.15 | (d) | 0.71 | (d) | 21 | ||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 28.88 | 0.26 | (9.02 | ) | (8.76 | ) | (0.50 | ) | 19.62 | (30.32 | ) | 23,885 | 1.14 | 1.15 | 1.01 | 36 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 27.02 | 0.34 | 1.80 | 2.14 | (0.28 | ) | 28.88 | 7.88 | 34,772 | 1.12 | 1.13 | 1.19 | 45 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 23.33 | 0.28 | 3.55 | 3.83 | (0.14 | ) | 27.02 | 16.42 | 39,729 | 1.14 | 1.14 | 1.10 | 45 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 22.48 | 0.18 | 0.96 | 1.14 | (0.29 | ) | 23.33 | 5.08 | 3,858 | 1.14 | 1.14 | 0.83 | 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 do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $1,328,520 and $26,540 for Series I and Series II shares, respectively. |
AIM V.I. Core Equity Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Core Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. Core Equity Fund, (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 10, 2010
Houston, Texas
AIM V.I. 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 July 1, 2009 through December 31, 2009.
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 | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,209.50 | $ | 4.90 | $ | 1,020.77 | $ | 4.48 | 0.88 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,208.40 | 6.29 | 1,019.51 | 5.75 | 1.13 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. Core Equity Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisers.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2009:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 96.81% |
* | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
AIM V.I. Core Equity Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Trustee and/ | ||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||
Interested Persons | ||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | None | |||
Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | ||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co- Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC | None | |||
Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||
Independent Trustees | ||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||
Frank S. Bayley — 1939 Trustee | 2001 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | None | |||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans Scholars Foundation and Executive Committee, United States Golf Association | |||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) | Board of Nature’s Sunshine Products, Inc. | |||
Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | ||||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) | Administaff | |||
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | ||||||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired | None | |||
Lewis F. Pennock — 1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||
Larry Soll — 1942 Trustee | 2004 | Retired | None | |||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) | None |
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers – (continued)
Trustee and/ | ||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||
Other Officers | ||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC | N/A | |||
Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | ||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® | N/A | |||
Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | ||||||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | N/A | |||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) | N/A | |||
Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) | N/A | |||
Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | ||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® | N/A | |||
Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. | N/A | |||
Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 100 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Aim Distributors, Inc. 11 Greenway Plaza, Suite 100 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2600 One Commerce Square Philadelphia, PA 19103 | Counsel to the Independent Trustees Kramer, Levin, Naftalis & Frankel LLP 1177 Avenue of the Americas New York, NY 10036-2714 | Transfer Agent Invesco Aim Investment Services, Inc. P.O. Box 4739 Houston, TX 77210-4739 | Custodian State Street Bank and Trust Company 225 Franklin Boston, MA 02110-2801 |
T-2
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AIM V.I. Diversified Income Fund
Annual Report to Shareholders § December 31, 2009
Annual Report to Shareholders § December 31, 2009
![(IMAGE)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943501.gif)
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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2009, Series I shares of AIM V.I. Diversified Income Fund, excluding variable product issuer charges, outperformed the Fund’s broad market index, but underperformed its style-specific index. Our underweight exposure to corporate credit was the largest detractor from performance relative to our style-specific index, which is primarily investment-grade corporate credit in composition. Outperformance of the broad market index was due to our underweight positions in government bond sectors, which underperformed other credit sectors.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 11.08 | % | ||
Series II Shares | 10.89 | |||
Barclays Capital U.S. Aggregate Index6 (Broad Market Index) | 5.93 | |||
Barclays Capital U.S. Credit Index6 (Style-Specific Index) | 16.04 | |||
Lipper VUF Corporate Debt BBB-Rated Funds Index6 (Peer Group Index) | 15.37 |
6 | Lipper Inc. |
How we invest
We invest primarily in fixed-rate U.S. dollar-denominated corporate bonds. We may invest up to 40% of total assets in foreign securities. Up to 35% of the Fund’s assets may be invested in lower quality, high yield debt securities; however, we have historically stayed closer to a 10% allocation to this asset class. The Fund may invest in derivative instruments such as futures contracts and swap agreements, including but not limited to credit default swaps, and engage in mortgage dollar roll transactions, a form of repurchase agreement activity in the to-be-announced (TBA) market for agency mortgage-backed securities (MBS).
Consistent with our investment philosophy and belief that markets are increasingly complex, we use a distributed approach to decision making where proven specialists closest to the information have authority to make decisions. Investment decisions are made continuously and shared instantly for timely implementation in our portfolios. This is true for fundamental research decisions, macro decisions and security selection decisions, all made by specialists.
We record and measure the performance of every investment decision. In this way, we develop a detailed understanding of the quality and skill of our decision makers to enhance quality control.
We implement investment decisions made by specialists into portfolios. We believe that this separation of construction from decision making ensures objectivity in the investment process by removing behavioral biases linked to historic performance that may arise in portfolios where there is a sole decision maker also responsible for portfolio positioning. The primary role of the portfolio manager is the efficient implementation of investment decisions within portfolios. The portfolio managers work closely with sector specialists and traders to determine how best to express each investment decision at the security level.
Our risk management process combines the evaluation of expected portfolio risks, a strong commitment to oversight of portfolio construction and actual performance and risk oversight. There are four key components to the investment risk management process applied within Invesco Fixed Income, namely;
n | Design: Portfolio Design Calculator/ Alpha Source Oversight. | |
n | Decisions: Decision Quality Analysis. | |
n | Portfolio Construction: Portfolio Management Oversight. | |
n | Invesco Fixed Income Oversight: Global Investment Policy Committee. |
Each investment decision is assigned to an individual within the firm. Specialists are required to explain the rationale behind every investment decision thereby enabling the firm to distinguish skill from good fortune. Each security includes pricing review levels. The upper level is the objective that the security is expected to reach, whereas the lower level is the point at which the rationale for persisting with the position must be reevaluated by the specialist. Specialists receive alerts from our proprietary investment system when a security is approaching or has reached these levels. While specialists are not forced to sell when these levels are reached, the investment decision must be reevaluated. Pricing levels are monitored continuously by senior management, which is integral to the firm’s risk management oversight.
In addition to the realignment of a security’s valuation targets, sell decisions may also be based on:
n | A conscious decision to alter the Fund’s macro risk exposure (for example, duration, yield curve positioning, sector exposure). | |
n | The need to limit or reduce exposure to a particular sector or issuer. | |
n | Degradation of an issuer’s credit quality. | |
n | Presentation of a better relative value opportunity. |
Portfolio Composition
By industry
By industry
U.S. Treasury Securities | 10.2 | % | |||
Other Diversified Financial Services | 9.5 | ||||
Investment Banking & Brokerage | 5.8 | ||||
Electric Utilities | 4.1 | ||||
Integrated Telecommunication Services | 3.8 | ||||
Diversified Banks | 3.2 | ||||
Other Industries, Each with Less Than 3% of Total Net Assets | 56.0 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 7.4 | ||||
Top 10 Fixed Income Issuers* | |||||
1. U.S. Treasury Bonds | 6.7 | % | |||
2. U.S. Treasury Notes | 3.5 | ||||
3. Morgan Stanley | 2.5 | ||||
4. Citigroup Inc. | 2.2 | ||||
5. DirecTVHoldings LLC/DirecTV Financing Co. Inc. | 2.2 | ||||
6. General Electric Capital Corp. | 1.6 | ||||
7. DCP Midstream LLC | 1.6 | ||||
8. MetLife Inc. | 1.6 | ||||
9. Anadarko Petroleum Corp. | 1.6 | ||||
10. COX Communications Inc. | 1.5 | ||||
Total Net Assets | $ | 24.6 million | |||
Total Number of Holdings* | 261 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* | Excluding money market fund holdings. |
AIM V.I. Diversified Income Fund
Market conditions and your Fund
The global economic environment at the beginning of 2009 was characterized by the carryover of 2008’s financial market turmoil, which contributed to one of the weakest economic periods on record.1 Gross domestic product (GDP), the broadest measure of overall U.S. economic activity, reflected a shrinking economy during the first half of 2009 before turning positive during the second half of the year.1
The U.S. Federal Reserve Board (the Fed) maintained a very accommodative monetary policy through the Fund’s fiscal year, with the federal funds target rate unchanged in its range of zero to 0.25%.2 The Fed also continued programs of quantitative easing by buying up U.S. Treasuries, agency MBS and agency debentures. In doing so, the Fed worked to stimulate economic recovery by keeping long-term interest rates low and making more money available to consumers and businesses.2
Beginning in early 2009, demand for credit sensitive bonds returned. Renewed concerns about future inflation and the ability of the market to absorb heavy government issuance pushed government bond yields higher (and prices lower) throughout 2009, especially for intermediate and longer maturity Treasuries.3 In fact, U.S. Treasury 10-year note and 30-year bond returns had their worst year of performance on record in 2009 following one of their best years on record.
With this market environment as a backdrop, sector allocation and security selection were dominant factors affecting Fund performance relative to the style-specific index.4
For the year, corporate credit outperformed government bonds, MBS and cash, and our underweight corporate credit was a detractor to performance relative to our corporate credit oriented style-specific index. Investment-grade credit, the largest sector exposure within the Fund, was maintained chiefly through the cash bond market, but also with credit derivatives carried over from 2008 that were sold during the first quarter. An overweight in the financials sector had a negative effect on Fund performance during the first quarter of 2009 when this sector was among the worst within the bond market.4
From the second quarter on, our overall credit allocation rallied strongly, outperforming the government bonds and structured securities positions held in the Fund. The Fund’s structured securities exposure was mostly in agency MBS passthroughs and TBAs. Although MBS returns were positive for the year, their performance lagged returns of the corporate credit and negatively influenced performance versus the style-specific index. The Fund maintained an investment-grade average credit quality, but benefited from tactical allocations to lower quality high yield bonds, as higher quality issues underperformed lower quality issues during the year. Allocations to emerging markets also proved beneficial as the emerging market bond sector was one of the top-performing areas of the bond market in 20094.
Security selection was a contributor to Fund performance for the year. Time Warner Cable’s positive contribution exemplified the performance of credits whose credit spread (the yield difference over comparable Treasuries that investors require for taking credit risk) tightened significantly over the year, pushing prices higher. Weaker performers within the portfolio included several financial sector securities, such as a Citicorp Lease, whose credit spreads did not fully participate in the credit recovery experienced by the broader market. We sold the holding.
Duration management had a negative impact on performance relative to our style-specific index during 2009. The portfolio was generally long duration (more price sensitive to interest rate movements than the benchmark) during the first half of the year as rates rose, putting downward pressure on bond prices. The Fund was generally shorter in duration (less price sensitive to interest rate movements than the benchmark) during the second half of the year, and did not fully benefit from the positive impact of falling rates on bond prices. We regularly use U.S. Treasury bond futures contracts as an efficient means for managing the Fund’s duration.
While the yield curve fluctuated greatly over the year, the general steepening of the curve was a negative factor in Fund performance relative to the style-specific index. We positioned the portfolio for a flattening of the yield curve (long maturities falling more than short rates) during the second quarter of 2009, which negatively affected performance. In June, the portfolio returned to a neutral stance and remained there for the rest of the year.
Thank you for your investment in AIM V.I. Diversified Income Fund.
1 | U.S. Bureau of Economic Analysis | |
2 | Federal Reserve Board | |
3 | Bloomberg L.P. | |
4 | Barclays Capital |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
![(PHOTO OF CHUCK BURGE)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943502.jpg)
Chuck Burge
Senior portfolio manager, is manager of AIM V.I. Diversified Income Fund. He joined Invesco Aim in 2002. Mr. Burge earned a B.S. in economics from Texas A&M University and an M.B.A. in finance and accounting from Rice University.
![(PHOTO OF CYNTHIA BRIEN)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943503.jpg)
Cynthia Brien
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Diversified Income Fund. She joined Invesco Aim in 1996. Ms. Brien earned a B.B.A. from The University of Texas at Austin. She is a director, and a past president, of the CFA Society of Houston.
![(PHOTO OF PETER EHRET)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943504.jpg)
Peter Ehret
Chartered Financial Analyst, senior portfolio manager, is manager of AIM V.I. Diversified Income Fund. Mr. Ehret joined Invesco Aim in 2001. He graduated cum laude with a B.S. in economics from the University of Minnesota. He also earned an M.S. in real estate appraisal and investment analysis from the University of Wisconsin-Madison.
![(PHOTO OF DARREN HUGHES)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943505.jpg)
Darren Hughes
Chartered Financial Analyst, senior portfolio manager, is manager of AIM V.I. Diversified Income Fund. He joined Invesco Aim in 1992. Mr. Hughes earned a B.B.A. in finance and economics from Baylor University.
AIM V.I. Diversified Income Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment — Oldest Share Class since Inception
Index data from 4/30/93, Fund data from 5/5/93
Index data from 4/30/93, Fund data from 5/5/93
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1 | Lipper Inc. |
Past performance cannot guarantee comparable future results.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on.
Average Annual Total Returns
As of 12/31/09
As of 12/31/09
Series I Shares | ||||
Inception (5/5/93) | 3.73 | % | ||
10 Years | 2.28 | |||
5 Years | 0.47 | |||
1 Year | 11.08 | |||
Series II Shares | ||||
10 Years | 2.04 | % | ||
5 Years | 0.24 | |||
1 Year | 10.89 |
Series II shares’ inception date is March 14, 2002. Returns since that date are historical. All other returns are the blended returns of the historical performance of Series II shares since their inception and the 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 adviser 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 net 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 0.75% and 1.00%, respectively.1 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 1.31% and 1.56%, 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. Diversified Income 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 the 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 adviser.
Had the adviser not waived fees and/ or reimbursed expenses, performance would have been lower.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. |
AIM V.I. Diversified Income Fund
AIM V.I. Diversified Income Fund’s investment objective is to achieve a high level of current income.
n | Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. |
Principal risks of investing in the Fund
The Fund may invest in debt securities, such as notes and bonds, which carry interest rate and credit risk.
Investing in developing countries can add additional risk, such as high rates of inflation or sharply devalued currencies against the U.S. dollar. Transaction costs are often higher, and there may be delays in settlement procedures.
Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market.
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, relative lack of information, relatively low market liquidity, and the potential lack of strict financial and accounting controls and standards.
The Fund may invest in lower quality debt securities, commonly known as “junk bonds.” Compared to higher quality debt securities, junk bonds involve greater risk of default or price changes due to changes in credit quality of the issuer because they are generally unsecured and may be subordinated to other creditors’ claims. Credit ratings on junk bonds do not necessarily reflect their actual market risk.
Leveraging entails risks such as magnifying changes in the value of the portfolio’s securities.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
The prices of securities held by the Fund may decline in response to market risks.
The Fund may use enhanced investment techniques such as derivatives. The principal risk of derivatives is that the fluctuations in their values may not correlate perfectly with the overall securities markets. Derivatives are subject to counterparty risk—the risk that the other party will not complete the transaction with the Fund.
The Fund may invest in mortgage- and asset-backed securities. These securities are subject to prepayment or call risk, which is the risk that payments from the borrower may be received earlier or later than expected due to changes in the rate at which the underlying loans are prepaid.
The Fund may engage in active and frequent trading of portfolio securities to achieve its investment objective. If a fund does trade in this way, it may incur increased costs, which can lower the actual return of the fund. Active trading may also increase short term gains and losses, which may affect taxes that must be paid.
About indexes used in this report
The Barclays Capital U.S. Credit Index is an unmanaged index considered representative of publicly issued, SEC-registered U.S. corporate and specified foreign debentures and secured notes.
The Barclays Capital U.S. Aggregate Index is an unmanaged index considered representative of the U.S. investment-grade, fixed-rate bond market.
The Lipper VUF Corporate Debt BBB-Rated Funds Index is an unmanaged index considered representative of corporate debt BBB-rated variable insurance underlying funds tracked by Lipper.
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 a peer group reflects fund expenses; performance of a market index does not.
Other information
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
AIM V.I. Diversified Income Fund
Schedule of Investments(a)
December 31, 2009
Principal | ||||||||
Amount | Value | |||||||
Bonds & Notes–77.39% | ||||||||
Advertising–0.14% | ||||||||
Lamar Media Corp., Sr. Unsec. Gtd. Sub. Global Notes, 7.25%, 01/01/13 | $ | 35,000 | $ | 35,000 | ||||
Aerospace & Defense–1.42% | ||||||||
Alliant Techsystems Inc., Sr. Unsec. Gtd. Sub. Notes, 6.75%, 04/01/16 | 25,000 | 24,875 | ||||||
BAE Systems Holdings Inc., Sr. Unsec. Gtd. Notes, | ||||||||
4.95%, 06/01/14(b) | 65,000 | 66,840 | ||||||
6.38%, 06/01/19(b) | 90,000 | 95,830 | ||||||
BE Aerospace, Inc., Sr. Unsec. Unsub. Notes, 8.50%, 07/01/18 | 25,000 | 26,625 | ||||||
L-3 Communications Corp., Sr. Notes, 5.20%, 10/15/19(b) | 135,000 | 135,506 | ||||||
349,676 | ||||||||
Agricultural Products–0.65% | ||||||||
Bunge Limited Finance Corp., Sr. Unsec. Gtd. Notes, 8.50%, 06/15/19 | 140,000 | 159,801 | ||||||
Airlines–2.23% | ||||||||
American Airlines Pass Through Trust, | ||||||||
–Series 2001-2, Class A-1, Sec. Global Pass Through Ctfs., | ||||||||
6.98%, 04/01/11 | 32,764 | 32,723 | ||||||
–Series 2009-1A, Sec. Pass Through Ctfs., 10.38%, 07/02/19 | 45,000 | 50,569 | ||||||
Continental Airlines Inc., Pass Through Ctfs., | ||||||||
9.00%, 07/08/16 | 210,000 | 225,356 | ||||||
Series A, | ||||||||
Global Pass Through Ctfs., | ||||||||
7.25%, 11/10/19 | 55,000 | 56,478 | ||||||
Delta Air Lines, Inc., Sr. Sec. Notes, | ||||||||
9.50%, 09/15/14(b) | 10,000 | 10,450 | ||||||
–Series A, | ||||||||
Pass Through Ctfs., | ||||||||
7.75%, 12/17/19 | 70,000 | 72,406 | ||||||
Series 2002-1, Class C, | ||||||||
Sec. Pass Through Ctfs., 7.78%, 01/02/12 | 15,539 | 15,073 | ||||||
United Air Lines Inc., Gtd. Global Pass Through Ctfs., | ||||||||
9.75%, 01/15/17 | 30,000 | 31,069 | ||||||
Sr. Sec. Gtd. Global Pass Through Ctfs., 10.40%, 11/01/16 | 50,000 | 53,281 | ||||||
547,405 | ||||||||
Alternative Carriers–0.32% | ||||||||
Intelsat Intermediate Holding Co. Ltd. (Bermuda), Sr. Unsec. Gtd. Disc. Global Notes, 9.50%, 02/01/15(c) | 35,000 | 36,137 | ||||||
Level 3 Financing Inc., Sr. Unsec. Gtd. Unsub. Global Notes, 9.25%, 11/01/14 | 45,000 | 43,200 | ||||||
79,337 | ||||||||
Aluminum–0.10% | ||||||||
Novelis Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 7.25%, 02/15/15 | 25,000 | 24,000 | ||||||
Apparel Retail–0.69% | ||||||||
Collective Brands, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 8.25%, 08/01/13 | 50,000 | 51,125 | ||||||
Limited Brands Inc., Sr. Notes, 8.50%, 06/15/19(b) | 50,000 | 54,125 | ||||||
TJX Companies, Inc. (The), Sr. Unsec. Notes, 6.95%, 04/15/19 | 55,000 | 63,822 | ||||||
169,072 | ||||||||
Asset Management & Custody Banks–0.31% | ||||||||
Bank of New York Mellon Corp. (The), Sr. Unsec. Notes, 4.30%, 05/15/14 | 50,000 | 52,679 | ||||||
Graham Packaging Co. L.P./GPC Capital Corp. I, Sr. Gtd. Notes, 8.25%, 01/01/17(b) | 25,000 | 24,688 | ||||||
77,367 | ||||||||
Auto Parts & Equipment–0.17% | ||||||||
Allison Transmission Inc., Sr. Unsec. Gtd. Notes, 11.00%, 11/01/15(b) | 25,000 | 26,437 | ||||||
Tenneco Inc., Sr. Unsec. Gtd. Global Notes, 8.13%, 11/15/15 | 15,000 | 15,225 | ||||||
41,662 | ||||||||
Automobile Manufacturers–0.20% | ||||||||
Case New Holland Inc., Sr. Unsec. Gtd. Unsub. Notes, 7.75%, 09/01/13(b) | 25,000 | 25,562 | ||||||
Ford Motor Co., Sr. Unsec. Unsub. Global Notes, 7.45%, 07/16/31 | 25,000 | 22,375 | ||||||
47,937 | ||||||||
Automotive Retail–0.92% | ||||||||
AutoZone Inc., Sr. Unsec. Notes, 5.75%, 01/15/15 | 210,000 | 225,648 | ||||||
Brewers–0.37% | ||||||||
Anheuser-Busch InBev Worldwide Inc., Sr. Unsec. Gtd. Unsub. Notes, 4.13%, 01/15/15(b) | 90,000 | 91,297 | ||||||
Broadcasting–2.32% | ||||||||
Belo Corp., Sr. Unsec. Unsub. Notes, | ||||||||
6.75%, 05/30/13 | 25,000 | 24,750 | ||||||
8.00%, 11/15/16 | 25,000 | 25,750 | ||||||
Clear Channel Worldwide Holdings Inc., Sr. Unsec. Gtd. Unsub. Notes, 9.25%, 12/15/17(b) | 25,000 | 25,875 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Broadcasting–(continued) | ||||||||
COX Communications Inc., Sr. Unsec. Bonds, | ||||||||
8.38%, 03/01/39(b) | $ | 75,000 | $ | 92,096 | ||||
Sr. Unsec. Global Notes, | ||||||||
5.45%, 12/15/14 | 95,000 | 102,028 | ||||||
Sr. Unsec. Notes, | ||||||||
9.38%, 01/15/19(b) | 140,000 | 176,059 | ||||||
COX Enterprises Inc., Sr. Unsec. Notes, 7.88%, 09/15/10(b) | 120,000 | 124,850 | ||||||
571,408 | ||||||||
Building Products–0.46% | ||||||||
Building Materials Corp. of America, Sec. Gtd. Second Lien Global Notes, 7.75%, 08/01/14 | 50,000 | 49,750 | ||||||
Goodman Global Group Inc., Sr. Disc. Notes, 11.70%, 12/15/14(b)(d) | 20,000 | 11,400 | ||||||
Ply Gem Industries Inc., Sr. Sec. Gtd. First & Second Lien Global Notes, 11.75%, 06/15/13 | 35,000 | 35,175 | ||||||
USG Corp., Sr. Unsec. Gtd. Notes, 9.75%, 08/01/14(b) | 15,000 | 16,012 | ||||||
112,337 | ||||||||
Cable & Satellite–2.76% | ||||||||
Cablevision Systems Corp., Sr. Notes, 8.63%, 09/15/17(b) | 25,000 | 26,156 | ||||||
DirecTV Holdings LLC/DirecTV Financing Co. Inc., Sr. Unsec. Gtd. Unsub. Global Notes, 7.63%, 05/15/16 | 350,000 | 383,250 | ||||||
Sr. Unsec. Gtd. Unsub. Notes, | ||||||||
4.75%, 10/01/14(b) | 160,000 | 163,111 | ||||||
Time Warner Cable Inc., Sr. Unsec. Gtd. Unsub. Notes, 5.00%, 02/01/20 | 60,000 | 58,584 | ||||||
XM Satellite Radio Inc., Sr. Sec. Notes, 11.25%, 06/15/13(b) | 45,000 | 48,262 | ||||||
679,363 | ||||||||
Casinos & Gaming–0.53% | ||||||||
MGM Mirage, Sr. Sec. Notes, | ||||||||
11.13%, 11/15/17(b) | 15,000 | 16,725 | ||||||
Sr. Unsec. Gtd. Unsub. Notes, | ||||||||
8.50%, 09/15/10 | 25,000 | 25,000 | ||||||
Pinnacle Entertainment, Inc., Sr. Notes, 8.63%, 08/01/17(b) | 30,000 | 30,600 | ||||||
Snoqualmie Entertainment Authority, Sr. Sec. Floating Rate Notes, 4.68%, 02/01/14(b)(e) | 15,000 | 7,950 | ||||||
Wynn Las Vegas Capital LLC/Corp., Sec. First Mortgage Notes, 7.88%, 11/01/17(b) | 50,000 | 50,875 | ||||||
131,150 | ||||||||
Communications Equipment–0.04% | ||||||||
Corning Inc., Sr. Unsec. Unsub. Notes, 6.63%, 05/15/19 | 10,000 | 10,788 | ||||||
Computer Hardware–0.65% | ||||||||
Hewlett-Packard Co., Sr. Unsec. Global Notes, 4.75%, 06/02/14 | 55,000 | 58,849 | ||||||
International Business Machines Corp., Sr. Unsec. Unsub. Global Notes, 2.10%, 05/06/13 | 100,000 | 100,062 | ||||||
158,911 | ||||||||
Computer Storage & Peripherals–0.11% | ||||||||
Seagate Technology International, Sr. Sec. Gtd. Notes, 10.00%, 05/01/14(b) | 25,000 | 27,813 | ||||||
Construction Materials–0.46% | ||||||||
Holcim U.S. Finance Sarl & Cie SCS (Switzerland), Gtd. Notes, 6.00%, 12/30/19(b) | 110,000 | 113,418 | ||||||
Construction, Farm Machinery & Heavy Trucks–0.25% | ||||||||
CNH America LLC, Sr. Unsec. Gtd. Notes, 7.25%, 01/15/16 | 25,000 | 24,813 | ||||||
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | 25,000 | 25,656 | ||||||
Titan International, Inc., Sr. Unsec. Gtd. Global Notes, 8.00%, 01/15/12 | 10,000 | 9,850 | ||||||
60,319 | ||||||||
Consumer Finance–0.27% | ||||||||
Ford Motor Credit Co. LLC, Sr. Unsec. Notes, 8.00%, 12/15/16 | 65,000 | 65,325 | ||||||
Data Processing & Outsourced Services–0.20% | ||||||||
First Data Corp., Sr. Unsec. Gtd. Global Notes, 9.88%, 09/24/15 | 25,000 | 23,312 | ||||||
SunGard Data Systems Inc., Sr. Unsec. Gtd. Sub. Global Notes, 10.25%, 08/15/15 | 25,000 | 26,750 | ||||||
50,062 | ||||||||
Diversified Banks–3.19% | ||||||||
Barclays Bank PLC (United Kingdom), Sr. Unsec. Unsub. Global Notes, 6.75%, 05/22/19 | 155,000 | 174,655 | ||||||
ING Bank N.V. (Netherlands), Unsec. Sub. Bonds, 5.13%, 05/01/15(b) | 100,000 | 100,066 | ||||||
JPMorgan Chase Capital XXVII–Series AA, Jr. Unsec. Gtd. Sub. Notes, 7.00%, 11/01/39 | 160,000 | 163,291 | ||||||
Lloyds TSB Bank PLC (United Kingdom), Sr. Unsec. Unsub. Floating Rate Medium-Term Euro Notes, 3.78%, 04/17/14(e) | 81,000 | 84,592 | ||||||
Standard Chartered PLC (United Kingdom), Sr. Notes, 5.50%, 11/18/14(b) | 55,000 | 58,010 | ||||||
Wachovia Corp.–Series G, Sr. Unsec. Medium-Term Notes, 5.50%, 05/01/13 | 50,000 | 53,534 | ||||||
Wells Fargo & Co., Sr. Unsec. Unsub. Global Notes, 4.38%, 01/31/13 | 145,000 | 150,433 | ||||||
784,581 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Diversified Capital Markets–0.42% | ||||||||
UBS AG (Switzerland), Sr. Unsec. Medium-Term Notes, 5.75%, 04/25/18 | $ | 100,000 | $ | 102,400 | ||||
Diversified Metals & Mining–0.29% | ||||||||
Rio Tinto Finance USA Ltd. (United Kingdom), Sr. Unsec. Gtd. Global Notes, 8.95%, 05/01/14 | 60,000 | 71,955 | ||||||
Drug Retail–1.18% | ||||||||
CVS Caremark Corp., Unsec. Notes, 6.60%, 03/15/19 | 190,000 | 208,007 | ||||||
Rite Aid Corp., Sr. Sec. Gtd. Notes, | ||||||||
10.38%, 07/15/16 | 50,000 | 53,750 | ||||||
Sr. Sec. Unsub. Global Notes, | ||||||||
9.75%, 06/12/16 | 25,000 | 27,344 | ||||||
289,101 | ||||||||
Electric Utilities–4.05% | ||||||||
Carolina Power & Light Co., Sec. First Mortgage Bonds, 5.30%, 01/15/19 | 40,000 | 41,800 | ||||||
DCP Midstream LLC, Notes, | ||||||||
9.70%, 12/01/13(b) | 100,000 | 116,373 | ||||||
Sr. Unsec. Notes, | ||||||||
7.88%, 08/16/10 | 200,000 | 208,530 | ||||||
Sr. Unsec. Unsub. Notes, | ||||||||
9.75%, 03/15/19(b) | 55,000 | 67,280 | ||||||
Enel Finance International S.A. (Luxembourg), Sr. Unsec. Gtd. Notes, 3.88%, 10/07/14(b) | 100,000 | 101,333 | ||||||
Indiana Michigan Power Co.–Series I, Sr. Unsec. Unsub. Notes, 7.00%, 03/15/19 | 140,000 | 156,756 | ||||||
LSP Energy L.P./LSP Batesville Funding Corp.–Series D, Sr. Sec. Bonds, 8.16%, 07/15/25 | 25,000 | 16,875 | ||||||
Ohio Power Co.–Series 1, Sr. Unsec. Notes, 5.38%, 10/01/21 | 180,000 | 182,991 | ||||||
PPL Electric Utilities Corp., Sec. First Mortgage Bonds, 6.25%, 05/15/39 | 45,000 | 47,502 | ||||||
Virginia Electric & Power Co., Sr. Unsec. Unsub Notes, 5.00%, 06/30/19 | 55,000 | 55,690 | ||||||
995,130 | ||||||||
Electrical Components & Equipment–0.11% | ||||||||
Belden Inc., Sr. Gtd. Sub. Notes, 9.25%, 06/15/19(b) | 25,000 | 26,500 | ||||||
Electronic Manufacturing Services–0.06% | ||||||||
Jabil Circuit, Inc., Sr. Unsec. Notes, 7.75%, 07/15/16 | 15,000 | 15,863 | ||||||
Gold–1.47% | ||||||||
Newmont Mining Corp., Sr. Unsec. Gtd. Notes, 5.13%, 10/01/19 | 145,000 | 145,993 | ||||||
6.25%, 10/01/39 | 215,000 | 216,468 | ||||||
362,461 | ||||||||
Health Care Equipment–0.36% | ||||||||
Boston Scientific Corp., Sr. Unsec. Unsub. Notes, 6.00%, 01/15/20 | 85,000 | 87,346 | ||||||
Health Care Facilities–0.43% | ||||||||
HCA, Inc., Sec. Gtd. Global Notes, | ||||||||
9.25%, 11/15/16 | 25,000 | 27,062 | ||||||
Sr. Sec. Gtd. Notes, | ||||||||
7.88%, 02/15/20(b) | 50,000 | 52,375 | ||||||
Tenet Healthcare Corp., Sr. Unsec. Notes, 7.38%, 02/01/13 | 25,000 | 25,188 | ||||||
104,625 | ||||||||
Health Care Services–1.74% | ||||||||
Express Scripts Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
5.25%, 06/15/12 | 45,000 | 47,939 | ||||||
6.25%, 06/15/14 | 125,000 | 137,190 | ||||||
7.25%, 06/15/19 | 40,000 | 45,779 | ||||||
Orlando Lutheran Towers Inc., Putable Bonds, | ||||||||
7.75%, 07/01/11 | 45,000 | 44,900 | ||||||
8.00%, 07/01/17 | 125,000 | 125,348 | ||||||
US Oncology Inc., Sr. Sec. Gtd. Global Notes, 9.13%, 08/15/17 | 25,000 | 26,375 | ||||||
427,531 | ||||||||
Hotels, Resorts & Cruise Lines–0.84% | ||||||||
Hyatt Hotels Corp., Sr. Unsec. Unsub. Notes, 5.75%, 08/15/15(b) | 165,000 | 170,198 | ||||||
Starwood Hotels & Resorts Worldwide, Inc., Sr. Unsec. Unsub. Notes, 7.15%, 12/01/19 | 35,000 | 35,175 | ||||||
205,373 | ||||||||
Independent Power Producers & Energy Traders–0.43% | ||||||||
AES Corp. (The), Sr. Unsec. Notes, 9.75%, 04/15/16(b) | 50,000 | 55,000 | ||||||
NRG Energy, Inc., Sr. Unsec. Gtd. Notes, | ||||||||
7.38%, 02/01/16 | 25,000 | 25,125 | ||||||
Sr. Unsec. Gtd. Unsub. Notes, | ||||||||
7.38%, 01/15/17 | 25,000 | 25,187 | ||||||
105,312 | ||||||||
Industrial Conglomerates–1.01% | ||||||||
Hutchison Whampoa International Ltd. (Cayman Islands), Gtd. Notes, | ||||||||
5.75%, 09/11/19(b) | 100,000 | 99,033 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
7.63%, 04/09/19(b) | 130,000 | 149,617 | ||||||
248,650 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Insurance Brokers–0.81% | ||||||||
Marsh & McLennan Cos. Inc., Sr. Unsec. Notes, | ||||||||
5.15%, 09/15/10 | $ | 75,000 | $ | 76,733 | ||||
9.25%, 04/15/19 | 100,000 | 123,037 | ||||||
199,770 | ||||||||
Integrated Oil & Gas–1.25% | ||||||||
Lukoil International Finance B.V. (Netherlands), Sr. Unsec. Gtd. Unsub. Notes, 6.38%, 11/05/14(b) | 300,000 | 306,348 | ||||||
Integrated Telecommunication Services–3.83% | ||||||||
AT&T Inc., Sr. Unsec. Unsub. Global Notes, 6.55%, 02/15/39 | 70,000 | 74,261 | ||||||
British Telecommunications PLC (United Kingdom), Sr. Unsec. Unsub. Global Notes, 9.13%, 12/15/10 | 250,000 | 267,912 | ||||||
Cellco Partnership/ Verizon Wireless Capital LLC, Sr. Unsec. Unsub. Global Notes, 7.38%, 11/15/13 | 140,000 | 161,183 | ||||||
Qwest Communications International Inc., Sr. Unsec. Gtd. Notes, 8.00%, 10/01/15(b) | 25,000 | 25,875 | ||||||
Telefonica Europe B.V. (Netherlands), Unsec. Gtd. Unsub. Global Notes, 7.75%, 09/15/10 | 200,000 | 209,482 | ||||||
Telemar Norte Leste S.A. (Brazil), Sr. Unsec. Notes, 9.50%, 04/23/19(b) | 125,000 | 148,673 | ||||||
Wind Acquisition Finance S.A. (Luxembourg), Sr. Sec. Gtd. Sub. Notes, 11.75%, 07/15/17(b) | 50,000 | 55,000 | ||||||
942,386 | ||||||||
Investment Banking & Brokerage–5.81% | ||||||||
E*Trade Financial Corp., Sr. Unsec. Unsub. Global Notes, 7.38%, 09/15/13 | 10,000 | 9,450 | ||||||
Goldman Sachs Group Inc. (The), Sr. Medium-Term Notes, | ||||||||
6.00%, 05/01/14 | 50,000 | 54,885 | ||||||
Unsec. Sub. Global Notes, | ||||||||
6.75%, 10/01/37 | 140,000 | 144,690 | ||||||
Jefferies Group Inc., Sr. Unsec. Notes, 6.45%, 06/08/27 | 375,000 | 316,994 | ||||||
Macquarie Group Ltd. (Australia), Sr. Unsec. Notes, 7.30%, 08/01/14(b) | 110,000 | 120,968 | ||||||
Morgan Stanley, Sr. Unsec. Medium-Term Global Notes, 6.00%, 05/13/14 | 315,000 | 338,768 | ||||||
–Series F, | ||||||||
Sr. Unsec. Medium-Term Global Notes, | ||||||||
5.95%, 12/28/17 | 130,000 | 135,738 | ||||||
5.63%, 09/23/19 | 130,000 | 131,463 | ||||||
Schwab Capital Trust I, Jr. Unsec. Gtd. Sub. Variable Rate Notes, 7.50%, 11/15/37(e) | 50,000 | 46,923 | ||||||
TD Ameritrade Holding Corp., Sr. Unsec. Gtd. Unsub. Notes, | ||||||||
4.15%, 12/01/14 | 15,000 | 14,848 | ||||||
5.60%, 12/01/19 | 115,000 | 114,707 | ||||||
1,429,434 | ||||||||
Leisure Facilities–0.14% | ||||||||
Universal City Development Partners Ltd., Sr. Notes, | ||||||||
8.88%, 11/15/15(b) | 25,000 | 24,625 | ||||||
Sr. Sub. Notes, | ||||||||
10.88%, 11/15/16(b) | 10,000 | 10,250 | ||||||
34,875 | ||||||||
Life & Health Insurance–2.54% | ||||||||
MetLife Inc., Sr. Unsec. Global Notes, | ||||||||
7.72%, 02/15/19 | 180,000 | 211,447 | ||||||
Sr. Unsec. Unsub. Notes, | ||||||||
6.75%, 06/01/16 | 155,000 | 174,793 | ||||||
Prudential Financial Inc., Jr. Unsec. Sub. Variable Rate Global Notes, 8.88%, 06/15/38(e) | 130,000 | 137,745 | ||||||
–Series D, Sr. Unsec. Unsub. Medium-Term Notes, 7.38%, 06/15/19 | 90,000 | 101,763 | ||||||
625,748 | ||||||||
Mortgage Backed Securities–0.74% | ||||||||
U.S. Bank N.A., Sr. Unsec. Unsub. Medium-Term Global Notes, 5.92%, 05/25/12 | 172,231 | 182,951 | ||||||
Movies & Entertainment–0.46% | ||||||||
Cinemark USA Inc., Sr. Gtd. Notes, 8.63%, 06/15/19(b) | 25,000 | 26,063 | ||||||
Time Warner Cable Inc., Sr. Unsec. Gtd. Unsub. Global Notes, 6.75%, 07/01/18 | 55,000 | 60,830 | ||||||
Tunica-Biloxi Gaming Authority, Sr. Unsec. Notes, 9.00%, 11/15/15(b) | 30,000 | 27,150 | ||||||
114,043 | ||||||||
Multi-Line Insurance–1.22% | ||||||||
American Financial Group Inc., Sr. Unsec. Unsub. Notes, 9.88%, 06/15/19 | 180,000 | 201,805 | ||||||
Liberty Mutual Group Inc., Sr. Unsec. Notes, 5.75%, 03/15/14(b) | 100,000 | 98,560 | ||||||
300,365 | ||||||||
Multi-Utilities–0.25% | ||||||||
Pacific Gas & Electric Co., Sr. Unsec. Unsub. Notes, 5.40%, 01/15/40 | 65,000 | 62,654 | ||||||
Office REIT’s–0.58% | ||||||||
Boston Properties L.P., Sr. Unsec. Unsub. Notes, 5.88%, 10/15/19 | 140,000 | 141,357 | ||||||
Oil & Gas Equipment & Services–0.04% | ||||||||
Bristow Group, Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/17 | 10,000 | 10,000 | ||||||
Oil & Gas Exploration & Production–2.83% | ||||||||
Anadarko Petroleum Corp., Sr. Unsec. Notes, | ||||||||
7.63%, 03/15/14 | 100,000 | 114,939 | ||||||
Sr. Unsec. Unsub. Global Notes, | ||||||||
5.75%, 06/15/14 | 250,000 | 270,916 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
Cimarex Energy Co., Sr. Unsec. Gtd. Notes, 7.13%, 05/01/17 | $ | 50,000 | $ | 50,687 | ||||
Concho Resources Inc., Sr. Unsec. Gtd. Notes, 8.63%, 10/01/17 | 25,000 | 26,312 | ||||||
Continental Resources Inc., Sr. Unsec. Unsub. Notes, 8.25%, 10/01/19(b) | 15,000 | 15,806 | ||||||
Encore Acquisition Co., Sr. Gtd. Sub. Notes, 9.50%, 05/01/16 | 10,000 | 10,563 | ||||||
McMoRan Exploration Co., Sr. Unsec. Gtd. Notes, 11.88%, 11/15/14 | 25,000 | 25,719 | ||||||
Petrobras International Finance Co. (Cayman Islands), Sr. Unsec. Gtd. Unsub. Global Notes, 5.75%, 01/20/20 | 40,000 | 40,606 | ||||||
6.88%, 01/20/40 | 45,000 | 46,033 | ||||||
Pioneer Natural Resources Co., Sr. Unsec. Notes, 7.50%, 01/15/20 | 25,000 | 25,188 | ||||||
Plains Exploration & Production Co., Sr. Unsec. Gtd. Unsub. Notes, 8.63%, 10/15/19 | 15,000 | 15,469 | ||||||
Range Resources Corp., Sr. Unsec. Gtd. Sub. Notes, 7.50%, 10/01/17 | 25,000 | 25,875 | ||||||
Southwestern Energy Co., Sr. Gtd. Global Notes, 7.50%, 02/01/18 | 25,000 | 26,687 | ||||||
694,800 | ||||||||
Oil & Gas Refining & Marketing–0.75% | ||||||||
Petronas Capital Ltd. (Malaysia), Unsec. Gtd. Unsub. Notes, 5.25%, 08/12/19(b) | 100,000 | 100,124 | ||||||
Tesoro Corp., Sr. Unsec. Gtd. Unsub. Global Bonds, 6.50%, 06/01/17 | 15,000 | 14,025 | ||||||
United Refining Co.–Series 2, Sr. Unsec. Gtd. Global Notes, 10.50%, 08/15/12 | 75,000 | 71,063 | ||||||
185,212 | ||||||||
Oil & Gas Storage & Transportation–1.97% | ||||||||
Enterprise Products Operating LLC, Sr. Unsec. Gtd. Unsub. Global Notes, 6.13%, 10/15/39 | 125,000 | 121,295 | ||||||
Plains All American Pipeline L.P./ PAA Finance Corp., Sr. Unsec. Gtd. Unsub. Notes, 5.75%, 01/15/20 | 135,000 | 136,190 | ||||||
Spectra Energy Capital LLC, Sr. Unsec. Gtd. Notes, 5.65%, 03/01/20 | 155,000 | 157,564 | ||||||
Williams Cos., Inc., Sr. Unsec. Global Notes, 8.75%, 01/15/20 | 40,000 | 47,903 | ||||||
Williams Partners L.P./Williams Partners Finance Corp., Sr. Unsec. Global Notes, 7.25%, 02/01/17 | 20,000 | 20,400 | ||||||
483,352 | ||||||||
Other Diversified Financial Services–9.52% | ||||||||
Bank of America Corp., Sr. Unsec. Unsub. Global Notes, 6.50%, 08/01/16 | 130,000 | 140,458 | ||||||
Bear Stearns Cos. LLC (The), Sr. Unsec. Unsub. Floating Rate Notes, 0.68%, 07/19/10(e) | 260,000 | 260,600 | ||||||
Cantor Fitzgerald L.P., Bonds, 7.88%, 10/15/19(b) | 315,000 | 317,022 | ||||||
CDP Financial Inc. (Canada), Sr. Unsec. Gtd. Notes, 3.00%, 11/25/14(b) | 275,000 | 269,577 | ||||||
Citigroup Inc., Sr. Unsec. Notes, 6.38%, 08/12/14 | 505,000 | 529,202 | ||||||
Countrywide Financial Corp., Sr. Unsec. Gtd. Unsub. Medium-Term Global Notes, 5.80%, 06/07/12 | 40,000 | 42,531 | ||||||
General Electric Capital Corp.–Series A, Sr. Unsec. Unsub. Medium-Term Global Notes, 6.88%, 01/10/39 | 380,000 | 393,557 | ||||||
JPMorgan Chase & Co., Sr. Unsec. Unsub. Global Notes, | ||||||||
4.75%, 05/01/13 | 15,000 | 15,854 | ||||||
6.30%, 04/23/19 | 145,000 | 160,968 | ||||||
Merrill Lynch & Co. Inc.–Series C, Sr. Unsec. Medium-Term Global Notes, 5.45%, 02/05/13 | 200,000 | 210,801 | ||||||
Twin Reefs Pass-Through Trust, Floating Rate Pass Through Ctfs., 1.39% (Acquired 12/07/04-04/03/06; Cost $130,332)(b)(e)(f)(g) | 130,000 | 423 | ||||||
2,340,993 | ||||||||
Packaged Foods & Meats–0.15% | ||||||||
Del Monte Corp., Sr. Sub. Notes, 7.50%, 10/15/19(b) | 10,000 | 10,325 | ||||||
Dole Food Co. Inc., Sr. Sec. Notes, 8.00%, 10/01/16(b) | 25,000 | 25,687 | ||||||
36,012 | ||||||||
Paper Packaging–0.06% | ||||||||
Cascades Inc. (Canada), Sr. Gtd. Notes, 7.88%, 01/15/20(b) | 10,000 | 10,175 | ||||||
Sealed Air Corp., Sr. Notes, 7.88%, 06/15/17(b) | 5,000 | 5,342 | ||||||
15,517 | ||||||||
Paper Products–0.96% | ||||||||
Georgia-Pacific LLC, Deb., 7.70%, 06/15/15 | 25,000 | 26,375 | ||||||
International Paper Co., Sr. Unsec. Unsub. Global Bonds, 7.50%, 08/15/21 | 110,000 | 123,314 | ||||||
Mercer International Inc., Sr. Unsec. Global Notes, 9.25%, 02/15/13 | 105,000 | 86,363 | ||||||
236,052 | ||||||||
Personal Products–0.38% | ||||||||
Mead Johnson Nutrition Co., Sr. Unsec. Gtd. Unsub. Notes, 3.50%, 11/01/14(b) | 95,000 | 94,493 | ||||||
Pharmaceuticals–0.31% | ||||||||
Valeant Pharmaceuticals International, Sr. Unsec. Gtd. Notes, 8.38%, 06/15/16(b) | 25,000 | 25,875 | ||||||
Watson Pharmaceuticals Inc., Sr. Unsec. Global Notes, 5.00%, 08/15/14 | 50,000 | 51,260 | ||||||
77,135 | ||||||||
Property & Casualty Insurance–0.66% | ||||||||
CNA Financial Corp., Sr. Unsec. Unsub. Notes, 7.35%, 11/15/19 | 160,000 | 161,434 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Publishing–0.20% | ||||||||
Nielsen Finance LLC/Co., Sr. Unsec. Gtd. Sub. Disc. Global Notes, 12.50%, 08/01/16(c) | $ | 25,000 | $ | 22,937 | ||||
Reed Elsevier Capital Inc., Sr. Unsec. Gtd. Unsub. Global Notes, 6.75%, 08/01/11 | 25,000 | 26,791 | ||||||
49,728 | ||||||||
Regional Banks–0.25% | ||||||||
PNC Capital Trust C, Jr. Unsec. Gtd. Sub. Floating Rate Trust Pfd. Capital Securities Bonds, 0.83%, 06/01/28(e) | 100,000 | 61,293 | ||||||
Research & Consulting Services–1.45% | ||||||||
Erac USA Finance Co., Sr. Unsec. | ||||||||
Gtd. Notes, | ||||||||
7.00%, 10/15/37(b) | 70,000 | 68,461 | ||||||
Unsec. Gtd. Notes, | ||||||||
5.80%, 10/15/12(b) | 275,000 | 288,077 | ||||||
356,538 | ||||||||
Restaurants–1.31% | ||||||||
Yum! Brands Inc., Sr. Unsec. Notes, 5.30%, 09/15/19 | 320,000 | 322,781 | ||||||
Semiconductors–0.33% | ||||||||
Viasystems Inc., Sr. Unsec. Gtd. Global Notes, 10.50%, 01/15/11 | 80,000 | 80,000 | ||||||
Soft Drinks–0.50% | ||||||||
Coca-Cola Amatil Ltd. (Australia), Sr. Gtd. Notes, 3.25%, 11/02/14(b) | 125,000 | 123,833 | ||||||
Sovereign Debt–1.85% | ||||||||
Brazilian Government International Bond (Brazil), Sr. Unsec. Unsub. Global Notes, 5.88%, 01/15/19 | 120,000 | 127,950 | ||||||
United Mexican States (Mexico), Sr. Unsec. Global Notes, 5.88%, 02/17/14 | 300,000 | 326,812 | ||||||
454,762 | ||||||||
Specialized Finance–0.25% | ||||||||
National Rural Utilities Cooperative Finance Corp., Sr. Sec. Notes, 2.63%, 09/16/12 | 60,000 | 60,710 | ||||||
Specialty Chemicals–0.06% | ||||||||
Huntsman International LLC, Sr. Unsec. Gtd. Sub. Global Notes, 7.88%, 11/15/14 | 15,000 | 14,888 | ||||||
Specialty Properties–0.56% | ||||||||
Healthcare Realty Trust Inc., Sr. Unsec. Notes, 6.50%, 01/17/17 | 140,000 | 137,239 | ||||||
Specialty Stores–0.89% | ||||||||
Sally Holdings LLC/Sally Capital Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 11/15/14 | 25,000 | 26,156 | ||||||
Staples Inc., Sr. Unsec. Gtd. Unsub. Global Notes, 9.75%, 01/15/14 | 25,000 | 30,547 | ||||||
Sr. Unsec. Gtd. Unsub. Notes, | ||||||||
7.75%, 04/01/11 | 150,000 | 161,240 | ||||||
217,943 | ||||||||
Steel–0.82% | ||||||||
ArcelorMittal (Luxembourg), Sr. Unsec. Unsub. Global Notes, | ||||||||
9.00%, 02/15/15 | 55,000 | 64,144 | ||||||
7.00%, 10/15/39 | 130,000 | 137,802 | ||||||
201,946 | ||||||||
Textiles–0.21% | ||||||||
Invista, Sr. Unsec. Unsub. Notes, 9.25%, 05/01/12(b) | 50,000 | 51,000 | ||||||
Tires & Rubber–0.30% | ||||||||
Cooper Tire & Rubber Co., Sr. Unsec. Unsub. Notes, 7.63%, 03/15/27 | 25,000 | 21,750 | ||||||
Goodyear Tire & Rubber Co. (The), Sr. Unsec. Gtd. Unsub. Global Notes, 9.00%, 07/01/15 | 50,000 | 52,250 | ||||||
74,000 | ||||||||
Trading Companies & Distributors–0.10% | ||||||||
United Rentals North America, Inc., Sr. Unsec. Gtd. Global Notes, 6.50%, 02/15/12 | 25,000 | 25,063 | ||||||
Trucking–0.10% | ||||||||
Hertz Corp. (The), Sr. Unsec. Gtd. Global Notes, 8.88%, 01/01/14 | 25,000 | 25,688 | ||||||
Wireless Telecommunication Services–1.80% | ||||||||
American Tower Corp., Sr. Unsec. Notes, 4.63%, 04/01/15(b) | 90,000 | 90,961 | ||||||
Clearwire Communications LLC/Clearwire Finance Inc., Sr. Sec. Gtd. Notes, | ||||||||
12.00%, 12/01/15(b) | 5,000 | 5,125 | ||||||
12.00%, 12/01/15(b) | 35,000 | 35,875 | ||||||
SBA Telecommunications Inc., Sr. Gtd. Notes, | ||||||||
8.00%, 08/15/16(b) | 10,000 | 10,500 | ||||||
8.25%, 08/15/19(b) | 25,000 | 26,469 | ||||||
Sprint Capital Corp., Sr. Unsec. Gtd. Unsub. Global Notes, 6.88%, 11/15/28 | 50,000 | 42,000 | ||||||
Sprint Nextel Corp., Sr. Unsec. Unsub. Notes, 8.38%, 08/15/17 | 10,000 | 10,225 | ||||||
Vodafone Group PLC (United Kingdom), Sr. Unsec. Unsub. Global Notes, 7.75%, 02/15/10 | 220,000 | 221,646 | ||||||
442,801 | ||||||||
Total Bonds & Notes (Cost $18,180,349) | 19,031,068 | |||||||
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. Treasury Securities–10.19% | ||||||||
U.S. Treasury Notes–3.47% | ||||||||
1.50%, 12/31/13 | $ | 875,000 | $ | 852,168 | ||||
U.S. Treasury Bonds–6.72% | ||||||||
5.38%, 02/15/31(h) | 1,095,000 | 1,211,173 | ||||||
3.50%, 02/15/39 | 65,000 | 53,300 | ||||||
4.25%, 05/15/39 | 100,000 | 93,891 | ||||||
4.50%, 08/15/39 | 300,000 | 293,531 | ||||||
1,651,895 | ||||||||
Total U.S. Treasury Securities (Cost $2,582,074) | 2,504,063 | |||||||
Asset-Backed Securities–2.04% | ||||||||
Countrywide Asset-Backed Ctfs.–Series 2007-4, Class A1B, Pass Through Ctfs., 5.81%, 09/25/37 | 95,015 | 93,779 | ||||||
Credit Suisse Mortgage Capital Ctfs.–Series 2009-2R, Class 1A11, Floating Rate Pass Through Ctfs., 3.10%, 09/26/34(b)(e) | 152,630 | 146,098 | ||||||
TIAA Seasoned Commercial Mortgage Trust–Series 2007-C4, Class A2, Variable Rate Pass Through Ctfs., 5.79%, 08/15/39(e) | 45,000 | 46,731 | ||||||
Wells Fargo Mortgage Backed Securities Trust–Series 2004-Z, Class 2A1, Floating Rate Pass Through Ctfs., 2.97%, 12/25/34(e) | 229,941 | 216,105 | ||||||
Total Asset-Backed Securities (Cost $476,191) | 502,713 | |||||||
U.S. Government Sponsored Mortgage-Backed Securities–1.97% | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.94% | ||||||||
Pass Through Ctfs., | ||||||||
6.50%, 05/01/16 to 08/01/32 | 13,055 | 14,093 | ||||||
6.00%, 05/01/17 to 12/01/31 | 68,889 | 73,859 | ||||||
5.50%, 09/01/17 | 48,979 | 52,146 | ||||||
7.00%, 08/01/21 | 80,909 | 89,955 | ||||||
230,053 | ||||||||
Federal National Mortgage Association (FNMA)–0.88% | ||||||||
Pass Through Ctfs., | ||||||||
7.00%, 02/01/16 to 09/01/32 | 27,797 | 30,666 | ||||||
6.50%, 05/01/16 to 10/01/35 | 21,377 | 23,253 | ||||||
5.00%, 11/01/18 | 47,412 | 49,959 | ||||||
7.50%, 04/01/29 to 10/01/29 | 93,282 | 105,246 | ||||||
8.00%, 04/01/32 | 6,057 | 6,944 | ||||||
216,068 | ||||||||
Government National Mortgage Association (GNMA)–0.15% | ||||||||
Pass Through Ctfs., | ||||||||
7.50%, 06/15/23 | 11,914 | 13,415 | ||||||
8.50%, 11/15/24 | 6,277 | 7,242 | ||||||
7.00%, 07/15/31 to 08/15/31 | 3,251 | 3,621 | ||||||
6.50%, 11/15/31 to 03/15/32 | 6,351 | 6,856 | ||||||
6.00%, 11/15/32 | 6,075 | 6,491 | ||||||
37,625 | ||||||||
Total U.S. Government Sponsored Mortgage-Backed Securities (Cost $450,897) | 483,746 | |||||||
U.S. Government Sponsored Agency Securities–0.79% | ||||||||
Student Loan Marketing Association–0.79% | ||||||||
–Series-BED4, Sr. Unsec. Unsub. Floating Rate Medium-Term Notes, 0.56%, 03/15/10 (Cost $199,176)(e) | 200,000 | 194,686 | ||||||
Municipal Obligations–0.22% | ||||||||
Florida (State of) Development Finance Corp. (Palm Bay Academy Inc.); Series 2006 B, Taxable RB, 7.50%, 05/15/17 (Cost $64,523) | 65,000 | 53,698 | ||||||
Shares | ||||||||
Common Stocks & Other Equity Interests–0.02% | ||||||||
Broadcasting–0.02% | ||||||||
Adelphia Communications Corp.,(i) | — | 1,800 | ||||||
Adelphia Recovery Trust–Series ACC-1(i) | 87,412 | 2,797 | ||||||
Total Common Stocks & Other Equity Interests (Cost $22,181) | 4,597 | |||||||
Money Market Funds–6.43% | ||||||||
Liquid Assets Portfolio–Institutional Class(j) | 791,064 | 791,064 | ||||||
Premier Portfolio–Institutional Class(j) | 791,064 | 791,064 | ||||||
Total Money Market Funds (Cost $1,582,128) | 1,582,128 | |||||||
TOTAL INVESTMENTS–99.05% (Cost $23,557,519) | 24,356,699 | |||||||
OTHER ASSETS LESS LIABILITIES–0.95% | 233,167 | |||||||
NET ASSETS–100.00% | $ | 24,589,866 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Diversified Income Fund
Investment Abbreviations:
Ctfs. | – Certificates | |
Deb. | – Debentures | |
Disc. | – Discounted | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
Pfd. | – Preferred | |
RB | – Revenue Bonds | |
REIT | – Real Estate Investment Trust | |
Sec. | – Secured | |
Sr. | – Senior | |
Sub. | – Subordinated | |
Unsec. | – Unsecured | |
Unsub. | – Unsubordinated |
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) | 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 December 31, 2009 was $5,022,482, which represented 20.43% of the Fund’s Net Assets. | |
(c) | Step coupon bond issued at discount. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. | |
(d) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. | |
(e) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on December 31, 2009. | |
(f) | Perpetual bond with no specified maturity date. | |
(g) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The value of this security at December 31, 2009 represented less than 0.01% 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 1K and Note 4. | |
(i) | Non-income producing security acquired as part of the Adelphia Communications bankruptcy reorganization. | |
(j) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Diversified Income Fund
Statement of Assets and Liabilities
December 31, 2009
Assets: | ||||
Investments, at value (Cost $21,975,391) | $ | 22,774,571 | ||
Investments in affiliated money market funds, at value and cost | 1,582,128 | |||
Total investments, at value (Cost $23,557,519) | 24,356,699 | |||
Receivables for: | ||||
Fund shares sold | 2,540 | |||
Dividends and interest | 332,124 | |||
Investment for trustee deferred compensation and retirement plans | 35,155 | |||
Other assets | 369 | |||
Total assets | 24,726,887 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 25,694 | |||
Amount due custodian | 6,106 | |||
Variation margin | 7,445 | |||
Accrued fees to affiliates | 14,581 | |||
Accrued other operating expenses | 40,483 | |||
Trustee deferred compensation and retirement plans | 42,712 | |||
Total liabilities | 137,021 | |||
Net assets applicable to shares outstanding | $ | 24,589,866 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 39,447,510 | ||
Undistributed net investment income | 1,356,293 | |||
Undistributed net realized gain (loss) | (16,970,317 | ) | ||
Unrealized appreciation | 756,380 | |||
$ | 24,589,866 | |||
Net Assets: | ||||
Series I | $ | 24,299,345 | ||
Series II | $ | 290,521 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 4,129,498 | |||
Series II | 49,676 | |||
Series I: | ||||
Net asset value per share | $ | 5.88 | ||
Series II: | ||||
Net asset value per share | $ | 5.85 | ||
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Interest | $ | 1,523,745 | ||
Dividends | 53,617 | |||
Dividends from affiliated money market funds | 4,855 | |||
Total investment income | 1,582,217 | |||
Expenses: | ||||
Advisory fees | 142,633 | |||
Administrative services fees | 90,870 | |||
Custodian fees | 14,743 | |||
Distribution fees — Series II | 845 | |||
Transfer agent fees | 8,562 | |||
Trustees’ and officers’ fees and benefits | 20,359 | |||
Professional services fees | 51,589 | |||
Other | 24,107 | |||
Total expenses | 353,708 | |||
Less: Fees waived and expenses reimbursed | (175,934 | ) | ||
Net expenses | 177,774 | |||
Net investment income | 1,404,443 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (6,999,487 | ) | ||
Futures contracts | (75,702 | ) | ||
Swap agreements | 22,514 | |||
(7,052,675 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 8,391,038 | |||
Futures contracts | (310,449 | ) | ||
Swap agreements | 26,769 | |||
8,107,358 | ||||
Net realized and unrealized gain | 1,054,683 | |||
Net increase in net assets resulting from operations | $ | 2,459,126 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Diversified Income Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,404,443 | $ | 2,195,663 | ||||
Net realized gain (loss) | (7,052,675 | ) | (2,233,230 | ) | ||||
Change in net unrealized appreciation (depreciation) | 8,107,358 | (5,040,130 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 2,459,126 | (5,077,697 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (2,398,080 | ) | (2,560,300 | ) | ||||
Series II | (27,960 | ) | (44,345 | ) | ||||
Total distributions from net investment income | (2,426,040 | ) | (2,604,645 | ) | ||||
Share transactions-net: | ||||||||
Series I | 201,049 | (6,708,387 | ) | |||||
Series II | (122,516 | ) | (73,155 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | 78,533 | (6,781,542 | ) | |||||
Net increase (decrease) in net assets | 111,619 | (14,463,884 | ) | |||||
Net assets: | ||||||||
Beginning of year | 24,478,247 | 38,942,131 | ||||||
End of year (includes undistributed net investment income of $1,356,293 and $2,373,638, respectively) | $ | 24,589,866 | $ | 24,478,247 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. Diversified Income Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is to achieve a high level of current income.
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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, 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 ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
AIM V.I. Diversified Income Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds 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 adviser. | ||
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 adviser 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. |
AIM V.I. Diversified Income Fund
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. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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, including the Fund’s servicing agreements, 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. | ||
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. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). 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. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, 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. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. 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. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. |
AIM V.I. Diversified Income Fund
L. | Swap Agreements — The Fund may enter into various swap transactions, including interest rate, total return, index, currency exchange rate and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. | |
Interest rate, total return, 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 or return of an underlying asset, in a particular foreign currency, or in a “basket” of securities representing a particular index. | ||
A CDS is an agreement between two parties (“Counterparties”) to exchange the credit risk of an issuer. A buyer of a CDS is said to buy protection by paying a fixed payment over the life of the agreement and in some situations an upfront payment 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 eligible bonds issued by the 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 a fixed payment over the life of the agreement and an upfront payment, if applicable. 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 “par value” or the full notional value of the referenced obligation, and the Fund would receive the eligible bonds issued by the reference entity. In turn, these bonds may be sold in order to realize a recovery value. Alternatively, the seller of the CDS and its counterparty may agree to net the notional amount and the market value of the bonds and make a cash payment equal to the difference to the buyer of protection. 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. In connection with these agreements, cash and securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default under the swap agreement or bankruptcy/insolvency of a party to the swap agreement. | ||
Implied credit spreads represent the current level at which protection could be bought or sold given the terms of the existing CDS contract and serve as an indicator of the current status of the payment/performance risk of the CDS. An implied spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets. | ||
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 accrues for the fixed payment stream and amortizes upfront payments, if any, 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. The Fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the value of the contract. The risk may be mitigated by having a master netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to cover the Fund’s exposure to the counterparty. 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. Such risks involve the possibility that a swap is difficult to sell or liquidate; the counterparty does not honor its obligations under the agreement and unfavorable interest rates and market fluctuations. | ||
M. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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 Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver [and/or expense reimbursed] (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver [and/or expense reimbursed] to exceed
AIM V.I. Diversified Income Fund
the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time.
Further, the Adviser has contractually agreed, through at least June 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2009, the Adviser waived advisory fees of $142,633 and reimbursed Fund expenses of $33,301.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $40,870 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 year ended December 31, 2009, 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 year ended December 31, 2009, 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, IAIS and/or IADI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
AIM V.I. Diversified Income Fund
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 1,584,925 | $ | $ | 1,800 | $ | 1,586,725 | |||||||||
U.S. Treasury Securities | — | 2,504,063 | — | 2,504,063 | ||||||||||||
U.S. Government Sponsored Securities | — | 678,432 | — | 678,432 | ||||||||||||
Corporate Debt Securities | — | 19,031,068 | — | 19,031,068 | ||||||||||||
Asset Backed Securities | — | 502,713 | — | 502,713 | ||||||||||||
Municipal Obligations | — | 53,698 | — | 53,698 | ||||||||||||
$ | 1,584,925 | $ | 22,769,974 | $ | 1,800 | 24,356,699 | ||||||||||
Other Investments* | (42,800 | ) | — | — | (42,800 | ) | ||||||||||
Total Investments | $ | 1,542,125 | $ | 22,769,974 | $ | 1,800 | $ | 24,313,899 | ||||||||
* | Other Investments include futures, which are included at unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
Effective with the beginning of the Fund’s fiscal year, the Fund has implemented new required disclosures about derivative instruments and hedging activities in accordance with GAAP. GAAP has 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. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of December 31, 2009:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Interest rate risk | ||||||||
Futures contracts(a) | $ | 41,914 | $ | (84,714 | ) | |||
(a) | Includes cumulative appreciation of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets & Liabilities. |
Effect of Derivative Instruments for the year ended December 31, 2009
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||||||
Statement of Operations | ||||||||
Swap | ||||||||
Futures* | Agreements* | |||||||
Realized Gain (Loss) | ||||||||
Credit risk | $ | — | $ | 22,514 | ||||
Interest rate risk | (75,702 | ) | — | |||||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Credit risk | — | 26,769 | ||||||
Interest rate risk | (310,449 | ) | — | |||||
Total | $ | (386,151 | ) | $ | 49,283 | |||
* | The average value of futures and swap agreements outstanding during the period was $5,808,406, and $575,000, respectively. |
AIM V.I. Diversified Income Fund
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Month/ | Appreciation | ||||||||||||||
Contract | Contracts | Commitment | Value | (Depreciation) | ||||||||||||
U.S. Treasury 2 Year Notes | 12 | March-2010/Long | $ | 2,595,188 | $ | (11,651 | ) | |||||||||
U.S. Treasury 5 Year Notes | 19 | March-2010/Long | 2,173,273 | (31,858 | ) | |||||||||||
U.S. Treasury 30 Year Bonds | 8 | March-2010/Long | 923,000 | (41,205 | ) | |||||||||||
Subtotal | $ | 5,691,461 | $ | (84,714 | ) | |||||||||||
U.S. Treasury 10 Year Notes | 11 | March-2010/Short | (1,269,984 | ) | 41,914 | |||||||||||
Total | $ | 4,421,477 | $ | (42,800 | ) | |||||||||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $2,820 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 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, 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, 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.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2009 and 2008:
2009 | 2008 | |||||||
Ordinary income | $ | 2,426,040 | $ | 2,604,645 | ||||
Tax Components of Net Assets at Period-End:
2009 | ||||
Undistributed ordinary income | $ | 1,401,698 | ||
Net unrealized appreciation — investments | 799,180 | |||
Temporary book/tax differences | (45,405 | ) | ||
Post-October deferrals | (13,750 | ) | ||
Capital loss carryforward | (16,999,367 | ) | ||
Shares of beneficial interest | 39,447,510 | |||
Total net assets | $ | 24,589,866 | ||
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
AIM V.I. Diversified Income Fund
The Fund has a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2010 | $ | 6,879,052 | ||
December 31, 2014 | 341,884 | |||
December 31, 2015 | 221,396 | |||
December 31, 2016 | 2,197,944 | |||
December 31, 2017 | 7,359,091 | |||
Total capital loss carryforward | $ | 16,999,367 | ||
* | 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 year ended December 31, 2009 was $41,196,846 and $44,640,939, 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 | $ | 1,176,130 | ||
Aggregate unrealized (depreciation) of investment securities | (376,950 | ) | ||
Net unrealized appreciation of investment securities | $ | 799,180 | ||
Investments have the same cost for tax and financial statement purposes. |
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of expired capital loss carryforward, on December 31, 2009, undistributed net investment income was increased by $4,252, undistributed net realized gain (loss) was increased by $6,100,816 and shares of beneficial interest decreased by $6,105,068. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2009(a) | 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 503,808 | $ | 3,031,480 | 263,402 | $ | 1,949,370 | ||||||||||
Series II | 961 | 5,848 | 5,542 | 36,732 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 406,455 | 2,398,080 | 450,757 | 2,560,300 | ||||||||||||
Series II | 4,771 | 27,960 | 7,863 | 44,345 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (882,462 | ) | (5,228,511 | ) | (1,527,553 | ) | (11,218,057 | ) | ||||||||
Series II | (26,192 | ) | (156,324 | ) | (21,536 | ) | (154,232 | ) | ||||||||
Net increase (decrease) in share activity | 7,341 | $ | 78,533 | (821,525 | ) | $ | (6,781,542 | ) | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 78% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, 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 and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
AIM V.I. Diversified Income Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | |||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 5.87 | $ | 0.35 | $ | 0.29 | $ | 0.64 | $ | (0.63 | ) | $ | 5.88 | 10.89 | % | $ | 24,299 | 0.74 | %(d) | 1.48 | %(d) | 5.91 | %(d) | 200 | % | |||||||||||||||||||||||
Year ended 12/31/08 | 7.80 | 0.50 | (1.74 | ) | (1.24 | ) | (0.69 | ) | 5.87 | (15.59 | ) | 24,070 | 0.75 | 1.31 | 6.83 | 35 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 8.28 | 0.51 | (0.37 | ) | 0.14 | (0.62 | ) | 7.80 | 1.72 | 38,336 | 0.75 | 1.17 | 6.04 | 67 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 8.43 | 0.46 | (0.08 | ) | 0.38 | (0.53 | ) | 8.28 | 4.48 | 46,743 | 0.75 | 1.10 | 5.47 | 78 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 8.74 | 0.40 | (0.15 | ) | 0.25 | (0.56 | ) | 8.43 | 2.90 | 55,065 | 0.89 | 1.08 | 4.54 | 92 | ||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 5.83 | 0.34 | 0.29 | 0.63 | (0.61 | ) | 5.85 | 10.70 | 291 | 0.99 | (d) | 1.73 | (d) | 5.66 | (d) | 200 | ||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 7.74 | 0.48 | (1.72 | ) | (1.24 | ) | (0.67 | ) | 5.83 | (15.78 | ) | 409 | 1.00 | 1.56 | 6.58 | 35 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 8.21 | 0.48 | (0.36 | ) | 0.12 | (0.59 | ) | 7.74 | 1.51 | 606 | 1.00 | 1.42 | 5.79 | 67 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 8.36 | 0.44 | (0.09 | ) | 0.35 | (0.50 | ) | 8.21 | 4.17 | 713 | 1.00 | 1.35 | 5.22 | 78 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 8.67 | 0.38 | (0.15 | ) | 0.23 | (0.54 | ) | 8.36 | 2.67 | 902 | 1.14 | 1.33 | 4.29 | 92 | ||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $23,434 and $338 for Series I and Series II shares, respectively. |
AIM V.I. Diversified Income Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Diversified Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. Diversified Income Fund (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
February 10, 2010
Houston, Texas
AIM V.I. Diversified Income 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 July 1, 2009 through December 31, 2009.
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 | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,092.10 | $ | 3.90 | $ | 1,021.48 | $ | 3.77 | 0.74 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,092.00 | 5.22 | 1,020.21 | 5.04 | 0.99 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. Diversified Income Fund
Tax Information |
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2009:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 2.98% | |||
U.S. Treasury Obligations* | 2.64% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
AIM V.I. Diversified Income Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Trustee and/ | ||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||
Interested Persons | ||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | None | |||
Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | ||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co- Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | None | |||
Independent Trustees | ||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||
Frank S. Bayley — 1939 Trustee | 2001 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | None | |||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans Scholars Foundation and Executive Committee, United States Golf Association | |||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) | Board of Nature’s Sunshine Products, Inc. | |||
Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | ||||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) | Administaff | |||
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | ||||||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired | None | |||
Lewis F. Pennock — 1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||
Larry Soll — 1942 Trustee | 2004 | Retired | None | |||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) | None |
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers — (continued)
Trustee and/ | ||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||
Other Officers | ||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC | N/A | |||
Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | ||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® | N/A | |||
Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | ||||||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® | N/A | |||
Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | ||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) | N/A | |||
Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | ||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® | N/A | |||
Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. | N/A | |||
Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 100 | Invesco Advisers, Inc. | Invesco Aim Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 100 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Independent Trustees | Invesco Aim Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-2
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AIM V.I. Dynamics Fund
Annual Report to Shareholders n December 31, 2009
Annual Report to Shareholders n December 31, 2009
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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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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
Management’s Discussion of Fund Performance
Performance summary
For the fiscal year ended December 31, 2009, AIM V.I. Dynamics Fund, excluding variable product issuer charges, had positive double-digit returns but underper-formed the Fund’s style-specific benchmark, the Russell Midcap Growth Index. Underperformance was driven primarily by stock selection in several sectors.
The Fund outperformed the broad market as represented by the S&P 500 Index as mid-cap stocks generally outperformed large-cap stocks.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 42.44 | % | ||
Series II Shares | 42.31 | |||
S&P 500 Index6 (Broad Market Index) | 26.47 | |||
Russell Midcap Growth Index6 (Style-Specific Index) | 46.29 | |||
Lipper VUF Mid-Cap Growth Funds Index6 (Peer Group Index) | 45.97 |
6 | Lipper Inc. |
How we invest
We believe a growth investment strategy is an essential component of a diversified portfolio.
Our investment process combines fundamental and quantitative analysis to uncover companies exhibiting long-term, sustainable revenue, earnings and cash flow growth that is not yet reflected by the stock’s market price.
Our quantitative model ranks companies based on a set of fundamental, valuation and timeliness factors. This quantitative model is designed to identify stocks with the highest probability of meeting our team’s investment criteria. Stocks that are ranked highest by our quantitative model are the focus of our fundamental research efforts.
Our fundamental analysis focuses on identifying companies and industries with strong drivers of growth. To accomplish this goal, we develop a fully integrated financial model to gain a more complete understanding of the financial health of each investment candidate. Additionally, our research involves due diligence of the company, which includes a detailed analysis of the strategic plans of the company’s management team. We also analyze key competitors, customers and suppliers to assess the overall attractiveness and growth potential of the industry.
Risk management plays an important role in portfolio construction as our target portfolio attempts to limit volatility and downside risk. We seek to accomplish this goal by investing in sectors, industries and companies with attractive fundamental prospects. We limit the Fund’s sector exposure and also seek to minimize stock-specific risk by building a diversified portfolio.
We consider selling a stock for any of the following reasons:
n | There is a change in fundamentals, market capitalization or deterioration in the timeliness profile. | |
n | The price target set at purchase has been reached. | |
n | The investment thesis is no longer valid. | |
n | Insider selling indicates potential issues. |
Market conditions and your Fund
The fiscal year was truly a tale of two markets. During the second half of 2008 and the first two months of 2009, equity markets experienced steep declines as severe problems in the credit markets, a rapidly deteriorating housing market, rising energy and food prices and a deteriorating outlook for corporate earnings led to a global economic recession. However, the U.S. economy began to show signs that the economic contraction was moderating, and equity markets rapidly reversed direction beginning in March 2009 and rallied strongly for most of the remaining months of the fiscal year.
In this environment, indexes measuring the performance of large-, mid- and small-cap stocks all had positive returns, with mid-cap stocks outperforming large- and small-cap stocks.1 In terms of investment style, growth stocks outperformed value stocks.1 The sectors with the highest returns in the broad market as represented by the S&P 500 Index included more economically sensitive sectors such as information technology (IT), materials and consumer discretionary.1
The Fund had double-digit absolute returns, but underperformed the Russell Midcap Growth Index during the fiscal year. The Fund underperformed by the widest margin in the utilities, industrials, health care and materials sectors. The Fund’s cash position also detracted from relative performance as equity markets rallied. Some of this underperformance was offset by outperformance in other sectors, including financials, telecommunication services, consumer discretionary and consumer staples.
The Fund underperformed most significantly in the utilities sector, driven by stock selection. Despite reasonable stock valuation, NRG Energy spent much of the year defending itself against a hostile takeover and had double-digit losses in its share price, which detracted from Fund performance during the reporting period.
Portfolio Composition
By sector
Information Technology | 23.0 | % | ||
Industrials | 18.2 | |||
Consumer Discretionary | 17.1 | |||
Health Care | 11.6 | |||
Energy | 10.0 | |||
Financials | 8.2 | |||
Materials | 6.1 | |||
Consumer Staples | 2.4 | |||
Utilities | 1.3 | |||
Telecommunication Services | 1.0 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.1 |
Top 10 Equity Holdings*
1. Continental Resources, Inc. | 1.7 | % | ||
2. Avago Technologies Ltd. | 1.6 | |||
3. American Eagles Outfitters, Inc. | 1.6 | |||
4. Estee Lauder Cos. Inc. (The)-Class A | 1.5 | |||
5. Jarden Corp. | 1.5 | |||
6. Autodesk, Inc. | 1.5 | |||
7. Jones Lang LaSalle Inc. | 1.5 | |||
8. Capella Education Co. | 1.5 | |||
9. Macy’s, Inc. | 1.5 | |||
10. Altera Corp. | 1.5 |
Top Five Industries*
1. Semiconductors | 7.5 | % | ||
2. Oil & Gas Exploration & Production | 5.8 | |||
3. Trucking | 3.8 | |||
4. Application Software | 3.7 | |||
5. Apparel, Accessories & Luxury Goods | 3.5 | |||
Total Net Assets | $50.5 million | |||
Total Number of Holdings* | 96 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* | Excluding money market fund holdings. |
AIM V.I. Dynamics Fund
The Fund underperformed in the industrials sector due to stock selection. Much of the Fund’s underperformance was driven by stock selection in the transportation industry group, which normally outperforms as the economy exits recession. While several of the Fund’s holdings in this area had strong performance, two holdings detracted from absolute and relative performance during the period: truckload freight carrier Landstar System and cargo shipping services provider Diana Shipping. While we continued to own Landstar Systems at the end of the period, we sold our small position in Diana Shipping to concentrate the Fund’s holdings.
The Fund also underperformed in the health care sector. Within this sector, key detractors from performance included contract research organization holding Pharmaceutical Product Development, as well as Genzyme, a company that develops and markets products designed to treat genetic disorders and other debilitating diseases. While we continued to own Pharmaceutical Product Development at the close of the reporting period, we sold the Fund’s position in Genzyme due to deteriorating fundamentals.
In the materials sector, underperformance was driven primarily by stock selection. Within this sector, one of the leading detractors from performance was glass container manufacturer Owens-Illinois.
Some of this underperformance was offset by outperformance in other sectors. The Fund outperformed the Russell Midcap Growth Index by the widest margin in the financials sector. Within this sector, one area of strength for the Fund was its capital markets holdings. Many of these holdings had strong performance as economic and stock market conditions improved dramatically after the March rebound. Fund holding Morgan Stanley was a key contributor to performance. We sold this holding during the summer because the strong recovery in the shares caused the market capitalization to exceed our mid-cap mandate.
The Fund also outperformed in the telecommunication services, consumer staples, consumer discretionary and IT sectors. Outperformance in these sectors was driven largely by stock selection. An underweight position in the more defensive consumer staples sector was also a driver of outperformance. Key contributors to performance included hard-disk maker Western Digital, IT services provider Cognizant Technology Solutions, consumer products maker Jarden and undergarment maker Hanesbrands.
During the fiscal year, we increased the Fund’s exposure to more economically sensitive sectors including energy, IT, consumer discretionary and industrials. The largest reduction was in more defensive sectors such as utilities and consumer staples.
As we’ve discussed, the stock market experienced significant volatility during the fiscal year. We would like to caution investors against making investment decisions based on short-term performance. As always, we recommend that you consult a financial adviser to discuss your individual financial program. We thank you for your commitment to AIM V.I. Dynamics Fund.
1 | Lipper Inc. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
![(PHOTO OF PAUL RASPLICKA)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6942802.jpg)
Paul Rasplicka
Chartered Financial Analyst, senior portfolio manager, is lead manager of AIM V.I. Dynamics Fund. Mr. Rasplicka has been associated with the adviser and/or its affiliates since 1994. He began his investment career in 1982 as an equity research analyst. A native of Denver, Mr. Rasplicka is a magna cum laude graduate of the University of Colorado in Boulder with a B.S. in business administration. He earned an M.B.A. from the University of Chicago. He is a Chartered Investment Counselor.
![(PHOTO OF BRENT LIUM)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6942803.jpg)
Brent Lium
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Dynamics Fund. He joined Invesco in 1999 in its corporate associate program and joined Invesco Aim in 2003. Mr. Lium earned a B.B.A. from Texas A&M University and an M.B.A. from The University of Texas at Austin.
Assisted by the Mid Cap Growth Team
AIM V.I. Dynamics Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class since Inception
Fund data from 8/22/97, index data from 8/31/97
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$40,000 $17,292 Russell Midcap Growth Index1 20,000 $16,342 Lipper VUF Mid-Cap Growth Funds Index1 $15,352 S&P 500 Index1 10,000 $14,473 AIM V.I. Dynamics Fund- Series I Shares 5,000 8/22/97 12/98 12/99 12/00 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 |
1 | Lipper Inc. |
Past performance cannot guarantee comparable future results.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on.
Average Annual Total Returns
As of 12/31/09
As of 12/31/09
Series I Shares | ||||
Inception (8/22/97) | 3.04 | % | ||
10 Years | -2.79 | |||
5 Years | 1.30 | |||
1 Year | 42.44 | |||
Series II Shares | ||||
10 Years | -3.01 | % | ||
5 Years | 1.09 | |||
1 Year | 42.31 |
Series II shares’ inception date is April 30, 2004. 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 August 22, 1997. 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 adviser 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 net 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 1.22% and 1.45%, respectively.1 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 1.22% and 1.47%, 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. Dynamics 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 the 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 adviser.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. |
AIM V.I. Dynamics Fund
AIM V.I. Dynamics Fund’s investment objective is long-term capital growth.
n | Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. |
Principal risks of investing in the Fund
Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market The Fund invests in “growth” stocks, which may be more volatile than other investment styles because growth stocks are more sensitive to investor perceptions of an issuing company’s growth potential.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
Stocks fall into three broad market capitalization categories — large, medium, and small. Investing primarily in one category carries the risk that, due to current market conditions, that category may be out of favor with investors. Small and mid-sized companies may tend to be more vulnerable to adverse developments and more volatile than larger companies. Investments in small and mid-sized companies may involve special risks, including those associated with dependence on a small management group, little of no operating history, little or no track record of success, and limited product lines, market and financial resources. Also, there may be less publicly available information about the issuers of the securities or less market interest in such securities than in the case of larger companies, each of which can cause significant price volatility. The securities of small and mid-sized companies may be illiquid, restricted as to resale, or may trade less frequently and in smaller volume than more widely held securities, which may make it difficult for fund to establish or close out a position in these securities at prevailing market prices. The prices of securities held by the Fund may decline in response to market risks.
The prices of securities held by the Fund may decline in response to market risks.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Russell Midcap® Growth Index is an unmanaged index considered representative of mid-cap growth stocks. The Russell Midcap Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Mid-Cap Growth Funds Index is an unmanaged index considered representative of mid-cap growth variable insurance underlying funds tracked by Lipper.
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 the peer group reflects fund expenses; performance of a market index does not.
Other information
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
AIM V.I. Dynamics Fund
Schedule of Investments(a)
December 31, 2009
Shares | Value | |||||||
Common Stocks–98.93% | ||||||||
Aerospace & Defense–1.14% | ||||||||
BE Aerospace, Inc.(b) | 24,591 | $ | 577,889 | |||||
Air Freight & Logistics–0.91% | ||||||||
UTI Worldwide, Inc. | 32,156 | 460,474 | ||||||
Apparel Retail–1.56% | ||||||||
American Eagle Outfitters, Inc. | 46,304 | 786,242 | ||||||
Apparel, Accessories & Luxury Goods–3.47% | ||||||||
Carter’s, Inc.(b) | 22,929 | 601,886 | ||||||
Coach, Inc. | 13,574 | 495,858 | ||||||
Hanesbrands, Inc.(b) | 27,097 | 653,309 | ||||||
1,751,053 | ||||||||
Application Software–3.70% | ||||||||
Adobe Systems Inc.(b) | 13,895 | 511,058 | ||||||
Autodesk, Inc.(b) | 29,860 | 758,743 | ||||||
Solera Holdings Inc. | 16,715 | 601,907 | ||||||
1,871,708 | ||||||||
Asset Management & Custody Banks–1.94% | ||||||||
Affiliated Managers Group, Inc.(b) | 8,926 | 601,166 | ||||||
State Street Corp. | 8,761 | 381,454 | ||||||
982,620 | ||||||||
Automotive Retail–0.41% | ||||||||
O’Reilly Automotive, Inc.(b) | 5,417 | 206,496 | ||||||
Biotechnology–2.09% | ||||||||
Talecris Biotherapeutics Holdings Corp.(b) | 24,407 | 543,544 | ||||||
United Therapeutics Corp.(b) | 9,699 | 510,652 | ||||||
1,054,196 | ||||||||
Casinos & Gaming–0.88% | ||||||||
International Game Technology | 23,738 | 445,562 | ||||||
Coal & Consumable Fuels–1.06% | ||||||||
CONSOL Energy Inc. | 10,734 | 534,553 | ||||||
Communications Equipment–0.77% | ||||||||
Brocade Communications Systems, Inc.(b) | 50,846 | 387,955 | ||||||
Computer Storage & Peripherals–2.33% | ||||||||
NetApp, Inc.(b) | 16,801 | 577,786 | ||||||
Western Digital Corp.(b) | 13,620 | 601,323 | ||||||
1,179,109 | ||||||||
Construction & Engineering–1.50% | ||||||||
Quanta Services, Inc.(b) | 16,624 | 346,444 | ||||||
Shaw Group Inc. (The)(b) | 14,304 | 411,240 | ||||||
757,684 | ||||||||
Construction, Farm Machinery & Heavy Trucks–0.55% | ||||||||
Bucyrus International, Inc. | 4,917 | 277,171 | ||||||
Consumer Finance–0.49% | ||||||||
Capital One Financial Corp. | 6,424 | 246,296 | ||||||
Data Processing & Outsourced Services–1.22% | ||||||||
Alliance Data Systems Corp.(b)(c) | 9,578 | 618,643 | ||||||
Department Stores–2.54% | ||||||||
Macy’s, Inc. | 44,815 | 751,100 | ||||||
Nordstrom, Inc. | 14,135 | 531,193 | ||||||
1,282,293 | ||||||||
Distributors–0.99% | ||||||||
LKQ Corp.(b) | 25,641 | 502,307 | ||||||
Diversified Metals & Mining–1.99% | ||||||||
Freeport-McMoRan Copper & Gold Inc. | 4,763 | 382,422 | ||||||
Walter Energy, Inc. | 8,246 | 621,006 | ||||||
1,003,428 | ||||||||
Diversified Support Services–1.98% | ||||||||
Copart, Inc.(b) | 13,136 | 481,172 | ||||||
KAR Auction Services Inc.(b) | 37,517 | 517,359 | ||||||
998,531 | ||||||||
Education Services–2.79% | ||||||||
Capella Education Co.(b) | 10,025 | 754,882 | ||||||
ITT Educational Services, Inc.(b) | 6,836 | 655,983 | ||||||
1,410,865 | ||||||||
Electrical Components & Equipment–2.40% | ||||||||
Baldor Electric Co. | 19,151 | 537,952 | ||||||
Cooper Industries PLC (Ireland) | 15,822 | 674,650 | ||||||
1,212,602 | ||||||||
Electronic Components–1.27% | ||||||||
Amphenol Corp.–Class A | 13,855 | 639,824 | ||||||
Environmental & Facilities Services–1.00% | ||||||||
Republic Services, Inc. | 17,832 | 504,824 | ||||||
Fertilizers & Agricultural Chemicals–1.17% | ||||||||
Intrepid Potash, Inc.(b) | 20,319 | 592,705 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Dynamics Fund
Shares | Value | |||||||
Health Care Equipment–2.05% | ||||||||
American Medical Systems Holdings, Inc.(b) | 30,435 | $ | 587,091 | |||||
NuVasive, Inc.(b) | 5,631 | 180,080 | ||||||
ResMed Inc.(b) | 5,142 | 268,772 | ||||||
1,035,943 | ||||||||
Health Care Facilities–1.52% | ||||||||
Psychiatric Solutions, Inc.(b) | 16,716 | 353,376 | ||||||
VCA Antech, Inc.(b) | 16,739 | 417,136 | ||||||
770,512 | ||||||||
Health Care Services–1.63% | ||||||||
Express Scripts, Inc.(b) | 5,641 | 487,665 | ||||||
Fresenius Medical Care AG & Co. KGaA (Germany) | 6,398 | 338,346 | ||||||
826,011 | ||||||||
Hotels, Resorts & Cruise Lines–1.04% | ||||||||
Starwood Hotels & Resorts Worldwide, Inc. | 14,404 | 526,754 | ||||||
Household Products–0.91% | ||||||||
Energizer Holdings, Inc.(b) | 7,464 | 457,394 | ||||||
Housewares & Specialties–1.52% | ||||||||
Jarden Corp. | 24,790 | 766,259 | ||||||
Human Resource & Employment Services–0.98% | ||||||||
Robert Half International, Inc. | 18,471 | 493,730 | ||||||
Independent Power Producers & Energy Traders–1.29% | ||||||||
KGEN Power Corp. (Acquired 01/12/07; Cost $613,032)(b)(d) | 43,788 | 262,728 | ||||||
NRG Energy, Inc.(b) | 16,567 | 391,147 | ||||||
653,875 | ||||||||
Industrial Machinery–0.96% | ||||||||
Flowserve Corp. | 5,152 | 487,019 | ||||||
Investment Banking & Brokerage–1.16% | ||||||||
TD Ameritrade Holding Corp.(b) | 30,293 | 587,078 | ||||||
IT Consulting & Other Services–1.48% | ||||||||
Cognizant Technology Solutions Corp.–Class A(b) | 16,515 | 748,129 | ||||||
Life & Health Insurance–2.09% | ||||||||
Aflac, Inc. | 11,533 | 533,401 | ||||||
Lincoln National Corp. | 21,059 | 523,948 | ||||||
1,057,349 | ||||||||
Life Sciences Tools & Services–1.59% | ||||||||
Pharmaceutical Product Development, Inc. | 11,714 | 274,576 | ||||||
Thermo Fisher Scientific, Inc.(b) | 11,074 | 528,119 | ||||||
802,695 | ||||||||
Managed Health Care–2.14% | ||||||||
AMERIGROUP Corp.(b) | 22,269 | 600,372 | ||||||
Aveta, Inc. (Acquired 12/21/05-05/22/06; Cost $1,165,095)(b)(d) | 80,000 | 480,000 | ||||||
1,080,372 | ||||||||
Metal & Glass Containers–1.01% | ||||||||
Crown Holdings, Inc.(b) | 20,042 | 512,674 | ||||||
Multi-Line Insurance–1.03% | ||||||||
Genworth Financial Inc.–Class A(b) | 45,994 | 522,032 | ||||||
Oil & Gas Drilling–1.46% | ||||||||
Noble Corp. | 12,101 | 492,511 | ||||||
Patterson-UTI Energy, Inc. | 15,926 | 244,464 | ||||||
736,975 | ||||||||
Oil & Gas Equipment & Services–1.74% | ||||||||
Key Energy Services, Inc.(b) | 66,994 | 588,877 | ||||||
Petroleum Geo-Services A.S.A. (Norway)(b) | 25,571 | 290,080 | ||||||
878,957 | ||||||||
Oil & Gas Exploration & Production–5.76% | ||||||||
Atlas Energy, Inc. | 17,956 | 541,721 | ||||||
Continental Resources, Inc.(b) | 20,499 | 879,202 | ||||||
EXCO Resources, Inc. | 30,727 | 652,334 | ||||||
SandRidge Energy, Inc.(b) | 50,368 | 474,970 | ||||||
Southwestern Energy Co.(b) | 7,553 | 364,055 | ||||||
2,912,282 | ||||||||
Personal Products–1.54% | ||||||||
Estee Lauder Cos. Inc. (The)–Class A | 16,048 | 776,081 | ||||||
Pharmaceuticals–0.60% | ||||||||
Shire PLC (United Kingdom) | 15,524 | 303,527 | ||||||
Real Estate Services–1.50% | ||||||||
Jones Lang LaSalle Inc. | 12,536 | 757,174 | ||||||
Research & Consulting Services–1.00% | ||||||||
IHS Inc.–Class A(b) | 9,235 | 506,170 | ||||||
Security & Alarm Services–0.98% | ||||||||
Corrections Corp. of America(b) | 20,274 | 497,727 | ||||||
Semiconductor Equipment–2.19% | ||||||||
ASML Holding N.V. (Netherlands) | 16,311 | 554,029 | ||||||
KLA-Tencor Corp. | 15,249 | 551,404 | ||||||
1,105,433 | ||||||||
Semiconductors–7.47% | ||||||||
Altera Corp. | 33,159 | 750,388 | ||||||
Avago Technologies Ltd. (Singapore)(b) | 43,291 | 791,792 | ||||||
Broadcom Corp.–Class A(b) | 15,609 | 490,903 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Dynamics Fund
Shares | Value | |||||||
Semiconductors–(continued) | ||||||||
Marvell Technology Group Ltd.(b) | 32,753 | $ | 679,625 | |||||
ON Semiconductor Corp.(b) | 58,791 | 517,949 | ||||||
Xilinx, Inc. | 21,759 | 545,281 | ||||||
3,775,938 | ||||||||
Specialty Chemicals–0.99% | ||||||||
Albemarle Corp. | 13,810 | 502,270 | ||||||
Specialty Stores–0.91% | ||||||||
Ulta Salon, Cosmetics & Fragrance, Inc.(b) | 25,363 | 460,592 | ||||||
Steel–0.94% | ||||||||
Steel Dynamics, Inc. | 26,701 | 473,142 | ||||||
Systems Software–2.58% | ||||||||
Check Point Software Technologies Ltd. (Israel)(b) | 20,629 | 698,910 | ||||||
McAfee Inc.(b) | 14,866 | 603,114 | ||||||
1,302,024 | ||||||||
Tires & Rubber–0.96% | ||||||||
Goodyear Tire & Rubber Co. (The)(b) | 34,282 | 483,376 | ||||||
Trading Companies & Distributors–0.96% | ||||||||
Fastenal Co.(c) | 11,640 | 484,690 | ||||||
Trucking–3.78% | ||||||||
Con-way Inc. | 13,652 | 476,591 | ||||||
J.B. Hunt Transport Services, Inc. | 15,526 | 501,024 | ||||||
Knight Transportation, Inc. | 23,741 | 457,964 | ||||||
Landstar System, Inc. | 12,301 | 476,910 | ||||||
1,912,489 | ||||||||
Wireless Telecommunication Services–1.02% | ||||||||
Crown Castle International Corp.(b) | 13,197 | 515,211 | ||||||
Total Common Stocks (Cost $44,389,928) | 49,996,914 | |||||||
Money Market Funds–1.38% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 348,790 | 348,790 | ||||||
Premier Portfolio–Institutional Class(e) | 348,790 | 348,790 | ||||||
Total Money Market Funds (Cost $697,580) | 697,580 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.31% (Cost $45,087,508) | 50,694,494 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–1.67% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $843,711)(e)(f) | 843,711 | 843,711 | ||||||
TOTAL INVESTMENTS–101.98% (Cost $45,931,219) | 51,538,205 | |||||||
OTHER ASSETS LESS LIABILITIES–(1.98)% | (1,002,905 | ) | ||||||
NET ASSETS–100.00% | $ | 50,535,300 | ||||||
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 December 31, 2009. | |
(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 December 31, 2009 was $742,728, which represented 1.47% of the Fund’s Net Assets. | |
(e) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(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. Dynamics Fund
Statement of Assets and Liabilities
December 31, 2009
Assets: | ||||
Investments, at value (Cost $44,389,928)* | $ | 49,996,914 | ||
Investments in affiliated money market funds, at value and cost | 1,541,291 | |||
Total investments, at value (Cost $45,931,219) | 51,538,205 | |||
Receivables for: | ||||
Fund shares sold | 5,045 | |||
Dividends | 29,838 | |||
Investment for trustee deferred compensation and retirement plans | 11,175 | |||
Total assets | 51,584,263 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 85,645 | |||
Amount due custodian | 38,166 | |||
Collateral upon return of securities loaned | 843,711 | |||
Accrued fees to affiliates | 29,709 | |||
Accrued other operating expenses | 30,742 | |||
Trustee deferred compensation and retirement plans | 20,990 | |||
Total liabilities | 1,048,963 | |||
Net assets applicable to shares outstanding | $ | 50,535,300 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 126,325,621 | ||
Undistributed net investment income (loss) | (20,836 | ) | ||
Undistributed net realized gain (loss) | (81,376,526 | ) | ||
Unrealized appreciation | 5,607,041 | |||
$ | 50,535,300 | |||
Net Assets: | ||||
Series I | $ | 50,528,148 | ||
Series II | $ | 7,152 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 3,550,838 | |||
Series II | 508.7 | |||
Series I: | ||||
Net asset value per share | $ | 14.23 | ||
Series II: | ||||
Net asset value per share | $ | 14.06 | ||
* | At December 31, 2009, securities with an aggregate value of $820,857 were on loan to brokers. |
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Dividends (net of foreign withholding taxes of $3,060) | $ | 257,755 | ||
Dividends from affiliated money market funds (includes securities lending income of $2,127) | 7,530 | |||
Total investment income | 265,285 | |||
Expenses: | ||||
Advisory fees | 328,847 | |||
Administrative services fees | 160,093 | |||
Custodian fees | 12,550 | |||
Distribution fees — Series II | 15 | |||
Transfer agent fees | 16,913 | |||
Trustees’ and officers’ fees and benefits | 21,253 | |||
Professional services fees | 37,630 | |||
Other | 11,250 | |||
Total expenses | 588,551 | |||
Less: Fees waived | (16,133 | ) | ||
Net expenses | 572,418 | |||
Net investment income (loss) | (307,133 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $75,594) | (5,128,094 | ) | ||
Foreign currencies | (1,416 | ) | ||
(5,129,510 | ) | |||
Change in net unrealized appreciation of: | ||||
Investment securities | 21,019,220 | |||
Foreign currencies | 41 | |||
21,019,261 | ||||
Net realized and unrealized gain | 15,889,751 | |||
Net increase in net assets resulting from operations | $ | 15,582,618 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Dynamics Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (307,133 | ) | $ | (495,009 | ) | ||
Net realized gain (loss) | (5,129,510 | ) | (20,959,904 | ) | ||||
Change in net unrealized appreciation (depreciation) | 21,019,261 | (25,826,186 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 15,582,618 | (47,281,099 | ) | |||||
Share transactions-net: | ||||||||
Series I | (6,716,157 | ) | (33,243,831 | ) | ||||
Series II | — | — | ||||||
Net increase (decrease) in net assets resulting from share transactions | (6,716,157 | ) | (33,243,831 | ) | ||||
Net increase (decrease) in net assets | 8,866,461 | (80,524,930 | ) | |||||
Net assets: | ||||||||
Beginning of year | 41,668,839 | 122,193,769 | ||||||
End of year (includes undistributed net investment income (loss) of $(20,836) and $(31,157), respectively) | $ | 50,535,300 | $ | 41,668,839 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. Dynamics Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is long-term capital growth.
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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on 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 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 |
AIM V.I. Dynamics Fund
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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
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 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 adviser. | ||
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 adviser 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. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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 |
AIM V.I. Dynamics Fund
contracts, including the Fund’s servicing agreements, 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. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could 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, if any. | |
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 — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts 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. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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 Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
AIM V.I. Dynamics Fund
On December 31, 2009, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time.
Further, the Adviser has contractually agreed, through at least June 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended December 31, 2009, the Adviser waived advisory fees of $16,127 and class level expenses of $6 for Series II shares.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $110,093 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 year ended December 31, 2009, 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 year ended December 31, 2009, 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, IAIS and/or IADI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 49,951,368 | $ | 844,109 | $ | 742,728 | $ | 51,538,205 | ||||||||
AIM V.I. Dynamics Fund
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2009, the Fund engaged in securities purchases of $359,901 and securities sales of $456,769, which resulted in net realized gains of $75,594.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $2,865 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, 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, not to exceed the contractually agreed upon rate.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2009 and 2008:
There were no ordinary income or long-term capital gain distibutions paid during the years ended December 31, 2009 and 2008.
Tax Components of Net Assets at Period-End:
2009 | ||||
Net unrealized appreciation — investments | $ | 5,571,588 | ||
Net unrealized appreciation — other investments | 55 | |||
Temporary book/tax differences | (20,836 | ) | ||
Capital loss carryforward | (81,341,128 | ) | ||
Shares of beneficial interest | 126,325,621 | |||
Total net assets | $ | 50,535,300 | ||
The difference between book-basis and tax-basis unrealized appreciation is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2010 | $ | 55,297,523 | ||
December 31, 2016 | 15,509,594 | |||
December 31, 2017 | 10,534,011 | |||
Total capital loss carryforward | $ | 81,341,128 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
AIM V.I. Dynamics Fund
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2009 was $41,724,993 and $48,711,143, 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 | $ | 8,528,018 | ||
Aggregate unrealized (depreciation) of investment securities | (2,956,430 | ) | ||
Net unrealized appreciation of investment securities | $ | 5,571,588 | ||
Cost of investments for tax purposes is $45,966,617. |
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of partnerships and net operating losses, on December 31, 2009, undistributed net investment income (loss) was increased by $317,454, undistributed net realized gain (loss) was increased by $60,712 and shares of beneficial interest decreased by $378,166. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended December 31, | ||||||||||||||||
2009(a) | 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 838,528 | $ | 9,769,860 | 972,706 | $ | 15,255,323 | ||||||||||
Series II | — | — | — | — | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,457,783 | ) | (16,486,017 | ) | (3,154,261 | ) | (48,499,154 | ) | ||||||||
Series II | — | — | — | — | ||||||||||||
Net increase (decrease) in share activity | (619,255 | ) | $ | (6,716,157 | ) | (2,181,555 | ) | $ | (33,243,831 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 68% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, 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 and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and or Invesco 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 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||
Net asset | Net | (losses) on | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||
value, | investment | securities (both | Total from | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | ||||||||||||||||||||||||||||||||||
of period | (loss) | unrealized) | operations | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | ||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 9.99 | $ | (0.08 | )(c) | $ | 4.32 | $ | 4.24 | $ | 14.23 | 42.44 | % | $ | 50,528 | 1.30 | %(d) | 1.33 | %(d) | (0.70 | )%(d) | 97 | % | |||||||||||||||||||||
Year ended 12/31/08 | 19.24 | (0.10 | )(c) | (9.15 | ) | (9.25 | ) | 9.99 | (48.08 | ) | 41,664 | 1.22 | 1.22 | (0.62 | ) | 106 | ||||||||||||||||||||||||||||
Year ended 12/31/07 | 17.15 | (0.11 | )(c) | 2.20 | 2.09 | 19.24 | 12.19 | 122,184 | 1.11 | 1.11 | (0.58 | ) | 115 | |||||||||||||||||||||||||||||||
Year ended 12/31/06 | 14.77 | (0.09 | ) | 2.47 | 2.38 | 17.15 | 16.11 | 120,792 | 1.12 | 1.13 | (0.51 | ) | 142 | |||||||||||||||||||||||||||||||
Year ended 12/31/05 | 13.34 | (0.04 | ) | 1.47 | 1.43 | 14.77 | 10.72 | 111,655 | 1.16 | 1.17 | (0.29 | ) | 110 | |||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 9.88 | (0.09 | )(c) | 4.27 | 4.18 | 14.06 | 42.31 | 7 | 1.45 | (d) | 1.58 | (d) | (0.85 | )(d) | 97 | |||||||||||||||||||||||||||||
Year ended 12/31/08 | 19.06 | (0.12 | )(c) | (9.06 | ) | (9.18 | ) | 9.88 | (48.16 | ) | 5 | 1.45 | 1.47 | (0.85 | ) | 106 | ||||||||||||||||||||||||||||
Year ended 12/31/07 | 17.04 | (0.15 | )(c) | 2.17 | 2.02 | 19.06 | 11.85 | 10 | 1.36 | 1.36 | (0.83 | ) | 115 | |||||||||||||||||||||||||||||||
Year ended 12/31/06 | 14.71 | (0.12 | ) | 2.45 | 2.33 | 17.04 | 15.84 | 14 | 1.37 | 1.38 | (0.76 | ) | 142 | |||||||||||||||||||||||||||||||
Year ended 12/31/05 | 13.32 | (0.07 | ) | 1.46 | 1.39 | 14.71 | 10.44 | 12 | 1.41 | 1.42 | (0.54 | ) | 110 | |||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $44,135 and $6 for Series I and Series II shares, respectively. |
AIM V.I. Dynamics Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Dynamics Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. Dynamics Fund (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 10, 2010
Houston, Texas
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 July 1, 2009, through December 31, 2009.
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 | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,283.10 | $ | 7.48 | $ | 1,018.65 | $ | 6.61 | 1.30 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,282.80 | 8.34 | 1,017.90 | 7.38 | 1.45 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. Dynamics Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Trustee and/ | ||||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | None | |||||
Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | ||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co- Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC | None | |||||
Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||||
Frank S. Bayley — 1939 Trustee | 2001 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | None | |||||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans Scholars Foundation and Executive Committee, United States Golf Association | |||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) | Board of Nature’s Sunshine Products, Inc. | |||||
Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | ||||||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) | Administaff | |||||
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | ||||||||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired | None | |||||
Lewis F. Pennock — 1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||||
Larry Soll — 1942 Trustee | 2004 | Retired | None | |||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) | None |
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers – (continued)
Trustee and/ | ||||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC | N/A | |||||
Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | ||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | N/A | |||||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® | N/A | |||||
Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | ||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) | N/A | |||||
Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® | N/A | |||||
Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. | N/A | |||||
Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 100 | Invesco Advisers, Inc. | Invesco Aim Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 100 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Independent Trustees | Invesco Aim Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-2
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AIM V.I. Financial Services Fund
Annual Report to Shareholders n December 31, 2009
Annual Report to Shareholders n December 31, 2009
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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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2009, and excluding variable product issuer charges, AIM V.I. Financial Services Fund performed essentially in line with the S&P 500 Index and Lipper VUF Financial Services Funds category average while outperforming the S&P 500 Financials Index.
While many individual holdings in various financial industries contributed to the Fund’s performance, the underlying reason for our outperformance versus our style-specific index was the offensive position of the Fund, which drove performance as the sector recovered from lows reached early in the year.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 27.43 | % | ||
Series II Shares | 27.30 | |||
S&P 500 Index▼ (Broad Market Index) | 26.47 | |||
S&P 500 Financials Index▼ (Style-Specific Index) | 17.22 | |||
Lipper VUF Financial Services Funds Category Average▼ (Peer Group) | 27.07 |
▼ | Lipper Inc. |
How we invest
We seek to create wealth for our shareholders by maintaining a long-term investment horizon and investing in two primary opportunities we believe have historically resulted in superior investment returns in the financials sector:
n | Financial companies trading at a significant discount to our estimate of intrinsic value† because of excessive short-term investor pessimism. Estimated intrinsic value† is a measure based primarily on the estimated future cash flows generated by the businesses. | |
n | Reasonably valued financial companies that demonstrate superior capital discipline by returning excess capital to shareholders in the form of dividends and share repurchases. |
We maintain a proprietary database of intrinsic value estimates and screen financial companies for those we deem to be of acceptable quality.
Purchase candidates are subject to exhaustive fundamental analysis. We focus on the drivers of estimated intrinsic value such as normalized earnings power, marginal returns on economic equity (which adjusts for distortions present in accounting numbers) and sustainable growth. Additionally, we strive to understand a company’s ability and willingness to grow capital returned to shareholders in the future. Finally, we focus on quality, including competitive position, management and financial strength.
The result is normally a 35- to 50-stock portfolio of investments that we believe are attractive from a valuation and/or a capital discipline perspective. In constructing a portfolio, we attempt to mitigate risk in multiple ways, including by diversifying holdings across industries and businesses that react in different ways to changes in interest rates and economic cycles.
We believe a portfolio of undervalued and capital-disciplined quality financial companies that profitably grow cash flows over time provides the best opportunity for superior long-term investment results.
Market conditions and your Fund
The year 2009 was characterized by two dramatically different market environments. In the first few months of the year, equity markets declined steeply as credit markets froze and risk premiums rose dramatically in response to the global financial crisis. As central banks coordinated easing efforts and companies cut costs aggressively, access to funding improved and market valuations in both the credit and equity markets recovered from their March lows. The financials sector led the market during both periods — declining by almost 50%1 from January 1 to March 9, and then rebounding by more than 100%1 from March 10 to December 31. While the extreme strains caused by the financial crisis have abated, concerns about economic resilience remain, and valuations remain at appealing levels. Our investment results can be lumpy during periods like this, but historically these types of markets have yielded attractive opportunities for future capital growth.
In this environment, the Fund posted gains, outperforming its style-specific index. While many individual holdings in various financial industries contributed to the Fund’s performance, the underlying reason for our outperformance was the offensive position of the Fund, which drove performance as the sector recovered from its March 2009 lows.
Portfolio Composition
By sector | |||||
Financials | 84.2 | % | |||
Information Technology | 7.2 | ||||
Health Care | 3.8 | ||||
Consumer Discretionary | 2.0 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 2.8 | ||||
Top 10 Equity Holdings* | |||||
1. Capital One Financial Corp. | 7.2 | % | |||
2. XL Capital Ltd.-Class A | 6.7 | ||||
3. JPMorgan Chase & Co. | 6.6 | ||||
4. American Express Co. | 5.9 | ||||
5. Bank of America Corp. | 5.1 | ||||
6. SLM Corp. | 4.7 | ||||
7. Moody’s Corp. | 4.6 | ||||
8. Fifth Third Bancorp | 4.6 | ||||
9. Legg Mason, Inc. | 4.0 | ||||
10. UnitedHealth Group Inc. | 3.8 | ||||
Total Net Assets | $65.5 million | ||||
Total Number of Holdings* | 37 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* | Excluding money market fund holdings. |
AIM V.I. Financial Services Fund
The largest contributors to performance were XL Capital and Morgan Stanley. After declining significantly in 2008 due to capital and credit-related issues, specialty insurance provider XL Capital’s stock rebounded from its early-2009 lows, gaining nearly 400% during the year as investor concerns abated from what, in retrospect, were excessively pessimistic views. We continue to believe the company is undervalued despite its stock’s significant rebound. Morgan Stanley’s stock rose by over 75% during the year. Investors reacted favorably to the announcement of a joint venture between the company and Citigroup in which Morgan Stanley bought Citi’s Smith Barney unit and combined it with its own global wealth management group. The new joint venture, called Morgan Stanley Smith Barney, is the industry’s leading wealth management business and was an early indicator of a rejuvenated strategic direction at the beleaguered but venerable investment bank.
The largest detractors from Fund performance were regional bank Zions Bancorporation and Citigroup. Citigroup’s stock fell by more than 45% during the year. In February, Citigroup took the dramatic step of recapitalizing the company via a preferred-for-common exchange. The action bolstered Citigroup’s capital position to among the strongest in the world, but diluted our estimate of per-share intrinsic value severely.
Shares of Zions Bancorporation, a regional banking franchise we admire, also fell during the year as investor worries shifted to potential commercial real estate loan losses and the effect such losses could have on capital adequacy. We continued to hold Zions Bancorporation at year end because we believed its depressed stock price represented an attractive value opportunity, even as we expected the company to further bolster regulatory capital.
We believe many stressed financial companies have now raised enough capital to handle credit losses that are widely expected to be severe. Economies around the world are showing signs of stabilization or recovery. Financial stocks have rebounded dramatically from extremely depressed levels in March 2009. Despite strong stock performance in the sector, we continue to see opportunities given historical low valuation levels and unusually wide valuation differences within the sector. While regulatory and political developments will grab headlines in 2010, and some changes will prove important, we believe the path and robustness of economic recovery will be the ultimate determinant of financial sector stock performance. We expect financial stocks will remain volatile as the economy works toward recovery and credit losses ultimately peak, the timing of which is impossible to pinpoint.
Fund turnover increased during the year, and investors in the Fund should expect additional turnover of portfolio holdings as we continue to capitalize on this valuation opportunity, which is among the broadest we have seen in our careers.
Markets experienced a strong recovery during 2009, and the Fund outperformed its style-specific index. Regardless of the macro economic environment, we remain focused on identifying financial companies that we believe are undervalued and that exhibit capital discipline.
As always, we would like to caution investors against making investment decisions based on short-term performance. We recommend that you consult a financial adviser to discuss your individual financial program.
Thank you for your investment in AIM V.I. Financial Services Fund and for sharing our long-term investment horizon.
† | Managers believe intrinsic value represents the inherent business value of portfolio holdings during a two- to three-year investment horizon based on their estimates of future cash flow. Intrinsic value calculations are estimates and, as a result, market price may never reflect intrinsic value estimates, especially for an entire portfolio. | |
1 | Lipper Inc. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
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Michael Simon
Chartered Financial Analyst, senior portfolio manager, is lead manager of AIM V.I. Financial Services Fund. He began his investment career in 1989 and joined Invesco Aim in 2001. Mr. Simon earned a B.B.A. in finance from Texas Christian University and an M.B.A. from the University of Chicago.
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Meggan Walsh
Chartered Financial Analyst, senior portfolio manager, is manager of AIM V.I. Financial Services Fund. She began her investment career in 1987 and joined Invesco Aim in 1991. Ms. Walsh earned a B.S. in finance from the University of Maryland and an M.B.A. from Loyola University Maryland.
Assisted by the Financial Services Team
AIM V.I. Financial Services Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment — Oldest Share Class since Inception
Fund data from 9/20/99, index data from 9/30/99
Fund data from 9/20/99, index data from 9/30/99
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1 | Lipper Inc. |
Past performance cannot guarantee comparable future results.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $2,000 and $4,000 is the same size as the space between $4,000 and $8,000, and so on.
Average Annual Total Returns
As of 12/31/09
As of 12/31/09
Series I Shares | ||||
Inception (9/20/99) | -2.86 | % | ||
10 Years | -3.95 | |||
5 Years | -13.09 | |||
1 Year | 27.43 | |||
Series II Shares | ||||
10 Years | -4.17 | % | ||
5 Years | -13.28 | |||
1 Year | 27.30 |
Series II shares’ inception date is April 30, 2004. 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 September 20, 1999. 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 adviser 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 net 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 1.23% and 1.45%, respectively.1,2 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 1.24% and 1.49%, 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. Financial Services 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 the 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 adviser.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. | |
2 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2010. See current prospectus for more information. |
AIM V.I. Financial Services Fund
AIM V.I. Financial Services Fund’s investment objective is capital growth.
n | Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
Principal risks of investing in the Fund
Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
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.
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, relative lack of information, relatively low market liquidity, and the potential lack of strict financial and accounting controls and standards.
Since 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.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
The prices of securities held by the Fund may decline in response to market risks.
Nondiversification increases the risk that the value of the Fund’s shares may vary more widely, and the Fund may be subject to greater investment and credit risk than if it invested more broadly.
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.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The S&P 500 Financials Index is an unmanaged index considered representative of the financial market.
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.
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 the peer group reflects fund expenses; performance of a market index does not.
Other information
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
AIM V.I. Financial Services Fund
Schedule of Investments(a)
December 31, 2009
Shares | Value | |||||||
Common Stocks & Other Equity Interests–97.20% | ||||||||
Asset Management & Custody Banks–11.87% | ||||||||
Blackstone Group L.P. (The) | 50,865 | $ | 667,349 | |||||
Federated Investors, Inc.–Class B | 82,527 | 2,269,493 | ||||||
Legg Mason, Inc. | 86,258 | 2,601,541 | ||||||
State Street Corp. | 51,334 | 2,235,082 | ||||||
7,773,465 | ||||||||
Consumer Finance–18.10% | ||||||||
American Express Co. | 96,048 | 3,891,865 | ||||||
AmeriCredit Corp.(b) | 10,525 | 200,396 | ||||||
Capital One Financial Corp. | 122,935 | 4,713,328 | ||||||
SLM Corp.(b) | 270,291 | 3,046,179 | ||||||
11,851,768 | ||||||||
Data Processing & Outsourced Services–7.15% | ||||||||
Alliance Data Systems Corp.(b) | 27,415 | 1,770,735 | ||||||
Automatic Data Processing, Inc. | 38,417 | 1,645,016 | ||||||
Heartland Payment Systems, Inc. | 55,265 | 725,630 | ||||||
VeriFone Holdings, Inc.(b) | 15,811 | 258,984 | ||||||
Western Union Co. (The) | 14,933 | 281,487 | ||||||
4,681,852 | ||||||||
Diversified Banks–0.21% | ||||||||
U.S. Bancorp | 6,016 | 135,420 | ||||||
Diversified Capital Markets–2.67% | ||||||||
UBS AG (Switzerland)(b) | 112,838 | 1,750,117 | ||||||
Insurance Brokers–4.12% | ||||||||
Marsh & McLennan Cos., Inc. | 98,797 | 2,181,438 | ||||||
National Financial Partners Corp.(b) | 63,498 | 513,699 | ||||||
2,695,137 | ||||||||
Investment Banking & Brokerage–6.86% | ||||||||
FBR Capital Markets Corp.(b) | 309,451 | 1,912,407 | ||||||
Goldman Sachs Group, Inc. (The) | 1,777 | 300,029 | ||||||
Morgan Stanley | 77,092 | 2,281,923 | ||||||
4,494,359 | ||||||||
Life & Health Insurance–2.27% | ||||||||
Prudential Financial, Inc. | 8,774 | 436,594 | ||||||
StanCorp Financial Group, Inc. | 26,276 | 1,051,566 | ||||||
1,488,160 | ||||||||
Managed Health Care–3.82% | ||||||||
UnitedHealth Group Inc. | 82,013 | 2,499,756 | ||||||
Other Diversified Financial Services–14.53% | ||||||||
Bank of America Corp. | 221,342 | 3,333,410 | ||||||
Citigroup Inc. | 556,283 | 1,841,297 | ||||||
JPMorgan Chase & Co. | 104,159 | 4,340,306 | ||||||
9,515,013 | ||||||||
Property & Casualty Insurance–7.04% | ||||||||
Allstate Corp. (The) | 7,809 | 234,582 | ||||||
XL Capital Ltd.–Class A | 238,512 | 4,371,925 | ||||||
4,606,507 | ||||||||
Real Estate Services–0.34% | ||||||||
Jones Lang LaSalle Inc. | 3,708 | 223,963 | ||||||
Regional Banks–9.53% | ||||||||
Fifth Third Bancorp | 307,578 | 2,998,886 | ||||||
First Horizon National Corp.(b) | 10,421 | 139,637 | ||||||
SunTrust Banks, Inc. | 91,442 | 1,855,358 | ||||||
Zions Bancorp. | 97,377 | 1,249,347 | ||||||
6,243,228 | ||||||||
Reinsurance–1.97% | ||||||||
Transatlantic Holdings, Inc. | 24,779 | 1,291,234 | ||||||
Specialized Consumer Services–2.00% | ||||||||
H&R Block, Inc. | 57,934 | 1,310,467 | ||||||
Specialized Finance–4.64% | ||||||||
Moody’s Corp. | 113,239 | 3,034,805 | ||||||
Thrifts & Mortgage Finance–0.08% | ||||||||
Ocwen Financial Corp.(b) | 5,772 | 55,238 | ||||||
Total Common Stocks & Other Equity Interests (Cost $79,787,752) | 63,650,489 | |||||||
Money Market Funds–2.24% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 732,101 | 732,101 | ||||||
Premier Portfolio–Institutional Class(c) | 732,101 | 732,101 | ||||||
Total Money Market Funds (Cost $1,464,202) | 1,464,202 | |||||||
TOTAL INVESTMENTS–99.44% (Cost $81,251,954) | 65,114,691 | |||||||
OTHER ASSETS LESS LIABILITIES–0.56% | 366,180 | |||||||
NET ASSETS–100.00% | $ | 65,480,871 | ||||||
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) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Financial Services Fund
Statement of Assets and Liabilities
December 31, 2009
Assets: | ||||
Investments, at value (Cost $79,787,752) | $ | 63,650,489 | ||
Investments in affiliated money market funds, at value and cost | 1,464,202 | |||
Total investments, at value (Cost $81,251,954) | 65,114,691 | |||
Receivables for: | ||||
Investments sold | 443,720 | |||
Fund shares sold | 122,192 | |||
Dividends | 35,472 | |||
Investment for trustee deferred compensation and retirement plans | 11,527 | |||
Total assets | 65,727,602 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 25,681 | |||
Fund shares reacquired | 86,278 | |||
Amount due custodian | 24,366 | |||
Accrued fees to affiliates | 54,201 | |||
Accrued other operating expenses | 32,685 | |||
Trustee deferred compensation and retirement plans | 23,520 | |||
Total liabilities | 246,731 | |||
Net assets applicable to shares outstanding | $ | 65,480,871 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 115,265,517 | ||
Undistributed net investment income | 57,948 | |||
Undistributed net realized gain (loss) | (33,705,331 | ) | ||
Unrealized appreciation (depreciation) | (16,137,263 | ) | ||
$ | 65,480,871 | |||
Net Assets: | ||||
Series I | $ | 57,620,257 | ||
Series II | $ | 7,860,614 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 11,289,433 | |||
Series II | 1,555,995 | |||
Series I: | ||||
Net asset value per share | $ | 5.10 | ||
Series II: | ||||
Net asset value per share | $ | 5.05 | ||
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Dividends | $ | 745,974 | ||
Dividends from affiliated money market funds | 14,679 | |||
Total investment income | 760,653 | |||
Expenses: | ||||
Advisory fees | 394,539 | |||
Administrative services fees | 179,985 | |||
Custodian fees | 7,733 | |||
Distribution fees — Series II | 14,313 | |||
Transfer agent fees | 19,251 | |||
Trustees’ and officers’ fees and benefits | 21,444 | |||
Professional services fees | 39,922 | |||
Other | 8,154 | |||
Total expenses | 685,341 | |||
Less: Fees waived and expenses reimbursed | (8,587 | ) | ||
Net expenses | 676,754 | |||
Net investment income | 83,899 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from investment securities | (7,426,734 | ) | ||
Change in net unrealized appreciation of investment securities | 22,907,979 | |||
Net realized and unrealized gain | 15,481,245 | |||
Net increase in net assets resulting from operations | $ | 15,565,144 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Financial Services Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 83,899 | $ | 1,865,196 | ||||
Net realized gain (loss) | (7,426,734 | ) | (25,097,989 | ) | ||||
Change in net unrealized appreciation (depreciation) | 22,907,979 | (35,661,911 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 15,565,144 | (58,894,704 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (1,643,368 | ) | (1,840,747 | ) | ||||
Series II | (217,704 | ) | (162,993 | ) | ||||
Total distributions from net investment income | (1,861,072 | ) | (2,003,740 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | — | (5,303,718 | ) | |||||
Series II | — | (492,299 | ) | |||||
Total distributions from net realized gains | — | (5,796,017 | ) | |||||
Share transactions-net: | ||||||||
Series I | 6,150,080 | 16,386,023 | ||||||
Series II | 2,336,966 | 4,765,984 | ||||||
Net increase in net assets resulting from share transactions | 8,487,046 | 21,152,007 | ||||||
Net increase (decrease) in net assets | 22,191,118 | (45,542,454 | ) | |||||
Net assets: | ||||||||
Beginning of year | 43,289,753 | 88,832,207 | ||||||
End of year (includes undistributed net investment income of $57,948 and $1,835,351, respectively) | $ | 65,480,871 | $ | 43,289,753 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. Financial Services Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is capital growth.
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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on 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 ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
AIM V.I. Financial Services Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, 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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
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 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 adviser. | ||
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 adviser 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. |
AIM V.I. Financial Services Fund
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. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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, including the Fund’s servicing agreements 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. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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 Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Advisors, Inc., Invesco Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursements (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursements to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset agreement. The Board of Trustees or Invesco may terminate the fee waiver agreement at any time.
Further, the Adviser has contractually agreed, through at least June 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended December 31, 2009, the Adviser waived advisory fees of $4,171 and reimbursed class level expenses of $4,416 of Series II shares.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco 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
AIM V.I. Financial Services Fund
companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $129,985 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco 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 year ended December 31, 2009, 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 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 year ended December 31, 2009, 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, IAIS and/or IADI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 65,114,691 | $ | — | $ | — | $ | 65,114,691 | ||||||||
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $2,874 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, 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, not to exceed the contractually agreed upon rate.
AIM V.I. Financial Services Fund
NOTE 6—Distributions to Beneficial Owners
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2009 and 2008:
2009 | 2008 | |||||||
Ordinary income | $ | 1,861,072 | $ | 2,252,871 | ||||
Long-term capital gain | — | 5,546,886 | ||||||
Total distributions | $ | 1,861,072 | $ | 7,799,757 | ||||
Tax Components of Net Assets at Period-End:
2009 | ||||
Undistributed ordinary income | $ | 77,707 | ||
Net unrealized appreciation (depreciation)-investments | (19,575,155 | ) | ||
Temporary book/tax differences | (23,224 | ) | ||
Capital loss carryforward | (30,263,974 | ) | ||
Shares of beneficial interest | 115,265,517 | |||
Total net assets | $ | 65,480,871 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales and partnership transactions.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 22,458,450 | ||
December 31, 2017 | 7,805,524 | |||
Total capital loss carryforward | $ | 30,263,974 | ||
* | 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 year ended December 31, 2009 was $17,118,905 and $10,940,471, 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 | $ | 5,718,216 | ||
Aggregate unrealized (depreciation) of investment securities | (25,293,371 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (19,575,155 | ) | |
Cost of investments for tax purposes is $84,689,846. |
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of partnership transactions, on December 31, 2009, undistributed net investment income was decreased by $230 and undistributed net realized gain (loss) was increased by $230. This reclassification had no effect on the net assets of the Fund.
AIM V.I. Financial Services Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended | Year ended | |||||||||||||||
December 31, 2009(a) | December 31, 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 6,175,150 | $ | 25,003,515 | 4,741,184 | $ | 41,508,337 | ||||||||||
Series II | 825,270 | 3,236,356 | 635,748 | 5,276,073 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 324,776 | 1,643,368 | 1,609,114 | 7,144,465 | ||||||||||||
Series II | 43,454 | 217,704 | 148,930 | 655,292 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (4,778,335 | ) | (20,496,803 | ) | (3,725,544 | ) | (32,266,779 | ) | ||||||||
Series II | (260,764 | ) | (1,117,094 | ) | (139,755 | ) | (1,165,381 | ) | ||||||||
Net increase in share activity | 2,329,551 | $ | 8,487,046 | 3,269,677 | $ | 21,152,007 | ||||||||||
(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 adviser, 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 and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and or Invesco 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 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 4.12 | $ | 0.01 | $ | 1.12 | $ | 1.13 | $ | (0.15 | ) | $ | — | $ | (0.15 | ) | $ | 5.10 | 27.43 | % | $ | 57,620 | 1.27 | %(d) | 1.28 | %(d) | 0.18 | %(d) | 22 | % | ||||||||||||||||||||||||||
Year ended 12/31/08 | 12.26 | 0.24 | (7.46 | ) | (7.22 | ) | (0.24 | ) | (0.68 | ) | (0.92 | ) | 4.12 | (59.44 | ) | 39,421 | 1.22 | 1.23 | 2.71 | 47 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 17.41 | 0.27 | (4.04 | ) | (3.77 | ) | (0.29 | ) | (1.09 | ) | (1.38 | ) | 12.26 | (22.22 | ) | 85,144 | 1.11 | 1.11 | 1.61 | 9 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 15.26 | 0.23 | 2.28 | 2.51 | (0.26 | ) | (0.10 | ) | (0.36 | ) | 17.41 | 16.52 | 146,092 | 1.12 | 1.12 | 1.44 | 14 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 14.61 | 0.19 | 0.66 | 0.85 | (0.20 | ) | — | (0.20 | ) | 15.26 | 5.84 | 141,241 | 1.12 | 1.12 | 1.30 | 22 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 4.08 | 0.00 | 1.11 | 1.11 | (0.14 | ) | — | (0.14 | ) | 5.05 | 27.30 | 7,861 | 1.44 | (d) | 1.53 | (d) | 0.01 | (d) | 22 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 12.17 | 0.21 | (7.39 | ) | (7.18 | ) | (0.23 | ) | (0.68 | ) | (0.91 | ) | 4.08 | (59.56 | ) | 3,869 | 1.44 | 1.48 | 2.49 | 47 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 17.33 | 0.22 | (4.00 | ) | (3.78 | ) | (0.29 | ) | (1.09 | ) | (1.38 | ) | 12.17 | (22.39 | ) | 3,688 | 1.36 | 1.36 | 1.36 | 9 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 15.23 | 0.20 | 2.26 | 2.46 | (0.26 | ) | (0.10 | ) | (0.36 | ) | 17.33 | 16.22 | 1,664 | 1.37 | 1.37 | 1.19 | 14 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 14.59 | 0.15 | 0.67 | 0.82 | (0.18 | ) | — | (0.18 | ) | 15.23 | 5.61 | 11 | 1.37 | 1.37 | 1.05 | 22 | ||||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and it is not annualized for periods more than one year, if applicable. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $46,879 and $5,725 for Series I and Series II, shares, respectively. |
AIM V.I. Financial Services Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Financial Services Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. Financial Services Fund, (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 10, 2010
Houston, Texas
AIM V.I. Financial Services 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 July 1, 2009, through December 31, 2009.
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 | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,253.00 | $ | 7.10 | $ | 1,018.90 | $ | 6.36 | 1.25 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,251.50 | 8.17 | 1,017.95 | 7.32 | 1.44 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. Financial Services Fund
Tax Information |
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisers.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2009:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 100% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
AIM V.I. Financial Services Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Trustee and/ | ||||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | None | |||||
Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | ||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co- Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | None | |||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||||
Frank S. Bayley — 1939 Trustee | 2001 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | None | |||||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans Scholars Foundation and Executive Committee, United States Golf Association | |||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | Board of Nature’s Sunshine Products, Inc. | |||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | Administaff | |||||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired | None | |||||
Lewis F. Pennock — 1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||||
Larry Soll — 1942 Trustee | 2004 | Retired | None | |||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) | None |
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers — (continued)
Trustee and/ | ||||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC | N/A | |||||
Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | ||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | N/A | |||||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | N/A | |||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) | N/A | |||||
Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® | N/A | |||||
Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 100 | Invesco Advisers, Inc. | Invesco Aim Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 100 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Independent Trustees | Invesco Aim Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-2
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AIM V.I. Global Health Care Fund
Annual Report to Shareholders n December 31, 2009
Annual Report to Shareholders n December 31, 2009
![(IMAGE)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943001.jpg)
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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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
Management’s Discussion of Fund Performance
Performance summary
The year was characterized by two dramatically different market environments. In early 2009, equity markets experienced steep declines as credit markets froze and risk premiums rose dramatically in response to the global economic recession. As central banks coordinated easing efforts and companies cut costs aggressively, access to funding improved and market valuations in both the credit and equity markets recovered from the March lows. Health care reform efforts overshadowed some of the defensive growth characteristics of the sector during much of the year. Additionally, the strong equity market rally propelled a rotation out of larger, more defensive companies in favor of more cyclical, higher risk stocks. Despite these headwinds, AIM V.I. Global Health Care Fund Series I shares, excluding variable product issuer charges, outperformed its style-specific benchmark, the MSCI World Health Care Index, but underperformed the broad market, as measured by the MSCI World Index. The Fund’s relative performance was positively affected by security selection in pharmaceuticals, managed health care and life sciences tools and services.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 27.67 | % | ||
Series II Shares | 27.39 | |||
MSCI World Index6 (Broad Market Index) | 29.99 | |||
MSCI World Health Care Index6 (Style-Specific Index) | 18.89 | |||
Lipper VUF Health/Biotechnology Funds Category Average6 (Peer Group) | 23.69 |
6 | Lipper Inc. |
How we invest
We seek health care stocks of all market capitalizations from around the world that we believe are attractively priced and have the potential to benefit from long-term earnings and cash flow growth.
We invest primarily in four segments of the health care sector: pharmaceuticals, biotechnology, medical technology and health services. Suitable investments in this universe exhibit strong fundamentals and earnings, coupled with healthy growth prospects and discounted valuations usually due to perceived near-term uncertainty. We assess the long-term commercial potential of each company’s current and prospective products, particularly those that fill unaddressed market needs.
We manage risk by:
■ | Maintaining exposure to all health care sub-sectors. | |
■ | Diversifying the portfolio across 50 to 80 holdings. | |
■ | Limiting the size an of investment in any single position according to its risk profile. | |
■ | Investing in international companies, which may have lower correlations to the U.S. stock market. | |
We reassess our holdings when: | ||
■ | We identify a more attractive investment opportunity. | |
■ | We foresee a deterioration of a company’s fundamentals. | |
■ | A company fails to execute on its plan. | |
■ | A decline in management team quality occurs. | |
■ | A stock’s price target has been met. |
Market conditions and your Fund
Though the beginning of the year was marked by headlines claiming economic “Armageddon,” the U.S. economy began to show signs that the economic contraction was moderating. Economic data indicated that the rampant decline in business spending and consumption that occurred at the end of 2008 and the beginning of 2009 may have eased. Given signs that the economic downturn may be moderating, equity and credit markets improved. In addition, financial markets benefited from the various government programs introduced to improve bank balance sheets and reduce credit spreads.
A variety of emergency fiscal and monetary expansion initiatives of governments and central banks appeared to have succeeded in averting a worst case global economic scenario. However, unemployment levels and the long-term implications of the sovereign debt burden for Western economies continued to cause concern. Additionally, businesses and households still had a considerable way to go in their deleveraging processes.
Against this backdrop, telecommunication services, utilities and energy were among the weakest performing sectors of the S&P 500 Index.1 Conversely, information technology, materials and consumer discretionary were the best performing sectors.1 Health care stocks outperformed early in the year when the broad markets were down. However, their performance was muted during the subsequent rally due to a rotation into cyclical stocks and concerns surrounding health care reform.
Portfolio Composition
By country
By country
United States | 73.2 | % | ||
Switzerland | 5.8 | |||
Germany | 4.8 | |||
Brazil | 2.4 | |||
Ireland | 2.3 | |||
United Kingdom | 2.2 | |||
Countries Each Less Than | ||||
2.0% of Portfolio | 3.7 | |||
Money Market Funds Plus Other Assets Less Liabilities | 5.6 |
Top 10 Equity Holdings*
1. Roche Holding AG | 4.2 | % | ||
2. Gilead Sciences, Inc. | 4.1 | |||
3. Thermo Fisher Scientific, Inc. | 3.7 | |||
4. Amgen Inc. | 3.7 | |||
5. Abbott Laboratories | 3.4 | |||
6. CVS Caremark Corp. | 3.1 | |||
7. Johnson & Johnson | 2.5 | |||
8. Boston Scientific Corp. | 2.5 | |||
9. WellPoint Inc. | 2.4 | |||
10. Baxter International Inc. | 2.4 |
Top Five Industries
1. Biotechnology | 20.6 | % | ||
2. Pharmaceuticals | 20.0 | |||
3. Health Care Equipment | 16.1 | |||
4. Life Sciences Tools & Services | 8.3 | |||
5. Managed Health Care | 7.7 | |||
Total Net Assets | $170.4 million | |||
Total Number of Holdings* | 67 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* | Excluding money market fund holdings. |
AIM V.I. Global Health Care Fund
Relative to the MSCI World Health Care Index, our security selection in pharmaceuticals, managed health care and life sciences tools and services aided performance. From an industry allocation perspective, an underweight position in pharmaceuticals and an overweight position in life sciences tools and services also contributed to the Fund’s outperformance relative to the style-specific index. On the other hand, an overweight in biotechnology stocks detracted from the Fund’s relative performance. It is important to note that the style-specific index is weighted by size or market capitalization, and this results in a 60% allocation to pharmaceutical stocks. In contrast, the Fund weights its holdings based on our fundamental analysis with consideration to risk management factors and is therefore more diversified across health care industries. Merger and acquisition activity also affected individual stock performance during the year.
From a stock-specific perspective, Life Technologies was the top contributor to the Fund’s absolute performance. On the other hand, Genzyme was the top detractor.
Life Technologies contributed positively to Fund performance during the year. The company manufactures tools used in basic research at pharmaceutical firms. We believed Life Technologies displayed defensive growth characteristics and would benefit from spending increases by the National Institutes of Health. Therefore, we added to the position during the year.
Genzyme, in addition to suffering from the headwinds of the rotation out of large-cap biotechnology stocks, was also negatively affected by drug manufacturing issues. As a result, Genzyme detracted from Fund performance but remained a large position in the portfolio given its favorable long-term prospects.
The biotechnology industry experienced relative outperformance during the bear market, buoyed in part by the acquisition of Genentech (no longer a Fund holding) by Swiss pharmaceutical company Roche during the first quarter of 2009. Once the economy started to recover, money continued to flow out of large-cap biotechnology stocks.
As we have seen many failed attempts to nationalize health care, massive health care reform seemed unlikely in the near term in our opinion. A watered down version of the current proposal, however, seemed more likely. Most importantly, not all health care companies would be affected by health care reform in the same way. Certainly, some industries, like health care equipment and biotechnology, are less exposed. As a result, we continued to overweight these sectors.
We continued to favor specialty pharmaceuticals and large-cap biotechnology stocks over large-cap pharmaceuticals. Relative to the benchmark, we maintained a significant underweight in large-cap pharmaceuticals as many firms face looming patent expirations with limited drug pipelines, which may result in modest (if any) earnings growth. Our emphasis on specialty pharmaceuticals and biotechnology stocks was based on robust in-line portfolios, compelling pipelines and the view that many of these companies could be targets of ongoing consolidation. Importantly, the valuations for many of these companies were near historic lows.
We continued to focus on companies with new product cycles, less reimbursement risk and less competition. The majority of the Fund is invested in domestic stocks, where we have found more companies that fit our fundamental selection criteria. Our international weight was focused mainly on European large-cap pharmaceutical companies with fewer patent expiration concerns.
Given markets have experienced a strong recovery during the year, we would like to caution investors against making investment decisions based on short-term performance. As always, we recommend that you consult a financial adviser to discuss your individual financial program. We thank you for your continued investment in AIM V.I. Global Health Care Fund.
1 | Lipper Inc. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
![(PHOTO OF DEREK TANER)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943002.jpg)
Derek Taner
Chartered Financial Analyst, portfolio manager, is lead manager of AIM V.I. Global Health Care Fund. Mr. Taner began his investment career in 1993 as a fixed income analyst, assistant portfolio manager and manager of a health care fund. Mr. Tanner joined Invesco Aim in 2005. He earned a B.S. in accounting and an M.B.A. from the Haas School of Business at the University of California at Berkeley.
![(PHOTO OF DEAN DILLARD)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943003.jpg)
Dean Dillard
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Global Health Care Fund. He joined Invesco Aim in 2000. Mr. Dillard earned a B.S. in corporate finance from the University of Alabama and an M.B.A. from the Owen School of Business at Vanderbilt University.
Assisted by the Global Health Care Team
AIM V.I. Global Health Care Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class since Inception
Fund data from 5/21/97, index data from 5/31/97
Fund data from 5/21/97, index data from 5/31/97
![(LINE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943004.gif)
AIM V.I. Global Health Care Fund- Series I Shares Lipper VUF Health/Biotechnology Funds Category Average1 MSCI World Index1 |
1 | Lipper Inc. |
Past performance cannot guarantee comparable future results.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on.
Average Annual Total Returns
As of 12/31/09
As of 12/31/09
Series I Shares | ||||
Inception (5/21/97) | 6.73 | % | ||
10 Years | 3.23 | |||
5 Years | 3.02 | |||
1 Year | 27.67 | |||
Series II Shares | ||||
10 Years | 2.97 | % | ||
5 Years | 2.76 | |||
1 Year | 27.39 |
Series II shares’ inception date is April 30, 2004. 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 21, 1997. 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 adviser 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 net 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 1.13% and 1.38%, respectively.1 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 1.14% and 1.39%, 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. Global Health Care 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 the 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 adviser.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2010. See current prospectus for more information. |
AIM V.I. Global Health Care Fund
AIM V.I. Global Health Care Fund’s investment objective is capital growth.
■ | Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets. | |
■ | Unless otherwise noted, all data provided by Invesco. |
Principal risks of investing in the Fund
The values of convertible securities in which the Fund invests may be affected by market interest rates, the risk that the issuer may default on interest or principal payments, and the value of the underlying common stock into which these securities may be converted.
Investing in developing countries can add additional risk, such as high rates of inflation or sharply devalued currencies against the U.S. dollar. Transaction costs are often higher, and there may be delays in settlement procedures.
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, relative lack of information, relatively low market liquidity, and the potential lack of strict financial and accounting controls and standards.
The value of the Fund’s shares is particularly vulnerable to factors affecting the health care industry, such as substantial government regulation that may affect the demand for products and services offered by health care companies. Also, the products and services offered by health care companies may be subject to rapid obsolescence caused by scientific advances and technological innovations, which can cause Fund shares to rise and fall more than the value of shares of funds that invest more broadly.
Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa.
Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa.
Since 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.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
The prices of securities held by the Fund may decline in response to market risks.
The Fund invests in synthetic instruments, the value of which may not correlate perfectly with the overall securities markets. Rising interest rates and market price fluctuations will affect the performance of the Fund’s investments in synthetic instruments.
About indexes used in this report
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries.
The MSCI World Health Care Index is an unmanaged index considered representative of health care stocks of developed countries.
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.
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
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 the peer group reflects fund expenses; performance of a market index does not.
Other information
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
AIM V.I. Global Health Care Fund
Schedule of Investments(a)
December 31, 2009
Shares | Value | |||||||
Common Stocks & Other Equity Interests–94.45% | ||||||||
Biotechnology–20.57% | ||||||||
AMAG Pharmaceuticals, Inc.(b) | 19,472 | $ | 740,520 | |||||
Amgen Inc.(b) | 110,398 | 6,245,215 | ||||||
Biogen Idec Inc.(b) | 29,090 | 1,556,315 | ||||||
BioMarin Pharmaceutical Inc.(b) | 124,174 | 2,335,713 | ||||||
Celgene Corp.(b) | 68,666 | 3,823,323 | ||||||
CSL Ltd. (Australia) | 66,276 | 1,928,127 | ||||||
Genzyme Corp.(b) | 62,688 | 3,072,339 | ||||||
Gilead Sciences, Inc.(b) | 159,971 | 6,923,545 | ||||||
Incyte Corp.(b) | 63,690 | 580,216 | ||||||
Myriad Genetics, Inc.(b) | 52,578 | 1,372,286 | ||||||
OSI Pharmaceuticals, Inc.(b) | 28,674 | 889,754 | ||||||
Pharmasset, Inc.(b) | 19,764 | 409,115 | ||||||
Savient Pharmaceuticals Inc.(b) | 103,539 | 1,409,166 | ||||||
United Therapeutics Corp.(b) | 33,882 | 1,783,887 | ||||||
Vertex Pharmaceuticals Inc.(b) | 46,212 | 1,980,184 | ||||||
35,049,705 | ||||||||
Drug Retail–4.51% | ||||||||
CVS Caremark Corp. | 166,086 | 5,349,630 | ||||||
Drogasil S.A. (Brazil) | 146,520 | 2,338,715 | ||||||
7,688,345 | ||||||||
Health Care Distributors–1.54% | ||||||||
McKesson Corp. | 41,892 | 2,618,250 | ||||||
Health Care Equipment–16.08% | ||||||||
Baxter International Inc. | 69,269 | 4,064,705 | ||||||
Becton, Dickinson and Co. | 23,049 | 1,817,644 | ||||||
Boston Scientific Corp.(b) | 467,836 | 4,210,524 | ||||||
CareFusion Corp.(b) | 52,274 | 1,307,373 | ||||||
Covidien PLC (Ireland) | 81,762 | 3,915,582 | ||||||
Dexcom Inc.(b) | 48,428 | 391,298 | ||||||
Hospira, Inc.(b) | 29,731 | 1,516,281 | ||||||
ResMed Inc.(b) | 25,721 | 1,344,437 | ||||||
St. Jude Medical, Inc.(b) | 72,385 | 2,662,320 | ||||||
Varian Medical Systems, Inc.(b) | 43,481 | 2,037,085 | ||||||
Wright Medical Group, Inc.(b) | 67,893 | 1,286,572 | ||||||
Zimmer Holdings, Inc.(b) | 48,204 | 2,849,339 | ||||||
27,403,160 | ||||||||
Health Care Facilities–2.40% | ||||||||
Assisted Living Concepts Inc.–Class A(b) | 31,460 | 829,600 | ||||||
Rhoen-Klinikum AG (Germany) | 133,140 | 3,252,012 | ||||||
4,081,612 | ||||||||
Shares | ||||||||
Health Care Services–7.72% | ||||||||
DaVita, Inc.(b) | 56,085 | 3,294,433 | ||||||
Express Scripts, Inc.(b) | 43,963 | 3,800,601 | ||||||
Medco Health Solutions, Inc.(b) | 46,338 | 2,961,462 | ||||||
Omnicare, Inc. | 57,542 | 1,391,365 | ||||||
Quest Diagnostics Inc. | 28,169 | 1,700,844 | ||||||
13,148,705 | ||||||||
Health Care Supplies–3.83% | ||||||||
Alcon, Inc. | 21,005 | 3,452,172 | ||||||
DENTSPLY International Inc. | 48,533 | 1,706,905 | ||||||
Immucor, Inc.(b) | 67,457 | 1,365,330 | ||||||
6,524,407 | ||||||||
Health Care Technology–0.75% | ||||||||
Allscripts-Misys Healthcare Solutions, Inc.(b) | 62,810 | 1,270,646 | ||||||
Life & Health Insurance–1.05% | ||||||||
Amil Participacoes S.A. (Brazil)(c) | 230,700 | 1,794,815 | ||||||
Life Sciences Tools & Services–8.25% | ||||||||
Gerresheimer AG (Germany) | 55,287 | 1,854,633 | ||||||
Life Technologies Corp.(b) | 76,098 | 3,974,598 | ||||||
Pharmaceutical Product Development, Inc. | 78,722 | 1,845,244 | ||||||
Thermo Fisher Scientific, Inc.(b) | 133,895 | 6,385,453 | ||||||
14,059,928 | ||||||||
Managed Health Care–7.72% | ||||||||
Aetna Inc. | 77,217 | 2,447,779 | ||||||
AMERIGROUP Corp.(b) | 68,445 | 1,845,277 | ||||||
Aveta, Inc. (Acquired 12/21/05; Cost $1,655,802)(b)(c) | 122,652 | 735,912 | ||||||
CIGNA Corp. | 40,036 | 1,412,070 | ||||||
Health Net Inc.(b) | 113,429 | 2,641,761 | ||||||
WellPoint Inc.(b) | 69,819 | 4,069,750 | ||||||
13,152,549 | ||||||||
Pharmaceuticals–20.03% | ||||||||
Abbott Laboratories | 105,877 | 5,716,299 | ||||||
Allergan, Inc./United States | 42,769 | 2,694,875 | ||||||
Auxilium Pharmaceuticals Inc.(b) | 11,094 | 332,598 | ||||||
Bayer AG (Germany) | 22,993 | 1,835,212 | ||||||
Cadence Pharmaceuticals, Inc.(b)(d) | 4,032 | 38,990 | ||||||
EastPharma Ltd.–GDR (Turkey)(b)(c) | 114,132 | 273,917 | ||||||
Hikma Pharmaceuticals PLC (United Kingdom) | 119,052 | 975,115 | ||||||
Ipsen S.A. (France) | 32,981 | 1,830,070 | ||||||
Johnson & Johnson | 65,483 | 4,217,760 | ||||||
Merck KGaA (Germany) | 12,622 | 1,177,415 | ||||||
Novartis AG–ADR (Switzerland) | 52,410 | 2,852,676 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Global Health Care Fund
Shares | Value | |||||||
Pharmaceuticals–(continued) | ||||||||
Pharmstandard–GDR (Russia)(b)(c) | 23,450 | $ | 470,703 | |||||
Roche Holding AG (Switzerland) | 41,608 | 7,071,153 | ||||||
Shire PLC–ADR (United Kingdom) | 47,312 | 2,777,214 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 33,100 | 1,859,558 | ||||||
34,123,555 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $149,073,362) | 160,915,677 | |||||||
Money Market Funds–4.33% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 3,688,246 | 3,688,246 | ||||||
Premier Portfolio–Institutional Class(e) | 3,688,246 | 3,688,246 | ||||||
Total Money Market Funds (Cost $7,376,492) | 7,376,492 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–98.78% (Cost $156,449,854) | 168,292,169 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–0.02% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $29,290)(e)(f) | 29,290 | 29,290 | ||||||
TOTAL INVESTMENTS–98.80% (Cost $156,479,144) | 168,321,459 | |||||||
OTHER ASSETS LESS LIABILITIES–1.20% | 2,048,085 | |||||||
NET ASSETS–100.00% | $ | 170,369,544 | ||||||
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) | 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 December 31, 2009 was $3,275,347, which represented 1.92% of the Fund’s Net Assets. | |
(d) | All or a portion of this security was out on loan at December 31, 2009. | |
(e) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(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 Health Care Fund
Statement of Assets and Liabilities
December 31, 2009
Assets: | ||||
Investments, at value (Cost $149,073,362)* | $ | 160,915,677 | ||
Investments in affiliated money market funds, at value and cost | 7,405,782 | |||
Total investments, at value (Cost $156,479,144) | 168,321,459 | |||
Cash | 1,840,207 | |||
Foreign currencies, at value (Cost $20,691) | 22,925 | |||
Receivables for: | ||||
Fund shares sold | 195,538 | |||
Dividends | 95,561 | |||
Foreign currency contracts outstanding | 204,541 | |||
Investment for trustee deferred compensation and retirement plans | 14,750 | |||
Total assets | 170,694,981 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 93,446 | |||
Collateral upon return of securities loaned | 29,290 | |||
Accrued fees to affiliates | 120,264 | |||
Accrued other operating expenses | 42,586 | |||
Trustee deferred compensation and retirement plans | 39,851 | |||
Total liabilities | 325,437 | |||
Net assets applicable to shares outstanding | $ | 170,369,544 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 186,814,598 | ||
Undistributed net investment income (loss) | (39,364 | ) | ||
Undistributed net realized gain (loss) | (28,464,771 | ) | ||
Unrealized appreciation | 12,059,081 | |||
$ | 170,369,544 | |||
Net Assets: | ||||
Series I | $ | 143,647,683 | ||
Series II | $ | 26,721,861 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 9,051,885 | |||
Series II | 1,713,325 | |||
Series I: | ||||
Net asset value per share | $ | 15.87 | ||
Series II: | ||||
Net asset value per share | $ | 15.60 | ||
* | At December 31, 2009, securities with an aggregate value of $28,043 were on loan to brokers. |
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Dividends (net of foreign withholding taxes of $116,439) | $ | 1,445,176 | ||
Dividends from affiliated money market funds (includes securities lending income of $128,886) | 159,537 | |||
Total investment income | 1,604,713 | |||
Expenses: | ||||
Advisory fees | 1,113,874 | |||
Administrative services fees | 415,212 | |||
Custodian fees | 27,866 | |||
Distribution fees — Series II | 56,932 | |||
Transfer agent fees | 41,577 | |||
Trustees’ and officers’ fees and benefits | 24,884 | |||
Other | 63,995 | |||
Total expenses | 1,744,340 | |||
Less: Fees waived | (8,545 | ) | ||
Net expenses | 1,735,795 | |||
Net investment income (loss) | (131,082 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains (losses) from securities sold to affiliates of $(403,677)) | (13,651,667 | ) | ||
Foreign currencies | 108,995 | |||
Foreign currency contracts | (763,240 | ) | ||
(14,305,912 | ) | |||
Change in net unrealized appreciation of: | ||||
Investment securities | 50,432,247 | |||
Foreign currencies | 15,943 | |||
Foreign currency contracts | 520,716 | |||
50,968,906 | ||||
Net realized and unrealized gain | 36,662,994 | |||
Net increase in net assets resulting from operations | $ | 36,531,912 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Global Health Care Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (131,082 | ) | $ | 624,017 | |||
Net realized gain (loss) | (14,305,912 | ) | (13,908,110 | ) | ||||
Change in net unrealized appreciation (depreciation) | 50,968,906 | (53,954,663 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 36,531,912 | (67,238,756 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (447,208 | ) | — | |||||
Series II | (30,590 | ) | — | |||||
Total distributions from net investment income | (477,798 | ) | — | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | — | (33,925,325 | ) | |||||
Series II | — | (5,201,268 | ) | |||||
Total distributions from net realized gains | — | (39,126,593 | ) | |||||
Share transactions-net: | ||||||||
Series I | (15,173,536 | ) | (970,476 | ) | ||||
Series II | 1,039,283 | 11,520,859 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (14,134,253 | ) | 10,550,383 | |||||
Net increase (decrease) in net assets | 21,919,861 | (95,814,966 | ) | |||||
Net assets: | ||||||||
Beginning of year | 148,449,683 | 244,264,649 | ||||||
End of year (includes undistributed net investment income (loss) of $(39,364) and $415,204, respectively) | $ | 170,369,544 | $ | 148,449,683 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. Global Health Care Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is capital growth.
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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on 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 ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
AIM V.I. Global Health Care Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, 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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
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 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 adviser. | ||
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 adviser 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. |
AIM V.I. Global Health Care Fund
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. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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, including the Fund’s servicing agreements, 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 may invest a large percentage of assets in securities of a limited number of companies, such that each investment may have 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. | |
The Fund has invested in non-publicly traded companies, some of which are in the startup or development stages. These investments are inherently risky, as the market for the technologies or products these companies are developing are typically in the early stages and may never materialize. The Fund could lose its entire investment in these companies. These investments are valued at fair value as determined in good faith in accordance with procedures approved by the Board of Trustees. Investments in privately held venture capital securities are illiquid. | ||
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. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could 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, if any. | |
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 — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts 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. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
AIM V.I. Global Health Care Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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 Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended December 31, 2009, the Adviser waived advisory fees of $8,545.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $365,212 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 year ended December 31, 2009, 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 year ended December 31, 2009, 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, IAIS and/or IADI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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
AIM V.I. Global Health Care Fund
lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Biotechnology | $ | 33,121,578 | $ | 1,928,127 | $ | — | $ | 35,049,705 | ||||||||
Drug Retail | 5,349,630 | 2,338,715 | — | 7,688,345 | ||||||||||||
Health Care Distributors | 2,618,250 | — | — | 2,618,250 | ||||||||||||
Health Care Equipment | 27,403,160 | — | — | 27,403,160 | ||||||||||||
Health Care Facilities | 829,600 | 3,252,012 | — | 4,081,612 | ||||||||||||
Health Care Services | 13,148,705 | — | — | 13,148,705 | ||||||||||||
Health Care Supplies | 6,524,407 | — | — | 6,524,407 | ||||||||||||
Health Care Technology | 1,270,646 | — | — | 1,270,646 | ||||||||||||
Life & Health Insurance | — | 1,794,815 | — | 1,794,815 | ||||||||||||
Life Sciences Tools & Services | 12,205,295 | 1,854,633 | — | 14,059,928 | ||||||||||||
Managed Health Care | 12,416,637 | — | 735,912 | 13,152,549 | ||||||||||||
Money Market Funds | 7,405,782 | — | — | 7,405,782 | ||||||||||||
Pharmaceuticals | 23,771,372 | 10,352,183 | — | 34,123,555 | ||||||||||||
$ | 146,065,062 | $ | 21,520,485 | $ | 735,912 | $ | 168,321,459 | |||||||||
Other Investments* | — | 210,937 | — | 210,937 | ||||||||||||
Total Investments | $ | 146,065,062 | $ | 21,731,422 | $ | 735,912 | $ | 168,532,396 | ||||||||
* | Other Investments include foreign currency contracts, which are included at unrealized appreciation. |
NOTE 4—Derivative Investments
Effective with the beginning of the Fund’s fiscal year, the Fund has implemented new required disclosures about derivative instruments and hedging activities in accordance with GAAP. GAAP has 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. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as December 31, 2009:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign currency contracts(a) | $ | 210,937 | $ | — | ||||
(a) | Values are disclosed on the Statement of Assets and Liabilities under the Foreign currency contracts. |
AIM V.I. Global Health Care Fund
Effect of Derivative Instruments for the year ended December 31, 2009
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) | ||||
on Statement | ||||
of Operations | ||||
Foreign Currency | ||||
Contracts* | ||||
Realized Gain (Loss) | ||||
Currency risk | $ | (763,240 | ) | |
Change in Unrealized Appreciation | ||||
Currency risk | 520,716 | |||
Total | $ | (242,524 | ) | |
* | The average value of foreign currency contracts outstanding during the period was $6,206,973. |
Open Foreign Currency Contracts | ||||||||||||||||||||
Settlement | Contract to | Unrealized | ||||||||||||||||||
Date | Deliver | Receive | Value | Appreciation | ||||||||||||||||
02/10/10 | CHF | 2,824,000 | USD | 2,786,576 | $ | 2,728,019 | $ | 58,557 | ||||||||||||
02/10/10 | EUR | 2,660,800 | USD | 3,961,346 | 3,808,966 | 152,380 | ||||||||||||||
Total open foreign currency contracts | $ | 210,937 | ||||||||||||||||||
Closed Foreign Currency Contracts | ||||||||||||||||||||
Realized | ||||||||||||||||||||
Closed | Contract to | Gain | ||||||||||||||||||
Date | Deliver | Receive | Value | (Loss) | ||||||||||||||||
11/25/09 | USD | 1,040,532 | GBP | 624,000 | $ | 1,034,136 | $ | (6,396 | ) | |||||||||||
Total foreign currency contracts | $ | 204,541 | ||||||||||||||||||
Currency Abbreviations: | ||
CHF | – Swiss Franc | |
EUR | – Euro | |
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
NOTE 5—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 adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2009, the Fund engaged in securities purchases of $93,827 and securities sales of $354,473, which resulted in net realized gains (losses) of $(403,677).
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $3,114 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, 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, not to exceed the contractually agreed upon rate.
AIM V.I. Global Health Care Fund
NOTE 8—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2009 and 2008:
2009 | 2008 | |||||||
Ordinary income | $ | 477,798 | $ | 8,773,314 | ||||
Long-term capital gain | — | 30,353,279 | ||||||
Total distributions | $ | 477,798 | $ | 39,126,593 | ||||
Tax Components of Net Assets at Period-End:
2009 | ||||
Net unrealized appreciation — investments | $ | 11,781,232 | ||
Net unrealized appreciation — other investments | 5,829 | |||
Temporary book/tax differences | (38,783 | ) | ||
Post-October deferrals | (581 | ) | ||
Capital loss carryforward | (28,192,751 | ) | ||
Shares of beneficial interest | 186,814,598 | |||
Total net assets | $ | 170,369,544 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||||||
Expiration | Carryforward* | |||||||
December 31, 2016 | $ | 12,235,817 | ||||||
December 31, 2017 | 15,956,934 | |||||||
Total capital loss carryforward | $ | 28,192,751 | ||||||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2009 was $63,992,295 and $78,456,714, 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 | $ | 21,317,551 | ||
Aggregate unrealized (depreciation) of investment securities | (9,536,319 | ) | ||
Net unrealized appreciation of investment securities | $ | 11,781,232 | ||
Cost of investments for tax purposes is $156,540,227. |
AIM V.I. Global Health Care Fund
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and net operating losses, on December 31, 2009, undistributed net investment income (loss) was increased by $154,312, undistributed net realized gain (loss) was decreased by $108,996 and shares of beneficial interest decreased by $45,316. This reclassification had no effect on the net assets of the Fund.
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended December 31, | ||||||||||||||||
2009(a) | 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,972,429 | $ | 27,454,826 | 2,216,216 | $ | 47,385,882 | ||||||||||
Series II | 341,255 | 4,410,301 | 477,003 | 9,789,685 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 28,759 | 447,208 | 2,846,084 | 33,925,325 | ||||||||||||
Series II | 2,002 | 30,590 | 443,795 | 5,201,268 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (3,260,825 | ) | (43,075,570 | ) | (4,039,623 | ) | (82,281,683 | ) | ||||||||
Series II | (252,057 | ) | (3,401,608 | ) | (172,689 | ) | (3,470,094 | ) | ||||||||
Net increase (decrease) in share activity | (1,168,437 | ) | $ | (14,134,253 | ) | 1,770,786 | $ | 10,550,383 | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 71% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, 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 and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco 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 Health Care Fund
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | (losses) on | Dividends | Distributions | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||||
value, | investment | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | (loss) | unrealized) | operations | income | gains | Distributions | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 12.47 | $ | (0.01 | )(c) | $ | 3.46 | $ | 3.45 | $ | (0.05 | ) | $ | — | $ | (0.05 | ) | $ | 15.87 | 27.67 | % | $ | 143,648 | 1.13 | %(d) | 1.14 | %(d) | (0.05 | )%(d) | 45 | % | |||||||||||||||||||||||||
Year ended 12/31/08 | 24.06 | 0.07 | (c)(e) | (7.16 | ) | (7.09 | ) | — | (4.50 | ) | (4.50 | ) | 12.47 | (28.62 | ) | 128,563 | 1.12 | 1.13 | 0.34 | (e) | 67 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 21.51 | (0.01 | )(c) | 2.56 | 2.55 | — | — | — | 24.06 | 11.85 | 223,448 | 1.06 | 1.07 | (0.06 | ) | 66 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 20.44 | (0.04 | )(c) | 1.11 | 1.07 | — | — | — | 21.51 | 5.24 | 235,509 | 1.10 | 1.10 | (0.19 | ) | 79 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 18.90 | (0.06 | ) | 1.60 | 1.54 | — | — | — | 20.44 | 8.15 | 257,736 | 1.08 | 1.09 | (0.24 | ) | 82 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 12.26 | (0.04 | )(c) | 3.40 | 3.36 | (0.02 | ) | — | (0.02 | ) | 15.60 | 27.39 | 26,722 | 1.38 | (d) | 1.39 | (d) | (0.30 | )(d) | 45 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 23.82 | 0.02 | (c)(e) | (7.08 | ) | (7.06 | ) | — | (4.50 | ) | (4.50 | ) | 12.26 | (28.78 | ) | 19,886 | 1.37 | 1.38 | 0.09 | (e) | 67 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 21.36 | (0.07 | )(c) | 2.53 | 2.46 | — | — | — | 23.82 | 11.52 | 20,817 | 1.31 | 1.32 | (0.31 | ) | 66 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 20.34 | (0.09 | )(c) | 1.11 | 1.02 | — | — | — | 21.36 | 5.01 | 97,646 | 1.35 | 1.35 | (0.44 | ) | 79 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 18.86 | (0.09 | ) | 1.57 | 1.48 | — | — | — | 20.34 | 7.85 | 11 | 1.33 | 1.34 | (0.49 | ) | 82 | ||||||||||||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $125,744 and $22,773 for Series I and Series II shares, respectively. | |
(e) | 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 $5.23 per share owned of All-scripts-Misys Healthcare Solutions, Inc. on October 13, 2008. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $0.02 and 0.08% and $(0.03) and (0.17)% for Series I and Series II shares, respectively. |
AIM V.I. Global Health Care Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Global Health Care Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. Global Health Care Fund, (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian and broker, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 10, 2010
Houston, Texas
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 July 1, 2009 through December 31, 2009.
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 | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,175.80 | $ | 6.20 | $ | 1,019.51 | $ | 5.75 | 1.13 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,174.30 | 7.56 | 1,018.25 | 7.02 | 1.38 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. Global Health Care Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2009:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 99.45% |
* | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
AIM V.I. Global Health Care Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Trustee and/ | ||||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | None | |||||
Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | ||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co- Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC | None | |||||
Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||
�� | ||||||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||||
Frank S. Bayley — 1939 | 2001 | Retired | None | |||||
Trustee | Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | |||||||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans Scholars Foundation and Executive Committee, United States Golf Association | |||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) | Board of Nature’s Sunshine Products, Inc. | |||||
Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | ||||||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) | Administaff | |||||
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | ||||||||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||||
Prema Mathai-Davis — 1950 | 1998 | Retired | None | |||||
Trustee | ||||||||
Lewis F. Pennock — 1942 | 1993 | Partner, law firm of Pennock & Cooper | None | |||||
Trustee | ||||||||
Larry Soll — 1942 | 2004 | Retired | None | |||||
Trustee | ||||||||
Raymond Stickel, Jr. — 1944 | 2005 | Retired | None | |||||
Trustee | Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) |
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers – (continued)
Trustee and/ | ||||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||||
Senior Officer | ||||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC | N/A | |||||
Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | ||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® | N/A | |||||
Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | ||||||||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | N/A | |||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) | N/A | |||||
Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® | N/A | |||||
Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 100 | Invesco Advisers, Inc. | Invesco Aim Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 100 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Independent Trustees | Invesco Aim Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-2
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AIM V.I. Global Real Estate Fund
Annual Report to Shareholders ■ December 31, 2009
Annual Report to Shareholders ■ December 31, 2009
![(IMAGE)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943101.gif)
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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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
Management’s Discussion of Fund Performance
Performance summary
The year covered by this report was characterized by two dramatically different market environments. In early 2009, equity markets declined steeply as credit markets froze and risk premiums rose dramatically in response to the global recession. As central banks coordinated easing efforts and companies cut costs aggressively, access to funding improved and market valuations in both the credit and equity markets recovered from their March lows. Real estate securities world-wide rallied as a result of improvements in the economy, and more importantly, improved capital availability.
For the year ended December 31, 2009, the Fund’s Series I shares, excluding variable product issuer charges, outperformed the Fund’s broad market index, the MSCI World Index. However, the Fund underperformed the FTSE EPRA/NAREIT Developed Real Estate Index, the Fund’s style-specific index, due primarily to security selection in Japan, Hong Kong and Singapore.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 31.53 | % | ||
Series II Shares | 31.10 | |||
MSCI World Index▼(Broad Market Index) | 29.99 | |||
FTSE EPRA/NAREIT Developed Real Estate Index■ (Style-Specific Index) | 38.26 | |||
Lipper VUF Real Estate Funds Category Average▼ (Peer Group) | 31.12 |
▼Lipper Inc.; ■ Invesco, Bloomberg L.P. |
How we invest
Your Fund holds primarily real estate investment trusts (REITs) and other property-related securities from the U.S. and abroad whose value is driven by tangible assets. Our goal is to create a global Fund focused on total return that will perform at or above index levels with comparable levels of risk. Our investment strategy focuses on identifying U.S. and non-U.S. property types we believe will benefit from long-term sector trends. We use a fundamentals-driven investment process, including property market cycle analysis, property evaluation and management and structure review to identify securities with:
■ | Quality underlying properties. | |
■ | Solid management teams and flexible balance sheets. | |
■ | Attractive valuations relative to other investment alternatives. |
We attempt to manage risk by diversifying property types and geographic locations as well as limiting the size of any one holding.
We consider selling a holding when:
■ | Relative valuation falls below desired levels. | |
■ | Risk/return relationships change significantly. | |
■ | Company fundamentals (property type, geography or management) change. | |
■ | A more attractive investment opportunity is identified. |
Market conditions and your Fund
Though the beginning of the year was marked by headlines claiming economic “Armageddon,” the U.S. economy began to show signs that the contraction was moderating. Economic data indicated that the rampant decline in business spending and consumption that occurred in 2008 and early 2009 may have eased. Given signs that the economic downturn may be moderating, equity and credit markets improved. In addition, financial markets benefited from various government programs introduced to improve bank balance sheets and reduce credit spreads.
A variety of emergency fiscal and monetary initiatives of governments and central banks appeared to have succeeded in averting a global economic collapse. However, high unemployment levels and the long-term implications of the sovereign debt burden for Western economies continued to cause concern. Additionally, businesses and households still had a considerable way to go in reducing their debt levels.
Given this environment, global real estate securities, as measured by the FTSE EPRA/NAREIT Developed Real Estate Index, and the Fund produced gains for the year and outperformed the broad market, measured by the MSCI World Index.1,2
The Fund underperformed its style-specific benchmark, the FTSE EPRA/NAREIT Developed Real Estate Index, owing to a relatively defensive positioning which helped during the first quarter of 2009, but hurt as equity markets rallied beginning in March.2 During this rally, stocks of lower quality companies generally outperformed higher quality stocks. Many companies with higher leverage and/or greater potential
Portfolio Composition
By country
By country
United States | 35.6 | % | ||
Hong Kong | 16.7 | |||
Japan | 10.6 | |||
Australia | 9.9 | |||
United Kingdom | 6.7 | |||
France | 4.5 | |||
Singapore | 4.5 | |||
Canada | 3.0 | |||
Netherlands | 2.6 | |||
Countries each less than 2.0% of portfolio | 3.7 | |||
Money Market Funds Plus Other Assets Less Liabilities | 2.2 | |||
Top 10 Equity Holdings* | ||||
1. Sun Hung Kai Properties Ltd. | 5.4 | % | ||
2. Westfield Group | 3.9 | |||
3. Simon Property Group, Inc. | 3.8 | |||
4. Unibail-Rodamco S.E. | 3.0 | |||
5. Mitsubishi Estate Co. Ltd. | 2.9 | |||
6. Mitsui Fudosan Co., Ltd. | 2.8 | |||
7. Hongkong Land Holdings Ltd. | 2.2 | |||
8. Stockland | 2.2 | |||
9. Equity Residential | 2.1 | |||
10. Vornado Realty Trust | 2.1 | |||
Total Net Assets | $140.0 million | |||
Total Number of Holdings* | 108 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security. |
* | Excluding money market fund holdings. |
AIM V.I. Global Real Estate Fund
fundamental declines outperformed as a measure of stability returned to the financial markets amid indications of stabilizing economic data and improved credit spreads/availability of capital. Specifically, security selection in Japan, Hong Kong and Singapore detracted from the Fund’s relative performance during the year. Conversely, security selection and underweight exposure in the U.S. aided the Fund’s relative performance.
Top contributors to Fund performance included several Hong Kong-domiciled companies, including Sun Hung Kai Properties and Hang Lung Properties. The emerging Asian economies continued to fare best with inventory rebuilding becoming evident in the more export-orientated economies, including China. Sun Hung Kai Properties is one of the largest property companies in Hong Kong, specializing in high quality residential and commercial projects. Hang Lung Properties is one of the largest Hong Kong developers, owning a large development and investment portfolio in Hong Kong and China. The company possesses a strong balance sheet, recurring income base and residential inventory to fund growth in China. Additionally, Hang Lung’s management team has a favorable and established track record.
Japan- and U.K.-domiciled companies dominated the top detractors from Fund performance for the year. Nippon Building Fund, Japan’s largest real estate investment trust with a focus on Tokyo office buildings, and Mitsubishi Estate, Japan’s second-largest real estate developer, hurt Fund performance.
The current level of uncertainty in the investment marketplace supports a view that successfully managing real estate exposures requires an emphasis on companies with longer than average lease terms, higher quality assets and tenant rosters, and flexible balance sheets. We expect to maintain a well-diversified portfolio across all property types and regions. We also believe the best prospects for relative outperformance are based on a combination of relative fundamentals and stock valuations.
Given that markets experienced a strong recovery in 2009, we would like to caution investors against making investment decisions based on short-term performance. As always, we recommend that you consult a financial adviser to discuss your individual financial program. We thank you for your continued investment in AIM V.I. Global Real Estate Fund.
1 Lipper Inc.
2 Invesco, Bloomberg L.P.
2 Invesco, Bloomberg L.P.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
![(PHOTO OF JOE RODRIGUEZ, JR.)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943102.jpg)
Joe Rodriguez, Jr.
Senior portfolio manager, is lead manager of AIM V.I. Global Real Estate Fund. He is head of real estate securities for Invesco Real Estate, where he oversees all phases of the unit, including securities research and administration. Mr. Rodriguez began his investment career in 1983 and joined Invesco in 1990. He earned his B.B.A. in economics and finance and his M.B.A. in finance from Baylor University.
Senior portfolio manager, is lead manager of AIM V.I. Global Real Estate Fund. He is head of real estate securities for Invesco Real Estate, where he oversees all phases of the unit, including securities research and administration. Mr. Rodriguez began his investment career in 1983 and joined Invesco in 1990. He earned his B.B.A. in economics and finance and his M.B.A. in finance from Baylor University.
![(PHOTO OF MARK BLACKBURN)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943103.jpg)
Mark Blackburn
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Global Real Estate Fund. He joined Invesco in 1998. Mr. Blackburn earned a B.S. in accounting from Louisiana State University and an M.B.A. from Southern Methodist University. He is a Certified Public Accountant.
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Global Real Estate Fund. He joined Invesco in 1998. Mr. Blackburn earned a B.S. in accounting from Louisiana State University and an M.B.A. from Southern Methodist University. He is a Certified Public Accountant.
![(PHOTO OF JAMES COWEN)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943104.jpg)
James Cowen
Portfolio manager, is manager of AIM V.I. Global Real Estate Fund. Mr. Cowen has worked in the real estate industry since 1997 and joined Invesco in 2001. He earned a Master of Town and Country Planning degree from the University of Manchester and a Master of Philosophy degree in land economy from Cambridge University.
Portfolio manager, is manager of AIM V.I. Global Real Estate Fund. Mr. Cowen has worked in the real estate industry since 1997 and joined Invesco in 2001. He earned a Master of Town and Country Planning degree from the University of Manchester and a Master of Philosophy degree in land economy from Cambridge University.
![(PHOTO OF PAUL CURBO)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943105.jpg)
Paul Curbo
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Global Real Estate Fund. He joined Invesco in 1998. Mr. Curbo earned a B.B.A. in finance from the University of Texas at Dallas.
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Global Real Estate Fund. He joined Invesco in 1998. Mr. Curbo earned a B.B.A. in finance from the University of Texas at Dallas.
![(PHOTO OF JAMES TROWBRIDGE)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943106.jpg)
James Trowbridge
Portfolio manager, is manager of AIM V.I. Global Real Estate Fund. He joined Invesco in 1989. Mr. Trowbridge earned his B.A. in finance from Indiana University.
Portfolio manager, is manager of AIM V.I. Global Real Estate Fund. He joined Invesco in 1989. Mr. Trowbridge earned his B.A. in finance from Indiana University.
![(PHOTO OF PING YING WANG)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943107.jpg)
Ping Ying Wang
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Global Real Estate Fund. She earned a B.S. in international finance from the People’s University of China and a Ph.D. in finance from the University of Texas at Dallas.
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Global Real Estate Fund. She earned a B.S. in international finance from the People’s University of China and a Ph.D. in finance from the University of Texas at Dallas.
Assisted by the Real Estate Team
AIM V.I. Global Real Estate Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class since Inception
Fund and index data from 3/31/98
![(LINE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943108.gif)
1 Invesco, Bloomberg L.P.
2 Lipper Inc.
Fund and index data from 3/31/98
![(LINE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943108.gif)
2 Lipper Inc.
Past performance cannot guarantee comparable future results.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on.
Average Annual Total Returns
As of 12/31/09
As of 12/31/09
Series I Shares | ||||
Inception (3/31/98) | 7.86 | % | ||
10 Years | 11.17 | |||
5 Years | 2.30 | |||
1 Year | 31.53 | |||
Series II Shares | ||||
10 Years | 10.91 | % | ||
5 Years | 2.04 | |||
1 Year | 31.10 |
Series II shares’ inception date is April 30, 2004. 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 March 31, 1998. 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 adviser 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 1.17% and 1.42%, 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. Global Real Estate 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 the 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 adviser.
Had the adviser not waived fees and/ or reimbursed expenses in the past, performance would have been lower.
AIM V.I. Global Real Estate Fund
AIM V.I. Global Real Estate Fund’s investment objective is high total return through growth of capital and current income.
■ | Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets. | |
■ | Unless otherwise noted, all data provided by Invesco. |
Principal risks of investing in the Fund
Because the Fund concentrates its investments in REITs and other companies related to the real estate industry, the value of your shares may rise and fall more than the value of shares of a fund that invests in a broader range of companies.
Credit risk is the risk of loss on an investment due to the deterioration of an issuer’s financial health. Such a deterioration of financial health may result in a reduction of the credit rating of the issuer’s securities and may lead to the issuer’s inability to honor its contractual obligations, including making timely payment of interest and principal.
Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, relative lack of information, relatively low market liquidity, and the potential lack of strict financial and accounting controls and standards.
Lower rated securities may be more susceptible to real or perceived adverse economic and competitive industry conditions, and the secondary markets in which lower rated securities are traded may be less liquid than higher grade securities. The loans in which the Fund may invest are typically noninvestment-grade and involve a greater risk of default on interest and principal payments and of price changes due to the changes in the credit quality of the issuer.
Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa.
Since 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.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
The prices of securities held by the Fund may decline in response to market risks.
Because 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.
The Fund may use enhanced investment techniques such as short sales. Short sales carry the risk of buying a security back at a higher price at which the Fund’s exposure is unlimited.
The Fund 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 U.S. government. The U.S. government may choose not to provide financial support to U.S.-government-sponsored agencies or instrumentalities if it is not legally obligated to do so. In this case, if the issuer defaulted, the fund holding securities of such an issuer might not be able to recover its investment from the U.S. government.
About indexes used in this report
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries.
The FTSE EPRA/NAREIT Developed Real Estate Index is an unmanaged index considered representative of global real estate companies and REITs.
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.
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 the peer group reflects fund expenses; performance of a market index does not.
Other information
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
CPA® and Certified Public Accountant® are trademarks owned by the American Institute of Certified Public Accountants.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Property type classifications used in this report are generally according to FTSE EPRA/NAREIT Global Real Estate Index, which is exclusively owned by the FTSE Group, the European Public Real Estate Association (EPRA), the National Association of Real Estate Investment Trusts (NAREIT) and Euronext Indices BV.
AIM V.I. Global Real Estate Fund
Schedule of Investments
December 31, 2009
Shares | Value | |||||||
Foreign Real Estate Investment Trusts, Common Stocks & Other Equity Interests–97.81% | ||||||||
Australia–9.94% | ||||||||
CFS Retail Property Trust | 1,150,557 | $ | 1,948,621 | |||||
Commonwealth Property Office Fund | 434,370 | 375,631 | ||||||
Dexus Property Group | 1,877,293 | 1,417,554 | ||||||
Goodman Group | 3,067,203 | 1,726,125 | ||||||
Stockland | 865,978 | 3,043,235 | ||||||
Westfield Group | 485,088 | 5,409,898 | ||||||
13,921,064 | ||||||||
Austria–0.47% | ||||||||
Conwert Immobilien Invest S.E.(a) | 53,257 | 651,111 | ||||||
Canada–2.96% | ||||||||
Canadian REIT | 31,300 | 807,031 | ||||||
Cominar REIT | 20,300 | 372,761 | ||||||
Morguard REIT | 38,000 | 474,706 | ||||||
Primaris Retail REIT | 37,500 | 576,209 | ||||||
RioCan REIT | 101,300 | 1,915,067 | ||||||
�� | 4,145,774 | |||||||
China–0.78% | ||||||||
Agile Property Holdings Ltd. | 474,000 | 687,106 | ||||||
Guangzhou R&F Properties Co. Ltd.–Class H | 68,400 | 119,404 | ||||||
KWG Property Holding Ltd. | 378,000 | 288,257 | ||||||
1,094,767 | ||||||||
Finland–0.45% | ||||||||
Citycon Oyj | 149,632 | 629,785 | ||||||
France–4.52% | ||||||||
Gecina S.A. | 7,861 | 849,686 | ||||||
ICADE | 6,412 | 608,970 | ||||||
Klepierre | 15,837 | 643,663 | ||||||
Unibail-Rodamco S.E. | 19,237 | 4,232,835 | ||||||
6,335,154 | ||||||||
Germany–0.40% | ||||||||
Deutsche Euroshop AG | 16,596 | 562,370 | ||||||
Hong Kong–16.73% | ||||||||
China Overseas Land & Investment Ltd. | 1,026,301 | 2,148,839 | ||||||
China Resources Land Ltd. | 701,800 | 1,579,715 | ||||||
Glorious Property Holdings Ltd.(a) | 397,000 | 178,114 | ||||||
Hang Lung Properties Ltd. | 471,000 | 1,840,097 | ||||||
Henderson Land Development Co. Ltd. | 324,000 | 2,414,039 | ||||||
Hongkong Land Holdings Ltd. | 630,000 | 3,100,388 | ||||||
Kerry Properties Ltd. | 263,900 | 1,332,452 | ||||||
Link REIT (The) | 318,500 | 810,468 | ||||||
New World Development Co., Ltd. | 458,000 | 934,715 | ||||||
Sino Land Co. Ltd. | 478,000 | 922,766 | ||||||
Sun Hung Kai Properties Ltd. | 505,000 | 7,493,076 | ||||||
Wharf (Holdings) Ltd. (The) | 116,000 | 663,269 | ||||||
23,417,938 | ||||||||
Japan–10.55% | ||||||||
AEON Mall Co., Ltd. | 23,800 | 460,708 | ||||||
Frontier Real Estate Investment Corp. | 23 | 163,042 | ||||||
Japan Real Estate Investment Corp. | 136 | 999,130 | ||||||
Japan Retail Fund Investment Corp. | 96 | 429,966 | ||||||
Kenedix Realty Investment Corp. | 91 | 248,257 | ||||||
Mitsubishi Estate Co. Ltd. | 258,000 | 4,095,634 | ||||||
Mitsui Fudosan Co., Ltd. | 232,000 | 3,897,187 | ||||||
Nippon Building Fund Inc. | 132 | 1,000,934 | ||||||
Nomura Real Estate Holdings, Inc. | 30,900 | 456,394 | ||||||
Sumitomo Realty & Development Co., Ltd. | 139,000 | 2,607,853 | ||||||
United Urban Investment Corp. | 77 | 405,241 | ||||||
14,764,346 | ||||||||
Luxembourg–0.36% | ||||||||
GAGFAH S.A. | 38,535 | 351,411 | ||||||
ProLogis European Properties | 25,168 | 154,831 | ||||||
506,242 | ||||||||
Malta–0.00% | ||||||||
BGP Holdings PLC(a) | 3,053,090 | 0 | ||||||
Netherlands–2.59% | ||||||||
Corio N.V. | 12,423 | 848,153 | ||||||
Eurocommercial Properties N.V. | 23,103 | 952,535 | ||||||
VastNed Retail N.V. | 12,367 | 811,487 | ||||||
Wereldhave N.V. | 10,677 | 1,019,519 | ||||||
3,631,694 | ||||||||
Singapore–4.53% | ||||||||
Ascendas REIT | 591,779 | 926,356 | ||||||
CapitaCommercial Trust | 1,065,000 | 880,946 | ||||||
Capitaland Ltd. | 726,000 | 2,149,475 | ||||||
CapitaMall Trust | 1,006,550 | 1,275,766 | ||||||
City Developments Ltd. | 50,000 | 407,692 | ||||||
Suntec REIT | 546,000 | 522,024 | ||||||
Yanlord Land Group Ltd. | 121,000 | 185,114 | ||||||
6,347,373 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Global Real Estate Fund
Shares | Value | |||||||
Sweden–1.21% | ||||||||
Castellum A.B. | 136,822 | $ | 1,379,522 | |||||
Hufvudstaden A.B. | 41,027 | 309,773 | ||||||
1,689,295 | ||||||||
United Kingdom–6.70% | ||||||||
Big Yellow Group PLC(a) | 115,823 | 660,816 | ||||||
British Land Co. PLC | 225,731 | 1,731,043 | ||||||
Derwent London PLC | 31,456 | 664,669 | ||||||
Great Portland Estates PLC | 135,826 | 630,121 | ||||||
Hammerson PLC | 157,159 | 1,067,701 | ||||||
Hansteen Holdings PLC | 415,807 | 540,873 | ||||||
Land Securities Group PLC | 71,240 | 781,062 | ||||||
Segro PLC | 297,816 | 1,644,608 | ||||||
Shaftesbury PLC | 131,945 | 836,999 | ||||||
Unite Group PLC(a) | 169,620 | 820,884 | ||||||
9,378,776 | ||||||||
United States–35.62% | ||||||||
Acadia Realty Trust | 34,441 | 581,020 | ||||||
Alexandria Real Estate Equities, Inc. | 12,600 | 810,054 | ||||||
AMB Property Corp. | 30,500 | 779,275 | ||||||
American Campus Communities, Inc. | 8,700 | 244,470 | ||||||
AvalonBay Communities, Inc. | 18,642 | 1,530,695 | ||||||
Boston Properties, Inc. | 38,200 | 2,562,074 | ||||||
Brookfield Properties Corp. | 36,678 | 445,978 | ||||||
Camden Property Trust | 25,882 | 1,096,620 | ||||||
DCT Industrial Trust Inc. | 82,000 | 411,640 | ||||||
Digital Realty Trust, Inc. | 48,300 | 2,428,524 | ||||||
EastGroup Properties, Inc. | 14,800 | 566,544 | ||||||
Equity Residential | 87,277 | 2,948,217 | ||||||
Essex Property Trust, Inc. | 17,700 | 1,480,605 | ||||||
Federal Realty Investment Trust | 9,200 | 623,024 | ||||||
HCP, Inc. | 37,448 | 1,143,662 | ||||||
Health Care REIT, Inc. | 41,467 | 1,837,817 | ||||||
Highwoods Properties, Inc. | 28,300 | 943,805 | ||||||
Host Hotels & Resorts Inc.(a) | 209,259 | 2,442,052 | ||||||
Kilroy Realty Corp. | 28,100 | 861,827 | ||||||
LaSalle Hotel Properties | 6,700 | 142,241 | ||||||
Liberty Property Trust | 40,700 | 1,302,807 | ||||||
Macerich Co. (The) | 32,288 | 1,160,754 | ||||||
Mack-Cali Realty Corp. | 28,100 | 971,417 | ||||||
Mid-America Apartment Communities, Inc. | 5,200 | 251,056 | ||||||
Nationwide Health Properties, Inc. | 49,671 | 1,747,426 | ||||||
Pebblebrook Hotel Trust(a) | 12,132 | 267,025 | ||||||
ProLogis | 89,014 | 1,218,602 | ||||||
Public Storage | 33,100 | 2,695,995 | ||||||
Regency Centers Corp. | 36,700 | 1,286,702 | ||||||
Retail Opportunity Investments Corp.(a) | 33,319 | 336,855 | ||||||
Senior Housing Properties Trust | 52,088 | 1,139,165 | ||||||
Simon Property Group, Inc. | 66,910 | 5,339,418 | ||||||
SL Green Realty Corp. | 35,208 | 1,768,850 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 4,391 | 160,579 | ||||||
Tanger Factory Outlet Centers, Inc. | 22,400 | 873,376 | ||||||
Ventas, Inc. | 52,200 | 2,283,228 | ||||||
Vornado Realty Trust | 41,326 | 2,890,340 | ||||||
Washington REIT | 10,584 | 291,589 | ||||||
49,865,328 | ||||||||
Total Foreign Real Estate Investment Trusts, Common Stocks & Other Equity Interests (Cost $113,872,574) | 136,941,017 | |||||||
Money Market Funds–1.41% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 988,373 | 988,373 | ||||||
Premier Portfolio–Institutional Class(b) | 988,373 | 988,373 | ||||||
Total Money Market Funds (Cost $1,976,746) | 1,976,746 | |||||||
TOTAL INVESTMENTS–99.22% (Cost $115,849,320) | 138,917,763 | |||||||
OTHER ASSETS LESS LIABILITIES–0.78% | 1,092,421 | |||||||
NET ASSETS–100.00% | $ | 140,010,184 | ||||||
Investment Abbreviations:
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) | Non-income producing security. | |
(b) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Global Real Estate Fund
Statement of Assets and Liabilities
December 31, 2009
Assets: | ||||
Investments, at value (Cost $113,872,574) | $ | 136,941,017 | ||
Investments in affiliated money market funds, at value and cost | 1,976,746 | |||
Total investments, at value (Cost $115,849,320) | 138,917,763 | |||
Cash | 125,686 | |||
Foreign currencies, at value (Cost $426,525) | 424,745 | |||
Receivables for: | ||||
Investments sold | 135,390 | |||
Fund shares sold | 169,545 | |||
Dividends | 513,329 | |||
Investment for trustee deferred compensation and retirement plans | 9,266 | |||
Total assets | 140,295,724 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 83,902 | |||
Fund shares reacquired | 35,206 | |||
Accrued fees to affiliates | 89,318 | |||
Accrued other operating expenses | 58,210 | |||
Trustee deferred compensation and retirement plans | 18,904 | |||
Total liabilities | 285,540 | |||
Net assets applicable to shares outstanding | $ | 140,010,184 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 163,594,668 | ||
Undistributed net investment income | 3,301,174 | |||
Undistributed net realized gain (loss) | (49,954,500 | ) | ||
Unrealized appreciation | 23,068,842 | |||
$ | 140,010,184 | |||
Net Assets: | ||||
Series I | $ | 128,224,384 | ||
Series II | $ | 11,785,800 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 10,564,127 | |||
Series II | 987,736 | |||
Series I: | ||||
Net asset value per share | $ | 12.14 | ||
Series II: | ||||
Net asset value per share | $ | 11.93 | ||
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Dividends (net of foreign withholding taxes of $(233,955)) | $ | 3,951,884 | ||
Dividends from affiliated money market funds (includes securities lending income of $86,892) | 95,667 | |||
Total investment income | 4,047,551 | |||
Expenses: | ||||
Advisory fees | 787,607 | |||
Administrative services fees | 298,973 | |||
Custodian fees | 126,311 | |||
Distribution fees — Series II | 17,329 | |||
Transfer agent fees | 24,192 | |||
Trustees’ and officers’ fees and benefits | 23,208 | |||
Other | 66,873 | |||
Total expenses | 1,344,493 | |||
Less: Fees waived and reimbursed expenses | (6,844 | ) | ||
Net expenses | 1,337,649 | |||
Net investment income | 2,709,902 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (20,271,182 | ) | ||
Foreign currencies | (64,995 | ) | ||
(20,336,177 | ) | |||
Change in net unrealized appreciation of: | ||||
Investment securities | 50,497,748 | |||
Foreign currencies | 754 | |||
50,498,502 | ||||
Net realized and unrealized gain | 30,162,325 | |||
Net increase in net assets resulting from operations | $ | 32,872,227 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Global Real Estate Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 2,709,902 | $ | 3,064,226 | ||||
Net realized gain (loss) | (20,336,177 | ) | (27,452,774 | ) | ||||
Change in net unrealized appreciation (depreciation) | 50,498,502 | (45,616,452 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 32,872,227 | (70,005,000 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (7,313,873 | ) | |||||
Series II | — | (346,827 | ) | |||||
Total distributions from net investment income | — | (7,660,700 | ) | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | — | (11,303,629 | ) | |||||
Series II | — | (540,744 | ) | |||||
Total distributions from net realized gains | — | (11,844,373 | ) | |||||
Share transactions-net: | ||||||||
Series I | 15,146,597 | 25,400,434 | ||||||
Series II | 5,205,429 | 4,476,456 | ||||||
Net increase in net assets resulting from share transactions | 20,352,026 | 29,876,890 | ||||||
Net increase (decrease) in net assets | 53,224,253 | (59,633,183 | ) | |||||
Net assets: | ||||||||
Beginning of year | 86,785,931 | 146,419,114 | ||||||
End of year (includes undistributed net investment income of $3,301,174 and $(321,137), respectively) | $ | 140,010,184 | $ | 86,785,931 | ||||
Notes to Financial Statements
December 31, 2009
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-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is high total return through growth of capital and current income.
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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on 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 ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
AIM V.I. Global Real Estate Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, 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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
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 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 adviser. | ||
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 adviser 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. |
AIM V.I. Global Real Estate Fund
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. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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, including the Fund’s servicing agreements, 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. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could 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, if any. | |
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 — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts 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. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks |
AIM V.I. Global Real Estate Fund
associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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 Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended December 31, 2009, the Adviser waived advisory fees of $2,760 and reimbursed class level expenses of $4,084 for Series II shares.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $248,973 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 year ended December 31, 2009, 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 year ended December 31, 2009, 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, IAIS and/or IADI.
AIM V.I. Global Real Estate Fund
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Australia | $ | — | $ | 13,921,064 | $ | — | $ | 13,921,064 | ||||||||
Austria | 651,111 | — | — | 651,111 | ||||||||||||
Canada | 4,145,774 | — | — | 4,145,774 | ||||||||||||
China | — | 1,094,767 | — | 1,094,767 | ||||||||||||
Dominican Republic | — | — | 0 | 0 | ||||||||||||
Finland | 629,785 | — | — | 629,785 | ||||||||||||
France | 4,876,498 | 1,458,656 | — | 6,335,154 | ||||||||||||
Germany | 562,370 | — | — | 562,370 | ||||||||||||
Hong Kong | 23,417,938 | — | 23,417,938 | |||||||||||||
Luxembourg | 351,411 | 154,831 | — | 506,242 | ||||||||||||
Japan | 7,342,204 | 7,422,142 | — | 14,764,346 | ||||||||||||
Netherlands | 3,631,694 | — | — | 3,631,694 | ||||||||||||
Singapore | — | 6,347,373 | — | 6,347,373 | ||||||||||||
Sweden | — | 1,689,295 | — | 1,689,295 | ||||||||||||
United Kingdom | 1,991,878 | 7,386,898 | — | 9,378,776 | ||||||||||||
United States | 51,842,074 | — | — | 51,842,074 | ||||||||||||
Total Investments | $ | 76,024,799 | $ | 62,892,964 | $ | $ | 138,917,763 | |||||||||
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $2,984 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, 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, not to exceed the contractually agreed upon rate.
AIM V.I. Global Real Estate Fund
NOTE 6—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2009 and 2008:
2009 | 2008 | |||||||
Ordinary income | $ | — | $ | 9,179,502 | ||||
Long-term capital gain | — | 10,325,571 | ||||||
Total distributions | $ | — | $ | 19,505,073 | ||||
Tax Components of Net Assets at Period-End:
2009 | ||||
Undistributed ordinary income | $ | 7,160,852 | ||
Net unrealized appreciation — investments | 10,841,880 | |||
Net unrealized appreciation — other investments | 399 | |||
Temporary book/tax differences | (19,457 | ) | ||
Post-October deferrals | (251,453 | ) | ||
Capital loss carryforward | (41,316,705 | ) | ||
Shares of beneficial interest | 163,594,668 | |||
Total net assets | $ | 140,010,184 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales and the recognition for tax purposes, of unrealized gains or passive foreign investment companies.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 18,695,360 | ||
December 31, 2017 | 22,621,345 | |||
Total capital loss carryforward | $ | 41,316,705 | ||
* | 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 year ended December 31, 2009 was $95,564,077 and $73,633,533, 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 | $ | 13,982,126 | ||
Aggregate unrealized (depreciation) of investment securities | (3,140,246 | ) | ||
Net unrealized appreciation of investment securities | $ | 10,841,880 | ||
Cost of investments for tax purposes is $128,075,883. |
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and passive foreign investment companies, on December 31, 2009, undistributed net investment income was increased by $912,409; undistributed net realized gain (loss) was decreased by $899,962 and shares of beneficial interest decreased by $12,447. This reclassification had no effect on the net assets of the Fund.
AIM V.I. Global Real Estate Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended December 31, | ||||||||||||||||
2009(a) | 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 4,597,449 | $ | 43,715,169 | 2,881,953 | $ | 52,755,460 | ||||||||||
Series II | 617,087 | 6,098,786 | 287,801 | 4,439,666 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 2,120,444 | 18,617,502 | ||||||||||||
Series II | — | — | 102,609 | 887,571 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,977,162 | ) | (28,568,572 | ) | (2,630,426 | ) | (45,972,528 | ) | ||||||||
Series II | (91,409 | ) | (893,357 | ) | (50,546 | ) | (850,781 | ) | ||||||||
Net increase in share activity | 2,145,965 | $ | 20,352,026 | 2,711,835 | $ | 29,876,890 | ||||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund that owns 52% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, 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 and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and or Invesco 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 there entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | on securities | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 9.23 | $ | 0.26 | $ | 2.65 | $ | 2.91 | $ | — | $ | — | $ | — | $ | 12.14 | 31.53 | % | $ | 128,224 | 1.26 | %(d) | 1.26 | %(d) | 2.59 | %(d) | 72 | % | ||||||||||||||||||||||||||||
Year ended 12/31/08 | 21.88 | 0.44 | (10.35 | ) | (9.91 | ) | (1.08 | ) | (1.66 | ) | (2.74 | ) | 9.23 | (44.65 | ) | 82,582 | 1.17 | 1.17 | 2.51 | 62 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 28.74 | 0.38 | (1.52 | ) | (1.14 | ) | (1.69 | ) | (4.03 | ) | (5.72 | ) | 21.88 | (5.54 | ) | 143,773 | 1.13 | 1.22 | 1.31 | 57 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 21.06 | 0.33 | 8.61 | 8.94 | (0.28 | ) | (0.98 | ) | (1.26 | ) | 28.74 | 42.60 | 192,617 | 1.15 | 1.30 | 1.32 | 84 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 19.13 | 0.38 | 2.34 | 2.72 | (0.22 | ) | (0.57 | ) | (0.79 | ) | 21.06 | 14.24 | 99,977 | 1.21 | 1.36 | 1.91 | 51 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 9.10 | 0.24 | 2.59 | 2.83 | — | — | — | 11.93 | 31.10 | 11,786 | 1.45 | (d) | 1.51 | (d) | 2.40 | (d) | 72 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 21.66 | 0.36 | (10.19 | ) | (9.83 | ) | (1.07 | ) | (1.66 | ) | (2.73 | ) | 9.10 | (44.72 | ) | 4,203 | 1.42 | 1.42 | 2.26 | 62 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 28.57 | 0.29 | (1.49 | ) | (1.20 | ) | (1.68 | ) | (4.03 | ) | (5.71 | ) | 21.66 | (5.76 | ) | 2,646 | 1.38 | 1.47 | 1.06 | 57 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 20.98 | 0.27 | 8.58 | 8.85 | (0.28 | ) | (0.98 | ) | (1.26 | ) | 28.57 | 42.30 | 311 | 1.40 | 1.55 | 1.07 | 84 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 19.12 | 0.34 | 2.31 | 2.65 | (0.22 | ) | (0.57 | ) | (0.79 | ) | 20.98 | 13.85 | 62 | 1.45 | 1.61 | 1.67 | 51 | |||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for period less than one year, if applicable. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $98,083 and $6,931 for Series I and Series II shares, respectively. |
AIM V.I. Global Real Estate Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Global Real Estate Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. Global Real Estate Fund (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 10, 2010
Houston, Texas
AIM V.I. Global Real Estate 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 July 1, 2009 through December 31, 2009.
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 | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,272.50 | $ | 7.16 | $ | 1,018.90 | $ | 6.36 | 1.25 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,271.90 | 8.30 | 1,017.90 | 7.38 | 1.45 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. Global Real Estate Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Trustee and/ | ||||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | None | |||||
Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | ||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co- Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC | None | |||||
Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||||
Frank S. Bayley — 1939 Trustee | 2001 | Retired | None | |||||
Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | ||||||||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans Scholars Foundation and Executive Committee, United States Golf Association | |||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) | Board of Nature’s Sunshine Products, Inc. | |||||
Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | ||||||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) | Administaff | |||||
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | ||||||||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired | None | |||||
Lewis F. Pennock — 1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||||
Larry Soll — 1942 Trustee | 2004 | Retired | None | |||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired | None | |||||
Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) |
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers – (continued)
Trustee and/ | ||||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC | N/A | |||||
Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | ||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® | N/A | |||||
Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | ||||||||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® | N/A | |||||
Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | ||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) | N/A | |||||
Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) | N/A | |||||
Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® | N/A | |||||
Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. | N/A | |||||
Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 100 | Invesco Advisers, Inc. | Invesco Aim Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 100 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP | Counsel to the Independent Trustees | Transfer Agent Invesco Aim Investment Services, Inc. | Custodian State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-2
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AIM V.I. Government Securities Fund
Annual Report to Shareholders § December 31, 2009
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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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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 ½ MAY LOSE VALUE ½ NO BANK GUARANTEE
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2009, Series I shares of AIM V.I. Government Securities Fund, excluding variable product issuer charges, outperformed the Fund’s style-specific benchmark and underperformed the Fund’s broad market index. Our investments in agency mortgage-backed securities (MBS) was a major contributor to performance relative to our style-specific index. The Fund’s underperformance of its broad market index can be attributed to the Fund’s inability to invest in corporate credit securities and commercial MBS.
The Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
If variable product issuer charges were included, returns would be lower.
Series I Shares | -0.01 | % | ||
Series II Shares | -0.26 | |||
Barclays Capital U.S. Aggregate Index6 (Broad Market Index) | 5.93 | |||
Barclays Capital U.S. Government Index6 (Style-Specific Index) | -2.20 | |||
Lipper VUF General U.S. Government Funds Index6 (Peer Group Index) | 6.34 |
6Lipper Inc.
How we invest
We invest primarily in debt securities issued, guaranteed or backed by the U.S. government or its agencies and instrumentalities. These securities include: U.S. Treasury notes and bonds, U.S. agency debentures and agency mortgage-backed securities (MBS). We may also invest in derivative instruments such as Treasury futures and options on Treasury futures to manage Fund duration.
Consistent with our investment philosophy and belief that markets are increasingly complex, we use a distributed approach to decision making where specialists closest to the information have authority to make decisions. Investment decisions are made continuously and shared instantly for timely implementation in our portfolios. This is true for fundamental research decisions, macro decisions and security selection decisions, all made by specialists.
We record and measure the performance of every investment decision. In this way, we develop a detailed understanding of the quality and skill of our decision makers to enhance quality control.
Portfolio managers implement investment decisions made by specialists into portfolios. We believe that this separation of construction from decision making ensures objectivity in the investment process by removing behavioral biases linked to historic performance that may arise in portfolios where there is a sole decision maker also responsible for portfolio positioning. The primary role of the portfolio manager is the efficient implementation of investment decisions within portfolios. The portfolio managers work closely with sector specialists and traders to determine how best to express each investment decision at the security level.
Our risk management process combines the evaluation of expected portfolio risks, a strong commitment to oversight of portfolio construction and actual performance and risk oversight. There are four key components to the investment risk management process applied within Invesco Fixed Income, namely:
§ | Design: Portfolio Design Calculator/ Alpha Source Oversight. | |
§ | Decisions: Decision Quality Analysis. | |
§ | Portfolio Construction: Portfolio Management Oversight. | |
§ | Invesco Fixed Income Oversight: Global Investment Policy Committee. |
Each investment decision is assigned to an individual within the firm. Specialists are required to explain the rationale behind every investment decision thereby helping the firm to distinguish skill from good fortune.
Each investment decision includes pricing review levels. The upper level is the price the security is expected to reach, whereas the lower level is the point at which the rationale for persisting with the position must be reevaluated by the specialist. Specialists receive alerts from our proprietary investment system when the security is approaching or has reached these levels. While specialists are not forced to sell when these levels are reached, the investment decision must be reevaluated. Pricing levels are monitored continuously by senior management, which is integral to the firm’s risk management oversight.
In addition to the realignment of a security’s valuation targets, sell decisions may also be based on:
§ | A conscious decision to alter the Fund’s macro risk exposure (for example, duration, yield curve positioning, sector exposure). | |
§ | The need to limit or reduce exposure to a particular sector or issuer. | |
§ | Degradation of an issuer’s credit quality. | |
§ | Presentation of a better relative value opportunity. |
Market conditions and your Fund
The global economic environment at the beginning of 2009 was characterized by the carryover of 2008’s financial market turmoil, which contributed to one of the weakest economic periods on record.1
Portfolio Composition
By security type
U.S. Government-Sponsored Mortgage-Backed Securities | 77.4 | % | ||
U.S. Government Sponsored Agency Securities | 19.5 | |||
U.S. Treasury Securities | 1.9 | |||
Foreign Sovereign Debt | 0.3 | |||
Money Market Funds Plus Other Assets Less Liabilities | 0.9 |
Top 10 Fixed Income Issuers*
1. Freddie Mac REMICs | 29.3 | % | ||
2. Federal Home Loan Bank | 12.7 | |||
3. Ginnie Mae REMICs | 11.3 | |||
4. Federal National Mortgage Association | 10.5 | |||
5. Federal Agricultural Mortgage Corp. | 8.9 | |||
6. Federal Home Loan Mortgage Corp. | 8.4 | |||
7. Fannie Mae REMICs | 8.3 | |||
8. Government National Mortgage Association | 4.0 | |||
9. Federal Farm Credit Bank | 2.4 | |||
10. U.S. Treasury Securities | 1.9 | |||
Total Net Assets | $1.2 billion | |||
Total Number of Holdings* | 826 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* | Excluding money market fund holdings. |
AIM V.I. Government Securities Fund
Gross domestic product, the broadest measure of overall U.S. economic activity, reflected a shrinking economy during the first half of 2009 before turning positive during the second half of the year.1
The U.S. Federal Reserve Board (the Fed) maintained a very accommodative monetary policy through the Fund’s fiscal year, with the federal funds target rate unchanged in its range of zero to 0.25%.2 The Fed also continued programs of quantitative easing by buying up Treasuries, agency MBS and agency debentures. In doing so, the Fed worked to stimulate economic recovery by keeping long-term interest rates low and making more money available to consumers and businesses.3
Government bond yields started 2009 at historically low levels, following sharp declines in the latter part of 2008 when investors drove prices up (and yields down) as they sought the safety and liquidity of U.S. government securities. Beginning in early 2009, demand for credit sensitive bonds returned, and along with renewed concerns about future inflation and the ability of the market to absorb heavy government issuance, government bond yields were pushed higher (and prices lower) throughout 2009, especially for intermediate and longer maturity Treasuries.3 In fact, U.S. Treasury 10-year and 30-year security returns had their worst year of performance on record in 2009 following one of their best years on record.4
Allocation decisions among the various government sub-sectors had a favorable impact on portfolio performance versus the Fund’s style-specific index. The Fund maintained a heavy allocation to agency MBS, particularly in the form of collateralized mortgage obligations structures that exhibited short and very stable durations. The Fund also benefited from tactical exposure to agency pass-through MBS in a market environment that saw mortgage yield spreads tighten versus Treasuries as investors’ risk appetite increased and the Fed embarked on a program to purchase $1.25 trillion of agency pass-through MBS. Our exposure to the U.S. Treasury market was accomplished through U.S. Treasury futures, which we believe is a more efficient way to employ the Fund’s cash than buying actual bonds. Treasury Inflation Protected securities (TIPs) were used during the year to capitalize on concerns about inflation that permeated the market due to the Fed’s extremely accommodative monetary policy. The use of TIPs was a positive factor for performance during 2009.
The Fund was generally longer in duration than its benchmark during the first half of the year and generally shorter in duration than its benchmark during the second half of the year. Duration is a measure of a bond’s price sensitivity to interest rate changes. Generally, bonds with shorter durations tend to be less sensitive to these changes. Overall, duration had a negative impact on performance during 2009.
The Fund was positioned for a flattening of the yield curve (bonds with longer maturities falling more than those with shorter rates) during the second quarter of 2009. While the yield curve fluctuated greatly over the period,4 the general steepening of the curve was a negative factor in Fund performance relative to the style-specific index.
We thank you for your investment in AIM V.I. Government Securities Fund.
1 | U.S. Bureau of Economic Analysis | |
2 | Federal Reserve Board | |
3 | Bloomberg L. P. | |
4 | Barclays Capital |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
![(PHOTO OF CLINT DUDLEY)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943202.jpg)
Clint Dudley
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Government Securities Fund. He joined Invesco Aim in 1996. Mr. Dudley earned a B.B.A. and an M.B.A. from Baylor University. He is a member of the CFA Institute.
![(PHOTO OF BRIAN SCHNEIDER)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943203.jpg)
Brian Schneider
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Government Securities Fund. He joined Invesco in 1987. Mr. Schneider earned a B.A. in economics and an M.B.A. from Bellermine College. He is a member of the CFA Institute.
AIM V.I. Government Securities Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment — Oldest Share Class since Inception
Index data from 4/30/93, Fund data from 5/5/93
Index data from 4/30/93, Fund data from 5/5/93
![(PERFORMANCE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943204.gif)
1 | Lipper Inc. |
Past performance cannot guarantee comparable future results.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on.
Average Annual Total Returns
As of 12/31/09
As of 12/31/09
Series I Shares | ||||
Inception (5/5/93) | 5.04 | % | ||
10 Years | 5.28 | |||
5 Years | 4.68 | |||
1 Year | -0.01 | |||
Series II Shares | ||||
10 Years | 5.02 | % | ||
5 Years | 4.42 | |||
1 Year | -0.26 |
Series II shares’ inception date is September 19, 2001. Returns since that date are historical. All other returns are the blended returns of the historical performance of Series II shares since their inception and the 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 adviser 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 net 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 0.74% and 0.99%, respectively.1, 2 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 0.77% and 1.02%, 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. Government Securities 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 the 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 adviser.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. | |
2 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2010. See current prospectus for more information. |
AIM V.I. Government Securities Fund
AIM V.I. Government Securities Fund’s investment objective is a high level of current income consistent with reasonable concern for safety of principal.
§ | Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets. |
§ | Unless otherwise noted, all data provided by Invesco. |
Principal risks of investing in the Fund
The Fund may use enhanced investment techniques such as derivatives. The principal risk of derivatives is that the fluctuations in their values may not correlate perfectly with the overall securities markets. Derivatives are subject to counterparty risk—the risk that the other party will not complete the transaction with the Fund.
Dollar-roll transactions involve the risk that the market value of securities to be purchased by the Fund may decline below the price at which the Fund is obligated to repurchase them, or that the other party may default on its obligation such that the Fund is delayed or prevented from completing the transaction.
High-coupon, U.S. government agency mortgage-backed securities provide a higher coupon than current prevailing market interest rates, and the Fund may purchase such securities at a premium. If these securities experience a faster-than-expected principal prepayment rate, both the market value and income from such securities will decrease.
Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa.
Since 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.
Leveraging entails risks such as magnifying changes in the value of the portfolio’s securities.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
The prices of securities held by the Fund may decline in response to market risks.
Reinvestment risk is the risk that a bond’s cash flows will be reinvested at an interest rate below that of the original bond.
Reverse repurchase agreements and dollar-roll transactions involve the risk that the market value of securities to be purchased by the Fund may decline below the price at which the Fund is obligated to repurchase them, or that the other party may default on its obligation such that the Fund is delayed or prevented from completing the transaction.
The Fund 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 U.S. government. The U.S. government may choose not to provide financial support to U.S.-government-sponsored agencies or instrumentalities if it is not legally obligated to do so. In this case, if the issuer defaulted, the fund holding securities of such an issuer might not be able to recover its investment from the U.S. government.
About indexes used in this report
The Barclays Capital U.S. Aggregate Index is an unmanaged index considered representative of the U.S. investment-grade, fixed-rate bond market.
The Barclays Capital U.S. Government Index is an unmanaged index considered representative of fixed-income obligations issued by the U.S. Treasury, government agencies and quasi-federal corporations.
The Lipper VUF General U.S. Government Funds Index is an unmanaged index considered representative of general U.S. government variable insurance underlying funds tracked by Lipper.
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 the peer group reflects fund expenses; performance of a market index does not.
Other information
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
AIM V.I. Government Securities Fund
Schedule of Investments
December 31, 2009
Principal | ||||||||
Amount | Value | |||||||
U.S. Government Sponsored Mortgage-Backed Securities–77.44% | ||||||||
Collateralized Mortgage Obligations–58.92% | ||||||||
Fannie Mae Grantor Trust, 5.34%, 04/25/12 | $ | 4,500,000 | $ | 4,801,113 | ||||
Fannie Mae REMICs, 4.50%, 01/25/12 to 07/25/28 | 14,448,940 | 14,657,376 | ||||||
5.00%, 12/25/15 to 03/25/25 | 11,192,669 | 11,444,946 | ||||||
4.00%, 09/25/16 | 6,629,977 | 6,798,951 | ||||||
5.50%, 04/25/24 to 03/25/28 | 12,324,907 | 12,597,312 | ||||||
6.00%, 05/25/26 to 10/25/33 | 48,410,511 | 49,596,532 | ||||||
4.57%, 06/25/30 | 3,264,865 | 3,298,789 | ||||||
4.25%, 06/25/33 | 1,724,203 | 1,761,391 | ||||||
Fannie Mae Whole Loans, 5.50%, 07/25/34 | 2,346,205 | 2,331,658 | ||||||
Federal Home Loan Bank, 4.75%, 10/25/10 | 35,475,061 | 36,517,141 | ||||||
5.27%, 12/28/12 | 19,567,779 | 20,785,159 | ||||||
5.46%, 11/27/15 | 52,514,796 | 55,537,947 | ||||||
Freddie Mac REMICs, 6.75%, 06/15/11 | 228,421 | 233,296 | ||||||
5.25%, 08/15/11 to 08/15/32 | 18,925,048 | 19,849,868 | ||||||
5.38%, 08/15/11 to 09/15/11 | 5,760,242 | 5,971,830 | ||||||
4.50%, 12/15/15 to 04/15/30 | 18,415,512 | 18,888,855 | ||||||
7.50%, 01/15/16 | 1,110,665 | 1,132,316 | ||||||
5.00%, 04/15/16 to 09/15/27 | 40,309,000 | 41,254,629 | ||||||
6.00%, 09/15/16 to 09/15/29 | 88,529,481 | 90,610,566 | ||||||
3.50%, 10/15/16 to 05/15/22 | 4,642,983 | 4,757,980 | ||||||
4.00%, 11/15/16 to 02/15/30 | 7,861,218 | 8,015,705 | ||||||
5.75%, 12/15/18 | 17,743,941 | 18,135,985 | ||||||
5.50%, 07/15/22 to 10/15/28 | 123,316,701 | 126,022,220 | ||||||
4.75%, 05/15/23 to 04/15/31 | 18,981,637 | 19,450,603 | ||||||
Ginnie Mae REMICs, 3.13%, 04/16/16 | 4,701,151 | 4,760,451 | ||||||
5.86%, 10/16/23 | 46,084 | 46,247 | ||||||
2.17%, 02/16/24 | 22,906,708 | 23,028,210 | ||||||
5.00%, 09/16/27 to 02/20/29 | 9,066,854 | 9,329,672 | ||||||
4.21%, 01/16/28 | 9,089,444 | 9,338,694 | ||||||
4.75%, 12/20/29 | 9,579,930 | 9,677,981 | ||||||
5.50%, 04/16/31 | 8,140,899 | 8,527,592 | ||||||
4.50%, 11/20/34 to 08/20/35 | 25,506,070 | 26,376,791 | ||||||
4.00%, 03/20/36 | 44,580,516 | 45,910,750 | ||||||
711,448,556 | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–5.44% | ||||||||
Pass Through Ctfs., 6.00%, 08/01/10 to 02/01/34 | 5,346,838 | 5,725,868 | ||||||
7.00%, 11/01/10 to 12/01/37 | 18,846,472 | 20,941,688 | ||||||
6.50%, 10/01/12 to 12/01/35 | 8,809,442 | 9,536,294 | ||||||
8.00%, 07/01/15 to 09/01/36 | 16,769,438 | 19,197,346 | ||||||
7.50%, 03/01/16 to 08/01/36 | 6,811,046 | 7,535,827 | ||||||
10.50%, 08/01/19 | 6,112 | 6,858 | ||||||
8.50%, 09/01/20 to 08/01/31 | 1,255,643 | 1,442,914 | ||||||
10.00%, 03/01/21 | 87,138 | 97,876 | ||||||
9.00%, 06/01/21 to 06/01/22 | 716,866 | 798,410 | ||||||
7.05%, 05/20/27 | 374,614 | 413,915 | ||||||
65,696,996 | ||||||||
Federal National Mortgage Association (FNMA)–9.07% | ||||||||
Pass Through Ctfs., 6.50%, 10/01/10 to 11/01/37 | 10,958,668 | 11,842,326 | ||||||
7.00%, 12/01/10 to 06/01/36 | 31,267,422 | 34,145,354 | ||||||
7.50%, 08/01/11 to 07/01/37 | 20,172,022 | 22,680,060 | ||||||
8.00%, 06/01/12 to 11/01/37 | 18,735,484 | 21,122,700 | ||||||
8.50%, 06/01/12 to 08/01/37 | 7,999,831 | 9,084,677 | ||||||
10.00%, 09/01/13 | 17,785 | 19,014 | ||||||
6.00%, 09/01/17 to 03/01/37 | 5,749,470 | 6,134,450 | ||||||
5.00%, 11/01/17 to 12/01/33 | 1,613,166 | 1,693,130 | ||||||
5.50%, 03/01/21 | 669 | 710 | ||||||
6.75%, 07/01/24 | 1,350,850 | 1,497,267 | ||||||
6.95%, 10/01/25 to 09/01/26 | 200,457 | 222,851 | ||||||
STRIPS, 6.74%, 10/09/19(a) | 1,000,000 | 556,811 | ||||||
7.37%, 10/09/19(a) | 800,000 | 445,449 | ||||||
109,444,799 | ||||||||
Government National Mortgage Association (GNMA)–4.01% | ||||||||
Pass Through Ctfs., 6.50%, 02/20/12 to 01/15/37 | 16,870,245 | 18,273,272 | ||||||
8.00%, 07/15/12 to 01/15/37 | 4,953,286 | 5,685,376 | ||||||
6.75%, 08/15/13 | 47,851 | 51,002 | ||||||
7.50%, 10/15/14 to 10/15/35 | 8,318,556 | 9,377,007 | ||||||
11.00%, 10/15/15 | 2,152 | 2,410 | ||||||
9.50%, 09/15/16 | 2,861 | 3,185 | ||||||
9.00%, 10/20/16 to 12/20/16 | 103,077 | 114,393 | ||||||
7.00%, 04/15/17 to 01/15/37 | 6,712,445 | 7,440,894 | ||||||
10.50%, 09/15/17 to 11/15/19 | 3,803 | 4,086 | ||||||
8.50%, 12/15/17 to 01/15/37 | 1,051,131 | 1,151,868 | ||||||
10.00%, 06/15/19 | 42,112 | 46,329 | ||||||
6.00%, 09/15/20 to 08/15/33 | 3,722,799 | 3,986,704 | ||||||
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)–(continued) | ||||||||
6.95%, 08/20/25 to 08/20/27 | $ | 1,108,851 | $ | 1,226,061 | ||||
6.25%, 06/15/27 | 187,312 | 200,891 | ||||||
6.38%, 10/20/27 to 09/20/28 | 793,103 | 857,540 | ||||||
48,421,018 | ||||||||
Total U.S. Government Sponsored Mortgage-Backed Securities (Cost $917,718,892) | 935,011,369 | |||||||
U.S. Government Sponsored Agency Securities–19.46% | ||||||||
Federal Agricultural Mortgage Corp.–8.87% | ||||||||
Bonds, 2.11%, 03/15/12 | 70,000,000 | 70,697,879 | ||||||
Medium-Term Notes, 5.60%, 01/19/17 | 11,000,000 | 11,059,676 | ||||||
Unsec. Medium-Term Notes, 2.20%, 11/09/11 | 25,000,000 | 25,291,803 | ||||||
107,049,358 | ||||||||
Federal Farm Credit Bank (FFCB)–2.44% | ||||||||
Bonds, 3.00%, 09/22/14 | 12,500,000 | 12,616,464 | ||||||
5.59%, 10/04/21 | 10,075,000 | 10,703,275 | ||||||
5.75%, 01/18/22 | 2,775,000 | 2,936,425 | ||||||
Medium-Term Notes, 5.75%, 12/07/28 | 3,100,000 | 3,245,485 | ||||||
29,501,649 | ||||||||
Federal Home Loan Bank (FHLB)–3.31% | ||||||||
Unsec. Bonds, 5.45%, 04/15/11 | 9,919,651 | 10,386,465 | ||||||
4.72%, 09/20/12 | 1,501,459 | 1,585,727 | ||||||
Unsec. Global Bonds, 1.75%, 08/22/12 | 5,000,000 | 5,011,087 | ||||||
Unsec. Global Notes, 1.63%, 11/21/12 | 13,000,000 | 12,933,803 | ||||||
Series 1, Unsec. Bonds, 5.77%, 03/23/18 | 9,367,616 | 10,035,233 | ||||||
39,952,315 | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–2.93% | ||||||||
Unsec. Global Notes, 2.13%, 09/21/12 | 35,000,000 | 35,378,373 | ||||||
Federal National Mortgage Association (FNMA)–1.45% | ||||||||
Sr. Unsec. Global Bonds, 6.63%, 11/15/30(b) | 700,000 | 845,435 | ||||||
Unsec. Global Notes, 1.00%, 11/23/11 | 16,750,000 | 16,703,291 | ||||||
17,548,726 | ||||||||
Tennessee Valley Authority–0.46% | ||||||||
Series A, Bonds, 6.79%, 05/23/12 | 5,000,000 | 5,608,860 | ||||||
Total U.S. Government Sponsored Agency Securities (Cost $232,206,293) | 235,039,281 | |||||||
U.S. Treasury Securities–1.89% | ||||||||
U.S. Treasury Bonds–0.31% | ||||||||
7.63%, 02/15/25(b) | 550,000 | 743,703 | ||||||
6.88%, 08/15/25(b) | 500,000 | 635,000 | ||||||
4.25%, 05/15/39(b) | 2,500,000 | 2,347,265 | ||||||
3,725,968 | ||||||||
U.S. Treasury Notes–1.58% | ||||||||
1.13%, 06/30/11(b) | 8,400,000 | 8,433,469 | ||||||
1.00%, 09/30/11 | 5,000,000 | 4,998,047 | ||||||
3.13%, 05/15/19(b) | 6,000,000 | 5,686,875 | ||||||
19,118,391 | ||||||||
Total U.S. Treasury Securities (Cost $22,692,665) | 22,844,359 | |||||||
Foreign Sovereign Bonds–0.32% | ||||||||
Sovereign Debt–0.32% | ||||||||
Israel Government Agency for International Development (AID) Bond (Israel), Gtd. Global Bonds, 5.13%, 11/01/24 (Cost $3,831,394) | 3,800,000 | 3,876,692 | ||||||
Shares | ||||||||
Money Market Funds–0.78% | ||||||||
Government & Agency Portfolio–Institutional Class (Cost $9,381,806)(c) | 9,381,806 | 9,381,806 | ||||||
TOTAL INVESTMENTS–99.89% (Cost $1,185,831,050) | 1,206,153,507 | |||||||
OTHER ASSETS LESS LIABILITIES–0.11% | 1,275,204 | |||||||
NET ASSETS–100.00% | $ | 1,207,428,711 | ||||||
Investment Abbreviations:
Ctfs. | – Certificates | |
Gtd. | – Guaranteed | |
REMIC | – Real Estate Mortgage Investment Conduits | |
Sr. | – Senior | |
STRIPS | – Separately Traded Registered Interest and Principal Security | |
Unsec. | – Unsecured |
Notes to Schedule of Investments:
(a) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. | |
(b) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1M and Note 5. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Government Securities Fund
Statement of Assets and Liabilities
December 31, 2009
Assets: | ||||
Investments, at value (Cost $1,176,449,244) | $ | 1,196,771,701 | ||
Investments in affiliated money market funds, at value and cost | 9,381,806 | |||
Total investments, at value (Cost $1,185,831,050) | 1,206,153,507 | |||
Receivables for: | ||||
Fund shares sold | 68,376 | |||
Dividends and interest | 5,473,937 | |||
Fund expenses absorbed | 29,348 | |||
Principal paydowns | 15,883 | |||
Investment for trustee deferred compensation and retirement plans | 43,188 | |||
Other assets | 381 | |||
Total assets | 1,211,784,620 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 655,404 | |||
Amount due custodian | 1,065,033 | |||
Variation margin | 1,676,221 | |||
Accrued fees to affiliates | 785,027 | |||
Accrued other operating expenses | 47,028 | |||
Trustee deferred compensation and retirement plans | 127,196 | |||
Total liabilities | 4,355,909 | |||
Net assets applicable to shares outstanding | $ | 1,207,428,711 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,199,917,431 | ||
Undistributed net investment income | 55,633,788 | |||
Undistributed net realized gain (loss) | (54,349,760 | ) | ||
Unrealized appreciation | 6,227,252 | |||
$ | 1,207,428,711 | |||
Net Assets: | ||||
Series I | $ | 1,192,966,614 | ||
Series II | $ | 14,462,097 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 99,810,236 | |||
Series II | 1,216,913 | |||
Series I: | ||||
Net asset value per share | $ | 11.95 | ||
Series II: | ||||
Net asset value per share | $ | 11.88 | ||
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Interest | $ | 56,459,726 | ||
Dividends from affiliated money market funds | 127,142 | |||
Total investment income | 56,586,868 | |||
Expenses: | ||||
Advisory fees | 6,185,958 | |||
Administrative services fees | 3,632,550 | |||
Custodian fees | 90,822 | |||
Distribution fees — Series II | 43,690 | |||
Transfer agent fees | 17,504 | |||
Trustees’ and officers’ fees and benefits | 63,168 | |||
Other | 164,728 | |||
Total expenses | 10,198,420 | |||
Less: Fees waived and expense offset arrangement(s) | (356,858 | ) | ||
Net expenses | 9,841,562 | |||
Net investment income | 46,745,306 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 442,896 | |||
Futures contracts | 5,953,880 | |||
6,396,776 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 7,472,864 | |||
Futures contracts | (65,670,002 | ) | ||
(58,197,138 | ) | |||
Net realized and unrealized gain (loss) | (51,800,362 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (5,055,056 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Government Securities Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 46,745,306 | $ | 54,372,123 | ||||
Net realized gain | 6,396,776 | 53,200,708 | ||||||
Change in net unrealized appreciation (depreciation) | (58,197,138 | ) | 58,547,019 | |||||
Net increase (decrease) in net assets resulting from operations | (5,055,056 | ) | 166,119,850 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (60,184,129 | ) | (56,114,206 | ) | ||||
Series II | (678,455 | ) | (694,714 | ) | ||||
Total distributions from net investment income | (60,862,584 | ) | (56,808,920 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | (43,257,923 | ) | — | |||||
Series II | (522,035 | ) | — | |||||
Total distributions from net realized gains | (43,779,958 | ) | — | |||||
Share transactions-net: | ||||||||
Series I | (290,464,747 | ) | 314,015,739 | |||||
Series II | (4,570,136 | ) | 79,644 | |||||
Net increase (decrease) in net assets resulting from share transactions | (295,034,883 | ) | 314,095,383 | |||||
Net increase (decrease) in net assets | (404,732,481 | ) | 423,406,313 | |||||
Net assets: | ||||||||
Beginning of year | 1,612,161,192 | 1,188,754,879 | ||||||
End of year (includes undistributed net investment income of $55,633,788 and $60,726,416, respectively) | $ | 1,207,428,711 | $ | 1,612,161,192 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. Government Securities Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is a high level of current income consistent with reasonable concern for safety of principal.
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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, 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 |
AIM V.I. Government Securities Fund
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 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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
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 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 adviser. | ||
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 adviser 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. |
AIM V.I. Government Securities Fund
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | 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. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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, including the Fund’s servicing agreements, 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. | ||
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. |
AIM V.I. Government Securities Fund
L. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts 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. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. | |
M. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). 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. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, 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. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. 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. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. 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. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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 Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time.
For the year ended December 31, 2009, the Adviser waived advisory fees of $356,698.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $319,782 for accounting and fund administrative services and reimbursed $3,312,768 for services provided by insurance companies.
AIM V.I. Government Securities 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 year ended December 31, 2009, 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 year ended December 31, 2009, 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, IAIS and/or IADI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 9,381,806 | $ | — | $ | — | $ | 9,381,806 | ||||||||
Collateralized debt securities | — | 733,455,980 | — | 733,455,980 | ||||||||||||
Foreign Government Debt Securities | — | 3,876,692 | — | 3,876,692 | ||||||||||||
U.S. Treasury Securities | — | 22,844,359 | — | 22,844,359 | ||||||||||||
U.S. Government Sponsored Securities | — | 436,594,670 | — | 436,594,670 | ||||||||||||
9,381,806 | 1,196,771,701 | — | 1,206,153,507 | |||||||||||||
Other Investments* | (14,095,205 | ) | — | — | (14,095,205 | ) | ||||||||||
Total Investments | (4,713,399 | ) | 1,196,771,701 | — | 1,192,058,302 | |||||||||||
* | Other Investments include futures, 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 adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2009, the Fund engaged in securities purchases of $28,538,550.
AIM V.I. Government Securities Fund
NOTE 5—Derivative Investments
Effective with the beginning of the Fund’s fiscal year, the Fund has implemented new required disclosures about derivative instruments and hedging activities in accordance with GAAP. GAAP has 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. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of December 31, 2009:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Interest rate risk | ||||||||
Futures contracts(a) | $ | 38,188 | $ | (14,133,393 | ) | |||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s net variation margin (payable) is reported within the Statement of Assets & Liabilities. |
Effect of Derivative Instruments for the year ended December 31, 2009
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Futures* | ||||
Realized Gain | ||||
Interest rate risk | $ | 5,953,880 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Interest rate risk | $ | (65,670,002 | ) | |
Total | $ | (59,716,122 | ) | |
* | The average value of futures outstanding during the period was $711,961,588. |
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Month/ | Appreciation | ||||||||||||||
Contract | Contracts | Commitment | Value | (Depreciation) | ||||||||||||
U.S. Treasury 2 Year Notes | 199 | March-2010/Long | $ | 43,036,860 | $ | (193,209 | ) | |||||||||
U.S. Treasury 5 Year Notes | 2208 | March-2010/Long | 252,557,251 | (3,487,881 | ) | |||||||||||
U.S. Treasury 10 Year Notes | 331 | March-2010/Long | 38,214,984 | (988,540 | ) | |||||||||||
U.S. Treasury 30 Year Bonds | 1830 | March-2010/Long | 211,136,250 | (9,425,575 | ) | |||||||||||
Total | $ | 544,945,345 | $ | (14,095,205 | ) | |||||||||||
NOTE 6—Expense Offset Arrangement(s)
The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the year ended December 31, 2009, the Fund received credits from this arrangement, which resulted in the reduction of the Fund’s total expenses of $160.
NOTE 7—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $6,273 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
AIM V.I. Government Securities Fund
NOTE 8—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, 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, 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.
NOTE 9—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2009 and 2008:
2009 | 2008 | |||||||
Ordinary income | $ | 60,878,384 | $ | 56,608,920 | ||||
Long-term capital gain | 43,764,158 | — | ||||||
Total distributions | $ | 104,642,542 | $ | 56,608,920 | ||||
Tax Components of Net Assets at Period-End:
2009 | ||||
Undistributed ordinary income | $ | 55,764,293 | ||
Net unrealized appreciation — investments | 20,191,168 | |||
Temporary book/tax differences | (130,504 | ) | ||
Post-October deferrals | (11,863,630 | ) | ||
Capital loss carryforward | (56,450,047 | ) | ||
Shares of beneficial interest | 1,199,917,431 | |||
Total net assets | $ | 1,207,428,711 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales and the realization for tax purposes of unrealized gains on certain future contracts..
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2017 | $ | 56,450,047 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 10—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2009 was $649,895,603 and $846,261,621, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $66,930,580 and $51,800,878, repectively. 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 | $ | 21,128,513 | ||
Aggregate unrealized (depreciation) of investment securities | (937,345 | ) | ||
Net unrealized appreciation of investment securities | $ | 20,191,168 | ||
Cost of investments for tax purposes is $1,185,962,339. |
AIM V.I. Government Securities Fund
NOTE 11—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of paydowns, on December 31, 2009, undistributed net investment income was increased by $9,024,650, undistributed net realized gain (loss) was decreased by $9,024,650. This reclassification had no effect on the net assets of the Fund.
NOTE 12—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended December 31, | ||||||||||||||||
2009(a) | 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 13,378,824 | $ | 173,338,232 | 42,340,755 | $ | 529,835,003 | ||||||||||
Series II | 368,564 | 4,730,767 | 722,852 | 8,979,278 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 8,534,823 | 103,442,051 | 4,387,350 | 56,114,206 | ||||||||||||
Series II | 99,626 | 1,200,490 | 54,659 | 694,714 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (44,095,427 | ) | (567,245,030 | ) | (21,773,179 | ) | (271,933,470 | ) | ||||||||
Series II | (821,161 | ) | (10,501,393 | ) | (772,520 | ) | (9,594,348 | ) | ||||||||
Net increase (decrease) in share activity | (22,534,751 | ) | $ | (295,034,883 | ) | 24,959,917 | $ | 314,095,383 | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 94% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, 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 and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and or Invesco 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—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses to | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | on securities | Dividends | Distributions | Net assets, | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | end of period | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | (000s | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 13.05 | $ | 0.45 | $ | (0.43 | ) | $ | 0.02 | $ | (0.65 | ) | $ | (0.47 | ) | $ | (1.12 | ) | $ | 11.95 | (0.01 | )% | $ | 1,192,967 | 0.73 | %(d) | 0.75 | %(d) | 3.47 | %(d) | 55 | % | ||||||||||||||||||||||||
Year ended 12/31/08 | 12.06 | 0.50 | 0.96 | 1.46 | (0.47 | ) | — | (0.47 | ) | 13.05 | 12.22 | 1,591,799 | 0.73 | 0.76 | 3.96 | 109 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 11.80 | 0.59 | 0.16 | 0.75 | (0.49 | ) | — | (0.49 | ) | 12.06 | 6.43 | 1,169,985 | 0.73 | 0.76 | 4.93 | 106 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 11.87 | 0.55 | (0.13 | ) | 0.42 | (0.49 | ) | — | (0.49 | ) | 11.80 | 3.55 | 907,403 | 0.71 | 0.77 | 4.62 | 89 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 12.07 | 0.45 | (0.25 | ) | 0.20 | (0.40 | ) | — | (0.40 | ) | 11.87 | 1.66 | 812,824 | 0.85 | 0.88 | 3.68 | 174 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 12.97 | 0.41 | (0.43 | ) | (0.02 | ) | (0.60 | ) | (0.47 | ) | (1.07 | ) | 11.88 | (0.26 | ) | 14,462 | 0.98 | (d) | 1.00 | (d) | 3.22 | (d) | 55 | |||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 11.99 | 0.46 | 0.97 | 1.43 | (0.45 | ) | — | (0.45 | ) | 12.97 | 11.98 | 20,362 | 0.98 | 1.01 | 3.71 | 109 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 11.74 | 0.56 | 0.15 | 0.71 | (0.46 | ) | — | (0.46 | ) | 11.99 | 6.11 | 18,770 | 0.98 | 1.01 | 4.68 | 106 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 11.81 | 0.52 | (0.13 | ) | 0.39 | (0.46 | ) | — | (0.46 | ) | 11.74 | 3.28 | 16,218 | 0.96 | 1.02 | 4.37 | 89 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 12.01 | 0.41 | (0.24 | ) | 0.17 | (0.37 | ) | — | (0.37 | ) | 11.81 | 1.41 | 18,863 | 1.10 | 1.13 | 3.43 | 174 | |||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $1,329,404 and $17,476 for Series I and Series II shares, respectively. |
AIM V.I. Government Securities Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Government Securities Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. Government Securities Fund (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for the each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 10, 2010
Houston, Texas
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 July 1, 2009, through December 31, 2009.
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 | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,019.40 | $ | 3.72 | $ | 1,021.53 | $ | 3.72 | 0.73 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,017.80 | 4.98 | 1,020.27 | 4.99 | 0.98 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. Government Securities Fund
Tax Information |
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2009:
Federal and State Income Tax | ||||
Long-Term Capital Gain Dividends | $ | 43,764,157 | ||
Corporate Dividends Received Deduction* | 0% | |||
U.S. Treasury Obligations* | 1.51% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
AIM V.I. Government Securities Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Trustee and/ | ||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||
Interested Persons | ||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | None | |||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC | None | |||
Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||
Independent Trustees | ||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||
Frank S. Bayley — 1939 Trustee | 2001 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | None | |||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans Scholars Foundation and Executive Committee, United States Golf Association | |||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | Board of Nature’s Sunshine Products, Inc. | |||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | Administaff | |||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired | None | |||
Lewis F. Pennock — 1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||
Larry Soll — 1942 Trustee | 2004 | Retired | None | |||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) | None |
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers — (continued)
Trustee and/ | ||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||
Other Officers | ||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | |||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | N/A | |||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® | N/A | |||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | |||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 100 | Invesco Advisers, Inc. | Invesco Aim Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 100 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Independent Trustees | Invesco Aim Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-2
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AIM V.I. High Yield Fund
Annual Report to Shareholders § December 31, 2009
![(IMAGE)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943601.jpg)
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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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 PDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2009, Series I shares of AIM V.I. High Yield Fund, excluding variable product issuer charges, underperformed the Fund’s style-specific index, but outperformed its broad market index. As lower quality bonds (CCC-rated and below) outperformed higher quality securities (BB- and B-rated) within the high yield market, the Fund’s strategy of maintaining its focus on BB- and B-rated issues benefited performance relative to its broad market benchmark. The primary detractor from relative performance versus the style-specific benchmark was our underweight position within financials as this non-traditional high yield sector posted a strong rally for the year.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 52.79 | % | ||
Series II Shares | 52.06 | |||
Barclays Capital U.S. Aggregate Index6 (Broad Market Index) | 5.93 | |||
Barclays Capital U.S. Corporate High Yield Index6 (Style-Specific Index) | 58.21 | |||
Lipper VUF High Current Yield Bond Funds Category Average6 (Peer Group) | 43.48 |
6 | Lipper Inc. |
How we invest
We invest primarily in debt securities that are determined to be below investment-grade quality. These bonds, commonly known as “junk bonds’” are typically corporate bonds of U.S. based companies, many of which are moderately sized companies. We principally invest in junk bonds rated B or above, although we own holdings with lower quality ratings as well. We may invest in convertible, preferred, derivatives and foreign securities. We may also invest up to 25% of total assets in foreign securities of which 15% can be in developing markets.
The primary driver of our security selection is fundamental analysis conducted by a team of analysts who specialize by industry. This bottom-up approach is augmented with an ongoing review of securities’ relative value and a top-down process that includes sector, economic and quantitative analysis. Changes in a security’s risk/return profile or relative value and top-down factors generally determine buy and sell decisions.
Portfolio construction begins with a well-defined portfolio design that emphasizes diversification and establishes the target investment vehicles for generating the desired “alpha” (the extra return above a specific benchmark) as well as the risk parameters for the Fund. Investments are evaluated for liquidity and risk versus relative value. Working closely with other investment specialists and traders, we determine the timing and amount of each alpha decision to use in the portfolio at any time taking into account skill and market opportunities.
Sell decisions are based on:
§ | Low equity value to debt, high subordination and negative free cash flow coupled with negative news, declining expectations or an increasing risk profile. | |
§ | Very low yields. | |
§ | Presentation of a better relative value opportunity. |
Market conditions and your Fund
The year ended December 31, 2009, was truly a tale of two markets. During the first few months of the year, the equity and fixed-income markets continued to experience steep declines as severe problems in credit markets, a rapidly deteriorating housing market, rising energy and food prices and a deteriorating outlook for corporate earnings led to a global economic recession. The market was still suffering significant losses because of a lack of liquidity and an inventory surplus as troubled banks, brokers and insurers were trying to improve their balance sheets, raise cash and wind down operations. However, the U.S. economy began to show signs that the economic contraction was subsiding, and equity markets rapidly reversed direction beginning in March 2009, rallying strongly through most of the remaining months in the year.
By early spring there was some evidence that the pace of the economic downturn was slowing. Credit markets began to show signs of life again, as actions taken by the government to jump start the economy provided a boost to the markets. Liquidity improved significantly in the later part of the first quarter of 2009, as fund flow activity into high yield funds remained positive for 14 consecutive weeks, as reported by AMG Data Services.
Portfolio Composition1
By credit quality
BBB | 10.3 | % | |||
BB | 27.4 | ||||
B | 38.1 | ||||
CCC | 19.1 | ||||
CC | 0.7 | ||||
D | 0.9 | ||||
NR | 1.6 | ||||
Equity | 0.7 | ||||
Cash | 1.2 | ||||
Top Five Industries* | |||||
1. Oil & Gas Exploration & Production | 6.2 | % | |||
2. Casinos & Gaming | 4.8 | ||||
3. Wireless Telecommunication Services | 4.5 | ||||
4. Consumer Finance | 4.0 | ||||
5. Health Care Facilities | 3.8 | ||||
Total Net Assets | $ | 61.1 million | |||
Total Number of Holdings* | 341 | ||||
Top 10 Fixed Income Issuers* | |||||
1. HCA, Inc. | 2.3 | % | |||
2. GMAC Inc. | 1.9 | ||||
3. MGM Mirage | 1.7 | ||||
4. Nielsen Finance LLC/Co. | 1.7 | ||||
5. Ford Motor Credit Co. LLC | 1.7 | ||||
6. United Air Lines Inc. | 1.2 | ||||
7. Travelport LLC | 1.2 | ||||
8. Continental Airlines Inc. | 1.2 | ||||
9. AMH Holdings Inc. | 1.0 | ||||
10. Ford Motor Co. | 1.0 |
1 | Sources: S&P, Moody’s, Fitch: This table is calculated based on the highest rating assigned by one of these agencies to an individual security. A credit rating is an assessment provided by a nationally recognized statistical rating organization (NRSRO) of the creditworthiness of an issuer with respect to debt obligations, including specific securities, money market instruments or other debts. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest); ratings are subject to change without notice. “NR” indicates the debtor was not rated, and should not be interpreted as indicating low quality. | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security. | ||
* | Excluding money market fund holdings. |
AIM V.I. High Yield Fund
The influx of cash was driven by investors viewing the high yield sector as a favorable asset class given that the risk of high yield corporate defaults was already reflected in the valuations in this asset class. Given the reversal in risk appetite by investors, credit spreads tightened significantly from the all time highs posted in mid-December 2008.1 The beginning of 2009 also witnessed three of the five best performing months on record for high yield bonds as measured by the Barclays Capital U.S. Corporate High Yield Index.1
The reporting period was truly a banner year for high yield bonds as credit markets began to show life again. The high yield sector was one of the top-performing asset classes in 2009.2
During the year, we maintained our focus on BB- and B-rated bonds, but actively adjusted the weights in all tiers of the credit quality spectrum. We increased our lower quality exposure in 2009, largely to offset our underweight from 2008. This decision was positive for relative performance as CCC-rated bonds were up more than 90% in the index over 2009.2
The primary detractor from relative performance for the year was our underweight position within the financials sector as this non-traditional high yield sector posted a strong rally over the second half of the year. Many financials sector securities fell into the high yield category during 2009 on credit downgrades. Our Fund was underweight in financials as we have been selective in participating in this sector. In recent months, we significantly increased our exposure to financials. Our approach was to complement high yield securities with those from the dislocated investment-grade universe. These investment-grade bonds offered compelling return opportunities with potentially lower default risk by having a more senior position in a firm’s debt structure.
From a security selection perspective, our positions in Ford and Motors Liquidation Co. in the automotive industry contributed to Fund performance. We recently increased our exposure to these two companies on expectations of a sales recovery. In addition, recovery stories continued to be a key driver to performance for the year. Spansion Technology is an example of a company that filed for bankruptcy earlier in the year, but recovered significantly with the turn-around in the information technology sector and management’s focus on reducing expenses and improving working capital. We expected Spansion to provide a full recovery of both principal and interest.
While the portfolio remained well-diversified across industries and issues, some of the Fund’s holdings experienced weaker performance. Indalex Holdings Finance was a detractor from Fund performance. The owner of the second-largest producer of soft aluminum extrusions in the U.S. sought bankruptcy protection from creditors, blaming collection efforts by Alcoa (not a Fund holding) and liquidity constraints. In addition, MagnaChip Semiconductor was also a detractor from performance. The company was simply beat by its competitors and harmed by the recession and lack of continued financing. In the case of both companies, we did not expect material future recoveries.
As always, we appreciate your continued participation in AIM V.I. High Yield Fund.
1 | Barclays Capital | |
2 | Lipper Inc. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
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Peter Ehret
Chartered Financial Analyst, senior portfolio manager, is lead manager of AIM V.I. High Yield Fund. Mr. Ehret joined Invesco Aim in 2001. He graduated cum laude with a B.S. in economics from the University of Minnesota. He also earned an M.S. in real estate appraisal and investment analysis from the University of Wisconsin-Madison.
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Darren Hughes
Chartered Financial Analyst, senior portfolio manager, is manager of AIM V.I. High Yield Fund. He joined Invesco Aim in 1992. Mr. Hughes earned a B.B.A. in finance and economics from Baylor University.
AIM V.I. High Yield Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment — Oldest Share Class since Inception
Index data from 4/30/98, Fund data from 5/1/98
Index data from 4/30/98, Fund data from 5/1/98
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1 | Lipper Inc. |
Past performance cannot guarantee comparable future results.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000.
Average Annual Total Returns
As of 12/31/09
As of 12/31/09
Series I Shares | ||||
Inception (5/1/98) | 2.78 | % | ||
10 Years | 3.04 | |||
5 Years | 5.51 | |||
1 Year | 52.79 | |||
Series II Shares | ||||
10 Years | 2.79 | % | ||
5 Years | 5.21 | |||
1 Year | 52.06 |
Series II shares’ inception date is March 26, 2002. Returns since that date are historical. All other returns are the blended returns of the historical performance of Series II shares since their inception and the 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 1, 1998. 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 adviser 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 net 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 0.96% and 1.21%, respectively.1,2 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 1.23% and 1.48%, 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. High Yield 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 the 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 adviser.
Had the adviser not waived fees and/ or reimbursed expenses, performance would have been lower.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. | |
2 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2010. See current prospectus for more information. |
AIM V.I. High Yield Fund
AIM V.I. High Yield Fund’s investment objective is a high level of current income.
§ | Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets. | |
§ | Unless otherwise noted, all data provided by Invesco. |
Principal risks of investing in the Fund
Credit risk is the risk of loss on an investment due to the deterioration of an issuer’s financial health. Such a deterioration of financial health may result in a reduction of the credit rating of the issuer’s securities and may lead to the issuer’s inability to honor its contractual obligations, including making timely payment of interest and principal.
Investing in developing countries can add additional risk, such as high rates of inflation or sharply devalued currencies against the U.S. dollar. Transaction costs are often higher, and there may be delays in settlement procedures.
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, relative lack of information, relatively low market liquidity, and the potential lack of strict financial and accounting controls and standards.
Lower rated securities may be more susceptible to real or perceived adverse economic and competitive industry conditions, and the secondary markets in which lower rated securities are traded may be less liquid than higher grade securities. The loans in which the Fund may invest are typically noninvestment-grade and involve a greater risk of default on interest and principal payments and of price changes due to the changes in the credit quality of the issuer.
Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa.
Leveraging entails risks such as magnifying changes in the value of the portfolio’s securities.
Reinvestment risk is the risk that a bond’s cash flows will be reinvested at an interest rate below that of the original bond.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
The prices of securities held by the Fund may decline in response to market risks.
About indexes used in this report
The Barclays Capital U.S. Aggregate Index is an unmanaged index considered representative of the U.S. investment-grade, fixed-rate bond market.
The Barclays Capital U.S. Corporate High Yield Index is an unmanaged index that covers the universe of fixed-rate, noninvestment-grade debt.
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.
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 the peer group reflects fund expenses; performance of a market index does not.
Other information
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
AIM V.I. High Yield Fund
Schedule of Investments(a)
December 31, 2009
Principal | ||||||||
Amount | Value | |||||||
U.S. Dollar Denominated Bonds & Notes–92.30% | ||||||||
Advertising–0.32% | ||||||||
Lamar Media Corp., Sr. Unsec. Gtd. Sub. Global Notes, 7.25%, 01/01/13 | $ | 195,000 | $ | 195,000 | ||||
Aerospace & Defense–0.41% | ||||||||
Alliant Techsystems Inc., Sr. Unsec. Gtd. Sub. Notes, 6.75%, 04/01/16 | 60,000 | 59,700 | ||||||
BE Aerospace, Inc., Sr. Unsec. Unsub. Notes, 8.50%, 07/01/18 | 180,000 | 191,700 | ||||||
251,400 | ||||||||
Agricultural Products–0.18% | ||||||||
CCL Finance Ltd. (Cayman Islands), Sr. Unsec. Gtd. Notes, 9.50%, 08/15/14(b) | 105,000 | 110,114 | ||||||
Airlines–3.56% | ||||||||
American Airlines Pass Through Trust–Series 2009-1A, Sec. Pass Through Ctfs., 10.38%, 07/02/19 | 70,000 | 78,662 | ||||||
Continental Airlines Inc., Pass Through Ctfs., 9.00%, 07/08/16 | 165,000 | 177,066 | ||||||
Sr. Unsec. Unsub. Notes, 8.75%, 12/01/11 | 185,000 | 179,450 | ||||||
Series 2000-1, Class C-1, Sec. Sub. Pass Through Ctfs., 8.50%, 05/01/11 | 39,186 | 37,423 | ||||||
Series 2000-2, Class B, Sec. Sub. Pass Through Ctfs., 8.31%, 04/02/18 | 135,344 | 123,840 | ||||||
Series 2001-1, Class B, Sec. Sub. Pass Through Ctfs., 7.37%, 12/15/15 | 111,276 | 98,479 | ||||||
Series A, Global Pass Through Ctfs., 7.25%, 11/10/19 | 40,000 | 41,075 | ||||||
Series B, Global Pass Through Ctfs., 9.25%, 05/10/17 | 50,000 | 50,906 | ||||||
Delta Air Lines, Inc., Sr. Sec. Notes, 9.50%, 09/15/14(b) | 45,000 | 47,025 | ||||||
Series 2002-1, Class C, Sec. Pass Through Ctfs., 7.78%, 01/02/12 | 321,032 | 311,401 | ||||||
Series 2007-1, Class C, Sec. Global Pass Through Ctfs., 8.95%, 08/10/14 | 238,162 | 215,537 | ||||||
UAL Corp., Series 2000-2, Class A-2, Sec. Pass Through Ctfs., 7.19%, 04/01/11 | 11,520 | 11,534 | ||||||
Series 2007-1, Class B, Sr. Sec. Gtd. Global Pass Through Ctfs., 7.34%, 07/02/19(b) | 126,822 | 89,726 | ||||||
United Air Lines Inc., Gtd. Global Pass Through Ctfs., 9.75%, 01/15/17 | 200,000 | 207,125 | ||||||
Sec. Gtd., 12.00%, 01/15/16(b) | 260,000 | 256,750 | ||||||
Sr. Sec. Gtd. Global Pass Through Ctfs., 10.40%, 11/01/16 | 235,000 | 250,422 | ||||||
2,176,421 | ||||||||
Alternative Carriers–2.24% | ||||||||
Intelsat Intermediate Holding Co. Ltd. (Bermuda), Sr. Unsec. Gtd. Disc. Global Notes, 9.50%, 02/01/15(c) | 560,000 | 578,200 | ||||||
Intelsat Jackson Holdings Ltd. (Bermuda), Sr. Unsec. Gtd. Global Notes, 11.25%, 06/15/16 | 315,000 | 341,775 | ||||||
Intelsat Subsidiary Holding Co. Ltd. (Bermuda), Sr. Unsec. Gtd. Global Notes, 8.50%, 01/15/13 | 170,000 | 174,250 | ||||||
Level 3 Financing Inc., Sr. Unsec. Gtd. Unsub. Global Notes, 9.25%, 11/01/14 | 285,000 | 273,600 | ||||||
1,367,825 | ||||||||
Aluminum–1.41% | ||||||||
Century Aluminum Co., Sr. Sec. Notes, 8.00%, 05/15/14 | 265,630 | 251,020 | ||||||
Novelis Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 7.25%, 02/15/15 | 634,000 | 608,640 | ||||||
859,660 | ||||||||
Apparel Retail–1.17% | ||||||||
Collective Brands, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 8.25%, 08/01/13 | 450,000 | 460,125 | ||||||
Limited Brands Inc., Sr. Notes, 8.50%, 06/15/19(b) | 140,000 | 151,550 | ||||||
Sr. Unsec. Notes, 5.25%, 11/01/14 | 105,000 | 100,800 | ||||||
712,475 | ||||||||
Apparel, Accessories & Luxury Goods–1.84% | ||||||||
American Achievement Corp., Sr. Unsec. Gtd. Sub. Notes, 8.25%, 04/01/12(b) | 205,000 | 206,025 | ||||||
Hanesbrands, Inc.–Series B, Sr. Unsec. Gtd. Floating Rate Global Notes, 3.83%, 12/15/14(d) | 285,000 | 272,887 | ||||||
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) | ||||||||
Levi Strauss & Co., Sr. Unsec. Unsub. Global Notes, 8.88%, 04/01/16 | $ | 225,000 | $ | 237,094 | ||||
Perry Ellis International, Inc., Series B, Sr. Unsec. Gtd. Sub. Global Notes, 8.88%, 09/15/13 | 325,000 | 325,000 | ||||||
Quiksilver Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 04/15/15 | 100,000 | 82,500 | ||||||
1,123,506 | ||||||||
Auto Parts & Equipment–1.44% | ||||||||
Allison Transmission Inc., Sr. Unsec. Gtd. Notes, 11.00%, 11/01/15(b) | 330,000 | 348,975 | ||||||
Tenneco Inc., Sr. Unsec. Gtd. Global Notes, 8.13%, 11/15/15 | 145,000 | 147,175 | ||||||
TRW Automotive Inc., Sr. Unsec. Gtd. Unsub. Notes, 7.25%, 03/15/17(b) | 345,000 | 336,375 | ||||||
Visteon Corp., Sr. Unsec. Unsub. Notes, 7.00%, 03/10/14(e) | 180,000 | 47,250 | ||||||
879,775 | ||||||||
Automobile Manufacturers–1.46% | ||||||||
Ford Motor Co., Sr. Unsec. Conv. Notes, 4.25%, 11/15/16 | 165,000 | 208,354 | ||||||
Sr. Unsec. Unsub. Global Notes, 7.45%, 07/16/31 | 475,000 | 425,125 | ||||||
Motors Liquidation Co., Sr. Unsec. Unsub. Global Notes, 7.20%, 01/15/11(e) | 445,000 | 116,813 | ||||||
Sr. Unsec. Unsub. Notes, 8.38%, 07/15/33(e) | 525,000 | 144,375 | ||||||
894,667 | ||||||||
Broadcasting–0.77% | ||||||||
Belo Corp., Sr. Unsec. Unsub. Notes, 6.75%, 05/30/13 | 365,000 | 361,350 | ||||||
8.00%, 11/15/16 | 15,000 | 15,450 | ||||||
Clear Channel Worldwide Holdings Inc., Sr. Unsec. Gtd. Unsub. Notes, 9.25%, 12/15/17(b) | 70,000 | 72,450 | ||||||
Sr. Unsec. Unsub. Gtd. Notes, 9.25%, 12/15/17(b) | 20,000 | 20,550 | ||||||
469,800 | ||||||||
Building Products–3.24% | ||||||||
AMH Holdings Inc., Sr. Unsec. Global Notes Disc., 11.25%, 03/01/14 | 655,000 | 635,350 | ||||||
Building Materials Corp. of America, Sec. Gtd. Second Lien Global Notes, 7.75%, 08/01/14 | 415,000 | 412,925 | ||||||
Goodman Global Group Inc., Sr. Disc. Notes, 12.48%, 12/15/14(b)(f) | 445,000 | 253,650 | ||||||
Nortek Inc., Sr. Sec. Global Notes, 11.00%, 12/01/13 | 215,955 | 228,912 | ||||||
Ply Gem Industries Inc., Sr. Sec. Gtd. First & Second Lien Global Notes, 11.75%, 06/15/13 | 285,000 | 286,425 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 9.00%, 02/15/12 | 135,000 | 115,425 | ||||||
USG Corp., Sr. Unsec. Gtd. Notes, 9.75%, 08/01/14(b) | 45,000 | 48,038 | ||||||
1,980,725 | ||||||||
Cable & Satellite–1.70% | ||||||||
Cablevision Systems Corp., Sr. Notes, 8.63%, 09/15/17(b) | 135,000 | 141,244 | ||||||
CSC Holdings LLC, Sr. Unsec. Notes, 8.50%, 04/15/14(b) | 115,000 | 122,906 | ||||||
8.63%, 02/15/19(b) | 30,000 | 32,438 | ||||||
Hughes Network Systems LLC/HNS Finance Corp., Sr. Unsec. Gtd. Global Notes, 9.50%, 04/15/14 | 150,000 | 155,625 | ||||||
Virgin Media Finance PLC (United Kingdom) Sr. Unsec. Gtd. Global Notes, 8.75%, 04/15/14 | 50,000 | 51,687 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 8.38%, 10/15/19 | 100,000 | 103,375 | ||||||
Series 1, Sr. Gtd. Global Bonds, 9.50%, 08/15/16 | 180,000 | 194,400 | ||||||
XM Satellite Radio Inc., Sr. Sec. Notes, 11.25%, 06/15/13(b) | 220,000 | 235,950 | ||||||
1,037,625 | ||||||||
Casinos & Gaming–4.99% | ||||||||
Great Canadian Gaming Corp. (Canada), Sr. Unsec. Gtd. Sub. Notes, 7.25%, 02/15/15(b) | 260,000 | 250,900 | ||||||
Harrah’s Operating Co. Inc., Sr. Sec. Notes, 11.25%, 06/01/17(b) | 275,000 | 292,187 | ||||||
Sr. Unsec. Gtd. Unsub. Global Bonds, 5.63%, 06/01/15 | 265,000 | 159,000 | ||||||
Mandalay Resort Group, Sr. Unsec. Gtd. Sub. Global Notes, 9.38%, 02/15/10 | 65,000 | 65,000 | ||||||
MGM Mirage, Sr. Sec. Gtd. Notes, 13.00%, 11/15/13 | 130,000 | 150,150 | ||||||
Sr. Sec. Notes, 10.38%, 05/15/14(b) | 165,000 | 180,675 | ||||||
11.13%, 11/15/17(b) | 165,000 | 183,975 | ||||||
Sr. Unsec. Gtd. Global Notes, 6.63%, 07/15/15 | 273,000 | 212,257 | ||||||
Sr. Unsec. Gtd. Unsub. Notes, 8.50%, 09/15/10 | 310,000 | 310,000 | ||||||
5.88%, 02/27/14 | 10,000 | 8,100 | ||||||
Pinnacle Entertainment, Inc., Sr. Notes, 8.63%, 08/01/17(b) | 285,000 | 290,700 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Casinos & Gaming–(continued) | ||||||||
Scientific Games International Inc., Sr. Sub. Unsec. Notes, 9.25%, 06/15/19(b) | $ | 45,000 | $ | 47,419 | ||||
Seneca Gaming Corp., Sr. Unsec. Unsub. Global Notes, 7.25%, 05/01/12 | 160,000 | 156,800 | ||||||
Series B, Sr. Unsec. Global Notes, 7.25%, 05/01/12 | 95,000 | 93,100 | ||||||
Snoqualmie Entertainment Authority, Sr. Sec. Floating Rate Notes, 4.68%, 02/01/14 (Acquired 05/04/09-11/09/09; Cost $133,544)(b)(d) | 295,000 | 156,350 | ||||||
Sr. Sec. Notes, 9.13%, 02/01/15(b) | 220,000 | 121,000 | ||||||
Tunica-Biloxi Gaming Authority, Sr. Unsec. Notes, 9.00%, 11/15/15(b) | 130,000 | 117,650 | ||||||
Wynn Las Vegas Capital LLC/Corp., Sec. First Mortgage Notes, 7.88%, 11/01/17(b) | 130,000 | 132,275 | ||||||
Sr. Sec. Gtd. First Mortgage Global Notes, 6.63%, 12/01/14 | 65,000 | 63,294 | ||||||
6.63%, 12/01/14 | 60,000 | 58,425 | ||||||
3,049,257 | ||||||||
Commodity Chemicals–0.12% | ||||||||
Georgia Gulf Corp., Sr. Sec. Notes, 9.00%, 01/15/17(b) | 50,000 | 50,750 | ||||||
Westlake Chemical Corp., Sr. Unsec. Gtd. Notes, 6.63%, 01/15/16 | 25,000 | 24,000 | ||||||
74,750 | ||||||||
Computer Storage & Peripherals–0.09% | ||||||||
Seagate Technology International, Sr. Sec. Gtd. Notes, 10.00%, 05/01/14(b) | 50,000 | 55,625 | ||||||
Construction & Engineering–0.55% | ||||||||
MasTec, Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 02/01/17 | 350,000 | 338,188 | ||||||
Construction Materials–0.85% | ||||||||
Texas Industries, Inc., Sr. Unsec. Gtd. Unsub. Global Notes, 7.25%, 07/15/13 | 65,000 | 64,187 | ||||||
7.25%, 07/15/13 | 170,000 | 167,875 | ||||||
U.S. Concrete, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 8.38%, 04/01/14 | 475,000 | 287,375 | ||||||
519,437 | ||||||||
Construction, Farm Machinery & Heavy Trucks–1.57% | ||||||||
Case New Holland Inc., Sr. Unsec. Gtd. Unsub. Notes, 7.75%, 09/01/13(b) | 125,000 | 127,812 | ||||||
CNH America LLC, Sr. Unsec. Gtd. Notes, 7.25%, 01/15/16 | 60,000 | 59,550 | ||||||
Navistar International Corp., Sr. Sub. Unsec. Conv. Notes, 3.00%, 10/15/14 | 175,000 | 183,033 | ||||||
Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | 105,000 | 107,756 | ||||||
Terex Corp., Sr. Unsec. Global Notes, 10.88%, 06/01/16 | 95,000 | 106,400 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 7.38%, 01/15/14 | 95,000 | 96,425 | ||||||
Titan International, Inc., Sr. Unsec. Gtd. Global Notes, 8.00%, 01/15/12 | 285,000 | 280,725 | ||||||
961,701 | ||||||||
Consumer Finance–4.01% | ||||||||
Capital One Capital VI, Jr. Sub. Gtd. Bonds, 8.88%, 05/15/40 | 150,000 | 160,489 | ||||||
Ford Motor Credit Co. LLC, Sr. Unsec. Unsub. Global Notes, 7.50%, 08/01/12 | 140,000 | 141,750 | ||||||
7.00%, 10/01/13 | 325,000 | 327,437 | ||||||
Sr. Unsec. Unsub. Notes, 9.88%, 08/10/11 | 120,000 | 126,000 | ||||||
8.70%, 10/01/14 | 390,000 | 409,500 | ||||||
GMAC Inc., Sr. Unsec. Gtd. Notes, 6.75%, 12/01/14(b) | 294,000 | 285,180 | ||||||
8.00%, 11/01/31(b) | 266,000 | 244,720 | ||||||
Sr. Unsec. Gtd. Unsub. Notes, 6.88%, 09/15/11(b) | 25,000 | 24,938 | ||||||
Sr. Unsec. Unsub. Global Notes, 6.88%, 09/15/11 | 620,000 | 616,900 | ||||||
National Money Mart Co., Sr. Gtd. Notes, 10.38%, 12/15/16(b) | 110,000 | 112,750 | ||||||
2,449,664 | ||||||||
Data Processing & Outsourced Services–1.62% | ||||||||
First Data Corp., Sr. Unsec. Gtd. Global Notes, 9.88%, 09/24/15 | 375,000 | 349,687 | ||||||
Sr. Unsec. Gtd. Unsub. Global Notes, 9.88%, 09/24/15 | 155,000 | 144,538 | ||||||
SunGard Data Systems Inc., Sr. Unsec. Gtd. Global Notes, 9.13%, 08/15/13 | 386,000 | 398,545 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 10.25%, 08/15/15 | 90,000 | 96,300 | ||||||
989,070 | ||||||||
Department Stores–0.37% | ||||||||
Macy’s Retail Holdings Inc., Sr. Unsec. Gtd. Notes, 5.35%, 03/15/12 | 220,000 | 226,325 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Distillers & Vintners–0.18% | ||||||||
Constellation Brands Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 05/15/17 | $ | 110,000 | $ | 111,650 | ||||
Diversified Banks–1.56% | ||||||||
BAC Capital Trust VI, Jr. Unsec. Gtd. Sub. Capital Securities Notes, 5.63%, 03/08/35 | 185,000 | 148,914 | ||||||
BankAmerica Capital II–Series 2, Jr. Unsec. Gtd. Sub. Trust Pfd. Capital Securities, 8.00%, 12/15/26 | 120,000 | 118,200 | ||||||
Citigroup Inc., Sr. Unsec. Notes, 8.13%, 07/15/39 | 50,000 | 57,332 | ||||||
Halyk Savings Bank of Kazakhstan (Netherlands), Unsec. Gtd. Unsub. Notes, 7.25%, 05/03/17(b) | 100,000 | 91,082 | ||||||
JPMorgan Chase Capital XXVII–Series AA, Jr. Unsec. Gtd. Sub. Notes, 7.00%, 11/01/39 | 200,000 | 204,114 | ||||||
Northern Rock Asset Management PLC (United Kingdom), Sub. Unsec. Yankee Notes, 5.60%, 04/29/49(b)(g) | 125,000 | 17,500 | ||||||
Royal Bank of Scotland Group PLC (United Kingdom), Sr. Unsec. Unsub. Global Notes, 6.40%, 10/21/19 | 100,000 | 99,412 | ||||||
VTB Capital S.A. (Luxembourg), Sr. Sec. Putable Notes, 6.88%, 05/29/18(b) | 220,000 | 219,475 | ||||||
956,029 | ||||||||
Diversified Metals & Mining–1.65% | ||||||||
FMG Finance Pty. Ltd. (Australia), Sr. Sec. Gtd. Notes, 10.63%, 09/01/16(b) | 370,000 | 411,162 | ||||||
Teck Resources Ltd. (Canada), Sr. Sec. Global Notes, 10.75%, 05/15/19 | 230,000 | 274,563 | ||||||
Vedanta Resources PLC (United Kingdom), Sr. Unsec. Unsub. Notes, 9.50%, 07/18/18(b) | 320,000 | 324,862 | ||||||
1,010,587 | ||||||||
Diversified Support Services–1.45% | ||||||||
Education Management LLC/ Education Management Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.75%, 06/01/14 | 105,000 | 108,412 | ||||||
Mobile Mini, Inc., Sr. Unsec. Gtd. Global Notes, 9.75%, 08/01/14 | 60,000 | 62,700 | ||||||
Travelport LLC, Sr. Unsec. Gtd. Sub. Global Notes, 11.88%, 09/01/16 | 190,000 | 203,300 | ||||||
Sr. Unsec. Gtd. Unsub. Global Notes, 9.88%, 09/01/14 | 485,000 | 509,250 | ||||||
883,662 | ||||||||
Drug Retail–0.93% | ||||||||
General Nutrition Centers Inc., Sr. Unsec. Unsub. Gtd. PIK Floating Rate Global Notes, 5.18%, 03/15/14(d) | 275,000 | 255,750 | ||||||
Rite Aid Corp., Sr. Sec. Gtd. Notes, 10.38%, 07/15/16 | 190,000 | 204,250 | ||||||
Sr. Sec. Unsub. Global Notes, 9.75%, 06/12/16 | 100,000 | 109,375 | ||||||
569,375 | ||||||||
Electric Utilities–0.67% | ||||||||
Elwood Energy LLC, Sr. Sec. Global Notes, 8.16%, 07/05/26 | 134,276 | 124,541 | ||||||
LSP Energy L.P./LSP Batesville Funding Corp., Series C, Sr. Sec. Mortgage Bonds, 7.16%, 01/15/14 | 110,826 | 98,397 | ||||||
Series D, Sr. Sec. Bonds, 8.16%, 07/15/25 | 275,000 | 185,625 | ||||||
408,563 | ||||||||
Electronic Manufacturing Services–0.06% | ||||||||
Jabil Circuit, Inc., Sr. Unsec. Notes, 7.75%, 07/15/16 | 35,000 | 37,013 | ||||||
Food Retail–0.73% | ||||||||
American Stores Co., Sr. Unsec. Bonds, 8.00%, 06/01/26 | 285,000 | 260,775 | ||||||
New Albertsons Inc., Sr. Unsec. Bonds, 8.00%, 05/01/31 | 205,000 | 188,344 | ||||||
449,119 | ||||||||
Forest Products–0.08% | ||||||||
Weyerhaeuser Co., Sr. Unsec. Unsub. Deb., 6.88%, 12/15/33 | 55,000 | 49,331 | ||||||
Gas Utilities–0.32% | ||||||||
Ferrellgas Escrow LLC/Ferrellgas Finance Escrow Corp., Sr. Unsec. Global Notes, 6.75%, 05/01/14 | 200,000 | 197,500 | ||||||
General Merchandise Stores–0.21% | ||||||||
Susser Holdings LLC & Susser Finance Corp., Sr. Unsec. Gtd. Global Notes, 10.63%, 12/15/13 | 125,000 | 130,781 | ||||||
Health Care Equipment–0.45% | ||||||||
DJO Finance LLC/DJO Finance Corp., Sr. Unsec. Gtd. Global Notes, 10.88%, 11/15/14 | 260,000 | 274,625 | ||||||
Health Care Facilities–3.77% | ||||||||
Community Health Systems Inc., Sr. Unsec. Gtd. Unsub. Global Notes, 8.88%, 07/15/15 | 405,000 | 420,694 | ||||||
HCA, Inc., Sec. Gtd. Global Notes, 9.13%, 11/15/14 | 240,000 | 254,700 | ||||||
9.25%, 11/15/16 | 220,000 | 238,150 | ||||||
Sr. Sec. Gtd. Notes, 7.88%, 02/15/20(b) | 345,000 | 361,387 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Health Care Facilities–(continued) | ||||||||
HCA, Inc.,–(continued) | ||||||||
Sr. Sec. Gtd. PIK Global Notes, 9.63%, 11/15/16 | $ | 100,000 | $ | 109,000 | ||||
Sr. Sec. Notes, 9.88%, 02/15/17(b) | 130,000 | 143,975 | ||||||
8.50%, 04/15/19(b) | 120,000 | 130,050 | ||||||
Sr. Unsec. Global Notes, 6.38%, 01/15/15 | 55,000 | 52,525 | ||||||
Sr. Unsec. Unsub. Notes, 7.19%, 11/15/15 | 130,000 | 121,550 | ||||||
Healthsouth Corp., Sr. Unsec. Unsub. Gtd. Notes, 8.13%, 02/15/20 | 90,000 | 89,325 | ||||||
Tenet Healthcare Corp., Sr. Unsec. Notes, 7.38%, 02/01/13 | 380,000 | 382,850 | ||||||
2,304,206 | ||||||||
Health Care Services–1.42% | ||||||||
Multiplan Inc., Sr. Unsec. Sub. Notes, 10.38%, 04/15/16(b) | 285,000 | 279,300 | ||||||
Universal Hospital Services Inc., Sr. Sec. PIK Sub. Global Notes, 8.50%, 06/01/15 | 190,000 | 188,100 | ||||||
US Oncology Inc., Sr. Sec. Gtd. Global Notes, 9.13%, 08/15/17 | 145,000 | 152,975 | ||||||
Viant Holdings Inc., Sr. Unsec. Gtd. Sub. Notes, 10.13%, 07/15/17(b) | 247,000 | 245,765 | ||||||
866,140 | ||||||||
Health Care Supplies–0.23% | ||||||||
Inverness Medical Innovations Inc., Sr. Sub. Unsec. Gtd. Notes, 9.00%, 05/15/16 | 135,000 | 139,050 | ||||||
Homebuilding–0.19% | ||||||||
TOUSA, Inc., Sr. Unsec. Gtd. Global Notes, 9.00%, 07/01/10(e) | 60,000 | 31,200 | ||||||
9.00%, 07/01/10(e) | 163,000 | 84,760 | ||||||
115,960 | ||||||||
Hotels, Resorts & Cruise Lines–0.96% | ||||||||
Royal Caribbean Cruises Ltd., Sr. Unsec. Unsub. Global Notes, 6.88%, 12/01/13 | 160,000 | 156,800 | ||||||
Sr. Unsec. Unsub. Yankee Notes, 7.25%, 03/15/18 | 160,000 | 149,600 | ||||||
Starwood Hotels & Resorts Worldwide, Inc., Sr. Unsec. Unsub. Notes, 7.88%, 10/15/14 | 105,000 | 112,532 | ||||||
7.15%, 12/01/19 | 165,000 | 165,825 | ||||||
584,757 | ||||||||
Housewares & Specialties–0.43% | ||||||||
Yankee Acquisition Corp.–Series B, Sr. Gtd. Global Notes, 8.50%, 02/15/15 | 260,000 | 260,000 | ||||||
Independent Power Producers & Energy Traders–2.24% | ||||||||
AES Corp. (The), Sr. Unsec. Notes, 9.75%, 04/15/16(b) | 150,000 | 165,000 | ||||||
Sr. Unsec. Unsub. Global Notes, 8.00%, 10/15/17 | 65,000 | 66,950 | ||||||
AES Red Oak LLC–Series A, Sr. Sec. Bonds, 8.54%, 11/30/19 | 301,150 | 301,903 | ||||||
Dynegy Holdings Inc., Sr. Unsec. Global Notes, 8.38%, 05/01/16 | 325,000 | 310,375 | ||||||
Intergen N.V. (Netherlands), Sr. Sec. Gtd. Bonds, 9.00%, 06/30/17(b) | 50,000 | 52,625 | ||||||
NRG Energy, Inc., Sr. Unsec. Gtd. Notes, 7.38%, 02/01/16 | 190,000 | 190,950 | ||||||
Sr. Unsec. Gtd. Unsub. Notes, 7.38%, 01/15/17 | 155,000 | 156,162 | ||||||
Sr. Unsec. Unsub. Gtd. Notes, 7.25%, 02/01/14 | 120,000 | 122,100 | ||||||
1,366,065 | ||||||||
Industrial Conglomerates–0.31% | ||||||||
Aleris International Inc., Sr. Unsec. Gtd. PIK Global Notes, 9.00%, 12/15/14(e) | 215,000 | 1,075 | ||||||
Indalex Holding Corp.–Series B, Sr. Sec. Gtd. Global Notes, 11.50%, 02/01/14(e) | 230,000 | 2,300 | ||||||
RBS Global Inc./Rexnord LLC, Sr. Unsec. Gtd. Unsub. Global Notes, 9.50%, 08/01/14 | 185,000 | 185,925 | ||||||
189,300 | ||||||||
Industrial Machinery–0.10% | ||||||||
Columbus McKinnon Corp., Sr. Unsec. Gtd. Sub. Global Notes, 8.88%, 11/01/13 | 63,000 | 63,945 | ||||||
Integrated Oil & Gas–0.19% | ||||||||
Lukoil International Finance B.V. (Netherlands), Sr. Unsec. Unsub. Gtd. Notes, 7.25%, 11/05/19(b) | 115,000 | 115,271 | ||||||
Integrated Telecommunication Services–1.64% | ||||||||
Frontier Communications Corp., Sr. Unsec Notes, 6.25%, 01/15/13 | 8,000 | 8,040 | ||||||
Sr. Unsec. Global Notes, 7.88%, 01/15/27 | 340,000 | 314,500 | ||||||
Hawaiian Telcom Communications Inc.–Series B, Sr. Unsec. Gtd. Unsub. Global Notes, 9.75%, 05/01/13(e) | 360,000 | 9,900 | ||||||
Nordic Telephone Co. Holdings (Denmark), Sr. Sec. Bonds, 8.88%, 05/01/16(b) | 240,000 | 256,200 | ||||||
Qwest Communications International Inc., Sr. Unsec. Gtd. Notes, 8.00%, 10/01/15(b) | 85,000 | 87,975 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Integrated Telecommunication Services–(continued) | ||||||||
Qwest Corp., Sr. Unsec. Unsub. Global Notes, 8.38%, 05/01/16 | $ | 60,000 | $ | 64,331 | ||||
Wind Acquisition Finance S.A. (Luxembourg), Sr. Sec. Gtd. Sub. Notes, 11.75%, 07/15/17(b) | 240,000 | 264,000 | ||||||
1,004,946 | ||||||||
Investment Banking & Brokerage–1.26% | ||||||||
E*Trade Financial Corp., Sr. Unsec. Unsub. Global Notes, 7.38%, 09/15/13 | 95,000 | 89,775 | ||||||
Sr. Unsec. Unsub. Notes, 7.88%, 12/01/15 | 265,000 | 247,775 | ||||||
Merrill Lynch & Co. Inc., Unsec. Sub. Global Notes, 6.11%, 01/29/37 | 470,000 | 432,693 | ||||||
770,243 | ||||||||
Leisure Facilities–0.34% | ||||||||
Speedway Motorsports Inc., Sr. Unsec. Unsub. Gtd. Global Notes, 8.75%, 06/01/16 | 55,000 | 58,163 | ||||||
Universal City Development Partners Ltd., Sr. Notes, 8.88%, 11/15/15(b) | 125,000 | 123,125 | ||||||
Sr. Sub. Notes, 10.88%, 11/15/16(b) | 25,000 | 25,625 | ||||||
206,913 | ||||||||
Life & Health Insurance–1.45% | ||||||||
MetLife Inc., Jr. Sub. Global Notes, 10.75%, 08/01/39 | 210,000 | 261,069 | ||||||
New York Life Insurance Co., Sub. Notes, 6.75%, 11/15/39(b) | 175,000 | 178,651 | ||||||
Pacific Life Insurance Co., Sub. Notes, 9.25%, 06/15/39(b) | 105,000 | 121,959 | ||||||
Protective Life Corp., Sr. Unsec. Notes, 7.38%, 10/15/19 | 320,000 | 322,289 | ||||||
883,968 | ||||||||
Marine Ports & Services–0.17% | ||||||||
Novorossiysk Port Capital S.A. (Luxembourg), Sec. Loan Participation Euro Notes, 7.00%, 05/17/12 | 100,000 | 102,750 | ||||||
Movies & Entertainment–0.98% | ||||||||
AMC Entertainment Inc., Sr. Unsec. Global Notes, 8.75%, 06/01/19 | 35,000 | 35,744 | ||||||
Sr. Unsec. Sub. Gtd. Global Notes, 8.00%, 03/01/14 | 375,000 | 359,062 | ||||||
Cinemark USA Inc., Sr. Gtd. Notes, 8.63%, 06/15/19(b) | 95,000 | 99,037 | ||||||
Marquee Holdings Inc., Sr. Unsec. Disc. Global Notes, 12.00%, 08/15/14(c) | 125,000 | 104,219 | ||||||
598,062 | ||||||||
Multi-Line Insurance–1.43% | ||||||||
Hartford Financial Services Group Inc. (The), Sr. Unsec. Global Notes, 5.95%, 10/15/36 | 90,000 | 74,648 | ||||||
Liberty Mutual Group Inc., Sr. Unsec. Bonds, 7.50%, 08/15/36(b) | 95,000 | 87,591 | ||||||
Sr. Unsec. Notes, 6.70%, 08/15/16(b) | 70,000 | 68,607 | ||||||
Liberty Mutual Insurance Co., Unsec. Sub. Notes, 8.50%, 05/15/25(b) | 235,000 | 236,627 | ||||||
Nationwide Mutual Insurance Co., Notes, 9.38%, 08/15/39(b) | 385,000 | 404,790 | ||||||
872,263 | ||||||||
Multi-Sector Holdings–0.31% | ||||||||
Stena A.B. (Sweden), Sr. Unsec. Global Notes, 7.50%, 11/01/13 | 195,000 | 190,856 | ||||||
Office Services & Supplies–0.20% | ||||||||
ACCO Brands Corp., Sr. Unsec. Gtd. Sub. Global Notes, 7.63%, 08/15/15 | 130,000 | 121,225 | ||||||
Oil & Gas Equipment & Services–0.26% | ||||||||
Bristow Group, Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/17 | 160,000 | 160,000 | ||||||
Oil & Gas Exploration & Production–6.23% | ||||||||
Chaparral Energy Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 12/01/15 | 155,000 | 137,175 | ||||||
8.88%, 02/01/17 | 305,000 | 269,162 | ||||||
Chesapeake Energy Corp., Sr. Unsec. Gtd. Global Notes, 6.38%, 06/15/15 | 254,000 | 250,190 | ||||||
6.88%, 11/15/20 | 100,000 | 97,000 | ||||||
Cimarex Energy Co., Sr. Unsec. Gtd. Notes, 7.13%, 05/01/17 | 225,000 | 228,094 | ||||||
Concho Resources Inc., Sr. Unsec. Gtd. Notes, 8.63%, 10/01/17 | 25,000 | 26,313 | ||||||
Continental Resources Inc., Sr. Unsec. Unsub. Notes, 8.25%, 10/01/19(b) | 50,000 | 52,688 | ||||||
Delta Petroleum Corp., Sr. Unsec. Gtd. Global Notes, 7.00%, 04/01/15 | 575,000 | 412,562 | ||||||
Denbury Resources Inc., Sr. Gtd. Sub. Notes, 9.75%, 03/01/16 | 175,000 | 187,687 | ||||||
Encore Acquisition Co., Sr. Gtd. Sub. Notes, 9.50%, 05/01/16 | 45,000 | 47,531 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 6.00%, 07/15/15 | 295,000 | 295,553 | ||||||
Gaz Capital S.A. (Luxembourg), Sr. Unsec. Unsub. Notes, 8.15%, 04/11/18(b) | 250,000 | 264,140 | ||||||
McMoRan Exploration Co., Sr. Unsec. Gtd. Notes, 11.88%, 11/15/14 | 265,000 | 272,619 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
Newfield Exploration Co., Sr. Unsec. Sub. Global Notes, 7.13%, 05/15/18 | $ | 40,000 | $ | 40,500 | ||||
OPTI Canada Inc. (Canada), Sr. Sec. Notes, 9.00%, 12/15/12(b) | 60,000 | 61,500 | ||||||
Pioneer Natural Resources Co., Sr. Unsec. Notes, 7.50%, 01/15/20 | 150,000 | 151,125 | ||||||
Plains Exploration & Production Co., Sr. Unsec. Gtd. Notes, 7.75%, 06/15/15 | 250,000 | 256,250 | ||||||
7.63%, 06/01/18 | 185,000 | 185,000 | ||||||
Sr. Unsec. Gtd. Unsub. Notes, 8.63%, 10/15/19 | 100,000 | 103,125 | ||||||
Range Resources Corp., Sr. Unsec. Gtd. Sub. Notes, 7.50%, 05/15/16 | 80,000 | 82,400 | ||||||
7.50%, 10/01/17 | 315,000 | 326,025 | ||||||
Southwestern Energy Co., Sr. Gtd. Global Notes, 7.50%, 02/01/18 | 55,000 | 58,713 | ||||||
3,805,352 | ||||||||
Oil & Gas Refining & Marketing–0.63% | ||||||||
Tesoro Corp., Sr. Unsec. Gtd. Unsub. Global Bonds, 6.50%, 06/01/17 | 95,000 | 88,825 | ||||||
United Refining Co.–Series 2, Sr. Unsec. Gtd. Global Notes, 10.50%, 08/15/12 | 315,000 | 298,463 | ||||||
387,288 | ||||||||
Oil & Gas Storage & Transportation–1.96% | ||||||||
Copano Energy LLC/ Capano Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.13%, 03/01/16 | 200,000 | 204,000 | ||||||
Inergy L.P./Inergy Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.75%, 03/01/15 | 135,000 | 139,387 | ||||||
8.25%, 03/01/16 | 85,000 | 86,913 | ||||||
MarkWest Energy Partners L.P./MarkWest Energy Finance Corp.–Series B, Sr. Unsec. Gtd. Global Notes, 8.75%, 04/15/18 | 370,000 | 382,487 | ||||||
Regency Energy Partners L.P./Regency Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.38%, 12/15/13 | 255,000 | 265,200 | ||||||
Williams Partners L.P./Williams Partners Finance Corp., Sr. Unsec. Global Notes, 7.25%, 02/01/17 | 115,000 | 117,300 | ||||||
1,195,287 | ||||||||
Other Diversified Financial Services–0.87% | ||||||||
Cantor Fitzgerald L.P., Bonds, 7.88%, 10/15/19(b) | 220,000 | 221,412 | ||||||
CenterCredit International B.V. (Netherlands), Unsec. Gtd. Unsub. Bonds, 8.63%, 01/30/14(b) | 100,000 | 92,887 | ||||||
Countrywide Capital III–Series B, Jr. Unsec. Gtd. Sub. Capital Securities, 8.05%, 06/15/27 | 225,000 | 217,125 | ||||||
531,424 | ||||||||
Packaged Foods & Meats–0.94% | ||||||||
Chiquita Brands International, Inc., Sr. Unsec. Unsub. Global Notes, 7.50%, 11/01/14 | 60,000 | 60,225 | ||||||
8.88%, 12/01/15 | 60,000 | 61,425 | ||||||
Del Monte Corp., Sr. Sub. Notes, 7.50%, 10/15/19(b) | 30,000 | 30,975 | ||||||
Dole Food Co. Inc., Sr. Sec. Notes, 13.88%, 03/15/14(b) | 62,000 | 74,245 | ||||||
8.00%, 10/01/16(b) | 60,000 | 61,650 | ||||||
Tyson Foods Inc., Sr. Unsec. Unsub. Global Notes, 10.50%, 03/01/14 | 250,000 | 288,125 | ||||||
576,645 | ||||||||
Paper Packaging–0.54% | ||||||||
Cascades Inc. (Canada), Sr. Gtd. Notes, 7.88%, 01/15/20(b) | 85,000 | 86,487 | ||||||
Graham Packaging Co. L.P./GPC Capital Corp. I, Sr. Unsec. Gtd. Sub. Global Notes, 9.88%, 10/15/14 | 130,000 | 132,925 | ||||||
Sr. Gtd. Notes, 8.25%, 01/01/17(b) | 90,000 | 88,875 | ||||||
Sealed Air Corp., Sr. Notes, 7.88%, 06/15/17(b) | 20,000 | 21,369 | ||||||
329,656 | ||||||||
Paper Products–2.91% | ||||||||
Abitibi-Consolidated Co. of Canada (Canada), Sr. Sec. Gtd. Notes, 13.75%, 04/01/11(b)(e) | 178,244 | 182,700 | ||||||
Domtar Corp., Sr. Unsec. Gtd. Global Notes, 5.38%, 12/01/13 | 125,000 | 121,875 | ||||||
Exopack Holding Corp., Sr. Unsec. Gtd. Global Notes, 11.25%, 02/01/14 | 210,000 | 214,725 | ||||||
Georgia-Pacific LLC, Sr. Unsec. Gtd. Notes, 7.00%, 01/15/15(b) | 90,000 | 91,575 | ||||||
Mercer International Inc., Sr. Unsec. Global Notes, 9.25%, 02/15/13 | 537,000 | 441,682 | ||||||
Neenah Paper, Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 11/15/14 | 179,000 | 164,233 | ||||||
PE Paper Escrow GmbH (Austria), Sr. Sec. Notes, 12.00%, 08/01/14(b) | 100,000 | 108,304 | ||||||
Verso Paper Holdings LLC/Verso Paper Inc., Series B, Sr. Sec. Gtd. Global Notes, 9.13%, 08/01/14 | 175,000 | 168,875 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 11.38%, 08/01/16 | 350,000 | 283,500 | ||||||
1,777,469 | ||||||||
Personal Products–0.43% | ||||||||
NBTY, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 7.13%, 10/01/15 | 259,000 | 260,943 | ||||||
Pharmaceuticals–0.16% | ||||||||
Elan Finance Corp./PLC, Sr. Gtd. Notes, 8.75%, 10/15/16(b) | 105,000 | 100,800 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Property & Casualty Insurance–0.53% | ||||||||
Crum & Forster Holdings Corp., Sr. Unsec. Unsub. Global Notes, 7.75%, 05/01/17 | $ | 335,000 | $ | 322,019 | ||||
Publishing–2.07% | ||||||||
Dex Media Inc., Sr. Unsec. Disc. Global Notes, 9.00%, 11/15/13(e) | 318,000 | 84,270 | ||||||
Gannett Co. Inc., Sr. Unsec. Gtd. Notes, 8.75%, 11/15/14(b) | 90,000 | 93,487 | ||||||
Sr. Unsec. Gtd. Unsub. Notes, 9.38%, 11/15/17(b) | 45,000 | 46,688 | ||||||
MediMedia USA Inc., Sr. Sub. Notes, 11.38%, 11/15/14(b) | 30,000 | 25,538 | ||||||
Nielsen Finance LLC/Co., Sr. Global Notes, 11.63%, 02/01/14 | 85,000 | 95,944 | ||||||
Sr. Unsec. Gtd. Global Notes, 11.50%, 05/01/16 | 125,000 | 140,312 | ||||||
Sr. Unsec. Gtd. Sub. Disc. Global Notes, 12.50%, 08/01/16(c) | 845,000 | 775,287 | ||||||
Reader’s Digest Association Inc. (The), Sr. Unsec. Gtd. Sub. Global Notes, 9.00%, 02/15/17(e) | 210,000 | 3,150 | ||||||
1,264,676 | ||||||||
Regional Banks–0.43% | ||||||||
Zions Bancorporation, Sr. Unsec. Notes, 7.75%, 09/23/14 | 300,000 | 265,313 | ||||||
Restaurants–0.42% | ||||||||
Arcos Dorados B.V. (Argentina), Sr. Unsec. Gtd. Notes, 7.50%, 10/01/19(b) | 265,000 | 255,143 | ||||||
Semiconductor Equipment–0.03% | ||||||||
Amkor Technology Inc., Sr. Unsec. Gtd. Notes, 9.25%, 06/01/16 | 20,000 | 21,300 | ||||||
Semiconductors–2.97% | ||||||||
Avago Technologies Finance Pte./Avago Technologies U.S./ Avago Technologies Wireless (Singapore), Sr. Unsec. Gtd. Sub. Global Notes, 11.88%, 12/01/15 | 120,000 | 132,900 | ||||||
Freescale Semiconductor Inc., Sr. Unsec. Gtd. Global Notes, 8.88%, 12/15/14 | 425,000 | 397,375 | ||||||
MagnaChip Semiconductor S.A./MagnaChip Semiconductor Finance Co. (South Korea), Sr. Sec. Gtd. Global Notes, 6.88%, 12/15/11(e) | 360,000 | 8,100 | ||||||
NXP BV/NXP Funding LLC (Netherlands), Sr. Sec. Gtd. Global Notes, 7.88%, 10/15/14 | 309,000 | 281,190 | ||||||
Spansion Inc., Sr. Sec. Floating Rate Notes, 3.79%, 06/01/13(b)(d)(e) | 440,000 | 447,700 | ||||||
Viasystems Inc., Sr. Unsec. Gtd. Global Notes, 10.50%, 01/15/11 | 545,000 | 545,000 | ||||||
1,812,265 | ||||||||
Specialty Chemicals–1.65% | ||||||||
Huntsman International LLC, Sr. Unsec. Gtd. Sub. Global Notes, 7.88%, 11/15/14 | 305,000 | 302,712 | ||||||
7.38%, 01/01/15 | 205,000 | 199,875 | ||||||
NewMarket Corp., Sr. Unsec. Gtd. Unsub. Global Notes, 7.13%, 12/15/16 | 150,000 | 147,188 | ||||||
PolyOne Corp., Sr. Unsec. Notes, 8.88%, 05/01/12 | 65,000 | 67,519 | ||||||
Polypore Inc., Sr. Unsec. Gtd. Sub. Global Notes, 8.75%, 05/15/12 | 290,000 | 289,275 | ||||||
1,006,569 | ||||||||
Specialty Stores–1.26% | ||||||||
Michaels Stores, Inc., Sr. Unsec. Gtd. Unsub. Global Notes, 10.00%, 11/01/14 | 340,000 | 355,300 | ||||||
Sally Holdings LLC/Sally Capital Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 11/15/14 | 395,000 | 413,269 | ||||||
768,569 | ||||||||
Steel–0.84% | ||||||||
Metals USA, Inc., Sr. Sec. Gtd. Global Notes, 11.13%, 12/01/15 | 185,000 | 187,775 | ||||||
Steel Dynamics Inc., Sr. Unsec. Gtd. Unsub. Global Notes, 7.38%, 11/01/12 | 185,000 | 191,937 | ||||||
Sr. Unsec. Unsub. Global Notes, 7.75%, 04/15/16 | 130,000 | 136,175 | ||||||
515,887 | ||||||||
Textiles–0.36% | ||||||||
Invista, Sr. Unsec. Unsub. Notes, 9.25%, 05/01/12(b) | 215,000 | 219,300 | ||||||
Thrifts & Mortgage Finance–0.03% | ||||||||
Northern Rock Asset Management PLC (United Kingdom), Sub. Unsec. Notes, 6.59%(b)(e)(g) | 120,000 | 16,800 | ||||||
Tires & Rubber–1.50% | ||||||||
Cooper Tire & Rubber Co., Sr. Unsec. Unsub. Notes, 8.00%, 12/15/19 | 245,000 | 238,875 | ||||||
7.63%, 03/15/27 | 370,000 | 321,900 | ||||||
Goodyear Tire & Rubber Co. (The), Sr. Unsec. Gtd. Unsub. Global Notes, 9.00%, 07/01/15 | 340,000 | 355,300 | ||||||
916,075 | ||||||||
Trading Companies & Distributors–0.97% | ||||||||
Ashtead Capital Inc., Sr. Sec. Gtd. Notes, 9.00%, 08/15/16(b) | 150,000 | 151,875 | ||||||
H&E Equipment Services Inc., Sr. Unsec. Gtd. Global Notes, 8.38%, 07/15/16 | 230,000 | 232,875 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Trading Companies & Distributors–(continued) | ||||||||
United Rentals North America, Inc., Sr. Unsec. Gtd. Global Notes, 6.50%, 02/15/12 | $ | 185,000 | $ | 185,462 | ||||
Sr. Unsec. Gtd. Sub. Global Notes, 7.75%, 11/15/13 | 25,000 | 23,750 | ||||||
593,962 | ||||||||
Trucking–0.56% | ||||||||
Hertz Corp. (The), Sr. Unsec. Gtd. Global Notes, 8.88%, 01/01/14 | 335,000 | 344,213 | ||||||
Wireless Telecommunication Services–3.93% | ||||||||
Clearwire Communications LLC/Clearwire Finance Inc., Sr. Sec. Gtd. Notes, 12.00%, 12/01/15(b) | 50,000 | 51,250 | ||||||
12.00%, 12/01/15(b) | 135,000 | 138,375 | ||||||
Cricket Communications, Inc., Sr. Unsec. Gtd. Unsub. Global Notes, 10.00%, 07/15/15 | 70,000 | 71,313 | ||||||
Crown Castle International Corp., Sr. Unsec. Notes, 9.00%, 01/15/15 | 175,000 | 186,812 | ||||||
Digicel Group Ltd., (Bermuda) Sr. Notes, 8.25%, 09/01/17(b) | 155,000 | 150,866 | ||||||
Sr. Unsec. Notes, 12.00%, 04/01/14(b) | 110,000 | 123,887 | ||||||
8.88%, 01/15/15(b) | 145,000 | 142,644 | ||||||
MetroPCS Wireless Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 11/01/14 | 95,000 | 96,306 | ||||||
9.25%, 11/01/14 | 100,000 | 101,375 | ||||||
SBA Telecommunications Inc., Sr. Gtd. Notes, 8.00%, 08/15/16(b) | 40,000 | 42,000 | ||||||
8.25%, 08/15/19(b) | 125,000 | 132,344 | ||||||
Sprint Capital Corp., Sr. Unsec. Gtd. Global Notes, 8.38%, 03/15/12 | 145,000 | 150,619 | ||||||
Sr. Unsec. Gtd. Unsub. Global Notes, 6.88%, 11/15/28 | 550,000 | 462,000 | ||||||
Sprint Nextel Corp., Sr. Unsec. Unsub. Notes, 8.38%, 08/15/17 | 110,000 | 112,475 | ||||||
VIP Finance Ireland Ltd. for OJSC Vimpel Communications, (Ireland) Sec. Loan Participation Notes, 8.38%, 04/30/13(b) | 115,000 | 121,431 | ||||||
9.13%, 04/30/18(b) | 300,000 | 318,248 | ||||||
2,401,945 | ||||||||
Total U.S. Dollar Denominated Bonds & Notes (Cost $53,315,316) | 56,406,065 | |||||||
Non-U.S. Dollar Denominated Bonds & Notes–4.60%(h) | ||||||||
Bermuda–0.26% | ||||||||
Central European Media Enterprises Ltd., Sr. Notes, 11.63%, 09/15/16(b) | EUR | 115,000 | 159,694 | |||||
Croatia–0.31% | ||||||||
Agrokor, Sr. Unsec. Euro Medium-Term Notes, 10.00%, 12/07/16 | EUR | 130,000 | 188,760 | |||||
France–0.47% | ||||||||
Tereos Europe, Sr. Gtd. Bonds, 6.38%, 04/15/14(b) | EUR | 215,000 | 284,709 | |||||
Germany–0.37% | ||||||||
Unitymedia Hessen GmbH & Co. KG, Sr. Sec. Gtd. Euro Floating Rate Notes, 3.60%, 04/15/13(b)(d) | EUR | 160,000 | 227,910 | |||||
Greece–0.27% | ||||||||
Yioula Glassworks S.A., Sr. Unsec. Gtd. Notes, 9.00%, 12/01/15(b) | EUR | 200,000 | 163,202 | |||||
Luxembourg–0.81% | ||||||||
Hellas Telecommunications, Sr. Sec. Gtd. Floating Rate Bonds, 4.24%, 10/15/12(b)(d) | EUR | 300,000 | 356,467 | |||||
Lecta S.A., Sr. Sec. Gtd. Floating Rate Notes, 3.34%, 02/15/14(b)(d) | EUR | 120,000 | 139,151 | |||||
495,618 | ||||||||
Netherlands–0.61% | ||||||||
Carlson Wagonlit B.V., Sr. Gtd. Floating Rate Notes, 6.47%, 05/01/15(b)(d) | EUR | 340,000 | 369,924 | |||||
Spain–0.23% | ||||||||
Campofrio Food S.A.-REGS, Sr. Euro Notes, 8.25%, 10/31/16 | EUR | 100,000 | 142,231 | |||||
Trinidad–0.21% | ||||||||
Royal Caribbean Cruises Ltd., Sr. Unsec. Unsub. Bonds, 5.63%, 01/27/14(b) | EUR | 100,000 | 128,486 | |||||
United Kingdom–0.48% | ||||||||
Cable & Wireless PLC, Sr. Unsec. Unsub. Euro Bonds, 8.75%, 08/06/12 | GBP | 90,000 | 157,790 | |||||
Infinis PLC, Sr. Euro Notes, 9.13%, 12/15/14 | GBP | 80,000 | 134,032 | |||||
291,822 | ||||||||
United States–0.58% | ||||||||
Hertz Corp. (The), Sr. Unsec. Gtd. Global Notes, 7.88%, 01/01/14 | EUR | 100,000 | 139,580 | |||||
Levi Strauss & Co., Sr. Unsec. Unsub. Global Notes, 8.63%, 04/01/13 | EUR | 150,000 | 216,887 | |||||
356,467 | ||||||||
Total Non-U.S. Dollar Denominated Bonds & Notes (Cost $2,576,018) | 2,808,823 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Bundled Security–0.63% | ||||||||
Investment Banking & Brokerage–0.63% | ||||||||
Targeted Return Index Securities Trust Series HY 2006-1, Sec. Variable Rate Bonds, (Acquired 08/15/08; Cost $368,550) (Cost $371,469)(b)(d) | $ | 390,000 | $ | 382,699 | ||||
Shares | ||||||||
Preferred Stocks–0.55% | ||||||||
Diversified Banks–0.21% | ||||||||
GMAC Inc.(b) | 195 | 128,542 | ||||||
Packaged Foods & Meats–0.34% | ||||||||
Heinz (H.J.) Finance Co.–Series B, 8.00%–Pfd.(b) | 2 | 208,000 | ||||||
Total Preferred Stocks (Cost $259,967) | 336,542 | |||||||
Common Stocks & Other Equity Interests–0.18%(a) | ||||||||
Broadcasting–0.17% | ||||||||
Adelphia Communications Corp., 10.88%, 10/01/10(i)(j) | — | 6,560 | ||||||
Adelphia Recovery Trust–Series ACC-1(i)(j) | 318,570 | 10,194 | ||||||
Adelphia Recovery Trust–Series ARAHOVA(i)(j) | 109,170 | 19,651 | ||||||
Sirius XM Radio Inc.–Wts., expiring 03/15/10(j)(k) | 182 | 45 | ||||||
Virgin Media Inc. | 4,129 | 69,491 | ||||||
105,941 | ||||||||
Building Products–0.01% | ||||||||
Nortek, Inc.(j) | 215 | 7,525 | ||||||
Integrated Telecommunication Services–0.00% | ||||||||
XO Holdings Inc.(j) | 33 | 19 | ||||||
XO Holdings Inc.–Series A–Wts., expiring 01/16/10(k) | 1,533 | 1 | ||||||
XO Holdings Inc.–Series B–Wts., expiring 01/16/10(k) | 1,148 | 12 | ||||||
XO Holdings Inc.–Series C–Wts., expiring 01/16/10(k) | 1,148 | 0 | ||||||
32 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $196,196) | 113,498 | |||||||
Principal | ||||||||
Amount | ||||||||
Senior Secured Floating Rate Interest Loans–0.12% | ||||||||
Airlines–0.12% | ||||||||
Evergreen International Aviation, Inc., Sr. Gtd. Floating Rate First Lien Term Loan (Cost $95,862)(d) | $ | 95,862 | 76,450 | |||||
TOTAL INVESTMENTS–98.38% (Cost $56,814,828) | 60,124,077 | |||||||
OTHER ASSETS LESS LIABILITIES–1.62% | 989,249 | |||||||
NET ASSETS–100.00% | $ | 61,113,326 | ||||||
Investment Abbreviations:
Conv. | – Convertible | |
Ctfs. | – Certificates | |
Disc. | – Discounted | |
EUR | – Euro | |
GBP | – British Pound | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
Pfd. | – Preferred | |
PIK | – Payment in Kind | |
REGS | – Regulation S | |
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) | 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 December 31, 2009 was $16,226,280, which represented 26.55% of the Fund’s Net Assets. | |
(c) | Step coupon bond issued at discount. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. | |
(d) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on December 31, 2009. | |
(e) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The aggregate value of these securities at December 31, 2009 was $1,180,393, which represented 1.93% of the Fund’s Net Assets. | |
(f) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. | |
(g) | Perpetual bond with no specified maturity date. | |
(h) | Foreign denominated security. Principal amount is denominated in currency indicated. | |
(i) | Non-income producing security acquired as part of the Adelphia Communications bankruptcy reorganization. | |
(j) | Non-income producing security. | |
(k) | Non-income producing security acquired as part of a unit with or in exchange for other securities or acquired through a corporate action. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. High Yield Fund
Statement of Assets and Liabilities
December 31, 2009
Assets: | ||||
Investments, at value (Cost $56,814,828) | $ | 60,124,077 | ||
Foreign currencies, at value (Cost $133,975) | 133,272 | |||
Receivables for: | ||||
Fund shares sold | 117,332 | |||
Interest | 1,322,667 | |||
Fund expenses absorbed | 6,952 | |||
Foreign currency contracts outstanding | 72,054 | |||
Investment for trustee deferred compensation and retirement plans | 27,499 | |||
Total assets | 61,803,853 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 356,473 | |||
Credit default swap agreements close-out | 239 | |||
Fund shares reacquired | 27,931 | |||
Amount due custodian | 199,149 | |||
Accrued fees to affiliates | 37,731 | |||
Accrued other operating expenses | 35,926 | |||
Trustee deferred compensation and retirement plans | 33,078 | |||
Total liabilities | 690,527 | |||
Net assets applicable to shares outstanding | $ | 61,113,326 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 68,385,569 | ||
Undistributed net investment income | 5,286,704 | |||
Undistributed net realized gain (loss) | (15,938,672 | ) | ||
Unrealized appreciation | 3,379,725 | |||
$ | 61,113,326 | |||
Net Assets: | ||||
Series I | $ | 60,649,161 | ||
Series II | $ | 464,165 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 11,616,750 | |||
Series II | 88,958 | |||
Series I: | ||||
Net asset value per share | $ | 5.22 | ||
Series II: | ||||
Net asset value per share | $ | 5.22 | ||
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Interest | $ | 5,629,443 | ||
Dividends | 51,873 | |||
Dividends from affiliated money market funds (includes securities lending income of $58,333) | 73,888 | |||
Total investment income | 5,755,204 | |||
Expenses: | ||||
Advisory fees | 320,199 | |||
Administrative services fees | 173,563 | |||
Custodian fees | 17,541 | |||
Distribution fees — Series II | 1,085 | |||
Transfer agent fees | 13,482 | |||
Trustees’ and officers’ fees and benefits | 21,386 | |||
Professional services fees | 48,819 | |||
Other | 27,695 | |||
Total expenses | 623,770 | |||
Less: Fees waived | (139,029 | ) | ||
Net expenses | 484,741 | |||
Net investment income | 5,270,463 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 46,857 | |||
Foreign currencies | 37,263 | |||
Foreign currency contracts | (96,404 | ) | ||
Swap agreements | (4,540 | ) | ||
(16,824 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 17,009,735 | |||
Foreign currencies | (1,578 | ) | ||
Foreign currency contracts | 72,054 | |||
Swap agreements | 12 | |||
17,080,223 | ||||
Net realized and unrealized gain | 17,063,399 | |||
Net increase in net assets resulting from operations | $ | 22,333,862 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. High Yield Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 5,270,463 | $ | 4,361,948 | ||||
Net realized gain (loss) | (16,824 | ) | (5,201,273 | ) | ||||
Change in net unrealized appreciation (depreciation) | 17,080,223 | (11,459,373 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 22,333,862 | (12,298,698 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (4,425,953 | ) | (4,318,865 | ) | ||||
Series II | (35,151 | ) | (48,535 | ) | ||||
Total distributions from net investment income | (4,461,104 | ) | (4,367,400 | ) | ||||
Share transactions-net: | ||||||||
Series I | 3,004,710 | 5,152,523 | ||||||
Series II | (55,854 | ) | (85,487 | ) | ||||
Net increase in net assets resulting from share transactions | 2,948,856 | 5,067,036 | ||||||
Net increase (decrease) in net assets | 20,821,614 | (11,599,062 | ) | |||||
Net assets: | ||||||||
Beginning of year | 40,291,712 | 51,890,774 | ||||||
End of year (includes undistributed net investment income of $5,286,704 and $4,413,973, respectively) | $ | 61,113,326 | $ | 40,291,712 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. High Yield Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is a high level of current income.
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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, 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 |
AIM V.I. High Yield Fund
between the last bid and 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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
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 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 adviser. | ||
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 adviser 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. |
AIM V.I. High Yield Fund
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. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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, including the Fund’s servicing agreements, 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. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could 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, if any. | |
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 — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts 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. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. | |
M. | Swap Agreements — The Fund may enter into various swap transactions, including interest rate, total return, index, currency exchange rate and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. | |
Interest rate, total return, 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 or return of an underlying asset, in a particular foreign currency, or in a “basket” of securities representing a particular index. | ||
A CDS is an agreement between two parties (“Counterparties”) to exchange the credit risk of an issuer. A buyer of a CDS is said to buy protection by paying a fixed payment over the life of the agreement and in some situations an upfront payment 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 eligible bonds |
AIM V.I. High Yield Fund
issued by the 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 a fixed payment over the life of the agreement and an upfront payment, if applicable. 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 “par value” or the full notional value of the referenced obligation, and the Fund would receive the eligible bonds issued by the reference entity. In turn, these bonds may be sold in order to realize a recovery value. Alternatively, the seller of the CDS and its counterparty may agree to net the notional amount and the market value of the bonds and make a cash payment equal to the difference to the buyer of protection. 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. In connection with these agreements, cash and securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default under the swap agreement or bankruptcy/insolvency of a party to the swap agreement. | ||
Implied credit spreads represent the current level at which protection could be bought or sold given the terms of the existing CDS contract and serve as an indicator of the current status of the payment/performance risk of the CDS. An implied spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets. | ||
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 accrues for the fixed payment stream and amortizes upfront payments, if any, 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. The Fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the value of the contract. The risk may be mitigated by having a master netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to cover the Fund’s exposure to the counterparty. 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. Such risks involve the possibility that a swap is difficult to sell or liquidate; the counterparty does not honor its obligations under the agreement and unfavorable interest rates and market fluctuations. | ||
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 Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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 Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time.
Further, the Adviser has contractually agreed, through at least June 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended December 31, 2009, the Adviser waived advisory fees of $139,029.
AIM V.I. High Yield Fund
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $123,563 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 year ended December 31, 2009, 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 year ended December 31, 2009, 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, IAIS and/or IADI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 107,067 | $ | 336,541 | $ | 6,560 | $ | 450,168 | ||||||||
Corporate Debt Securities | — | 59,673,909 | — | 59,673,909 | ||||||||||||
60,124,077 | ||||||||||||||||
Other Investments* | — | 72,054 | — | 72,054 | ||||||||||||
Total Investments | $ | 107,067 | $ | 60,082,504 | $ | 6,560 | $ | 60,196,131 | ||||||||
* | Other Investments include foreign currency contracts, which are included at unrealized appreciation. |
NOTE 4—Derivative Investments
Effective with the beginning of the Fund’s fiscal year, the Fund has implemented new required disclosures about derivative instruments and hedging activities in accordance with GAAP. GAAP has 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. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
AIM V.I. High Yield Fund
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of December 31, 2009:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Credit risk | ||||||||
Credit Default Swaps(a) | $ | — | $ | (239 | ) | |||
Currency risk | ||||||||
Foreign Currency Contracts(b) | 72,884 | (830 | ) | |||||
$ | 72,884 | $ | (1,069 | ) | ||||
(a) | Value is disclosed on the Statement of Assets and Liabilities under Credit default swap agreements close-out. Contracts were closed upon the declaration of bankruptcy by Lehman Brothers Holdings, Inc. on September 15, 2008. | |
(b) | Values are disclosed on the Statement of Assets and Liabilities under the Foreign currency contracts outstanding. |
Effect of Derivative Instruments for the year ended December 31, 2009
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||||||
Statement of Operations | ||||||||
Swap | Foreign Currency | |||||||
Agreements* | Contracts* | |||||||
Realized Gain (Loss) | ||||||||
Credit risk | $ | (4,540 | ) | $ | — | |||
Currency risk | — | (96,404 | ) | |||||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Credit risk | 12 | — | ||||||
Currency risk | — | 72,504 | ||||||
Total | $ | (4,528 | ) | $ | (23,900 | ) | ||
* | The average value of swap agreements and foreign currency contracts outstanding during the period were $167,917 and $756,312, respectively. |
Open Foreign Currency Contracts | ||||||||||||||||||||
Unrealized | ||||||||||||||||||||
Settlement | Contract to | Appreciation | ||||||||||||||||||
Date | Deliver | Receive | Value | (Depreciation) | ||||||||||||||||
2/12/10 | EUR | 645,000 | USD | 963,478 | $ | 923,321 | $ | 40,157 | ||||||||||||
2/12/10 | EUR | 364,000 | USD | 545,334 | 521,068 | 24,266 | ||||||||||||||
2/12/10 | EUR | 198,000 | USD | 291,899 | 283,438 | 8,461 | ||||||||||||||
2/12/10 | EUR | 192,800 | USD | 275,164 | 275,994 | (830 | ) | |||||||||||||
Total open foreign currency contracts | $ | 72,054 | ||||||||||||||||||
Currency Abbreviations: | ||
EUR — Euro | ||
USD — U.S. Dollar |
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $2,871 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 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, 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
AIM V.I. High Yield Fund
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, 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.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2009 and 2008:
2009 | 2008 | |||||||
Ordinary income | $ | 4,461,104 | $ | 4,367,400 | ||||
Tax Components of Net Assets at Period-End:
2009 | ||||
Undistributed ordinary income | $ | 5,320,999 | ||
Net unrealized appreciation — investments | 2,711,475 | |||
Net unrealized appreciation (depreciation) — other investments | (1,577 | ) | ||
Temporary book/tax differences | (34,295 | ) | ||
Capital loss carryforward | (15,268,845 | ) | ||
Shares of beneficial interest | 68,385,569 | |||
Total net assets | $ | 61,113,326 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales and the realization for tax purposes of unrealized gains on certain foreign currency contracts.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2010 | $ | 10,225,025 | ||
December 31, 2016 | 3,209,402 | |||
December 31, 2017 | 1,834,418 | |||
Total capital loss carryforward | $ | 15,268,845 | ||
* | 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 year ended December 31, 2009 was $71,422,065 and $60,583,182, 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 | $ | 5,530,655 | ||
Aggregate unrealized (depreciation) of investment securities | (2,819,180 | ) | ||
Net unrealized appreciation of investment securities | $ | 2,711,475 | ||
Cost of investments for tax purposes is $57,412,602. |
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions, defaulted bonds and swap agreements, on December 31, 2009, undistributed net investment income was increased by $63,372 and undistributed net realized gain (loss) was decreased by $63,372. This reclassification had no effect on the net assets of the Fund.
AIM V.I. High Yield Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended December 31, | ||||||||||||||||
2009(a) | 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 9,049,093 | $ | 37,158,640 | 6,943,158 | $ | 35,095,084 | ||||||||||
Series II | 49 | 222 | 20,816 | 115,600 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 862,759 | 4,425,953 | 1,251,845 | 4,318,865 | ||||||||||||
Series II | 6,852 | 35,151 | 14,068 | 48,535 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (9,123,929 | ) | (38,579,883 | ) | (6,290,819 | ) | (34,261,426 | ) | ||||||||
Series II | (19,361 | ) | (91,227 | ) | (49,870 | ) | (249,622 | ) | ||||||||
Net increase (decrease) in share activity | 775,463 | $ | 2,948,856 | 1,889,198 | $ | 5,067,036 | ||||||||||
(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 adviser, 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 and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and or Invesco 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.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | |||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 3.69 | $ | 0.47 | $ | 1.47 | $ | 1.94 | $ | (0.41 | ) | $ | 5.22 | 52.79 | % | $ | 60,649 | 0.95 | %(d) | 1.22 | %(d) | 10.29 | %(d) | 125 | % | |||||||||||||||||||||||
Year ended 12/31/08 | 5.74 | 0.49 | (2.00 | ) | (1.51 | ) | (0.54 | ) | 3.69 | (25.69 | ) | 39,918 | 0.95 | 1.22 | 9.19 | 85 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 6.12 | 0.46 | (0.38 | ) | 0.08 | (0.46 | ) | 5.74 | 1.24 | 51,225 | 0.96 | 1.15 | 7.42 | 113 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 6.03 | 0.45 | 0.19 | 0.64 | (0.55 | ) | 6.12 | 10.74 | 58,336 | 0.96 | 1.18 | 7.22 | 135 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 6.45 | 0.43 | (0.26 | ) | 0.17 | (0.59 | ) | 6.03 | 2.72 | 54,731 | 1.01 | 1.16 | 6.58 | 69 | ||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 3.68 | 0.46 | 1.48 | 1.94 | (0.40 | ) | 5.22 | 52.77 | 464 | 1.20 | (d) | 1.47 | (d) | 10.04 | (d) | 125 | ||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 5.72 | 0.47 | (1.99 | ) | (1.52 | ) | (0.52 | ) | 3.68 | (26.00 | ) | 374 | 1.20 | 1.47 | 8.94 | 85 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 6.09 | 0.44 | (0.38 | ) | 0.06 | (0.43 | ) | 5.72 | 1.01 | 666 | 1.21 | 1.40 | 7.17 | 113 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 6.00 | 0.43 | 0.19 | 0.62 | (0.53 | ) | 6.09 | 10.41 | 919 | 1.21 | 1.43 | 6.97 | 135 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 6.43 | 0.41 | (0.26 | ) | 0.15 | (0.58 | ) | 6.00 | 2.43 | 1,556 | 1.22 | 1.41 | 6.37 | 69 | ||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $50,798 and $434 for Series I and Series II, respectively. |
AIM V.I. High Yield Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. High Yield Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. High Yield Fund, (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 10, 2010
Houston, Texas
AIM V.I. High Yield 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 July 1, 2009, through December 31, 2009.
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 | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,215.00 | $ | 5.30 | $ | 1,020.42 | $ | 4.83 | 0.95 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,211.90 | 6.69 | 1,019.16 | 6.10 | 1.20 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. High Yield Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisers.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2009:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 0% |
* | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
AIM V.I. High Yield Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Trustee and/ | ||||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | None | |||||
Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | ||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co- Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC | None | |||||
Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||||
Frank S. Bayley — 1939 Trustee | 2001 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | None | |||||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans Scholars Foundation and Executive Committee, United States Golf Association | |||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) | Board of Nature’s Sunshine Products, Inc. | |||||
Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | ||||||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) | Administaff | |||||
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | ||||||||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired | None | |||||
Lewis F. Pennock — 1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||||
Larry Soll — 1942 Trustee | 2004 | Retired | None | |||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) | None |
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers — (continued)
Trustee and/ | ||||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC | N/A | |||||
Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | ||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® | N/A | |||||
Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | ||||||||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® | N/A | |||||
Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | ||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) | N/A | |||||
Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® | N/A | |||||
Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. | N/A | |||||
Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 100 | Invesco Advisers, Inc. | Invesco Aim Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 100 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Independent Trustees | Invesco Aim Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-2
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AIM V.I. International Growth Fund
Annual Report to Shareholders § December 31, 2009
![(IMAGE)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943701.jpg)
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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2009, shares of AIM V.I. International Growth Fund, excluding variable product issuer charges, delivered double- digit gains, outperforming both its style-specific index, the MSCI EAFE Growth Index, and its broad market index, the MSCI EAFE Index.
Versus the MSCI EAFE Growth Index, stock selection in the health care, information technology (IT) and financials sectors was the key driver of outperformance while the Fund’s underweight position in the materials sector was the largest detractor. The Fund’s higher-than-average cash exposure detracted from relative results versus both the MSCI EAFE Index and the MSCI EAFE Growth Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 35.24 | % | ||
Series II Shares | 34.91 | |||
MSCI EAFE Index6 (Broad Market Index) | 31.78 | |||
MSCI EAFE Growth Index6 (Style-Specific Index) | 29.36 | |||
Lipper VUF International Growth Funds Index6 (Peer Group Index) | 35.75 |
6 | Lipper Inc. |
How we invest
When selecting stocks for your Fund, we employ a disciplined investment strategy that emphasizes fundamental research, supported by both quantitative analysis and portfolio construction techniques. Our EQV (Earnings, Quality, Valuation) strategy focuses primarily on identifying quality companies that have experienced, or exhibit the potential for, accelerating or above average earnings growth but whose stock prices do not fully reflect these attributes.
While research responsibilities within the portfolio management team are focused by geographic region, we select investments for the Fund by using a bottom-up investment approach, which means that we construct the Fund primarily on a stock-by-stock basis. We focus on the strengths of individual companies rather than sectors, countries or market-cap trends.
We believe disciplined sell decisions are key to successful investing. We consider selling a stock for any one of the following reasons:
§ | A company’s fundamentals deteriorate, or it posts disappointing earnings. |
§ | A stock’s price seems overvalued. |
§ | A more attractive opportunity becomes available. |
Market conditions and your Fund
The year was truly a tale of two markets. During the first few months of the fiscal year, global equity markets experienced declines as severe problems in credit markets, a rapidly deteriorating housing market, rising energy and food prices and a deteriorating outlook for corporate earnings led to a global economic recession. Global equity markets began to recover some of the losses beginning in early March as unprecedented, synchronized action by global policy makers improved the outlook for economic recovery. The vast majority of developed countries finished the reporting period in positive territory, in some cases with double-digit results, while emerging markets like China posted even larger gains.
AIM V.I. International Growth Fund followed this trend with weaker results early in 2009. However, a disciplined implementation of the Fund’s quality growth investment strategy produced positive results for the rest of the fiscal year. Overall, for the reporting period, the Fund delivered strong double-digit gains, outperforming its style-specific index, the MSCI EAFE Growth Index.1
On an absolute basis, all sector weightings posted double-digit returns for the reporting period. Outperformance versus the MSCI EAFE Growth Index came from the health care, IT and financials sectors. In each sector, favorable stock selection was a key driver of outperformance.
In the health care sector, particular strength was seen in the health care equipment and pharmaceutical industries. Top performers included the global leader in generic pharmaceuticals, Teva Pharmaceutical Industries and Switzerland-based developer, distributor and provider of hearing instruments, Sonova Holding.
In the IT sector, Fund outperformance was seen in the information technology services and electronic equipment segments of the market. Triple-digit gains were seen in Fund holdings Infosys Technologies and Nidec. In each of these instances, the index had limited to no exposure in these holdings, demonstrating the benefits of the Fund’s actively managed, non-benchmark focused investment process.
Portfolio Composition
By sector
By sector
Health Care | 17.9 | % | |||
Consumer Staples | 14.4 | ||||
Industrials | 11.7 | ||||
Consumer Discretionary | 10.8 | ||||
Energy | 9.1 | ||||
Information Technology | 8.2 | ||||
Telecommunication Services | 7.4 | ||||
Financials | 6.5 | ||||
Materials | 4.2 | ||||
Utilities | 1.4 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 8.4 | ||||
Top 10 Equity Holdings* | |||||
1. Teva Pharmaceutical Industries Ltd.-ADR | 2.8 | % | |||
2. Roche Holding AG | 2.7 | ||||
3. Imperial Tobacco Group PLC | 2.3 | ||||
4. Reckitt Benckiser Group PLC | 2.3 | ||||
5. Nestle S.A. | 2.3 | ||||
6. Bayer AG | 2.2 | ||||
7. Shire PLC | 2.1 | ||||
8. Anheuser-Busch InBev N.V. | 2.0 | ||||
9. Infosys Technologies Ltd. | 1.9 | ||||
10. BHP Billiton Ltd. | 1.9 | ||||
Total Net Assets | $2.1 billion | ||||
Total Number of Holdings* | 81 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* | Excluding money market fund holdings. |
AIM V.I. International Growth Fund
In contrast, the Fund’s higher-than-average cash position was the largest detractor from relative Fund performance over the reporting period as equities rallied sharply. The Fund’s cash exposure was not a strategic decision, but a result of our stock selection process. In addition, despite delivering double-digit gains in the materials sector, the Fund’s underweight exposure prevented the Fund from fully participating in this sector’s strength.
In broad geographic terms, all regions in which the Fund invested delivered double-digit absolute gains over the reporting period. Versus the MSCI EAFE Growth Index, portfolio holdings in Asia outperformed versus the Asian component of the benchmark. Our holdings in Europe modestly lagged the benchmark component over the fiscal year. Exposure in emerging markets also helped as these markets saw significant gains over the reporting period as the index does not provide exposure to emerging markets.
Activity in the portfolio increased toward the latter part of the fiscal year bringing down our cash position to approximately 8% at the end of the reporting period. Stock selection in the portfolio is driven by the underlying fundamentals of a company rather than any top down macroeconomic views. That being said, the Fund’s exposures in the energy, industrials and health care sectors increased over the reporting period due to a combination of new purchases and appreciation. Liquidations in the consumer discretionary and IT sectors led to a reduction in Fund exposure to these segments of the market.
After world stock markets bottomed in early March, most developed countries delivered strong returns through the end of the fiscal year. Gains in emerging markets were even more impressive with several markets generating triple-digit returns.
We believe prudent securities selection and evaluation should play a substantial role in long-term investment plans. We welcome any new investors who have joined the Fund during the reporting period, and say thank you to all of you for your continued investment in AIM V.I. International Growth Fund.
1 | Lipper Inc. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
![(PHOTO OF CLAS OLSSON)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943702.jpg)
Clas Olsson
Senior portfolio manager and head of Invesco Aim’s International Investment Unit, is lead manager of AIM V.I. International Growth Fund with respect to the Fund’s investments in Europe and Canada. He joined Invesco Aim in 1994. Mr. Olsson earned a B.B.A. from The University of Texas at Austin.
![(PHOTO OF BARRETT SIDES)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943703.jpg)
Barrett Sides
Senior portfolio manager, is lead manager of AIM V.I. International Growth Fund with respect to the Fund’s investments in the Asia Pacific region and Latin America. He joined Invesco Aim in 1990. Mr. Sides earned a B.S. in economics from Bucknell University and an M.B.A. in international business from the University of St. Thomas.
![(PHOTO OF SHUXIN CAO)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943704.jpg)
Shuxin Cao
Chartered Financial Analyst, senior portfolio manager, is manager of AIM V.I. International Growth Fund. Mr. Cao joined Invesco Aim in 1997. He graduated from Tianjin Foreign Language Institute with a B.A. in English and also earned an M.B.A. from Texas A&M University. He is a Certified Public Accountant.
![(PHOTO OF MATTHEW DENNIS)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943705.jpg)
Matthew Dennis
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. International Growth Fund. Mr. Dennis joined Invesco Aim in 2000. He earned a B.A. in economics from The University of Texas at Austin and an M.S. in finance from Texas A&M University.
![(PHOTO OF JASON HOLZER)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943706.jpg)
Jason Holzer
Chartered Financial Analyst, senior portfolio manager, is manager of AIM V.I. International Growth Fund. Mr. Holzer joined Invesco Aim in 1996. He earned a B.A. in quantitative economics and an M.S. in engineering economic systems from Stanford University.
Assisted by the Asia Pacific/Latin America Team and the Europe/ Canada Team
AIM V.I. International Growth Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment — Oldest Share Class since Inception
Index data from 4/30/93, Fund data from 5/5/93
Index data from 4/30/93, Fund data from 5/5/93
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1 | Lipper Inc. |
Past performance cannot guarantee comparable future results.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on.
Average Annual Total Returns
As of 12/31/09
As of 12/31/09
Series I Shares | ||||
Inception (5/5/93) | 7.53 | % | ||
10 Years | 0.61 | |||
5 Years | 6.94 | |||
1 Year | 35.24 | |||
Series II Shares | ||||
10 Years | 0.35 | % | ||
5 Years | 6.68 | |||
1 Year | 34.91 |
Series II shares’ inception date is September 19, 2001. Returns since that date are historical. All other returns are the blended returns of the historical performance of Series II shares since their inception and the 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 adviser 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 net 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 1.07% and 1.32%, respectively.1 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 1.08% and 1.33%, 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. International Growth 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 the 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 adviser.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2010. See current prospectus for more information. |
AIM V.I. International Growth Fund
AIM V.I. International Growth Fund’s investment objective is long-term growth of capital.
§ | Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets. |
§ | Unless otherwise noted, all data provided by Invesco. |
Principal risks of investing in the Fund
Investing in developing countries can add additional risk, such as high rates of inflation or sharply devalued currencies against the U.S. dollar. Transaction costs are often higher, and there may be delays in settlement procedures.
Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, relative lack of information, relatively low market liquidity, and the potential lack of strict financial and accounting controls and standards.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
The prices of securities held by the Fund may decline in response to market risks.
About indexes used in this report
The MSCI EAFE® Index is an unmanaged index considered representative of stocks of Europe, Australasia and the Far East.
The MSCI EAFE® 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 unmanaged index considered representative of international growth variable insurance underlying funds tracked by Lipper.
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 the peer group reflects fund expenses; performance of a market index does not.
Other information
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
CPA® and Certified Public Accountant® are trademarks owned by the American Institute of Certified Public Accountants
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
AIM V.I. International Growth Fund
Schedule of Investments
December 31, 2009
Shares | Value | |||||||
Common Stocks & Other Equity Interests–90.69% | ||||||||
Australia–5.78% | ||||||||
BHP Billiton Ltd. | 1,030,798 | $ | 39,473,589 | |||||
Cochlear Ltd. | 435,780 | 26,909,323 | ||||||
CSL Ltd. | 639,352 | 18,600,278 | ||||||
QBE Insurance Group Ltd. | 972,148 | 22,189,068 | ||||||
Woolworths Ltd. | 470,307 | 11,780,455 | ||||||
118,952,713 | ||||||||
Belgium–1.95% | ||||||||
Anheuser-Busch InBev N.V. | 778,524 | 40,166,892 | ||||||
Canada–5.45% | ||||||||
Bombardier Inc.–Class B | 3,293,938 | 15,011,620 | ||||||
Canadian National Railway Co. | 285,447 | 15,520,951 | ||||||
Canadian Natural Resources Ltd. | 250,563 | 18,039,201 | ||||||
Cenovus Energy Inc. | 233,973 | 5,892,455 | ||||||
EnCana Corp. | 233,973 | 7,579,830 | ||||||
Fairfax Financial Holdings Ltd. | 22,549 | 8,796,052 | ||||||
Suncor Energy, Inc. | 584,647 | 20,642,453 | ||||||
Talisman Energy Inc. | 1,105,337 | 20,570,279 | ||||||
112,052,841 | ||||||||
Denmark–2.08% | ||||||||
Novo Nordisk A.S.–Class B | 503,696 | 32,170,702 | ||||||
Vestas Wind Systems A.S.(a) | 173,277 | 10,567,059 | ||||||
42,737,761 | ||||||||
Finland–0.40% | ||||||||
Nokia Corp. | 642,408 | 8,235,884 | ||||||
France–4.49% | ||||||||
Axa S.A. | 753,796 | 17,803,145 | ||||||
BNP Paribas | 367,583 | 28,967,747 | ||||||
Danone S.A. | 221,356 | 13,462,038 | ||||||
Total S.A. | 502,441 | 32,153,293 | ||||||
92,386,223 | ||||||||
Germany–6.87% | ||||||||
Adidas AG | 333,899 | 18,003,183 | ||||||
Bayer AG | 554,507 | 44,258,599 | ||||||
Deutsche Boerse AG | 101,255 | 8,407,457 | ||||||
Fresenius Medical Care AG & Co. KGaA | 259,957 | 13,747,337 | ||||||
Merck KGaA | 224,131 | 20,907,552 | ||||||
Puma AG Rudolf Dassler Sport | 82,207 | 27,188,897 | ||||||
SAP AG | 187,604 | 8,836,079 | ||||||
141,349,104 | ||||||||
Hong Kong–2.43% | ||||||||
Esprit Holdings Ltd. | 2,042,336 | 13,441,017 | ||||||
Hutchison Whampoa Ltd. | 3,680,000 | 25,165,375 | ||||||
Li & Fung Ltd. | 2,766,000 | 11,382,903 | ||||||
49,989,295 | ||||||||
India–2.56% | ||||||||
Bharat Heavy Electricals Ltd. | 254,163 | 13,071,960 | ||||||
Infosys Technologies Ltd. | 710,797 | 39,565,724 | ||||||
52,637,684 | ||||||||
Ireland–0.59% | ||||||||
CRH PLC | 445,964 | 12,063,654 | ||||||
Israel–2.82% | ||||||||
Teva Pharmaceutical Industries Ltd.–ADR | 1,032,565 | 58,009,502 | ||||||
Italy–2.85% | ||||||||
Eni S.p.A. | 1,115,337 | 28,356,738 | ||||||
Finmeccanica S.p.A. | 1,905,778 | 30,352,477 | ||||||
58,709,215 | ||||||||
Japan–6.16% | ||||||||
Denso Corp. | 457,600 | 13,718,788 | ||||||
Fanuc Ltd. | 199,000 | 18,510,041 | ||||||
Hoya Corp. | 782,700 | 20,756,660 | ||||||
Keyence Corp. | 84,400 | 17,404,865 | ||||||
Komatsu Ltd. | 515,100 | 10,742,273 | ||||||
Nidec Corp. | 332,500 | 30,583,270 | ||||||
Toyota Motor Corp. | 355,400 | 14,937,247 | ||||||
126,653,144 | ||||||||
Mexico–2.89% | ||||||||
America Movil S.A.B de C.V.–Series L–ADR | 790,084 | 37,118,146 | ||||||
Grupo Televisa S.A.–ADR | 1,076,039 | 22,338,570 | ||||||
59,456,716 | ||||||||
Netherlands–4.14% | ||||||||
Koninklijke (Royal) KPN N.V. | 1,498,730 | 25,403,601 | ||||||
Koninklijke Ahold N.V. | 1,773,571 | 23,511,468 | ||||||
TNT N.V. | 858,076 | 26,228,895 | ||||||
Unilever N.V. | 305,569 | 9,952,011 | ||||||
85,095,975 | ||||||||
Norway–0.52% | ||||||||
Petroleum Geo-Services A.S.A.(a) | 949,963 | 10,776,457 | ||||||
Philippines–1.45% | ||||||||
Philippine Long Distance Telephone Co. | 526,210 | 29,867,212 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. International Growth Fund
Shares | Value | |||||||
Singapore–3.77% | ||||||||
Keppel Corp. Ltd. | 4,514,000 | $ | 26,254,417 | |||||
Singapore Technologies Engineering Ltd. | 7,931,000 | 18,222,866 | ||||||
United Overseas Bank Ltd. | 2,385,000 | 33,176,717 | ||||||
77,654,000 | ||||||||
South Korea–0.88% | ||||||||
Hyundai Mobis | 123,885 | 18,077,681 | ||||||
Spain–1.19% | ||||||||
Telefonica S.A. | 882,347 | 24,558,843 | ||||||
Switzerland–8.80% | ||||||||
Nestle S.A. | 968,702 | 47,015,440 | ||||||
Novartis AG | 190,376 | 10,361,792 | ||||||
Roche Holding AG | 329,786 | 56,046,128 | ||||||
Sonova Holding AG | 275,396 | 33,267,634 | ||||||
Syngenta AG | 122,803 | 34,377,278 | ||||||
181,068,272 | ||||||||
Taiwan–2.11% | ||||||||
MediaTek Inc. | 926,000 | 16,080,876 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd.–ADR | 2,384,019 | 27,273,177 | ||||||
43,354,053 | ||||||||
Turkey–0.70% | ||||||||
Akbank T.A.S. | 2,269,387 | 14,334,896 | ||||||
United Kingdom–19.81% | ||||||||
BAE Systems PLC | 2,902,247 | 16,732,137 | ||||||
BG Group PLC | 1,316,006 | 23,576,586 | ||||||
British American Tobacco PLC | 671,844 | 21,804,120 | ||||||
Capita Group PLC | 1,219,247 | 14,712,472 | ||||||
Compass Group PLC | 4,232,648 | 30,243,215 | ||||||
Imperial Tobacco Group PLC | 1,531,767 | 48,294,078 | ||||||
Informa PLC | 3,271,592 | 16,743,064 | ||||||
International Power PLC | 5,818,340 | 28,800,070 | ||||||
Reckitt Benckiser Group PLC | 885,264 | 48,006,773 | ||||||
Reed Elsevier PLC | 2,302,201 | 18,913,033 | ||||||
Shire PLC | 2,241,615 | 43,828,253 | ||||||
Smith & Nephew PLC | 986,173 | 10,130,361 | ||||||
Tesco PLC | 4,828,104 | 33,186,850 | ||||||
Vodafone Group PLC | 15,073,982 | 34,921,398 | ||||||
WPP PLC | 1,801,871 | 17,602,377 | ||||||
407,494,787 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $1,554,428,890) | 1,865,682,804 | |||||||
Preferred Stocks–0.93% | ||||||||
Brazil–0.93% | ||||||||
Petroleo Brasileiro S.A.–ADR–Pfd. (Cost $11,489,198) | 450,078 | 19,078,806 | ||||||
Money Market Funds–8.50% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 87,398,565 | 87,398,565 | ||||||
Premier Portfolio–Institutional Class(b) | 87,398,565 | 87,398,565 | ||||||
Total Money Market Funds (Cost $174,797,130) | 174,797,130 | |||||||
TOTAL INVESTMENTS–100.12% (Cost $1,740,715,218) | 2,059,558,740 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.12)% | (2,161,637 | ) | ||||||
NET ASSETS–100.00% | $ | 2,057,397,103 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt | |
Pfd. | – Preferred |
Notes to Schedule of Investments:
(a) | Non-income producing security. | |
(b) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. International Growth Fund
Statement of Assets and Liabilities
December 31, 2009
Assets: | ||||
Investments, at value (Cost $1,565,918,088) | $ | 1,884,761,610 | ||
Investments in affiliated money market funds, at value and cost | 174,797,130 | |||
Total investments, at value (Cost $1,740,715,218) | 2,059,558,740 | |||
Cash | 874,768 | |||
Foreign currencies, at value (Cost $6,356,367) | 6,613,907 | |||
Receivables for: | ||||
Fund shares sold | 545,133 | |||
Dividends | 1,933,791 | |||
Investment for trustee deferred compensation and retirement plans | 44,330 | |||
Other assets | 190 | |||
Total assets | 2,069,570,859 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 6,959,557 | |||
Fund shares reacquired | 1,581,660 | |||
Accrued fees to affiliates | 2,142,456 | |||
Accrued other operating expenses | 1,369,537 | |||
Trustee deferred compensation and retirement plans | 120,546 | |||
Total liabilities | 12,173,756 | |||
Net assets applicable to shares outstanding | $ | 2,057,397,103 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 2,000,694,850 | ||
Undistributed net investment income | 20,893,939 | |||
Undistributed net realized gain (loss) | (283,340,650 | ) | ||
Unrealized appreciation | 319,148,964 | |||
$ | 2,057,397,103 | |||
Net Assets: | ||||
Series I | $ | 556,882,625 | ||
Series II | $ | 1,500,514,478 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 21,412,061 | |||
Series II | 58,534,932 | |||
Series I: | ||||
Net asset value per share | $ | 26.01 | ||
Series II: | ||||
Net asset value per share | $ | 25.63 | ||
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Dividends (net of foreign withholding taxes of $3,420,137) | $ | 38,240,850 | ||
Dividends from affiliated money market funds | 827,353 | |||
Interest | 15,771 | |||
Total investment income | 39,083,974 | |||
Expenses: | ||||
Advisory fees | 11,124,431 | |||
Administrative services fees | 4,230,684 | |||
Custodian fees | 672,743 | |||
Distribution fees — Series II | 2,741,343 | |||
Transfer agent fees | 63,627 | |||
Trustees’ and officers’ fees and benefits | 63,590 | |||
Other | 122,258 | |||
Total expenses | 19,018,676 | |||
Less: Fees waived | (244,017 | ) | ||
Net expenses | 18,774,659 | |||
Net investment income | 20,309,315 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains (losses) from securities sold to affiliates of $(16,406)) | (148,905,454 | ) | ||
Foreign currencies | 1,165,597 | |||
(147,739,857 | ) | |||
Change in net unrealized appreciation of: | ||||
Investment securities (net of foreign taxes on holdings of $(1,149,532)) | 629,209,623 | |||
Foreign currencies | 1,135,173 | |||
630,344,796 | ||||
Net realized and unrealized gain | 482,604,939 | |||
Net increase in net assets resulting from operations | $ | 502,914,254 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. International Growth Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 20,309,315 | $ | 26,345,327 | ||||
Net realized gain (loss) | (147,739,857 | ) | (132,063,478 | ) | ||||
Change in net unrealized appreciation (depreciation) | 630,344,796 | (627,616,561 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 502,914,254 | (733,334,712 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (7,359,852 | ) | (3,478,321 | ) | ||||
Series II | (17,849,719 | ) | (5,065,468 | ) | ||||
Total distributions from net investment income | (25,209,571 | ) | (8,543,789 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | — | (8,411,008 | ) | |||||
Series II | — | (14,727,306 | ) | |||||
Total distributions from net realized gains | — | (23,138,314 | ) | |||||
Share transactions–net: | ||||||||
Series I | (27,076,452 | ) | (13,325,486 | ) | ||||
Series II | 366,967,140 | 480,159,184 | ||||||
Net increase in net assets resulting from share transactions | 339,890,688 | 466,833,698 | ||||||
Net increase (decrease) in net assets | 817,595,371 | (298,183,117 | ) | |||||
Net assets: | ||||||||
Beginning of year | 1,239,801,732 | 1,537,984,849 | ||||||
End of year (includes undistributed net investment income of $20,893,939 and $24,613,828, respectively) | $ | 2,057,397,103 | $ | 1,239,801,732 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. International Growth Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is long-term growth of capital.
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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on 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 ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
AIM V.I. International Growth Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, 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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
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 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 adviser. | ||
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 adviser 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. |
AIM V.I. International Growth Fund
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. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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, including the Fund’s servicing agreements, 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 — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts 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. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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 Funds between the Adviser 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-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of
AIM V.I. International Growth Fund
an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended December 31, 2009, the Adviser waived advisory fees of $244,017.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $364,275 for accounting and fund administrative services and reimbursed $3,866,409 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 year ended December 31, 2009, 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 year ended December 31, 2009, 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, IAIS and/or IADI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Australia | $ | — | $ | 118,952,713 | $ | — | $ | 118,952,713 | ||||||||
Belgium | — | 40,166,892 | — | 40,166,892 | ||||||||||||
Brazil | 19,078,806 | — | — | 19,078,806 | ||||||||||||
Canada | 112,052,841 | — | — | 112,052,841 | ||||||||||||
Denmark | 42,737,761 | — | — | 42,737,761 | ||||||||||||
Finland | — | 8,235,884 | — | 8,235,884 | ||||||||||||
France | — | 92,386,223 | — | 92,386,223 | ||||||||||||
Germany | 43,062,346 | 98,286,758 | — | 141,349,104 | ||||||||||||
Hong Kong | — | 49,989,295 | — | 49,989,295 | ||||||||||||
India | — | 52,637,684 | — | 52,637,684 | ||||||||||||
AIM V.I. International Growth Fund
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Ireland | — | 12,063,654 | — | 12,063,654 | ||||||||||||
Israel | 58,009,502 | — | — | 58,009,502 | ||||||||||||
Italy | — | 58,709,215 | — | 58,709,215 | ||||||||||||
Japan | 17,404,865 | 109,248,279 | — | 126,653,144 | ||||||||||||
Mexico | 59,456,716 | — | — | 59,456,716 | ||||||||||||
Netherlands | 58,867,080 | 26,228,895 | — | 85,095,975 | ||||||||||||
Norway | — | 10,776,457 | — | 10,776,457 | ||||||||||||
Philippines | 29,867,212 | — | — | 29,867,212 | ||||||||||||
Singapore | — | 77,654,000 | — | 77,654,000 | ||||||||||||
South Korea | — | 18,077,681 | — | 18,077,681 | ||||||||||||
Spain | 24,558,843 | — | — | 24,558,843 | ||||||||||||
Switzerland | — | 181,068,272 | — | 181,068,272 | ||||||||||||
Taiwan | 27,273,177 | 16,080,876 | — | 43,354,053 | ||||||||||||
Turkey | 14,334,896 | — | — | 14,334,896 | ||||||||||||
United Kingdom | 91,835,026 | 315,659,761 | — | 407,494,787 | ||||||||||||
United States | 174,797,130 | — | — | 174,797,130 | ||||||||||||
Total Investments | $ | 773,336,201 | $ | 1,286,222,539 | $ | — | $ | 2,059,558,740 | ||||||||
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 adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2009, the Fund engaged in securities sales of $57,614, which resulted in net realized gains (losses) of $(16,406).
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $6,073 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, 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, not to exceed the contractually agreed upon rate.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2009 and 2008:
2009 | 2008 | |||||||
Ordinary income | $ | 25,209,571 | $ | 10,198,789 | ||||
Long-term capital gain | — | 21,483,314 | ||||||
Total distributions | $ | 25,209,571 | $ | 31,682,103 | ||||
AIM V.I. International Growth Fund
Tax Components of Net Assets at Period-End:
2009 | ||||
Undistributed ordinary income | $ | 21,017,881 | ||
Net unrealized appreciation — investments | 271,370,891 | |||
Net unrealized appreciation — other investments | 305,442 | |||
Temporary book/tax differences | (123,942 | ) | ||
Post-October deferrals | (4,745,883 | ) | ||
Capital loss carryforward | (231,122,136 | ) | ||
Shares of beneficial interest | 2,000,694,850 | |||
Total net assets | $ | 2,057,397,103 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 87,932,439 | ||
December 31, 2017 | 143,189,697 | |||
Total capital loss carryforward | $ | 231,122,136 | ||
* | 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 year ended December 31, 2009 was $725,625,357 and $379,844,151, 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 | $ | 302,885,608 | ||
Aggregate unrealized (depreciation) of investment securities | (31,514,717 | ) | ||
Net unrealized appreciation of investment securities | $ | 271,370,891 | ||
Cost of investments for tax purposes is $1,788,187,849. |
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions, on December 31, 2009, undistributed net investment income was increased by $1,180,367 and undistributed net realized gain (loss) was decreased by $1,180,367. This reclassification had no effect on the net assets of the Fund.
AIM V.I. International Growth Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended December 31, | ||||||||||||||||
2009(a) | 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 3,456,056 | $ | 76,132,583 | 5,416,504 | $ | 152,657,919 | ||||||||||
Series II | 21,080,766 | 443,187,963 | 22,885,713 | 587,146,644 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 284,164 | 7,359,852 | 647,214 | 11,889,329 | ||||||||||||
Series II | 698,893 | 17,849,719 | 1,091,714 | 19,792,774 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (5,238,473 | ) | (110,568,887 | ) | (6,729,062 | ) | (177,872,734 | ) | ||||||||
Series II | (4,496,473 | ) | (94,070,542 | ) | (5,147,388 | ) | (126,780,234 | ) | ||||||||
Net increase in share activity | 15,784,933 | $ | 339,890,688 | 18,164,695 | $ | 466,833,698 | ||||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 62% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, 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 and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco 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.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 19.49 | $ | 0.32 | $ | 6.55 | $ | 6.87 | $ | (0.35 | ) | $ | — | $ | (0.35 | ) | $ | 26.01 | 35.24 | % | $ | 556,883 | 1.02 | %(d) | 1.04 | %(d) | 1.47 | %(d) | 27 | % | ||||||||||||||||||||||||||
Year ended 12/31/08 | 33.63 | 0.54 | (14.16 | ) | (13.62 | ) | (0.15 | ) | (0.37 | ) | (0.52 | ) | 19.49 | (40.38 | ) | 446,437 | 1.05 | 1.06 | 1.96 | 44 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 29.44 | 0.34 | 3.98 | 4.32 | (0.13 | ) | — | (0.13 | ) | 33.63 | 14.68 | 792,779 | 1.06 | 1.07 | 1.06 | 20 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 23.17 | 0.23 | 6.32 | 6.55 | (0.28 | ) | — | (0.28 | ) | 29.44 | 28.28 | 563,460 | 1.10 | 1.10 | 0.90 | 34 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 19.77 | 0.23 | 3.31 | 3.54 | (0.14 | ) | — | (0.14 | ) | 23.17 | 17.93 | 444,608 | 1.11 | 1.11 | 1.11 | 36 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 19.23 | 0.27 | 6.44 | 6.71 | (0.31 | ) | — | (0.31 | ) | 25.63 | 34.91 | 1,500,514 | 1.27 | (d) | 1.29 | (d) | 1.22 | (d) | 27 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 33.24 | 0.45 | (13.96 | ) | (13.51 | ) | (0.13 | ) | (0.37 | ) | (0.50 | ) | 19.23 | (40.55 | ) | 793,365 | 1.30 | 1.31 | 1.71 | 44 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 29.16 | 0.26 | 3.94 | 4.20 | (0.12 | ) | — | (0.12 | ) | 33.24 | 14.41 | 745,206 | 1.31 | 1.32 | 0.81 | 20 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 23.00 | 0.17 | 6.25 | 6.42 | (0.26 | ) | — | (0.26 | ) | 29.16 | 27.92 | 163,657 | 1.35 | 1.35 | 0.65 | 34 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 19.65 | 0.18 | 3.30 | 3.48 | (0.13 | ) | — | (0.13 | ) | 23.00 | 17.70 | 54,658 | 1.36 | 1.36 | 0.86 | 36 | ||||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $474,810 and $1,096,537 for Series I and Series II shares, respectively. |
NOTE 12— Subsequent Event
A significant shareholder of the Fund has notified Invesco of their intent to redeem their investment in the Fund. It is anticipated that the redemption in kind will occur in May 2010 and will result in a significant redemption of Series II Fund shares. The market value of the accounts anticipated to be redeemed were 49% of the Fund’s net assets at December 31, 2009.
AIM V.I. International Growth Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. International Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. International Growth Fund, (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 10, 2010
Houston, Texas
AIM V.I. International 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 July 1, 2009 through December 31, 2009.
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 | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,220.30 | $ | 5.65 | $ | 1,020.11 | $ | 5.14 | 1.01 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,218.60 | 7.05 | 1,018.85 | 6.41 | 1.26 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. International Growth Fund
Tax Information |
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2009:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 0% | |||
Foreign Taxes | $ | 0.0431 per share | ||
Foreign Source Income | $ | 0.5743 per share |
* | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
AIM V.I. International Growth Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Trustee and/ | ||||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | None | |||||
Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | ||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co- Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | None | |||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||||
Frank S. Bayley — 1939 Trustee | 2001 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | None | |||||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans Scholars Foundation and Executive Committee, United States Golf Association | |||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) | Board of Nature’s Sunshine Products, Inc. | |||||
Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | ||||||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) | Administaff | |||||
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | ||||||||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired | None | |||||
Lewis F. Pennock — 1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||||
Larry Soll — 1942 Trustee | 2004 | Retired | None | |||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) | None |
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers – (continued)
Trustee and/ | ||||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC | N/A | |||||
Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | ||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® | N/A | |||||
Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | ||||||||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® | N/A | |||||
Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | ||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) | N/A | |||||
Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® | N/A | |||||
Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. | N/A | |||||
Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 100 | Invesco Advisers, Inc. | Invesco Aim Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 100 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Independent Trustees | Invesco Aim Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-2
![(INVESCO AIM LOGO)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943800.gif)
AIM V.I. Large Cap Growth Fund
Annual Report to Shareholders n December 31, 2009
Annual Report to Shareholders n December 31, 2009
![(IMAGE)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943801.gif)
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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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
Management’s Discussion of Fund Performance
Performance summary
For the 12 months ended December 31, 2009, AIM V.I. Large Cap Growth Fund had double-digit positive returns but underperformed the Fund’s style-specific index, the Russell 1000 Growth Index. Much of the Fund’s underperformance was due to a more defensive position at the market inflection point as well as stock selection across sectors.
The Fund performed in line with its broad market index, the S&P 500 Index. |
Fund vs. Indexes
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares* | 25.99 | % | ||
Series II Shares* | 25.68 | |||
S&P 500 Index6 (Broad Market Index) | 26.47 | |||
Russell 1000 Growth Index6 (Style-Specific Index) | 37.21 | |||
Lipper VUF Large-Cap Growth Funds Index6 (Peer Group Index) | 37.73 |
6 | Lipper Inc. | |
* | Performance includes litigation proceeds. Had these proceeds not been received, total return would have been lower. |
How we invest
We believe a growth investment strategy is an essential component of a diversified portfolio.
We seek to identify large-cap companies with the potential to meet or exceed consensus earnings estimates and that generate sustainable growth. To accomplish this goal, we utilize a rules-based approach that balances proprietary quantitative analysis with rigorous fundamental analysis. We also incorporate a proprietary sell model that seeks to identify and eliminate stocks at high risk of underperformance.
Our quantitative model ranks companies based on a set of fundamental, valuation and timeliness factors. This model provides an objective approach to identifying new investment opportunities. We focus our fundamental analysis on the top 20% of the quantitative model.
Our fundamental analysis seeks to determine the company’s drivers of earnings. To accomplish this goal, we examine financial statements to gain a critical understanding of growth drivers, allowing us to quantify earnings power. We analyze industry trends, growth rates, the competitive landscape and the quality of management. We also closely analyze valuation levels to help reduce the risk of holding highly priced stocks and to determine the potential for capital appreciation.
Portfolio construction plays an important role in risk management. While sector overweights and underweights are driven by our investment process, we cap the Fund’s maximum sector overweight at 1,000 basis points (10 percentage points) versus the Russell 1000 Growth Index sectors. We seek to manage stock-specific risk by building a diversified portfolio of typically 50 to 80 stocks.
Our sell process is designed to avoid “high risk” situations we believe lead to underperformance. Examples of “high risk” situations include:
§ | Deteriorating business prospects | |
§ | Negative changes to our investment thesis | |
§ | Sell model signals |
Market conditions and your Fund
The fiscal year was truly a tale of two markets. During the first two months of the fiscal year, equity markets experienced steep declines as severe problems in credit markets, a rapidly weakening housing market, rising energy and food prices and a deteriorating outlook for corporate earnings led to a global economic recession. However, equity markets rapidly reversed direction beginning in March 2009 and rallied solidly through most of the remaining months in the fiscal year.
In this environment, indexes measuring the performance of large-, mid- and small-cap stocks all had positive returns, with mid-cap stocks generally outperforming large- and small-cap stocks.1 In terms of investment style, growth stocks generally outperformed value stocks.1 The sectors with the highest returns in the broad market, as represented by the S&P 500 Index, included economically sensitive sectors such as information technology (IT), materials and consumer discretionary.1
The Fund underperformed the Russell 1000 Growth Index for the year. During the market decline of the first three months of the year, the Fund benefited from a more defensive posture, with overweight positions in less economically sensitive sectors such as health care and underweight positions in more economically sensitive sectors such as consumer discretionary, energy and materials. Additionally, within sectors, the Fund benefited from higher exposure to less cyclical holdings.
The Fund began to underperform the Russell 1000 Growth Index when equity markets hit a bottom and began to rebound in March 2009. It is important to note that while our investment process may temporarily underperform our peers at market inflection points, our goal is to outperform over a full market cycle. This temporary underperformance typically occurs because we wait for clear data points that earnings growth is achievable before moving into new stocks.
Portfolio Composition
By sector
By sector
Information Technology | 40.4 | % | |||
Health Care | 15.9 | ||||
Industrials | 10.9 | ||||
Consumer Discretionary | 10.0 | ||||
Energy | 8.7 | ||||
Materials | 7.5 | ||||
Financials | 4.4 | ||||
Consumer Staples | 1.0 | ||||
Telecommunication Services | 0.9 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 0.3 | ||||
Top 10 Equity Holdings* | |||||
1. Apple Inc. | 6.0 | % | |||
2. BHP Billiton Ltd.-ADR | 4.5 | ||||
3. Hewlett-Packard Co. | 3.6 | ||||
4. Occidental Petroleum Corp. | 3.3 | ||||
5. Microsoft Corp. | 2.8 | ||||
6. Amgen Inc. | 2.8 | ||||
7. International Business Machines Corp. | 2.7 | ||||
8. Oracle Corp. | 2.4 | ||||
9. Accenture PLC | 2.2 | ||||
10. Goldman Sachs Group, Inc. (The) | 2.2 | ||||
Total Net Assets | $68.5 million | ||||
Total Number of Holdings* | 61 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* | Excluding money market fund holdings. |
AIM V.I. Large Cap Growth Fund
Fund underperformance was driven primarily by two factors. First, much of the Fund’s underperformance was driven by its defensive posture both within and across sectors, as more economically sensitive stocks outperformed following the March low. Second, the Fund under-performed because it did not own many of the lower quality, highly leveraged companies that outperformed during the market rebound. Our investment approach specifically avoids companies with these traits because over the long-term they tend to perform poorly.
Over the course of the year, the Fund underperformed by the widest margin in the consumer discretionary sector, primarily due to stock selection. Much of the Fund’s underperformance was because it did not own many of the lower quality companies that performed strongly during the stock market rebound. For-profit education services provider Apollo Group was a key detractor from Fund performance. This holding had weak performance due to heightened regulatory scrutiny. Additionally, the stock was negatively affected as investors rotated into more economically sensitive holdings during the market rebound.
The Fund also underperformed the Russell 1000 Growth Index in the industrials sector. Within this sector, underperformance was driven by stock selection and an overweight position, especially in the aerospace and defense industry. While many aerospace and defense companies held up well during the market downturn, they generally underperformed as investors rotated into more cyclical holdings during the market rally. Examples of holdings that detracted from Fund performance included defense contractors Raytheon and Lockheed Martin. We sold the Fund’s position in these holdings due to deteriorating fundamentals.
Underperformance in the health care and financials sectors was primarily due to stock selection. Examples of holdings that detracted from performance in these sectors were insurance provider Aon and pharmaceutical maker Gilead Sciences. We sold our position in Aon during the year.
One other area of weakness was the IT sector. Within this sector, stock selection was the primary driver of underperformance. Similar to what happened in the consumer discretionary sector, much of the Fund’s underperformance in this sector was because the Fund did not have exposure to many of the lower quality technology companies that performed strongly during the stock market rebound. Despite underperforming in this sector, four out of five of the Fund’s top contributors to performance during the reporting period were information technology holdings: Apple, Hewlett-Packard, Microsoft and International Business Machines.
Some of this underperformance was offset by outperformance in other sectors, including consumer staples and materials. The Fund outperformed the Russell 1000 Growth Index by the widest margin in the consumer staples sector, driven largely by an underweight position. Outperformance in the materials sector was driven by stock selection as the Fund’s holdings generally outperformed those of the Russell 1000 Growth Index during the reporting period.
We began to reposition the portfolio in April and May 2009, by moving into more economically sensitive holdings as our quantitative and fundamental research provided clear evidence that such companies had the potential for sustainable earnings growth in a more stable and improving economy. This repositioning included a reduction in the defensive health care and consumer staples sectors. We rotated into economically sensitive sectors including IT, consumer discretionary, financials and materials.
As we’ve discussed, the stock market experienced considerable volatility during the year. While our investment process may temporarily underperform at market inflection points, the goal of our disciplined investment process is to provide consistent performance and outperform over a full market cycle. We would like to caution investors against making investment decisions based on short-term performance. As always, we recommend that you consult a financial adviser to discuss your individual financial program.
We thank you for your commitment to AIM V.I. Large Cap Growth Fund.
1 | Lipper Inc. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
![(PHOTO OF GEOFFREY KEELING)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943802.jpg)
Geoffrey Keeling
Chartered Financial Analyst, senior portfolio manager, is co-manager of AIM V.I. Large Cap Growth Fund. He joined Invesco Aim in 1995. Mr. Keeling earned a B.B.A. degree in finance from The University of Texas at Austin.
![(PHOTO OF ROBERT SHOSS)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943803.jpg)
Robert Shoss
Senior portfolio manager, is co-manager of AIM V.I. Large Cap Growth Fund. He joined Invesco Aim in 1995. Mr. Shoss earned a B.A. from The University of Texas at Austin and an M.B.A. and a J.D. from the University of Houston.
Assisted by the Large/Multi-Cap Growth Team
AIM V.I. Large Cap Growth Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment — Oldest Share Classes since Inception
Fund data from 8/29/03, index data from 8/31/03
Fund data from 8/29/03, index data from 8/31/03
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1 | Lipper Inc. |
Past performance cannot guarantee comparable future results.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000.
Average Annual Total Returns
As of 12/31/09
As of 12/31/09
Series I Shares | ||||
Inception (8/29/03) | 3.47 | % | ||
5 Years | 0.84 | |||
1 Year | 25.99 | |||
Series II Shares | ||||
Inception (8/29/03) | 3.25 | % | ||
5 Years | 0.61 | |||
1 Year | 25.68 |
Performance includes litigation proceeds. Had these proceeds not been received, total return would have been lower.
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 adviser 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 net 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 1.01% and 1.26%, respectively.1,2 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 1.10% and 1.35%, 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. Large Cap Growth 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 the 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 adviser.
Had the adviser not waived fees and/or reimbursed expenses in the past, performance would have been lower.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. |
2 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2010. See current prospectus for more information. |
AIM V.I. Large Cap Growth Fund
AIM V.I. Large Cap Growth Fund’s investment objective is long-term growth of capital.
§ Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets.
§ Unless otherwise noted, all data provided by Invesco.
Principal risks of investing in the Fund
Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, relative lack of information, relatively low market liquidity, and the potential lack of strict financial and accounting controls and standards.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
The prices of securities held by the Fund may decline in response to market risks.
Since 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.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Russell 1000® Growth Index is an unmanaged index considered representative of large-cap growth stocks. The Russell 1000 Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Large-Cap Growth Funds Index is an unmanaged index considered representative of large-cap growth variable insurance underlying funds tracked by Lipper.
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 the peer group reflects fund expenses; performance of a market index does not.
Other information
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
AIM V.I. Large Cap Growth Fund
Schedule of Investments(a)
December 31, 2009
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.65% | ||||||||
Aerospace & Defense–2.46% | ||||||||
Goodrich Corp. | 13,144 | $ | 844,502 | |||||
United Technologies Corp. | 12,077 | 838,265 | ||||||
1,682,767 | ||||||||
Apparel Retail–3.91% | ||||||||
Gap, Inc. (The) | 35,876 | 751,602 | ||||||
Limited Brands, Inc. | 50,456 | 970,774 | ||||||
Ross Stores, Inc. | 22,337 | 954,013 | ||||||
2,676,389 | ||||||||
Asset Management & Custody Banks–1.20% | ||||||||
BlackRock, Inc. | 3,556 | 825,703 | ||||||
Biotechnology–3.73% | ||||||||
Amgen Inc.(b) | 33,567 | 1,898,885 | ||||||
Gilead Sciences, Inc.(b) | 15,166 | 656,385 | ||||||
2,555,270 | ||||||||
Communications Equipment–1.93% | ||||||||
Cisco Systems, Inc.(b) | 55,314 | 1,324,217 | ||||||
Computer Hardware–12.25% | ||||||||
Apple Inc.(b) | 19,330 | 4,075,924 | ||||||
Hewlett-Packard Co. | 47,629 | 2,453,370 | ||||||
International Business Machines Corp. | 14,255 | 1,865,979 | ||||||
8,395,273 | ||||||||
Computer Storage & Peripherals–3.94% | ||||||||
EMC Corp.(b) | 85,959 | 1,501,704 | ||||||
Western Digital Corp.(b) | 27,122 | 1,197,436 | ||||||
2,699,140 | ||||||||
Construction & Engineering–2.85% | ||||||||
Fluor Corp. | 24,561 | 1,106,228 | ||||||
URS Corp.(b) | 19,081 | 849,486 | ||||||
1,955,714 | ||||||||
Construction, Farm Machinery & Heavy Trucks–1.01% | ||||||||
Joy Global Inc. | 13,374 | 689,965 | ||||||
Data Processing & Outsourced Services–1.34% | ||||||||
MasterCard, Inc.–Class A | 3,579 | 916,152 | ||||||
Department Stores–2.32% | ||||||||
J.C. Penney Co., Inc. | 33,469 | 890,610 | ||||||
Kohl’s Corp.(b) | 12,944 | 698,070 | ||||||
1,588,680 | ||||||||
Shares | ||||||||
Diversified Metals & Mining–5.58% | ||||||||
BHP Billiton Ltd.–ADR (Australia)(c) | 40,706 | 3,117,265 | ||||||
Rio Tinto PLC–ADR (United Kingdom) | 3,286 | 707,772 | ||||||
3,825,037 | ||||||||
Education Services–1.69% | ||||||||
Apollo Group, Inc.–Class A(b) | 19,082 | 1,155,988 | ||||||
Electrical Components & Equipment–1.04% | ||||||||
Cooper Industries PLC (Ireland) | 16,727 | 713,239 | ||||||
Electronic Manufacturing Services–0.98% | ||||||||
Flextronics International Ltd. (Singapore)(b) | 91,930 | 672,008 | ||||||
Fertilizers & Agricultural Chemicals–1.88% | ||||||||
Syngenta AG (Switzerland) | 4,614 | 1,291,636 | ||||||
General Merchandise Stores–2.09% | ||||||||
Dollar Tree, Inc.(b) | 14,391 | 695,085 | ||||||
Target Corp. | 15,187 | 734,595 | ||||||
1,429,680 | ||||||||
Health Care Distributors–3.22% | ||||||||
AmerisourceBergen Corp. | 42,377 | 1,104,768 | ||||||
McKesson Corp. | 17,663 | 1,103,938 | ||||||
2,208,706 | ||||||||
Health Care Services–3.89% | ||||||||
Express Scripts, Inc.(b) | 10,388 | 898,043 | ||||||
Medco Health Solutions, Inc.(b) | 17,417 | 1,113,120 | ||||||
Quest Diagnostics Inc. | 10,898 | 658,021 | ||||||
2,669,184 | ||||||||
Heavy Electrical Equipment–1.30% | ||||||||
ABB Ltd. (Switzerland)(b) | 46,526 | 888,942 | ||||||
Home Entertainment Software–1.30% | ||||||||
Shanda Interactive Entertainment Ltd.–ADR (China)(b)(c) | 16,893 | 888,741 | ||||||
Integrated Oil & Gas–3.34% | ||||||||
Occidental Petroleum Corp. | 28,117 | 2,287,318 | ||||||
Internet Software & Services–3.10% | ||||||||
Google Inc.–Class A(b) | 2,261 | 1,401,775 | ||||||
NetEase.com Inc.–ADR (China)(b) | 19,234 | 723,390 | ||||||
2,125,165 | ||||||||
Investment Banking & Brokerage–3.17% | ||||||||
Goldman Sachs Group, Inc. (The) | 8,949 | 1,510,949 | ||||||
TD Ameritrade Holding Corp.(b) | 34,265 | 664,056 | ||||||
2,175,005 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Large Cap Growth Fund
Shares | Value | |||||||
IT Consulting & Other Services–3.51% | ||||||||
Accenture PLC–Class A (Ireland) | 37,053 | $ | 1,537,700 | |||||
Cognizant Technology Solutions Corp.–Class A(b) | 19,227 | 870,983 | ||||||
2,408,683 | ||||||||
Managed Health Care–2.77% | ||||||||
UnitedHealth Group Inc. | 31,235 | 952,043 | ||||||
WellPoint Inc.(b) | 16,225 | 945,755 | ||||||
1,897,798 | ||||||||
Oil & Gas Drilling–2.06% | ||||||||
Diamond Offshore Drilling, Inc. | 7,249 | 713,446 | ||||||
ENSCO International PLC–ADR (United Kingdom) | 17,439 | 696,514 | ||||||
1,409,960 | ||||||||
Oil & Gas Equipment & Services–3.33% | ||||||||
FMC Technologies, Inc.(b) | 17,854 | 1,032,675 | ||||||
National-Oilwell Varco Inc. | 28,383 | 1,251,407 | ||||||
2,284,082 | ||||||||
Personal Products–1.02% | ||||||||
Estee Lauder Cos. Inc. (The)–Class A | 14,512 | 701,800 | ||||||
Pharmaceuticals–2.27% | ||||||||
Abbott Laboratories | 11,737 | 633,680 | ||||||
Johnson & Johnson | 14,329 | 922,931 | ||||||
1,556,611 | ||||||||
Railroads–2.21% | ||||||||
Norfolk Southern Corp. | 14,003 | 734,037 | ||||||
Union Pacific Corp. | 12,252 | 782,903 | ||||||
1,516,940 | ||||||||
Semiconductors–5.36% | ||||||||
Marvell Technology Group Ltd.(b) | 57,618 | 1,195,574 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd.–ADR (Taiwan) | 60,695 | 694,351 | ||||||
Texas Instruments Inc. | 39,640 | 1,033,018 | ||||||
Xilinx, Inc. | 29,804 | 746,888 | ||||||
3,669,831 | ||||||||
Systems Software–6.70% | ||||||||
BMC Software, Inc.(b) | 25,457 | 1,020,826 | ||||||
Microsoft Corp. | 63,131 | 1,924,864 | ||||||
Oracle Corp. | 67,131 | 1,647,395 | ||||||
4,593,085 | ||||||||
Wireless Telecommunication Services–0.90% | ||||||||
America Movil S.A.B de C.V.–Series L–ADR (Mexico) | 13,107 | 615,767 | ||||||
Total Common Stocks & Other Equity Interests (Cost $56,045,513) | 68,294,476 | |||||||
Money Market Funds–0.57% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 195,750 | 195,750 | ||||||
Premier Portfolio–Institutional Class(d) | 195,750 | 195,750 | ||||||
Total Money Market Funds (Cost $391,500) | 391,500 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.22% (Cost $56,437,013) | 68,685,976 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–1.75% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $1,198,990)(d)(e) | 1,198,990 | 1,198,990 | ||||||
TOTAL INVESTMENTS–101.97% (Cost $57,636,003) | 69,884,966 | |||||||
OTHER ASSETS LESS LIABILITIES–(1.97)% | (1,353,374 | ) | ||||||
NET ASSETS–100.00% | $ | 68,531,592 | ||||||
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) | All or a portion of this security was out on loan at December 31, 2009. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(e) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1I. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Large Cap Growth Fund
Statement of Assets and Liabilities
December 31, 2009
Assets: | ||||
Investments, at value (Cost $56,045,513)* | $ | 68,294,476 | ||
Investments in affiliated money market funds, at value and cost | 1,590,490 | |||
Total investments, at value (Cost $57,636,003) | 69,884,966 | |||
Receivables for: | ||||
Dividends | 35,066 | |||
Investment for trustee deferred compensation and retirement plans | 24,389 | |||
Total assets | 69,944,421 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 97,806 | |||
Collateral upon return of securities loaned | 1,198,990 | |||
Accrued fees to affiliates | 49,016 | |||
Accrued other operating expenses | 31,689 | |||
Trustee deferred compensation and retirement plans | 35,328 | |||
Total liabilities | 1,412,829 | |||
Net assets applicable to shares outstanding | $ | 68,531,592 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 70,824,852 | ||
Undistributed net investment income | 256,783 | |||
Undistributed net realized gain (loss) | (14,799,580 | ) | ||
Unrealized appreciation | 12,249,537 | |||
$ | 68,531,592 | |||
Net Assets: | ||||
Series I | $ | 67,831,167 | ||
Series II | $ | 700,425 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 5,521,658 | |||
Series II | 57,457 | |||
Series I: | ||||
Net asset value per share | $ | 12.28 | ||
Series II: | ||||
Net asset value per share | $ | 12.19 | ||
* | At December 31, 2009, securities with an aggregate value of $1,175,972 were on loan to brokers. |
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Dividends (net of foreign withholding taxes of $10,133) | $ | 896,026 | ||
Dividends from affiliated money market funds (includes securities lending income of $19,755) | 32,757 | |||
Total investment income | 928,783 | |||
Expenses: | ||||
Advisory fees | 443,885 | |||
Administrative services fees | 203,322 | |||
Custodian fees | 8,928 | |||
Distribution fees — Series II | 1,688 | |||
Transfer agent fees | 9,912 | |||
Trustees’ and officers’ fees and benefits | 21,920 | |||
Professional services fees | 37,813 | |||
Other | 11,254 | |||
Total expenses | 738,722 | |||
Less: Fees waived | (92,589 | ) | ||
Net expenses | 646,133 | |||
Net investment income | 282,650 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (3,087,062 | ) | ||
Foreign currencies | 22,567 | |||
(3,064,495 | ) | |||
Change in net unrealized appreciation of: | ||||
Investment securities | 17,627,187 | |||
Foreign currencies | 749 | |||
17,627,936 | ||||
Net realized and unrealized gain | 14,563,441 | |||
Net increase in net assets resulting from operations | $ | 14,846,091 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Large Cap Growth Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 282,650 | $ | 221,020 | ||||
Net realized gain (loss) | (3,064,495 | ) | (5,322,900 | ) | ||||
Change in net unrealized appreciation (depreciation) | 17,627,936 | (39,639,682 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 14,846,091 | (44,741,562 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (225,916 | ) | (10,393 | ) | ||||
Series II | (60 | ) | — | |||||
Total distributions from net investment income | (225,976 | ) | (10,393 | ) | ||||
Share transactions–net: | ||||||||
Series I | (9,298,793 | ) | (22,100,762 | ) | ||||
Series II | (166,783 | ) | (100,213 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (9,465,576 | ) | (22,200,975 | ) | ||||
Net increase (decrease) in net assets | 5,154,539 | (66,952,930 | ) | |||||
Net assets: | ||||||||
Beginning of year | 63,377,053 | 130,329,983 | ||||||
End of year (includes undistributed net investment income of $256,783 and $177,543, respectively) | $ | 68,531,592 | $ | 63,377,053 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. Large Cap Growth Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is long-term growth of capital.
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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on 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 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, |
AIM V.I. Large Cap Growth Fund
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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
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 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 adviser. | ||
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 adviser 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 |
AIM V.I. Large Cap Growth Fund
results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | ||
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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, including the Fund’s servicing agreements, 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. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could 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, if any. | |
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 — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts 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. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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% | ||
AIM V.I. Large Cap Growth Fund
Under the terms of a master sub-advisory agreement approved by shareholders of the Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2009, the Adviser waived advisory fees of $92,589.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $153,322 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 year ended December 31, 2009, 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 year ended December 31, 2009, 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, IAIS and/or IADI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
AIM V.I. Large Cap Growth Fund
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 67,704,388 | $ | 2,180,578 | $ | — | $ | 69,884,966 | ||||||||
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 adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2009, the Fund engaged in securities purchases of $227,457.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $2,915 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, 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, not to exceed the contractually agreed upon rate.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2009 and 2008:
2009 | 2008 | |||||||
Ordinary income | $ | 225,976 | $ | 10,393 | ||||
Tax Components of Net Assets at Period-End:
2009 | ||||
Undistributed ordinary income | $ | 293,980 | ||
Net unrealized appreciation — investments | 11,381,295 | |||
Net unrealized appreciation — other investments | 574 | |||
Temporary book/tax differences | (37,197 | ) | ||
Capital loss carryforward | (13,931,912 | ) | ||
Shares of beneficial interest | 70,824,852 | |||
Total net assets | $ | 68,531,592 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
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 $13,931,912 of capital loss carryforward in the fiscal year ending December 31, 2010.
AIM V.I. Large Cap Growth Fund
The Fund has a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2010 | $ | 3,544,700 | ||
December 31, 2013 | 10,283 | |||
December 31, 2014 | 1,757,332 | |||
December 31, 2016 | 3,185,835 | |||
December 31, 2017 | 5,433,762 | |||
Total capital loss carryforward | $ | 13,931,912 | ||
* | 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 year ended December 31, 2009 was $35,610,400 and $42,563,872, 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 | $ | 13,360,318 | ||
Aggregate unrealized (depreciation) of investment securities | (1,979,023 | ) | ||
Net unrealized appreciation of investment securities | $ | 11,381,295 | ||
Cost of investments for tax purposes is $58,503,671. |
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and expired capital loss carryforward, on December 31, 2009, undistributed net investment income was increased by $22,566, undistributed net realized gain (loss) was increased by $3,404,529 and shares of beneficial interest decreased by $3,427,095. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended December 31, | ||||||||||||||||
2009(a) | 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,174,128 | $ | 11,561,836 | 671,040 | $ | 8,675,551 | ||||||||||
Series II | 143 | 1,375 | 6,894 | 71,952 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 19,033 | 225,916 | 1,089 | 10,393 | ||||||||||||
Series II | 5 | 60 | — | — | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,077,325 | ) | (21,086,545 | ) | (2,408,114 | ) | (30,786,706 | ) | ||||||||
Series II | (16,099 | ) | (168,218 | ) | (13,392 | ) | (172,165 | ) | ||||||||
Net increase (decrease) in share activity | (900,115 | ) | $ | (9,465,576 | ) | (1,742,483 | ) | $ | (22,200,975 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 89% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, 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 and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco 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 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | (losses) on | Dividends | Distributions | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||||
value, | investment | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | (loss) | unrealized) | operations | income | gains | Distributions | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 9.78 | $ | 0.04 | (c) | $ | 2.50 | (d) | $ | 2.54 | $ | (0.04 | ) | $ | — | $ | (0.04 | ) | $ | 12.28 | 25.99 | %(d) | $ | 67,831 | 1.01 | %(e) | 1.15 | %(e) | 0.44 | %(e) | 57 | % | ||||||||||||||||||||||||
Year ended 12/31/08 | 15.85 | 0.03 | (c) | (6.10 | ) | (6.07 | ) | (0.00 | ) | — | (0.00 | ) | 9.78 | (38.29 | ) | 62,665 | 1.01 | 1.10 | 0.23 | 41 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.71 | 0.02 | 2.13 | 2.15 | (0.01 | ) | — | (0.01 | ) | 15.85 | 15.64 | 129,071 | 1.01 | 1.08 | 0.11 | 58 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 12.71 | 0.02 | 1.00 | 1.02 | (0.02 | ) | — | (0.02 | ) | 13.71 | 8.05 | 120,825 | 1.02 | 1.23 | 0.06 | 76 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 11.86 | (0.01 | )(c) | 0.88 | 0.87 | — | (0.02 | ) | (0.02 | ) | 12.71 | 7.30 | 4,352 | 1.13 | 7.30 | (0.06 | ) | 99 | ||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 9.70 | 0.02 | (c) | 2.47 | (d) | 2.49 | (0.00 | ) | — | (0.00 | ) | 12.19 | 25.68 | (d) | 700 | 1.26 | (e) | 1.40 | (e) | 0.19 | (e) | 57 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 15.75 | 0.00 | (c) | (6.05 | ) | (6.05 | ) | — | — | — | 9.70 | (38.41 | ) | 712 | 1.26 | 1.35 | (0.02 | ) | 41 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.66 | (0.04 | ) | 2.13 | 2.09 | — | — | — | 15.75 | 15.30 | 1,259 | 1.26 | 1.33 | (0.14 | ) | 58 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 12.67 | (0.01 | ) | 1.00 | 0.99 | — | — | — | 13.66 | 7.81 | 1,949 | 1.27 | 1.48 | (0.19 | ) | 76 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 11.84 | (0.03 | )(c) | 0.88 | 0.85 | — | (0.02 | ) | (0.02 | ) | 12.67 | 7.15 | 636 | 1.33 | 7.55 | (0.26 | ) | 99 | ||||||||||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Includes litigation proceeds received during the period. Had the litigation proceeds not been received, net gains (losses) on securities (both realized and unrealized) per share would have been $2.44 and $2.41 for Series I and Series II shares, respectively and total returns would have been lower. | |
(e) | Ratios are based on average daily net assets (000’s omitted) of $63,193 and $675 for Series I and Series II shares, respectively. |
AIM V.I. Large Cap Growth Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Large Cap Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. Large Cap Growth Fund (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for the each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 10, 2010
Houston, Texas
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 July 1, 2009 through December 31, 2009.
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 | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,204.50 | $ | 5.67 | $ | 1,020.06 | $ | 5.19 | 1.02 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,203.50 | 7.05 | 1,018.80 | 6.46 | 1.27 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. Large Cap Growth Fund
Tax Information |
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2009:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 100% |
* | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
AIM V.I. Large Cap Growth Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Trustee and/ | ||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||
Interested Persons | ||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | None | |||
Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | ||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC | None | |||
Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||
Independent Trustees | ||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||
Frank S. Bayley — 1939 Trustee | 2001 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | None | |||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans Scholars Foundation and Executive Committee, United States Golf Association | |||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) | Board of Nature’s Sunshine Products, Inc. | |||
Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | ||||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) | Administaff | |||
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | ||||||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired | None | |||
Lewis F. Pennock — 1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||
Larry Soll — 1942 Trustee | 2004 | Retired | None | |||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) | None |
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers — (continued)
Trustee and/ | ||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||
Other Officers | ||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC | N/A | |||
Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | ||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® | N/A | |||
Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | ||||||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | N/A | |||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) | N/A | |||
Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | ||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® | N/A | |||
Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. | N/A | |||
Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 100 | Invesco Advisers, Inc. | Invesco Aim Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 100 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Independent Trustees | Invesco Aim Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-2
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AIM V.I. Leisure Fund
Annual Report to Shareholders n December 31, 2009
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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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
The year was characterized by two dramatically different market environments. In early 2009, equity markets declined steeply as credit markets remained frozen and risk premiums rose dramatically in response to the global recession. However, as the impact from central banks’ coordinated easing efforts and companies’ aggressive cost cuts materialized, access to funding improved and market valuations in both the credit and equity markets recovered from their March lows.
The consumer discretionary sector benefited from a rotation into more cyclical stocks as investors anticipated an economic recovery. As a result, AIM V.I. Leisure Fund, excluding variable product issuer charges, outperformed the broad market, as measured by the S&P 500 Index, for the year ended December 31, 2009. The majority of the Fund’s outperformance relative to the S&P 500 Index resulted from security selection and overweight exposure to the media industry and the textile, apparel and luxury goods industry.
Your Fund’s long-term performance can be found later in this report.
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 32.78 | % | ||
Series II Shares | 32.47 | |||
S&P 500 Index▼ (Broad Market Index) | 26.47 |
▼ | Lipper Inc. |
We focus on companies that profit from consumer spending on leisure activities – products or services purchased with consumers’ discretionary dollars. The Fund emphasizes stocks of cable television, publishing, cruise line, advertising, hotel, casino, electronic game and toy manufacturing, restaurant, retailing and entertainment companies.
Stock selection is based on a research driven bottom-up investment approach focusing on company fundamentals and growth prospects. Quantitative screens are used to help identify attractive stock candidates within the universe of leisure-related companies. Portfolio candidates are further refined by fundamental analysis performed at the company level which includes an evaluation of industry
dynamics, competitive intensity and drivers of growth.
The investment process seeks to identify attractively valued leisure-related companies exhibiting the following characteristics:
n | Attractive revenue growth profile |
n | Strong free cash flow generation |
n | Returns on invested capital in excess of weighted-average cost of capital |
n | Operating in low capital intensity businesses |
n | Management teams that are good stewards of capital |
We construct the portfolio with the goal of holding from 40 to 75 individual stocks with an average investment horizon of 18 to 24 months. Portfolio weightings are adjusted based on current economic and industry conditions.
We may reduce or eliminate exposure to a stock when:
n | A company reaches its price target. |
n | A more compelling opportunity is identified. |
n | A change in fundamentals occurs – either company specific or industry wide. |
n | A stock’s technical profile indicated negative underlying information which is further determined to have violated a fundamental investment thesis. |
Though the first quarter of 2009 was marked by headlines claiming economic “Armageddon,” the U.S. economy began to show signs that the contraction was moderating. Economic data indicated that the rampant decline in business spending and consumption that occurred in 2008 and early 2009 had eased. Given signs that the economic downturn was moderating, equity and credit markets improved. In addition, financial markets benefited from various government programs introduced to improve bank balance sheets and reduce credit spreads.
A variety of emergency fiscal and monetary initiatives of governments and central banks appear to have succeeded in averting a global economic collapse. However, high unemployment levels and the long-term implications of the sovereign debt burden for Western economies continue to cause concern. Additionally, households still have high debt service ratios relative to historical levels.
Against this economic backdrop early-cycle sectors – information technology (IT), materials and consumer discretionary – were among the best performing sectors of the S&P 500 Index.1 Conversely defensive sectors – telecommunication services, utilities and
Portfolio Composition | ||||
By sector | ||||
Consumer Discretionary | 80.9 | % | ||
Consumer Staples | 11.1 | |||
Information Technology | 7.0 | |||
Money Market Funds | ||||
Plus Other Assets Less Liabilities | 1.0 |
Top 10 Equity Holdings* | ||||||
1. | Walt Disney Co. (The) | 7.0 | % | |||
2. | Omnicom Group Inc. | 4.1 | ||||
3. | Google Inc.-Class A | 4.0 | ||||
4. | Marriott International, Inc.-Class A | 3.0 | ||||
5. | Polo Ralph Lauren Corp. | 2.9 | ||||
6. | International Game Technology | 2.9 | ||||
7. | Scripps Networks Interactive, Inc.- | |||||
Class A | 2.8 | |||||
8. | Interpublic Group of Cos., Inc. (The) | 2.5 | ||||
9. | Coach, Inc. | 2.5 | ||||
10. | Time Warner Inc. | 2.4 |
Total Net Assets | $20.3 million | |||
Total Number of Holdings* | 52 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* | Excluding money market fund holdings. |
AIM V.I. Leisure Fund
energy — were among the weakest performing sectors.1
During the year, and on an absolute basis, top contributors to Fund performance were the media industry and the textiles, apparel and luxury goods industry. Holdings in the software and food and staples retailing industries detracted from Fund performance.
Relative to the S&P 500 Index, the Fund benefited from security selection and overweight exposure to the media industry and textile, apparel and luxury goods industry. Conversely, the Fund’s underweight exposure to the software, semiconductor and communication equipment industries — all in the IT sector — hurt Fund performance relative to the index.
Top contributors to Fund performance included Google, Anheuser-Busch Inbev, Disney, Hanesbrands and Nordstrom. Top detractors from Fund performance included News Corp., Hot Topic, Comcast, Burger King and Pernod-Ricard. We sold our positions in News Corp., Comcast, Burger King and Pernod-Ricard during 2009.
As a result of improving economic data during the year, we steadily increased the Fund’s consumer discretionary exposure while continuing to uphold our mandate of investing in companies that focus on leisure products and services. To fund our increased weight in consumer discretionary, we reduced our beverage exposure by selling Diageo and Pernod Ricard.
Although traditional media stocks experienced strong price performance following the market bottom of March, many of these companies are structurally challenged due to their ownership of newspapers, magazines and radio and broadcast television stations, which are losing market share to other forms of media. As a result, we took advantage of the strength in the stocks and reduced our exposure to traditional media stocks during the year in an effort to upgrade the quality of our media holdings as well as reduce our overweight position. Within movies and entertainment, we sold News Corp. Within cable and satellite, we sold positions in Liberty Entertainment and Cablevision Systems. And within advertising, we swapped WPP for Inter-public Group as we felt Interpublic Group has more attractive margin expansion opportunities.
We increased our casino and gaming exposure during the year by adding to existing holdings International Game Technology and Penn National Gaming while adding a new holding, WMS Industries. We believed slot machine manufacturers such as International Game Technology and WMS Industries may benefit from an upcoming replacement cycle of slot machines on casino floors.
While we believe discretionary spending may improve, its rate of growth may lag past economic recoveries as consumer leverage remains above the long term average and personal savings remains elevated as consumers reduce their debt. Thrifty consumers are likely to place greater emphasis on the quality of products, not the quantity of products. Consumers may shift from conspicuous consumption to conscious consumption. Finally, luxury purchases may begin to improve if the stock market rises, housing prices stabilize and consumer confidence recovers from the lows they experienced in early 2009.
As always, we thank you for your continued investment in AIM V.I. Leisure Fund.
1 | Lipper Inc. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
![(PHOTO OF JUAN HARTSFIELD)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943903.gif)
Juan Hartsfield
Chartered Financial Analyst, portfolio manager, is lead manager of AIM V.I. Leisure Fund. He began his investment career in 2000 and joined Invesco Aim in 2004. Mr. Hartsfield earned a B.S. in petroleum engineering from The University of Texas at Austin and an M.B.A. from the University of Michigan.
Chartered Financial Analyst, portfolio manager, is lead manager of AIM V.I. Leisure Fund. He began his investment career in 2000 and joined Invesco Aim in 2004. Mr. Hartsfield earned a B.S. in petroleum engineering from The University of Texas at Austin and an M.B.A. from the University of Michigan.
![(PHOTO OF JONATHAN MUELLER)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943904.gif)
Jonathan Mueller
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Leisure Fund. He joined Invesco Aim in 2001 and became a portfolio manager in 2009. Mr. Mueller earned a B.B.A. in accounting from Texas Christian University and an M.B.A. in finance from The University of Texas at Austin. He is a Certified Public Accountant.
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Leisure Fund. He joined Invesco Aim in 2001 and became a portfolio manager in 2009. Mr. Mueller earned a B.B.A. in accounting from Texas Christian University and an M.B.A. in finance from The University of Texas at Austin. He is a Certified Public Accountant.
Assisted by the Leisure Team
AIM V.I. Leisure Fund
Results of a $10,000 Investment — Oldest Share Class since Inception
Fund and index data from 4/30/02
Fund and index data from 4/30/02
![(PERFORMANCE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943905.gif)
1 | Lipper Inc. |
Past performance cannot guarantee comparable future results.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating
changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or
100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000.
Average Annual Total Returns | ||||
As of 12/31/09 | ||||
Series I Shares | ||||
Inception (4/30/02) | 1.81 | % | ||
5 Years | -1.58 | |||
1 Year | 32.78 | |||
Series II Shares | ||||
Inception | 1.58 | % | ||
5 Years | -1.82 | |||
1 Year | 32.47 |
Series II shares’ inception date is April 30, 2004. 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 the Series II shares. The inception date of Series I shares is April 30, 2002. The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
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 adviser 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 net 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 1.02% and 1.27%, respectively.1,2 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 1.45% and 1.70%, 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. Leisure 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 the 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 adviser.
Had the adviser not waived fees and/ or reimbursed expenses, performance would have been lower.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. | |
2 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2010. See current prospectus for more information. |
AIM V.I. Leisure Fund
n | Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, relative lack of information, relatively low market liquidity, and the potential lack of strict financial and accounting controls and standards.
The leisure sector depends on consumer discretionary spending, which generally falls during economic downturns.
Since 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.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
The prices of securities held by the Fund may decline in response to market 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 S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The S&P 500 Consumer Discretionary Index is an unmanaged index considered representative of the consumer discretionary market. On May 1, 2010, the Fund will adopt the S&P 500 Consumer Discretionary Index as its style-specific index because we believe it more closely reflects the performance of the type of securities in which the Fund invests.
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 the peer group reflects fund expenses; performance of a market index does not.
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
CPA® and Certified Public Accountant® are trademarks owned by the American Institute of Certified Public Accountants.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
AIM V.I. Leisure Fund
Schedule of Investments(a)
December 31, 2009
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.95% | ||||||||
Advertising–8.19% | ||||||||
Interpublic Group of Cos., Inc. (The)(b) | 70,276 | $ | 518,637 | |||||
Lamar Advertising Co.–Class A(b)(c) | 9,962 | 309,719 | ||||||
Omnicom Group Inc. | 21,381 | 837,066 | ||||||
1,665,422 | ||||||||
Apparel Retail–5.24% | ||||||||
Abercrombie & Fitch Co.–Class A(c) | 9,653 | 336,407 | ||||||
American Eagle Outfitters, Inc. | 21,139 | 358,940 | ||||||
Hot Topic, Inc.(b) | 29,291 | 186,291 | ||||||
TJX Cos., Inc. (The) | 5,018 | 183,408 | ||||||
1,065,046 | ||||||||
Apparel, Accessories & Luxury Goods–9.03% | ||||||||
Carter’s, Inc.(b) | 10,987 | 288,409 | ||||||
Coach, Inc. | 14,011 | 511,822 | ||||||
Hanesbrands, Inc.(b)(c) | 18,404 | 443,720 | ||||||
Polo Ralph Lauren Corp. | 7,325 | 593,179 | ||||||
1,837,130 | ||||||||
Brewers–4.15% | ||||||||
Anheuser-Busch InBev N.V. (Belgium) | 8,360 | 431,323 | ||||||
Heineken N.V. (Netherlands) | 8,723 | 412,763 | ||||||
844,086 | ||||||||
Broadcasting–3.03% | ||||||||
Discovery Communications, Inc.–Class A(b) | 6,729 | 206,378 | ||||||
Grupo Televisa S.A.–ADR (Mexico) | 19,718 | 409,346 | ||||||
615,724 | ||||||||
Cable & Satellite–2.85% | ||||||||
Scripps Networks Interactive,–Class A | 13,977 | 580,046 | ||||||
Casinos & Gaming–6.49% | ||||||||
International Game Technology | 30,944 | 580,819 | ||||||
Penn National Gaming, Inc.(b) | 11,508 | 312,787 | ||||||
WMS Industries Inc.(b) | 10,668 | 426,720 | ||||||
1,320,326 | ||||||||
Consumer Electronics–1.09% | ||||||||
Harman International Industries, Inc. | 6,291 | 221,946 | ||||||
Department Stores–4.87% | ||||||||
J.C. Penney Co., Inc. | 5,716 | 152,103 | ||||||
Kohl’s Corp.(b) | 7,332 | 395,414 | ||||||
Nordstrom, Inc. | 11,781 | 442,730 | ||||||
990,247 | ||||||||
Food Retail–1.92% | ||||||||
Woolworths Ltd. (Australia) | 15,604 | 390,856 | ||||||
Footwear–1.84% | ||||||||
NIKE, Inc.–Class B | 5,676 | 375,013 | ||||||
General Merchandise Stores–2.16% | ||||||||
Target Corp. | 9,064 | 438,426 | ||||||
Home Improvement Retail–4.25% | ||||||||
Home Depot, Inc. (The) | 15,005 | 434,095 | ||||||
Lowe’s Cos., Inc. | 18,445 | 431,428 | ||||||
865,523 | ||||||||
Hotels, Resorts & Cruise Lines–7.26% | ||||||||
Carnival Corp.(b)(d) | 6,173 | 195,622 | ||||||
Choice Hotels International, Inc. | 10,343 | 327,459 | ||||||
Hyatt Hotels Corp.–Class A(b) | 5,998 | 178,800 | ||||||
Marriott International, Inc.–Class A | 22,142 | 603,370 | ||||||
Regal Hotels International Holdings Ltd. (Hong Kong) | 413,800 | 171,514 | ||||||
1,476,765 | ||||||||
Hypermarkets & Super Centers–1.50% | ||||||||
Costco Wholesale Corp. | 5,164 | 305,554 | ||||||
Internet Retail–2.06% | ||||||||
Amazon.com, Inc.(b) | 3,114 | 418,895 | ||||||
Internet Software & Services–6.98% | ||||||||
Google Inc.–Class A(b) | 1,311 | 812,794 | ||||||
GSI Commerce, Inc.(b) | 8,291 | 210,508 | ||||||
Knot, Inc. (The)(b) | 21,558 | 217,089 | ||||||
OpenTable, Inc.(b)(c) | 7,080 | 180,257 | ||||||
1,420,648 | ||||||||
Movies & Entertainment–11.87% | ||||||||
Time Warner Inc. | 16,455 | 479,498 | ||||||
Viacom Inc.–Class A(b) | 7,180 | 226,170 | ||||||
Viacom Inc.–Class B(b) | 9,771 | 290,492 | ||||||
Walt Disney Co. (The) | 43,979 | 1,418,323 | ||||||
2,414,483 | ||||||||
Restaurants–8.02% | ||||||||
Brinker International, Inc. | 20,459 | 305,248 | ||||||
Darden Restaurants, Inc. | 11,602 | 406,882 | ||||||
Jack in the Box Inc.(b) | 13,721 | 269,892 | ||||||
McDonald’s Corp. | 5,278 | 329,559 | ||||||
Yum! Brands, Inc. | 9,168 | 320,605 | ||||||
1,632,186 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Leisure Fund
Shares | Value | |||||||
Soft Drinks–3.54% | ||||||||
Coca-Cola Co. (The) | 5,766 | $ | 328,662 | |||||
PepsiCo, Inc. | 6,425 | 390,640 | ||||||
719,302 | ||||||||
Specialty Stores–2.61% | ||||||||
PetSmart, Inc. | 8,034 | 214,428 | ||||||
Staples, Inc. | 12,843 | 315,809 | ||||||
530,237 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $17,245,019) | 20,127,861 | |||||||
Money Market Funds–1.34% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 136,720 | 136,720 | ||||||
Premier Portfolio–Institutional Class(e) | 136,720 | 136,720 | ||||||
Total Money Market Funds (Cost $273,440) | 273,440 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.29% (Cost $17,518,459) | 20,401,301 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–1.87% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $380,320)(e)(f) | 380,320 | 380,320 | ||||||
TOTAL INVESTMENTS–102.16% (Cost $17,898,779) | 20,781,621 | |||||||
OTHER ASSETS LESS LIABILITIES–(2.16)% | (439,963 | ) | ||||||
NET ASSETS–100.00% | $ | 20,341,658 | ||||||
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) | All or a portion of this security was out on loan at December 31, 2009. | |
(d) | Each unit represents one common share and one trust share. | |
(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. Leisure Fund
Statement of Assets and Liabilities
December 31, 2009
Assets: | ||||
Investments, at value (Cost $17,245,019)* | $ | 20,127,861 | ||
Investments in affiliated money market funds, at value and cost | 653,760 | |||
Total investments, at value (Cost $17,898,779) | 20,781,621 | |||
Foreign currencies, at value (Cost $4,512) | 4,497 | |||
Receivables for: | ||||
Fund shares sold | 53 | |||
Dividends | 31,780 | |||
Investment for trustee deferred compensation and retirement plans | 8,521 | |||
Total assets | 20,826,472 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 48,054 | |||
Collateral upon return of securities loaned | 380,320 | |||
Accrued fees to affiliates | 15,612 | |||
Accrued other operating expenses | 29,275 | |||
Trustee deferred compensation and retirement plans | 11,553 | |||
Total liabilities | 484,814 | |||
Net assets applicable to shares outstanding | $ | 20,341,658 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 23,227,676 | ||
Undistributed net investment income | 89,315 | |||
Undistributed net realized gain (loss) | (5,858,086 | ) | ||
Unrealized appreciation | 2,882,753 | |||
$ | 20,341,658 | |||
Net Assets: | ||||
Series I | $ | 20,332,847 | ||
Series II | $ | 8,811 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 3,104,494 | |||
Series II | 1,345 | |||
Series I: | ||||
Net asset value per share | $ | 6.55 | ||
Series II: | ||||
Net asset value per share | $ | 6.55 | ||
* | At December 31, 2009, securities with an aggregate value of $372,002 were on loan to brokers. |
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Dividends (net of foreign withholding taxes of $5,067) | $ | 299,737 | ||
Dividends from affiliated money market funds (includes securities lending income of $7,121) | 10,783 | |||
Total investment income | 310,520 | |||
Expenses: | ||||
Advisory fees | 136,688 | |||
Administrative services fees | 95,528 | |||
Custodian fees | 11,645 | |||
Distribution fees — Series II | 17 | |||
Transfer agent fees | 1,703 | |||
Trustees’ and officers’ fees and benefits | 20,154 | |||
Professional services fees | 40,168 | |||
Other | 11,194 | |||
Total expenses | 317,097 | |||
Less: Fees waived | (133,826 | ) | ||
Net expenses | 183,271 | |||
Net investment income | 127,249 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (3,612,347 | ) | ||
Foreign currencies | (19,431 | ) | ||
(3,631,778 | ) | |||
Change in net unrealized appreciation of: | ||||
Investment securities | 8,735,318 | |||
Foreign currencies | 6,018 | |||
8,741,336 | ||||
Net realized and unrealized gain | 5,109,558 | |||
Net increase in net assets resulting from operations | $ | 5,236,807 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Leisure Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 127,249 | $ | 349,505 | ||||
Net realized gain (loss) | (3,631,778 | ) | (1,784,774 | ) | ||||
Change in net unrealized appreciation (depreciation) | 8,741,336 | (14,045,503 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 5,236,807 | (15,480,772 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (347,842 | ) | (301,961 | ) | ||||
Series II | (128 | ) | (66 | ) | ||||
Total distributions from net investment income | (347,970 | ) | (302,027 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | — | (4,987,772 | ) | |||||
Series II | — | (1,573 | ) | |||||
Total distributions from net realized gains | — | (4,989,345 | ) | |||||
Share transactions-net: | ||||||||
Series I | (2,556,830 | ) | (3,824,172 | ) | ||||
Series II | 1,158 | 2,197 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (2,555,672 | ) | (3,821,975 | ) | ||||
Net increase (decrease) in net assets | 2,333,165 | (24,594,119 | ) | |||||
Net assets: | ||||||||
Beginning of year | 18,008,493 | 42,602,612 | ||||||
End of year (includes undistributed net investment income of $89,315 and $329,467, respectively) | $ | 20,341,658 | $ | 18,008,493 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. Leisure Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is capital growth.
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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on 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 ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
AIM V.I. Leisure Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, 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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
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 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 adviser. | ||
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 adviser 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. |
AIM V.I. Leisure Fund
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. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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, including the Fund’s servicing agreements, 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. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could 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, if any. | |
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 — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts 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. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
AIM V.I. Leisure Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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 Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time.
Further, the Adviser has contractually agreed, through at least June 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended December 31, 2009, the Adviser waived advisory fees of $133,826.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $45,528 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 year ended December 31, 2009, 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 year ended December 31, 2009, 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, IAIS and/or IADI.
AIM V.I. Leisure Fund
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 19,375,166 | $ | 1,406,455 | $ | — | $ | 20,781,621 | ||||||||
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 adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2009, the Fund engaged in securities purchases of $1,860.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $2,804 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, 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, not to exceed the contractually agreed upon rate.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2009 and 2008:
2009 | 2008 | |||||||
Ordinary income | $ | 347,970 | $ | 770,666 | ||||
Long-term capital gain | — | 4,520,706 | ||||||
Total distributions | $ | 347,970 | $ | 5,291,372 | ||||
AIM V.I. Leisure Fund
Tax Components of Net Assets at Period-End:
2009 | ||||
Undistributed ordinary income | $ | 103,408 | ||
Net unrealized appreciation — investments | 2,851,773 | |||
Net unrealized appreciation (depreciation) — other investments | (88 | ) | ||
Temporary book/tax differences | (12,204 | ) | ||
Capital loss carryforward | (5,827,017 | ) | ||
Post-October deferrals | (1,890 | ) | ||
Shares of beneficial interest | 23,227,676 | |||
Total net assets | $ | 20,341,658 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 850,432 | ||
December 31, 2017 | 4,976,585 | |||
Total capital loss carryforward | $ | 5,827,017 | ||
* | 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 year ended December 31, 2009 was $10,660,339 and $12,356,777, 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 | $ | 3,907,210 | ||
Aggregate unrealized (depreciation) of investment securities | (1,055,437 | ) | ||
Net unrealized appreciation of investment securities | $ | 2,851,773 | ||
Cost of investments for tax purposes is $17,929,848. |
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions, on December 31, 2009, undistributed net investment income (loss) was decreased by $19,431; undistributed net realized gain (loss) was increased by $19,431. This reclassification had no effect on the net assets of the Fund.
AIM V.I. Leisure Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years Ended December 31, | ||||||||||||||||
2009(a) | 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 15,116 | $ | 86,339 | 32,750 | $ | 235,861 | ||||||||||
Series II | 195 | 1,057 | 60 | 571 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 54,350 | 347,842 | 1,102,028 | 5,289,732 | ||||||||||||
Series II | 20 | 128 | 341 | 1,639 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (553,001 | ) | (2,991,011 | ) | (909,436 | ) | (9,349,765 | ) | ||||||||
Series II | (5 | ) | (27 | ) | (2 | ) | (13 | ) | ||||||||
Net increase (decrease) in share activity | (483,325 | ) | $ | (2,555,672 | ) | 225,741 | $ | (3,821,975 | ) | |||||||
(a) | There is an entity that is a record owner of more than 5% of the outstanding shares of the Fund that owns 99% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, 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 and/or Invesco affiliates may make payments to this entity, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco 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. |
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income | unrealized) | operations | income | gains | Distributions | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 5.02 | $ | 0.04 | (c) | $ | 1.60 | $ | 1.64 | $ | (0.11 | ) | $ | — | $ | (0.11 | ) | $ | 6.55 | 32.78 | % | $ | 20,333 | 1.01 | %(d) | 1.74 | %(d) | 0.69 | %(d) | 61 | % | |||||||||||||||||||||||||
Year ended 12/31/08 | 12.67 | 0.12 | (c) | (5.67 | ) | (5.55 | ) | (0.12 | ) | (1.98 | ) | (2.10 | ) | 5.02 | (43.04 | ) | 18,003 | 1.01 | 1.44 | 1.15 | 7 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.82 | 0.09 | (0.15 | ) | (0.06 | ) | (0.24 | ) | (0.85 | ) | (1.09 | ) | 12.67 | (0.79 | ) | 42,593 | 1.01 | 1.28 | 0.50 | 15 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 11.86 | 0.07 | 2.83 | 2.90 | (0.16 | ) | (0.78 | ) | (0.94 | ) | 13.82 | 24.61 | 52,820 | 1.01 | 1.26 | 0.54 | 14 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 12.38 | 0.04 | (0.19 | ) | (0.15 | ) | (0.14 | ) | (0.23 | ) | (0.37 | ) | 11.86 | (1.19 | ) | 54,192 | 1.16 | 1.31 | 0.34 | 32 | ||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 5.02 | 0.02 | (c) | 1.61 | 1.63 | (0.10 | ) | — | (0.10 | ) | 6.55 | 32.47 | 9 | 1.26 | (d) | 1.99 | (d) | 0.44 | (d) | 61 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 12.63 | 0.09 | (c) | (5.64 | ) | (5.55 | ) | (0.08 | ) | (1.98 | ) | (2.06 | ) | 5.02 | (43.17 | ) | 6 | 1.26 | 1.69 | 0.90 | 7 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.78 | 0.05 | (0.15 | ) | (0.10 | ) | (0.20 | ) | (0.85 | ) | (1.05 | ) | 12.63 | (1.13 | ) | 9 | 1.26 | 1.53 | 0.25 | 15 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 11.84 | 0.04 | 2.82 | 2.86 | (0.14 | ) | (0.78 | ) | (0.92 | ) | 13.78 | 24.28 | 14 | 1.26 | 1.51 | 0.29 | 14 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 12.37 | 0.02 | (0.19 | ) | (0.17 | ) | (0.13 | ) | (0.23 | ) | (0.36 | ) | 11.84 | (1.37 | ) | 11 | 1.36 | 1.56 | 0.14 | 32 | ||||||||||||||||||||||||||||||||||||
(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 on year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns, if applicable. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $18,218 and $7 for Series I and Series II shares, respectively. |
AIM V.I. Leisure Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Leisure Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. Leisure Fund (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 10, 2010
Houston, Texas
AIM V.I. Leisure 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 July 1, 2009, through December 31, 2009.
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 | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,236.70 | $ | 5.69 | $ | 1,020.11 | $ | 5.14 | 1.01 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,236.10 | 7.10 | 1,018.85 | 6.41 | 1.26 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. Leisure Fund
Tax Information |
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2009:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 69.43% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
AIM V.I. Leisure Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Other Directorship(s) | |||||||
Position(s) Held with the Trust | or Officer | During Past 5 Years | Held by Trustee | |||||||
Since | ||||||||||
Interested Persons | ||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | None | |||||||
Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | ||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co- Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC | None | |||||||
Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||
Independent Trustees | ||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||||||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||||||
Frank S. Bayley — 1939 Trustee | 2001 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | None | |||||||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans | |||||||
Scholars Foundation and Executive Committee, United States Golf Association | ||||||||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) | Board of Nature’s Sunshine Products, Inc. | |||||||
Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | ||||||||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) | Administaff | |||||||
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | ||||||||||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired | None | |||||||
Lewis F. Pennock — 1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||||||
Larry Soll — 1942 Trustee | 2004 | Retired | None | |||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) | None | |||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers – (continued)
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Other Directorship(s) | |||||||
Position(s) Held with the Trust | or Officer | During Past 5 Years | Held by Trustee | |||||||
Since | ||||||||||
Other Officers | ||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC | N/A | |||||||
Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | N/A | |||||||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® | N/A | |||||||
Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | |||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® | N/A | |||||||
Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. | N/A | |||||||
Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | ||||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 100 | Invesco Advisers, Inc. | Invesco Aim Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 100 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Independent Trustees | Invesco Aim Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-2
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AIM V.I. Mid Cap Core Equity Fund
Annual Report to Shareholders n December 31, 2009
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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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
For the 12 months ended December 31, 2009, AIM V.I. Mid Cap Core Equity Fund’s returns, excluding variable product issuer charges, compared favorably to the broad market as measured by the S&P 500 Index, but lagged the Russell Midcap Index, the Fund’s style-specific benchmark.
The Fund’s relative results were primarily due to its large allocation to cash, which muted returns in a rising market, and an underweight position in the consumer discretionary sector. While stock selection in the information technology (IT) sector detracted from results relative to the benchmark, IT was the largest contributor to the Fund’s absolute returns. The energy and health care sectors also contributed to the Fund’s absolute returns, while the telecommunication services sector was the largest detractor.
Your Fund’s long-term performance appears later in this report.
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 30.21 | % | ||
Series II Shares | 29.85 | |||
S&P 500 Index▼ (Broad Market Index) | 26.47 | |||
Russell Midcap Index▼ (Style-Specific Index) | 40.48 | |||
Lipper VUF Mid-Cap Core Funds Index▼ (Peer Group Index) | 33.03 |
▼ | Lipper Inc. |
We seek to manage your Fund as what we term a “conservative cornerstone” – a stable foundational component within a well-diversified portfolio of assets that provides attractive upside participation during buoyant equity markets and downside protection during weak equity markets. As part of a well-diversified asset allocation strategy, the Fund is intended to complement more aggressive or cyclical investment strategies.
We conduct thorough fundamental research of companies and their businesses to gain a deeper understanding of their prospects, growth potential and return on invested capital characteristics. The process we use to identify potential investments for the Fund includes three phases: financial analysis, business analysis and valuation analysis.
Financial analysis provides insights into historical returns on invested capital, a key indicator of business quality, and historical capital allocation, a key indicator of management quality. Business analysis, which evaluates the competitive landscape and any structural or cyclical business opportunities or threats, allows us to identify key revenue, profit and return drivers of the company. Both the financial and business analyses serve as a basis to construct valuation models that help us appraise a company’s fair value. In our valuation analysis, we use three primary techniques, including discounted cash flow, traditional valuation multiples and net asset value.
We consider selling a stock when it exceeds our target price, we have not seen a demonstrable improvement in fundamentals or a more compelling investment opportunity exists.
The year covered by this report was characterized by two dramatically different market environments. In early 2009, equity markets declined steeply as credit markets froze and risk premiums rose dramatically in response to the global recession. As central banks coordinated easing efforts and companies cut costs aggressively, access to liquidity improved and market valuations in both the credit and equity markets recovered from the March 2009 lows.
Major equity indexes generated positive returns for the year, with economically sensitive sectors such as IT, consumer discretionary and materials delivering the highest returns, while the traditionally defensive telecommunication services, consumer staples and utilities sectors had some of the lowest returns.1
The largest contributor to the Fund’s results was Newfield Exploration, an oil and gas exploration and production fi rm. Newfield faced headwinds from depressed commodity prices. However, this was partially offset by the company’s successful oil hedges, high-returning oil fields, increased operating efficiencies and lower drilling costs. We believe the firm has an attractive, globally diversified drilling base that should position it well for a commodities recovery. While we believe energy is on the path to recovery as inventories stabilize, the demand picture is still somewhat uncertain. As such, our energy exposure was biased towards natural gas production and related services companies.
Another large contributor to the Fund’s results was industrial conglomerate Tyco International, which operates in a variety of dissimilar industries such as security solutions, fire protection and fluid valves. The market downturn provided us an opportunity to build a larger position in the stock as it traded lower. As conditions improved later in the year, the company
Portfolio Composition | ||||
By sector | ||||
Health Care | 19.7 | % | ||
Information Technology | 15.8 | |||
Industrials | 13.7 | |||
Energy | 8.9 | |||
Consumer Staples | 8.5 | |||
Financials | 8.4 | |||
Consumer Discretionary | 6.0 | |||
Materials | 4.2 | |||
Telecommunication Services | 1.0 | |||
Utilities | 0.8 | |||
Money Market Funds Plus | ||||
Other Assets Less Liabilities | 13.0 |
Top 10 Equity Holdings* | ||||||
1. | Symantec Corp. | 2.3 | % | |||
2. | People’s United Financial Inc. | 2.2 | ||||
3. | Henkel AG & Co. KGaA-Pfd. | 2.0 | ||||
4. | Safeway Inc. | 1.9 | ||||
5. | Zimmer Holdings, Inc. | 1.8 | ||||
6. | Sigma-Aldrich Corp. | 1.8 | ||||
7. | Precision Castparts Corp. | 1.7 | ||||
8. | Newfield Exploration Co. | 1.6 | ||||
9. | Progressive Corp. (The) | 1.6 | ||||
10. | Amdocs Ltd. | 1.6 |
Total Net Assets | $488.4 million | |||
Total Number of Holdings* | 84 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* | Excluding money market fund holdings. |
AIM V.I. Mid Cap Core Equity Fund
reported good operating results due to improving margins and solid retention rates, and the stock performed well amid improving economic sentiment.
Network storage company NetApp was another top contributor to results. We believe the company is well positioned as demand for data storage is growing rapidly throughout the world and at a faster rate than IT spending overall. The stock performed well during the year as the company continued to gain market share while maintaining better-than-expected margins during the downturn. As economic conditions improved and IT spending recovered later in the year, the company’s revenues recovered strongly and margins snapped back.
The largest detractor from Fund performance was Alliance Data Systems. The company offers private label (non-bank) credit card and customer loyalty services to clients such as specialty retailers. With higher unemployment rates, credit card delinquencies have increased, and the company has been hurt by a high rate of charge-offs from bad debts. We eliminated this holding from the Fund in the early part of the year.
Another detractor was Rockwell Automation, which produces industrial process-control equipment to make factories more efficient. The stock sold off sharply in early 2009 as investors fled cyclical industries in the face of mounting economic woes. While the company’s balance sheet and cash flows remained solid, the cyclical decline in demand caused revenues to shrink. We eliminated this holding from the Fund during the year.
While the Fund was largely underexposed to financials during the credit crisis, we took the opportunity to invest in what we viewed as higher quality banks. However, Fund holding BB&T negatively affected the Fund’s results. Generally, we believed BB&T was a well-capitalized survivor of the credit crisis, as evidenced by the fact that it passed the federal “stress test” and repaid funds advanced under the government’s Troubled Asset Relief Program. While BB&T’s credit losses rose in 2009 (and will likely continue to rise), we attributed the stock’s poor performance more to the industry-wide downdraft than to company-specific factors. Nonetheless, we eliminated our position in BB&T as we perceived better relative opportunities elsewhere in the sector.
Our cash weighting fluctuated during the year as we took advantage of market turmoil to invest in high quality companies that we believed had been unduly punished. As many of these companies
rallied sharply in the second half of 2009, we used the opportunity to take profits. Thus, the Fund’s cash weighting was up to approximately 13% of total assets at the end of the year. Our cash holdings benefited the Fund during the market downturn, and hindered returns during the rally.
Maintaining a conservative approach is an enduring part of our investment strategy. In the face of significant market volatility, we sought judicious long-term investments in high quality businesses that are not heavily dependent on external sources of financing. At the end of the year, our largest sector weightings were in IT and health care. Our allocation to the consumer discretionary sector remained low, as we believed it will be difficult for many of these companies to recover to pre-crisis earnings levels in the near-term.
We have recently endured one of the most challenging economic periods in recent history, and while the apparent end to the recession is encouraging, we believe that a long and perhaps uneven recovery lies ahead. Indeed, much of the recent economic improvement has been due to a reduced rate of deterioration, and a number of questions remain concerning employment, consumer spending, housing and the eventual removal of fiscal and monetary stimulus. For this reason, we believe that equity markets will remain trendless and volatility is likely to continue for the foreseeable future.
Regardless of market conditions, our goal remains the same: to serve as a conservative cornerstone for investors’ portfolios, seeking to provide upside participation with downside protection, so that over a full market cycle the Fund may deliver favorable investment results with reduced risk.
1 | Lipper Inc. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
![(PHOTO OF RONALD SLOAN)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6944002.gif)
Ronald Sloan
Chartered Financial Analyst, senior portfolio manager, is lead manager of AIM V.I. Mid Cap Core Equity Fund. Mr. Sloan has worked in the investment industry since 1971 and joined Invesco Aim in 1998. Mr. Sloan attended the University of Missouri, where he earned both a B.S. in business administration and an M.B.A.
Chartered Financial Analyst, senior portfolio manager, is lead manager of AIM V.I. Mid Cap Core Equity Fund. Mr. Sloan has worked in the investment industry since 1971 and joined Invesco Aim in 1998. Mr. Sloan attended the University of Missouri, where he earned both a B.S. in business administration and an M.B.A.
![(PHOTO OF DOUGLAS ASIELLO)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6944003.gif)
Douglas Asiello
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Mid Cap Core Equity Fund. He joined Invesco Aim in 2001. Mr. Asiello graduated summa cum laude with Phil Beta Kappa honors from Vanderbilt University, where he earned a B.A. in international relations and Spanish. He earned an M.B.A. with a concentration in finance from the Wharton School at the University of Pennsylvania. He also earned an M.A. in international management from the Joseph H. Lauder Institute of Management and International Studies.
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Mid Cap Core Equity Fund. He joined Invesco Aim in 2001. Mr. Asiello graduated summa cum laude with Phil Beta Kappa honors from Vanderbilt University, where he earned a B.A. in international relations and Spanish. He earned an M.B.A. with a concentration in finance from the Wharton School at the University of Pennsylvania. He also earned an M.A. in international management from the Joseph H. Lauder Institute of Management and International Studies.
![(PHOTO OF BRIAN NELSON)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6944004.gif)
Brian Nelson
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Mid Cap Core Equity Fund. He began his investment career in 1988 and joined Invesco Aim in 2004. He earned a B.A. from the University of California-Santa Barbara and is a member of the CFA Society of San Francisco.
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Mid Cap Core Equity Fund. He began his investment career in 1988 and joined Invesco Aim in 2004. He earned a B.A. from the University of California-Santa Barbara and is a member of the CFA Society of San Francisco.
Assisted by the Mid/Large Cap Core Team
AIM V.I. Mid Cap Core Equity Fund
Results of a $10,000 Investment - Oldest Share Classes since Inception
Index data from 8/31/01, Fund data from 9/10/01
Index data from 8/31/01, Fund data from 9/10/01
![(PERFORMANCE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6944005.gif)
1 | Lipper Inc. |
Past performance cannot guarantee comparable future results.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating
changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or
100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on.
Average Annual Total Returns | ||||
As of 12/31/09 | ||||
Series I Shares | ||||
Inception (9/10/01) | 6.51 | % | ||
5 Years | 4.07 | |||
1 Year | 30.21 | |||
Series II Shares | ||||
Inception (9/10/01) | 6.25 | % | ||
5 Years | 3.80 | |||
1 Year | 29.85 |
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 adviser 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 net 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 1.04% and 1.29%, respectively.1 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 1.07% and 1.32%, 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. Mid Cap Core Equity 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 the 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 adviser.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2010. See current prospectus for more information. |
AIM V.I. Mid Cap Core Equity Fund
n | Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
To the extent the Fund holds cash or cash equivalents rather than equity securities for risk management purposes, the Fund may not achieve its investment objective.
The values of convertible securities in which the Fund invests may be affected by market interest rates, the risk that the issuer may default on interest or principal payments, and the value of the underlying common stock into which these securities may be converted.
Credit risk is the risk of loss on an investment due to the deterioration of an issuer’s financial health. Such a deterioration of financial health may result in a reduction of the credit rating of the issuer’s securities and may lead to the issuer’s inability to honor its contractual obligations, including making timely payment of interest and principal.
The Fund may use enhanced investment techniques such as derivatives. The principal risk of derivatives is that the fluctuations in their values may not correlate perfectly with the overall securities markets. Derivatives are subject to counterparty risk — the risk that the other party will not complete the transaction with the Fund.
Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, relative lack of information, relatively low market liquidity, and the potential lack of strict financial and accounting controls and standards.
Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa.
Leveraging entails risks such as magnifying changes in the value of the portfolio’s securities.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
Stocks fall into three broad market capitalization categories – large, medium and small. Investing primarily in one category carries the risk that, due to current market conditions, that category may be out of favor with investors. Small and mid-sized companies may tend to be more vulnerable to adverse developments and more volatile than larger companies. Investments in small and mid-sized companies may involve special risks, including those associated with dependence on a small management group, little of no operating history, little or no track record of success, and limited product lines, market and financial resources. Also, there may be less publicly available information about the issuers of the securities or less market interest in such securities than in the case of larger companies, each of which can cause significant price volatility. The securities of small and mid-sized companies may be illiquid, restricted as to resale, or may trade less frequently and in smaller volume than more widely held securities, which may make it difficult for fund to establish or close out a position in these securities at prevailing market prices.
The prices of securities held by the Fund may decline in response to market risks.
The Fund 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 U.S. government. The U.S. government may choose not to provide financial support to U.S.-government-sponsored agencies or instrumentalities if it is not legally obligated to do so. In this case, if the issuer defaulted, the fund holding securities of such an issuer might not be able to recover its investment from the U.S. government.
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Russell Midcap® Index is an unmanaged index considered representative of mid-cap stocks. The Russell Midcap Index is a trademark/service mark
of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Mid-Cap Core Funds Index is an unmanaged index considered representative of mid-cap core variable insurance underlying funds tracked by Lipper.
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 the peer group reflects fund expenses; performance of a market index does not.
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
AIM V.I. Mid Cap Core Equity Fund
Schedule of Investments(a)
December 31, 2009
Shares | Value | |||||||
Common Stocks & Other Equity Interests–85.00% | ||||||||
Aerospace & Defense–3.52% | ||||||||
Goodrich Corp. | 81,443 | $ | 5,232,713 | |||||
ITT Corp. | 78,119 | 3,885,639 | ||||||
Precision Castparts Corp. | 73,258 | 8,084,020 | ||||||
17,202,372 | ||||||||
Apparel, Accessories & Luxury Goods–1.13% | ||||||||
Carter’s, Inc.(b) | 210,181 | 5,517,251 | ||||||
Asset Management & Custody Banks–1.28% | ||||||||
Legg Mason, Inc. | 207,225 | 6,249,906 | ||||||
Auto Parts & Equipment–1.25% | ||||||||
WABCO Holdings Inc. | 236,406 | 6,096,911 | ||||||
Biotechnology–0.64% | ||||||||
Biogen Idec Inc.(b) | 30,845 | 1,650,208 | ||||||
Genzyme Corp.(b) | 30,621 | 1,500,735 | ||||||
3,150,943 | ||||||||
Communications Equipment–3.22% | ||||||||
Juniper Networks, Inc.(b) | 148,209 | 3,952,734 | ||||||
Motorola, Inc.(b) | 743,563 | 5,770,049 | ||||||
Polycom, Inc.(b) | 240,128 | 5,995,996 | ||||||
15,718,779 | ||||||||
Computer Storage & Peripherals–1.25% | ||||||||
NetApp, Inc.(b) | 176,976 | 6,086,205 | ||||||
Data Processing & Outsourced Services–0.67% | ||||||||
Western Union Co. (The) | 172,748 | 3,256,300 | ||||||
Distributors–0.90% | ||||||||
Genuine Parts Co. | 115,388 | 4,380,128 | ||||||
Education Services–0.38% | ||||||||
Apollo Group, Inc.–Class A(b) | 30,573 | 1,852,112 | ||||||
Electrical Components & Equipment–0.89% | ||||||||
Thomas & Betts Corp.(b) | 121,966 | 4,365,163 | ||||||
Electronic Equipment & Instruments–1.50% | ||||||||
Agilent Technologies, Inc.(b) | 235,241 | 7,308,938 | ||||||
Electronic Manufacturing Services–0.89% | ||||||||
Molex Inc. | 201,133 | 4,334,416 | ||||||
Environmental & Facilities Services–1.56% | ||||||||
Republic Services, Inc. | 269,435 | 7,627,705 | ||||||
Shares | ||||||||
Food Retail–2.23% | ||||||||
Kroger Co. (The) | 70,000 | 1,437,100 | ||||||
Safeway Inc. | 443,499 | 9,442,094 | ||||||
10,879,194 | ||||||||
Gas Utilities–0.83% | ||||||||
UGI Corp. | 166,994 | 4,039,585 | ||||||
Health Care Equipment–7.31% | ||||||||
Boston Scientific Corp.(b) | 814,189 | 7,327,701 | ||||||
Hospira, Inc.(b) | 132,493 | 6,757,143 | ||||||
St. Jude Medical, Inc.(b) | 28,088 | 1,033,077 | ||||||
Teleflex Inc. | 72,574 | 3,911,013 | ||||||
Varian Medical Systems, Inc.(b) | 163,193 | 7,645,592 | ||||||
Zimmer Holdings, Inc.(b) | 152,856 | 9,035,318 | ||||||
35,709,844 | ||||||||
Health Care Facilities–0.82% | ||||||||
Rhoen-Klinikum AG (Germany)(c) | 163,261 | 3,987,732 | ||||||
Health Care Services–2.45% | ||||||||
DaVita, Inc.(b) | 70,515 | 4,142,051 | ||||||
Laboratory Corp. of America Holdings(b) | 43,870 | 3,283,231 | ||||||
Quest Diagnostics Inc. | 74,881 | 4,521,315 | ||||||
11,946,597 | ||||||||
Health Care Supplies–1.58% | ||||||||
Cooper Cos., Inc. (The) | 184,761 | 7,043,089 | ||||||
Immucor, Inc.(b) | 33,460 | 677,231 | ||||||
7,720,320 | ||||||||
Household Products–0.92% | ||||||||
Energizer Holdings, Inc.(b) | 73,499 | 4,504,019 | ||||||
Industrial Conglomerates–1.25% | ||||||||
Tyco International Ltd. | 170,653 | 6,088,899 | ||||||
Industrial Gases–0.98% | ||||||||
Air Products & Common Chemicals, Inc. | 59,038 | 4,785,620 | ||||||
Industrial Machinery–4.63% | ||||||||
Actuant Corp.–Class A | 42,474 | 787,043 | ||||||
Atlas Copco A.B.–Class A (Sweden) | 410,693 | 5,997,179 | ||||||
Danaher Corp. | 73,294 | 5,511,709 | ||||||
Pall Corp. | 147,546 | 5,341,165 | ||||||
Parker Hannifin Corp. | 92,746 | 4,997,154 | ||||||
22,634,250 | ||||||||
Insurance Brokers–0.60% | ||||||||
Marsh & McLennan Cos., Inc. | 133,167 | 2,940,327 | ||||||
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 | |||||||
IT Consulting & Other Services–1.59% | ||||||||
Amdocs Ltd.(b) | 272,428 | $ | 7,772,371 | |||||
Leisure Products–1.09% | ||||||||
Hasbro, Inc. | 165,561 | 5,307,886 | ||||||
Life Sciences Tools & Services–4.75% | ||||||||
Pharmaceutical Product Development, Inc. | 268,083 | 6,283,866 | ||||||
Techne Corp. | 56,997 | 3,907,714 | ||||||
Thermo Fisher Scientific, Inc.(b) | 157,100 | 7,492,099 | ||||||
Waters Corp.(b) | 89,342 | 5,535,630 | ||||||
23,219,309 | ||||||||
Managed Health Care–0.20% | ||||||||
Health Net Inc.(b) | 42,831 | 997,534 | ||||||
Multi-Sector Holdings–0.23% | ||||||||
PICO Holdings, Inc.(b) | 34,688 | 1,135,338 | ||||||
Office Electronics–1.18% | ||||||||
Xerox Corp. | 682,359 | 5,772,757 | ||||||
Office Services & Supplies–0.94% | ||||||||
Pitney Bowes Inc. | 202,456 | 4,607,899 | ||||||
Oil & Gas Drilling–0.76% | ||||||||
Helmerich & Payne, Inc. | 92,949 | 3,706,806 | ||||||
Oil & Gas Equipment & Services–2.62% | ||||||||
BJ Services Co. | 357,177 | 6,643,492 | ||||||
Dresser-Rand Group, Inc.(b) | 99,956 | 3,159,609 | ||||||
Smith International, Inc. | 109,698 | 2,980,495 | ||||||
12,783,596 | ||||||||
Oil & Gas Exploration & Production–3.84% | ||||||||
Chesapeake Energy Corp. | 84,639 | 2,190,457 | ||||||
Newfield Exploration Co.(b) | 162,715 | 7,847,744 | ||||||
Penn West Energy Trust (Canada) | 136,396 | 2,400,570 | ||||||
Pioneer Natural Resources Co. | 58,254 | 2,806,095 | ||||||
Southwestern Energy Co.(b) | 72,398 | 3,489,584 | ||||||
18,734,450 | ||||||||
Oil & Gas Refining & Marketing–0.30% | ||||||||
Valero Energy Corp. | 88,538 | 1,483,012 | ||||||
Oil & Gas Storage & Transportation–1.38% | ||||||||
Williams Cos., Inc. (The) | 319,431 | 6,733,605 | ||||||
Packaged Foods & Meats–2.61% | ||||||||
Cadbury PLC (United Kingdom) | 540,497 | 6,958,129 | ||||||
Del Monte Foods Co. | 139,346 | 1,580,184 | ||||||
Sara Lee Corp. | 344,478 | 4,195,742 | ||||||
12,734,055 | ||||||||
Personal Products–0.79% | ||||||||
Avon Products, Inc. | 121,905 | 3,840,007 | ||||||
Pharmaceuticals–1.89% | ||||||||
Allergan, Inc./United States | 111,282 | 7,011,879 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 39,434 | 2,215,402 | ||||||
9,227,281 | ||||||||
Property & Casualty Insurance–2.49% | ||||||||
Axis Capital Holdings Ltd. | 151,259 | 4,297,268 | ||||||
Progressive Corp. (The)(b) | 435,975 | 7,843,190 | ||||||
12,140,458 | ||||||||
Research & Consulting Services–0.84% | ||||||||
Dun & Bradstreet Corp. | 48,956 | 4,130,418 | ||||||
Semiconductors–3.22% | ||||||||
Linear Technology Corp. | 243,823 | 7,446,355 | ||||||
Microchip Technology Inc. | 93,673 | 2,722,137 | ||||||
Xilinx, Inc. | 222,418 | 5,573,795 | ||||||
15,742,287 | ||||||||
Specialized Consumer Services–1.25% | ||||||||
H&R Block, Inc. | 270,757 | 6,124,523 | ||||||
Specialized Finance–1.57% | ||||||||
Moody’s Corp. | 285,896 | 7,662,013 | ||||||
Specialty Chemicals–3.26% | ||||||||
International Flavors & Fragrances Inc. | 177,991 | 7,322,550 | ||||||
Sigma-Aldrich Corp. | 170,003 | 8,590,251 | ||||||
15,912,801 | ||||||||
Systems Software–2.29% | ||||||||
Symantec Corp.(b) | 625,568 | 11,191,412 | ||||||
Thrifts & Mortgage Finance–2.21% | ||||||||
People’s United Financial Inc. | 647,586 | 10,814,686 | ||||||
Wireless Telecommunication Services–1.02% | ||||||||
MetroPCS Communications, Inc.(b) | 651,361 | 4,969,884 | ||||||
Total Common Stocks & Other Equity Interests (Cost $343,588,542) | 415,127,904 | |||||||
Preferred Stocks–2.00% | ||||||||
Household Products–2.00% | ||||||||
Henkel AG & Co. KGaA(Germany)–Pfd. (Cost $7,284,866) | 187,454 | 9,746,042 | ||||||
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 | |||||||
Money Market Funds–12.29% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 30,023,665 | $ | 30,023,665 | |||||
Premier Portfolio–Institutional Class(d) | 30,023,665 | 30,023,665 | ||||||
Total Money Market Funds (Cost $60,047,330) | 60,047,330 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–99.29% (Cost $410,920,738) | 484,921,276 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–0.01% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $42,106)(d)(e) | 42,106 | 42,106 | ||||||
TOTAL INVESTMENTS–99.30% (Cost $410,962,844) | 484,963,382 | |||||||
OTHER ASSETS LESS LIABILITIES–0.70% | 3,398,387 | |||||||
NET ASSETS–100.00% | $ | 488,361,769 | ||||||
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) | Non-income producing security. | |
(c) | All or a portion of this security was out on loan at December 31, 2009. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(e) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1I. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Mid Cap Core Equity Fund
Statement of Assets and Liabilities
December 31, 2009
Assets: | ||||
Investments, at value (Cost $350,873,408)* | $ | 424,873,946 | ||
Investments in affiliated money market funds, at value and cost | 60,089,436 | |||
Total investments, at value (Cost $410,962,844) | 484,963,382 | |||
Foreign currencies, at value (Cost $567,421) | 566,365 | |||
Receivables for: | ||||
Investments sold | 1,029,711 | |||
Fund shares sold | 2,734,942 | |||
Dividends | 568,096 | |||
Foreign currency contracts outstanding | 112,609 | |||
Investment for trustee deferred compensation and retirement plans | 17,832 | |||
Total assets | 489,992,937 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 909,530 | |||
Amount due custodian | 212,888 | |||
Collateral upon return of securities loaned | 42,106 | |||
Accrued fees to affiliates | 344,214 | |||
Accrued other operating expenses | 58,116 | |||
Trustee deferred compensation and retirement plans | 64,314 | |||
Total liabilities | 1,631,168 | |||
Net assets applicable to shares outstanding | $ | 488,361,769 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 486,836,142 | ||
Undistributed net investment income | 2,389,712 | |||
Undistributed net realized gain (loss) | (74,975,445 | ) | ||
Unrealized appreciation | 74,111,360 | |||
$ | 488,361,769 | |||
Net Assets: | ||||
Series I | $ | 432,232,876 | ||
Series II | $ | 56,128,893 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 39,588,018 | |||
Series II | 5,183,253 | |||
Series I: | ||||
Net asset value per share | $ | 10.92 | ||
Series II: | ||||
Net asset value per share | $ | 10.83 | ||
* | At December 31, 2009, securities with an aggregate value of $40,053 were on loan to brokers. |
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Dividends (net of foreign withholding taxes of $100,705) | $ | 6,408,732 | ||
Dividends from affiliated money market funds (includes securities lending income of $206,175) | 471,072 | |||
Total investment income | 6,879,804 | |||
Expenses: | ||||
Advisory fees | 3,073,300 | |||
Administrative services fees | 1,157,545 | |||
Custodian fees | 39,128 | |||
Distribution fees — Series II | 127,667 | |||
Transfer agent fees | 35,422 | |||
Trustees’ and officers’ fees and benefits | 32,519 | |||
Other | 67,045 | |||
Total expenses | 4,532,626 | |||
Less: Fees waived | (87,044 | ) | ||
Net expenses | 4,445,582 | |||
Net investment income | 2,434,222 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $7,225) | (61,236,794 | ) | ||
Foreign currencies | 40,160 | |||
Foreign currency contracts | (677,261 | ) | ||
(61,873,895 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 174,119,314 | |||
Foreign currencies | (4,169 | ) | ||
Foreign currency contracts | 402,689 | |||
174,517,834 | ||||
Net realized and unrealized gain | 112,643,939 | |||
Net increase in net assets resulting from operations | $ | 115,078,161 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Mid Cap Core Equity Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 2,434,222 | $ | 5,619,494 | ||||
Net realized gain (loss) | (61,873,895 | ) | (7,003,370 | ) | ||||
Change in net unrealized appreciation (loss) | 174,517,834 | (172,441,157 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 115,078,161 | (173,825,033 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (5,080,173 | ) | (7,372,511 | ) | ||||
Series II | (530,907 | ) | (829,282 | ) | ||||
Total distributions from net investment income | (5,611,080 | ) | (8,201,793 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | (4,902,328 | ) | (53,615,148 | ) | ||||
Series II | (669,176 | ) | (7,340,647 | ) | ||||
Total distributions from net realized gains | (5,571,504 | ) | (60,955,795 | ) | ||||
Share transactions-net: | ||||||||
Series I | (11,987,008 | ) | (19,282,609 | ) | ||||
Series II | (4,824,114 | ) | (1,143,742 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (16,811,122 | ) | (20,426,351 | ) | ||||
Net increase (decrease) in net assets | 87,084,455 | (263,408,972 | ) | |||||
Net assets: | ||||||||
Beginning of year | 401,277,314 | 664,686,286 | ||||||
End of year (includes undistributed net investment income of $2,389,712 and $5,536,478, respectively) | $ | 488,361,769 | $ | 401,277,314 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. Mid Cap Core Equity Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is long-term growth of capital.
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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on 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 ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
AIM V.I. Mid Cap Core Equity Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, 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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
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 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 adviser. | ||
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 adviser 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. |
AIM V.I. Mid Cap Core Equity Fund
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. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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, including the Fund’s servicing agreements, 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. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could 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, if any. | |
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 — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts 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. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
AIM V.I. Mid Cap Core Equity Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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 Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended December 31, 2009, the Adviser waived advisory fees of $87,044.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $107,498 for accounting and fund administrative services and reimbursed $1,050,047 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 year ended December 31, 2009, 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 year ended December 31, 2009, 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, IAIS and/or IADI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation
AIM V.I. Mid Cap Core Equity Fund
inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 458,274,301 | $ | 26,689,081 | $ | — | $ | 484,963,382 | ||||||||
Other Investments* | — | 112,609 | — | 112,609 | ||||||||||||
Total Investments | $ | 458,274,301 | $ | 26,801,690 | $ | — | $ | 485,075,991 | ||||||||
* | Other Investments include foreign currency contracts, which are included at unrealized appreciation. |
NOTE 4—Derivative Investments
Effective with the beginning of the Fund’s fiscal year, the Fund has implemented new required disclosures about derivative instruments and hedging activities in accordance with GAAP. GAAP has 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. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of December 31, 2009:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign currency contracts(a) | $ | 112,609 | $ | — | ||||
(a) | Values are disclosed on the Statement of Assets and Liabilities under the Foreign currency contracts. |
Effect of Derivative Instruments for the year ended December 31, 2009
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Foreign Currency | ||||
Contracts* | ||||
Realized Gain (Loss) | ||||
Currency risk | $ | (677,261 | ) | |
Change in Unrealized Appreciation | ||||
Currency risk | $ | 402,689 | ||
Total | $ | (274,572 | ) | |
* | The average value of foreign currency contracts outstanding during the period was $4,505,511. |
Open Foreign Currency Contracts | ||||||||||||||||||||
Settlement | Contract to | Unrealized | ||||||||||||||||||
Date | Deliver | Receive | Value | Appreciation | ||||||||||||||||
3/04/10 | GBP | 2,180,000 | USD | 3,633,842 | $ | 3,521,233 | $ | 112,609 | ||||||||||||
Total open foreign currency contracts | $ | 112,609 | ||||||||||||||||||
Currency Abbreviations: | ||
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
AIM V.I. Mid Cap Core Equity Fund
NOTE 5—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 adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2009, the Fund engaged in securities sales of $86,599, which resulted in net realized gains of $7,225.
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $3,744 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, 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, not to exceed the contractually agreed upon rate.
NOTE 8—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2009 and 2008:
2009 | 2008 | |||||||
Ordinary income | $ | 5,621,148 | $ | 14,978,987 | ||||
Long-term capital gain | 5,561,436 | 54,178,601 | ||||||
Total distributions | $ | 11,182,584 | $ | 69,157,588 | ||||
Tax Components of Net Assets at Period-End:
2009 | ||||
Undistributed ordinary income | $ | 2,455,392 | ||
Net unrealized appreciation — investments | 69,877,375 | |||
Net unrealized appreciation (depreciation) — other investments | (1,788 | ) | ||
Temporary book/tax differences | (65,679 | ) | ||
Capital loss carryover | (70,739,673 | ) | ||
Shares of beneficial interest | 486,836,142 | |||
Total net assets | $ | 488,361,769 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2017 | $ | 70,739,673 | ||
* | 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. Mid Cap Core Equity Fund
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2009 was $149,760,964 and $194,455,130, 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 | $ | 81,939,474 | ||
Aggregate unrealized (depreciation) of investment securities | (12,062,099 | ) | ||
Net unrealized appreciation of investment securities | $ | 69,877,375 | ||
Cost of investments for tax purposes is $415,086,007. |
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and distributions, on December 31, 2009, undistributed net investment income was increased by $30,092, undistributed net realized gain (loss) was decreased by $30,092. This reclassification had no effect on the net assets of the Fund.
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended December 31, | ||||||||||||||||
2009(a) | 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 3,776,568 | $ | 34,511,811 | 1,980,935 | $ | 25,879,573 | ||||||||||
Series II | 1,852,803 | 16,828,951 | 2,495,197 | 33,372,144 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 939,088 | 9,982,501 | 7,277,763 | 60,987,657 | ||||||||||||
Series II | 113,860 | 1,200,083 | 983,144 | 8,169,929 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (6,211,044 | ) | (56,481,320 | ) | (8,365,253 | ) | (106,149,839 | ) | ||||||||
Series II | (2,477,573 | ) | (22,853,148 | ) | (3,256,102 | ) | (42,685,815 | ) | ||||||||
Net increase (decrease) in share activity | (2,006,298 | ) | $ | (16,811,122 | ) | 1,115,684 | $ | (20,426,351 | ) | |||||||
(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 adviser, 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 and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and or Invesco 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 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income | unrealized) | operations | income | gains | Distributions | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 8.59 | $ | 0.06 | (c) | $ | 2.53 | $ | 2.59 | $ | (0.13 | ) | $ | (0.13 | ) | $ | (0.26 | ) | $ | 10.92 | 30.21 | % | $ | 432,233 | 1.02 | %(d) | 1.04 | %(d) | 0.60 | %(d) | 41 | % | ||||||||||||||||||||||||
Year ended 12/31/08 | 14.57 | 0.14 | (c) | (4.33 | ) | (4.19 | ) | (0.22 | ) | (1.57 | ) | (1.79 | ) | 8.59 | (28.52 | ) | 352,788 | 1.01 | 1.04 | 1.05 | 62 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.52 | 0.19 | 1.11 | 1.30 | (0.04 | ) | (0.21 | ) | (0.25 | ) | 14.57 | 9.55 | 585,608 | 1.00 | 1.01 | 1.23 | 62 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 13.61 | 0.14 | 1.39 | 1.53 | (0.14 | ) | (1.48 | ) | (1.62 | ) | 13.52 | 11.24 | 581,154 | 1.04 | 1.04 | 0.93 | 83 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 13.11 | 0.06 | 0.94 | 1.00 | (0.07 | ) | (0.43 | ) | (0.50 | ) | 13.61 | 7.62 | 584,860 | 1.03 | 1.03 | 0.50 | 70 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 8.52 | 0.03 | (c) | 2.51 | 2.54 | (0.10 | ) | (0.13 | ) | (0.23 | ) | 10.83 | 29.85 | 56,129 | 1.27 | (d) | 1.29 | (d) | 0.35 | (d) | 41 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 14.45 | 0.10 | (c) | (4.28 | ) | (4.18 | ) | (0.18 | ) | (1.57 | ) | (1.75 | ) | 8.52 | (28.68 | ) | 48,489 | 1.26 | 1.29 | 0.80 | 62 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.42 | 0.13 | 1.12 | 1.25 | (0.01 | ) | (0.21 | ) | (0.22 | ) | 14.45 | 9.29 | 79,079 | 1.25 | 1.26 | 0.98 | 62 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 13.52 | 0.10 | 1.38 | 1.48 | (0.10 | ) | (1.48 | ) | (1.58 | ) | 13.42 | 10.98 | 56,766 | 1.29 | 1.29 | 0.68 | 83 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 13.04 | 0.03 | 0.92 | 0.95 | (0.04 | ) | (0.43 | ) | (0.47 | ) | 13.52 | 7.27 | 50,380 | 1.28 | 1.28 | 0.25 | 70 | |||||||||||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $372,836 and $51,067 for Series I and Series II shares, respectively. |
AIM V.I. Mid Cap Core Equity Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Mid Cap Core Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. Mid Cap Core Equity Fund, (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
February 10, 2010
Houston, Texas
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 July 1, 2009, through December 31, 2009.
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 | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,215.80 | $ | 5.70 | $ | 1,020.06 | $ | 5.19 | 1.02 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,214.50 | 7.09 | 1,018.80 | 6.46 | 1.27 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. Mid Cap Core Equity Fund
Tax Information |
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2009:
Federal and State Income Tax | ||||
Long-Term Capital Gain Dividends | $ | 5,561,435 | ||
Corporate Dividends Received Deduction* | 84.47% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
AIM V.I. Mid Cap Core Equity Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Other Directorship(s) | |||||||
Position(s) Held with the Trust | or Officer | During Past 5 Years | Held by Trustee | |||||||
Since | ||||||||||
Interested Persons | ||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | None | |||||||
Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | ||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co- Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC | None | |||||||
Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||
�� | Independent Trustees | |||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||||||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||||||
Frank S. Bayley — 1939 Trustee | 2001 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | None | |||||||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans | |||||||
Scholars Foundation and Executive Committee, United States Golf Association | ||||||||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) | Board of Nature’s Sunshine Products, Inc. | |||||||
Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | ||||||||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) | Administaff | |||||||
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | ||||||||||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired | None | |||||||
Lewis F. Pennock — 1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||||||
Larry Soll — 1942 Trustee | 2004 | Retired | None | |||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) | None | |||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers - (continued)
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Other Directorship(s) | |||||||
Position(s) Held with the Trust | or Officer | During Past 5 Years | Held by Trustee | |||||||
Since | ||||||||||
Other Officers | ||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC | N/A | |||||||
Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | N/A | |||||||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® | N/A | |||||||
Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | |||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® | N/A | |||||||
Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. | N/A | |||||||
Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | ||||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 100 | Invesco Advisers, Inc. | Invesco Aim Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 100 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Independent Trustees | Invesco Aim Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-2
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AIM V.I. Money Market Fund
Annual Report to Shareholders n December 31, 2009
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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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
Yields on shares of AIM V.I. Money Market Fund declined significantly during the year ended December 31, 2009. The seven-day SEC yield on the Fund’s Series I shares was 0.76% at the beginning of the year and 0.02% at its close. The seven-day SEC yield on the Fund’s Series II shares was 0.52% at the beginning of the year and 0.02% at its close. (Had the adviser not waived fees and/or reimbursed expenses, the seven-day SEC yield on the Fund’s Series I and Series II shares would have been -2.48% and -4.48%, respectively, as of December 31, 2009.)
As of December 31, 2009, the Fund’s total net assets stood at $35.1 million and the Fund’s weighted average maturity was 34 days.
The Fund invests only in high-quality, U.S.-dollar-denominated, short-term debt obligations, including:
n | Securities issued by the U.S. government and its agencies. |
n | Bankers’ acceptances, certificates of deposit and time deposits from U.S. and foreign banks. |
n | Repurchase agreements. |
n | Commercial paper. |
n | Taxable municipal securities. |
n | Master notes. |
n | Cash equivalents. |
The Fund may invest a portion of its assets in U.S.-dollar-denominated foreign securities. The Fund invests in accordance with industry-standard requirements for money market funds for the quality, maturity and diversification of investments. In selecting securities for the Fund, we focus on securities that offer safety, liquidity and a competitive yield.
At the start of the year covered by this report, there was widespread pessimism about where the economy and markets were headed; there was genuine fear that we might be facing the possibility of a global depression and that credit and equity markets could collapse. By early March 2009, however, the unprecedented, coordinated actions of governments and central banks around the world appeared likely to have averted catastrophe, causing global stock markets to rebound. They continued to rise virtually uninterrupted for the remainder of the year.
At the start of 2009, fear of economic calamity caused corporations and individual investors to sell equities, raise cash and seek out relatively safe, liquid and short-term investments – particularly
U.S. Treasury securities. This heightened demand for such investments caused yields to decline from already low rates. Even after credit markets calmed somewhat and stock markets bottomed, many risk-averse investors continued to seek refuge in cash or cash equivalents.
The U.S. economy remained weak for much of the year. After contracting in the third and fourth quarters of 2008, U.S. gross domestic product (GDP) – the broadest measure of overall economic activity – contracted at annualized rates of 6.4% and 0.7% in the first and second quarters of 2009, respectively.1 In the third quarter, GDP expanded at an annualized rate of 2.2%, its strongest quarterly rate of growth in two years.1
In its final monetary policy announcement of 2009, the U.S. Federal Reserve (the Fed) cited several hopeful signs that economic activity was picking up.2 The Fed said:
n | The housing sector showed some signs of recent improvement. |
n | Household spending appeared to be expanding moderately, despite high unemployment, modest income growth and tight credit. |
n | Businesses continued to cut back on fixed investment, albeit at a slower pace than previously. |
Nonetheless, unemployment statistics cast a pall over other data showing that the U.S. economy was improving. The unemployment rate rose from 7.7% to 10.0% in 2009.3 Even workers who remained employed worried about their individual job security.
As a result, many Americans decided to spend less and save more. One government estimate suggested Americans saved just 1.7% of their disposable personal income in 2007 and just 2.7%
in 2008.1 That same estimate suggested Americans saved 3.7%, 5.4% and 4.5% of their disposable personal income in the first, second and third quarters of 2009, respectively.1
At the start of 2009, three-month Treasury bills yielded 0.11% and 30-year Treasury bonds yielded 2.69%.4 By December 31, 2009, yields on three-month Treasuries had declined to 0.07% while yields on 30-year Treasuries had risen to 4.64%.4 Low yields on short-term Treasuries were due chiefly to the Fed’s stimulative monetary policies that began in 2008 – and investor preference for relatively safe, liquid and short-term investments during a period of economic uncertainty. Because money market funds invest in such securities, the yield you earned on your investment in AIM V.I. Money Market Fund remained low throughout 2009.
On a positive note, the yield curve was positive (meaning that short-term yields were lower than long-term yields) and it generally steepened throughout 2009. (A yield curve is a graph that shows the yields of similarly rated fixed income investments according to their maturities.) While no one can predict the future performance of the economy, positive and steepening yield curves historically have signaled relative economic health and expansion.
Thank you for your investment in AIM V.I. Money Market Fund.
1 | Bureau of Economic Analysis | |
2 | U.S. Federal Reserve | |
3 | Bureau of Labor Statistics | |
4 | Barclays Capital |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
Team managed by Invesco Advisers, Inc.
Performance quoted is past performance and cannot guarantee comparable future results; current performance may be lower or higher. Visit invescoaim.com for the most recent month-end performance.
An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency and is not a deposit or other obligation of, or guaranteed by, a depository institution. Although the Fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the Fund.
AIM V.I. Money Market Fund
n | Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
Credit risk is the risk of loss on an investment due to the deterioration of an issuer’s financial health. Such a deterioration of financial health may result in a reduction of the credit rating of the issuer’s securities and may lead to the issuer’s inability to honor its contractual obligations, including making timely payment of interest and principal.
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, relative lack of information, relatively low market liquidity, and the potential lack of strict financial and accounting controls and standards.
Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
The prices of securities held by the Fund may decline in response to market risks.
The value of, payment of interest on and repayment of principal for the Fund as well as the Fund’s ability to sell a municipal security may be affected by constitutional amendments, legislative enactments, executive orders, administrative regulations, voter initiatives and the economics of the regions where the issuers in which the Fund invests are located.
If the seller of a repurchase agreement in which the Fund invests defaults on its obligation or declares bankruptcy, the Fund may experience delays in selling the securities underlying the repurchase agreement.
To the extent that the Fund is concentrated in securities of issuers in the banking and financial services industries, the Fund’s performance will depend to a greater extent on the overall condition of those industries. The value of these
securities can be sensitive to changes in government regulation, interest rates and economic downturns in the U.S. and abroad.
The Fund 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 U.S. government. The U.S. government may choose not to provide financial support to U.S.-government-sponsored agencies or instrumentalities if it is not legally obligated to do so. In this case, if the issuer defaulted, the fund holding securities of such an issuer might not be able to recover its investment from the U.S. government.
Portfolio Composition | ||||
Maturity distribution of Fund holdings, in days, as of 12/31/09 | ||||
1-7 | 32.8 | % | ||
8-30 | 27.4 | |||
31-90 | 34.8 | |||
91-180 | 2.2 | |||
181+ | 2.8 |
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.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please see your variable product issuer or financial adviser 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.
AIM V.I. Money Market 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 the 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 adviser.
Had the adviser not waived fees and/ or reimbursed expenses, performance would have been lower.
AIM V.I. Money Market Fund
Schedule of Investments
December 31, 2009
Principal | ||||||||||||||||
Interest | Maturity | Amount | ||||||||||||||
Rate | Date | (000) | Value | |||||||||||||
Commercial Paper–69.54%(a) | ||||||||||||||||
Asset-Backed Securities–Commercial Loans/Leases–2.84% | ||||||||||||||||
Atlantis One Funding Corp.(b)(c) | 0.40 | % | 02/09/10 | $ | 1,000 | $ | 999,567 | |||||||||
Asset-Backed Securities–Consumer Receivables–17.02% | ||||||||||||||||
Amsterdam Funding Corp.(b) | 0.19 | % | 02/03/10 | 1,000 | 999,826 | |||||||||||
Bryant Park Funding LLC(b) | 0.18 | % | 01/15/10 | 1,000 | 999,930 | |||||||||||
Old Line Funding, LLC(b) | 0.30 | % | 02/10/10 | 1,536 | 1,535,488 | |||||||||||
Sheffield Receivables Corp.(b) | 0.21 | % | 01/07/10 | 450 | 449,984 | |||||||||||
Sheffield Receivables Corp.(b) | 0.22 | % | 01/08/10 | 1,000 | 999,957 | |||||||||||
Thunder Bay Funding, LLC(b) | 0.32 | % | 02/12/10 | 1,000 | 999,627 | |||||||||||
5,984,812 | ||||||||||||||||
Asset-Backed Securities–Fully Backed–4.26% | ||||||||||||||||
Straight-A Funding LLC–Series 1, (CEP–Federal Financing Bank)(b) | 0.21 | % | 01/11/10 | 1,500 | 1,499,912 | |||||||||||
Asset-Backed Securities–Fully Supported Bank–12.79% | ||||||||||||||||
Clipper Receivables Co., LLC (CEP–State Street Bank & Trust)(b) | 0.25 | % | 01/05/10 | 1,000 | 999,972 | |||||||||||
Crown Point Capital Co., LLC–Series A, (Multi CEP’s-Liberty Hampshire Co., LLC; agent)(b) | 0.50 | % | 01/06/10 | 1,000 | 999,931 | |||||||||||
LMA-Americas LLC (CEP–Credit Agricole S.A.)(b)(c) | 0.20 | % | 02/19/10 | 700 | 699,810 | |||||||||||
Surrey Funding Corp. (CEP–Barclays Bank PLC)(b)(c) | 0.22 | % | 01/15/10 | 1,100 | 1,099,906 | |||||||||||
Surrey Funding Corp. (CEP–Barclays Bank PLC)(b)(c) | 0.22 | % | 03/09/10 | 700 | 699,713 | |||||||||||
4,499,332 | ||||||||||||||||
Asset-Backed Securities–Multi-Purpose–12.99% | ||||||||||||||||
Atlantic Asset Securitization LLC(b) | 0.22 | % | 03/11/10 | 1,380 | 1,379,418 | |||||||||||
Ciesco, LLC(b) | 0.20 | % | 01/13/10 | 750 | 749,950 | |||||||||||
Gemini Securitization Corp., LLC(b) | 0.20 | % | 01/12/10 | 1,500 | 1,499,908 | |||||||||||
Regency Markets No. 1, LLC(b)(c) | 0.22 | % | 01/13/10 | 941 | 940,931 | |||||||||||
4,570,207 | ||||||||||||||||
Asset-Backed Securities–Securities–4.41% | ||||||||||||||||
Cancara Asset Securitisation Ltd./LLC(b)(c) | 0.30 | % | 01/13/10 | 1,000 | 999,900 | |||||||||||
Cancara Asset Securitisation Ltd./LLC(b)(c) | 0.25 | % | 02/16/10 | 550 | 549,824 | |||||||||||
1,549,724 | ||||||||||||||||
Diversified Banks–10.97% | ||||||||||||||||
Banco Bilbao Vizcaya Argentaria, S.A.(c) | 0.24 | % | 03/19/10 | 1,000 | 999,487 | |||||||||||
Banco Bilbao Vizcaya Argentaria, S.A.(c) | 0.26 | % | 04/30/10 | 800 | 799,312 | |||||||||||
Lloyds TSB Bank PLC(c) | 0.20 | % | 02/17/10 | 1,060 | 1,059,723 | |||||||||||
Societe Generale North America, Inc.(c) | 0.35 | % | 01/25/10 | 1,000 | 999,770 | |||||||||||
3,858,292 | ||||||||||||||||
Regional Banks–4.26% | ||||||||||||||||
ANZ National (Int’l) Ltd.(b)(c) | 0.23 | % | 03/01/10 | 1,500 | 1,499,435 | |||||||||||
Total Commercial Paper (Cost $24,461,281) | 24,461,281 | |||||||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Money Market Fund
Principal | ||||||||||||||||
Interest | Maturity | Amount | ||||||||||||||
Rate | Date | (000) | Value | |||||||||||||
Variable Rate Demand Notes–18.40%(d) | ||||||||||||||||
Credit Enhanced–18.40% | ||||||||||||||||
Benjamin Rose Institute (The) (Kethley House); Series 2005, Taxable Notes (LOC–JPMorgan Chase Bank, N.A.)(e) | 0.29 | % | 12/01/28 | $ | 1,800 | $ | 1,800,000 | |||||||||
Hamilton (County of), Ohio (Children’s Hospital Medical Center); Series 1997 A, Hospital Facilities RB (LOC–PNC Bank, N.A.)(e) | 0.23 | % | 05/15/17 | 600 | 600,000 | |||||||||||
Pennsylvania (State of) Economic Development Financing Authority (Topwater Investments Inc.); Series 2007 B-1, RB (LOC–PNC Bank, N.A.)(e) | 0.29 | % | 08/01/35 | 660 | 660,000 | |||||||||||
Pitney Road Partners, LLC; Series 2008, Notes (CEP–General Electric Capital Corp.)(b) | 0.50 | % | 07/01/25 | 2,375 | 2,375,000 | |||||||||||
Rock Island (County of), Illinois Metropolitan Airport Authority (Quad City International Airport Air Freight Project); Series 1998 A, Priority RB (LOC–U.S. Bank, N.A.)(e) | 0.25 | % | 12/01/18 | 535 | 535,000 | |||||||||||
Saint Paul (City of), Minnesota Port Authority; Series 2009-10 CC, District Cooling RB (LOC–Deutsche Bank AG)(c)(e) | 0.28 | % | 03/01/29 | 500 | 500,000 | |||||||||||
Total Variable Rate Demand Notes (Cost $6,470,000) | 6,470,000 | |||||||||||||||
Certificates of Deposit–2.84% | ||||||||||||||||
Calyon (Cost $1,000,000) | 0.70 | % | 09/10/10 | 1,000 | 1,000,000 | |||||||||||
Medium-Term Notes–2.84% | ||||||||||||||||
Bear Stearns Cos. Inc. Sr. Unsec. Floating Rate MTN(f) (Cost $1,000,000) | 0.36 | % | 02/23/10 | 1,000 | 1,000,000 | |||||||||||
TOTAL INVESTMENTS (excluding Repurchase Agreements)–93.62% (Cost $32,931,281) | 32,931,281 | |||||||||||||||
Repurchase | ||||||||||||||||
Amount | ||||||||||||||||
Repurchase Agreements–7.87%(g) | ||||||||||||||||
RBC Capital Markets Corp., Joint agreement dated 12/31/09, aggregate maturing value of $250,000,278 (collateralized by U.S. Government sponsored agency obligations valued at $255,000,000; 4.00%-5.57%, 12/01/19-12/01/39), (Cost $2,767,057) | 0.01 | % | 01/04/10 | 2,767,060 | 2,767,057 | |||||||||||
TOTAL INVESTMENTS(h)(i)--101.49% (Cost $35,698,338) | 35,698,338 | |||||||||||||||
OTHER ASSETS LESS LIABILITIES–(1.49)% | (523,174 | ) | ||||||||||||||
NET ASSETS–100.00% | $ | 35,175,164 | ||||||||||||||
Investment Abbreviations:
CEP | – Credit Enhancement Provider | |
LOC | – Letter of Credit | |
MTN | – Medium-Term Notes | |
RB | – Revenue Bonds | |
Sr. | – Senior | |
Unsec. | – Unsecured |
Notes to Schedule of Investments:
(a) | Security may be traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. | |
(b) | Security 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 December 31, 2009 was $22,977,989, which represented 65.32% of the Fund’s Net Assets. | |
(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: 15.2%; Spain: 5.1%; other countries less than 5% each: 13.4%. | |
(d) | 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 December 31, 2009. | |
(e) | Principal and interest payments are fully enhanced by a letter of credit from the bank listed or a predecessor bank, branch or subsidiary. | |
(f) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on December 31, 2009. | |
(g) | Principal amount equals value at period end. See Note 1I. | |
(h) | Also represents cost for federal income tax purposes. | |
(i) | 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 | |||
JPMorgan Chase Bank, N.A. | 8.0 | % | ||
General Electric Capital Corp. | 6.8 | |||
Banco Bilbao Vizcaya Argentaria, S.A. | 5.1 | |||
Barclays Bank PLC | 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
December 31, 2009
Assets: | ||||
Investments, at value and cost | $ | 35,698,338 | ||
Receivables for: | ||||
Fund shares sold | 1,389 | |||
Interest | 4,634 | |||
Fund expenses absorbed | 6,892 | |||
Investment for trustee deferred compensation and retirement plans | 35,381 | |||
Total assets | 35,746,634 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 491,059 | |||
Accrued fees to affiliates | 17,497 | |||
Accrued other operating expenses | 19,061 | |||
Trustee deferred compensation and retirement plans | 43,853 | |||
Total liabilities | 571,470 | |||
Net assets applicable to shares outstanding | $ | 35,175,164 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 35,175,164 | ||
Net Assets: | ||||
Series I | $ | 33,485,634 | ||
Series II | $ | 1,689,530 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 33,484,528 | |||
Series II | 1,689,210 | |||
Series I: | ||||
Net asset value per share | $ | 1.00 | ||
Series II: | ||||
Net asset value per share | $ | 1.00 | ||
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Interest | $ | 331,845 | ||
Expenses: | ||||
Advisory fees | 174,330 | |||
Administrative services fees | 127,879 | |||
Custodian fees | 6,190 | |||
Distribution fees — Series II | 4,799 | |||
Transfer agent fees | 4,596 | |||
Trustees’ and officers’ fees and benefits | 21,202 | |||
Professional services fees | 29,290 | |||
Other | 28,088 | |||
Total expenses | 396,374 | |||
Less: Fees waived | (114,614 | ) | ||
Net expenses | 281,760 | |||
Net investment income | 50,085 | |||
Net increase in net assets resulting from operations | $ | 50,085 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Money Market Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 50,085 | $ | 1,028,001 | ||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (48,846 | ) | (986,413 | ) | ||||
Series II | (1,239 | ) | (41,588 | ) | ||||
Total distributions from net investment income | (50,085 | ) | (1,028,001 | ) | ||||
Share transactions-net: | ||||||||
Series I | (15,518,673 | ) | 2,512,068 | |||||
Series II | (576,067 | ) | (249,612 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (16,094,740 | ) | 2,262,456 | |||||
Net increase (decrease) in net assets | (16,094,740 | ) | 2,262,456 | |||||
Net assets: | ||||||||
Beginning of year | 51,269,904 | 49,007,448 | ||||||
End of year (includes undistributed net investment income of $0 and $7,137, respectively) | $ | 35,175,164 | $ | 51,269,904 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. Money Market Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is to provide as high a level of current income as is consistent with the preservation of capital and liquidity.
The 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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — The Fund’s securities are recorded on the basis of amortized cost which approximates value as permitted by Rule 2a-7 under the 1940 Act. This method values a security at its cost on the date of purchase and, thereafter, assumes a constant amortization to maturity of any premiums or accretion of any discounts. | |
Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
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 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 adviser. |
AIM V.I. Money Market Fund
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 adviser 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. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Repurchase Agreements — The Fund may enter into repurchase agreements. Collateral on repurchase agreements, including the Fund’s pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. Eligible securities for collateral are securities consistent with the Fund’s investment objectives and may consist of U.S. Government Securities, U.S. Government Sponsored Agency Securities and/or, Investment Grade Debt Securities. Collateral consisting of U.S. Government Securities and U.S. Government Sponsored 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 repurchase 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. | |
J. | Treasury Guarantee Program — The Board of Trustees approved the participation of the Funds in the U.S. Department of Treasury’s (the “Treasury Department’’) Temporary Guarantee Program for Money Market Funds (the “Program”) as extended except as noted below. Under the Program, the Treasury Department will guarantee shareholders in the Fund that they will receive $1 for each Fund share held by them as of the close of business on September 19, 2008, in the event that such Fund (in which they were invested as of September 19, 2008) liquidates and the per share value at the time of liquidation is less than $0.995. On April 7, 2009, the Fund’s Board approved to participate in the final extension of the Program through September 18, 2009. The Program expired on September 18, 2009. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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 Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the
AIM V.I. Money Market Fund
fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) extraordinary or non-routine items, including payments to participate in the United States Treasury Temporary Guarantee Program (the “Program”); (4) expenses related to a merger or reorganization, as approved by the Fund’s Board of Trustees; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
The Adviser and/or Invesco Aim Distributors, Inc. (“IADI”) voluntarily waived fees and/or reimbursed expenses in order to increase the Fund’s yield. Voluntary fee waivers and/or reimbursements may be modified at any time upon consultation with the Board of Trustees without further notice to investors.
For the year ended December 31, 2009, the Adviser voluntarily waived advisory fees of $110,784 and IADI reimbursed class level expenses of $3,830 for Series II shares to increase the fund’s yield.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $77,879 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 year ended December 31, 2009, 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 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 year ended December 31, 2009, 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, IAIS and/or IADI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Short-term Investments | $ | — | $ | 35,698,338 | $ | — | $ | 35,698,338 | ||||||||
AIM V.I. Money Market Fund
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2009, the Fund engaged in securities purchases of $5,085,501 and securities sales of $2,690,306.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $2,878 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6—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, not to exceed the contractually agreed upon rate.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2009 and 2008:
2009 | 2008 | |||||||
Ordinary income | $ | 50,085 | $ | 1,028,001 | ||||
Tax Components of Net Assets at Period-End:
2009 | ||||
Undistributed ordinary income | $ | 46,558 | ||
Temporary book/tax differences | (46,558 | ) | ||
Shares of beneficial interest | 35,175,164 | |||
Total net assets | $ | 35,175,164 | ||
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
The Fund does not have a capital loss carryforward at period-end.
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of undistributed income and nondeductible income taxes, on December 31, 2009, undistributed net investment income was decreased by $7,137 and shares of beneficial interest increased by $7,137. This reclassification had no effect on the net assets of the Fund.
AIM V.I. Money Market Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended | Year ended | |||||||||||||||
December 31, 2009(a) | December 31, 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 14,958,501 | $ | 14,958,537 | 34,854,533 | $ | 34,854,533 | ||||||||||
Series II | 51,965 | 51,965 | 277,951 | 277,951 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 48,883 | 48,846 | 986,376 | 986,376 | ||||||||||||
Series II | 1,238 | 1,239 | 41,587 | 41,587 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (30,526,056 | ) | (30,526,056 | ) | (33,328,841 | ) | (33,328,841 | ) | ||||||||
Series II | (629,271 | ) | (629,271 | ) | (569,150 | ) | (569,150 | ) | ||||||||
Net increase (decrease) in share activity | (16,094,740 | ) | $ | (16,094,740 | ) | 2,262,456 | $ | 2,262,456 | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 88% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, 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 and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco 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—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of net | ||||||||||||||||||||||||||||||||
Net asset | Dividends | Ratio of | investment | |||||||||||||||||||||||||||||
value, | Net | from net | Net asset | Net assets, | expenses | income | ||||||||||||||||||||||||||
beginning | investment | investment | value, end | Total | end of period | to average | to average | |||||||||||||||||||||||||
of period | income | income | of period | Return(a) | (000s omitted) | net assets | net assets | |||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 1.00 | $ | 0.00 | (b) | $ | (0.00 | ) | $ | 1.00 | 0.11 | % | $ | 33,486 | 0.65 | %(c)(d) | 0.11 | %(c) | ||||||||||||||
Year ended 12/31/08 | 1.00 | 0.02 | (b) | (0.02 | ) | 1.00 | 2.04 | 49,004 | 0.86 | 2.02 | ||||||||||||||||||||||
Year ended 12/31/07 | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.54 | 46,492 | 0.86 | 4.45 | |||||||||||||||||||||||
Year ended 12/31/06 | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.27 | 43,568 | 0.90 | 4.20 | |||||||||||||||||||||||
Year ended 12/31/05 | 1.00 | 0.02 | (0.02 | ) | 1.00 | 2.51 | 44,923 | 0.82 | 2.46 | |||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 1.00 | 0.00 | (b) | (0.00 | ) | 1.00 | 0.06 | 1,690 | 0.70 | (c)(d) | 0.06 | (c) | ||||||||||||||||||||
Year ended 12/31/08 | 1.00 | 0.02 | (b) | (0.02 | ) | 1.00 | 1.78 | 2,266 | 1.11 | 1.77 | ||||||||||||||||||||||
Year ended 12/31/07 | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.28 | 2,515 | 1.11 | 4.20 | |||||||||||||||||||||||
Year ended 12/31/06 | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.01 | 2,341 | 1.15 | 3.95 | |||||||||||||||||||||||
Year ended 12/31/05 | 1.00 | 0.02 | (0.02 | ) | 1.00 | 2.26 | 3,080 | 1.07 | 2.21 | |||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(b) | Calculated using average shares outstanding. | |
(c) | Ratios are based on average daily net assets (000’s omitted) of $41,663 and $1,919 for Series I and Series II shares, respectively. | |
(d) | After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 0.90% and 1.15% for Series I and Series II shares, respectively. |
AIM V.I. Money Market Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Money Market Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. Money Market Fund (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for the each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 10, 2010
Houston, Texas
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 July 1, 2009 through December 31, 2009.
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 | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,000.20 | $ | 2.17 | $ | 1,023.04 | $ | 2.19 | 0.43 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,000.20 | 2.17 | 1,023.04 | 2.19 | 0.43 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. Money Market Fund
Tax Information |
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2009:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 0% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
AIM V.I. Money Market Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Other Directorship(s) | |||||||
Position(s) Held with the Trust | or Officer | During Past 5 Years | Held by Trustee | |||||||
Since | ||||||||||
Interested Persons | ||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | None | |||||||
Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | ||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co- Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC | None | |||||||
Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||
Independent Trustees | ||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||||||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||||||
Frank S. Bayley — 1939 Trustee | 2001 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | None | |||||||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans | |||||||
Scholars Foundation and Executive Committee, United States Golf Association | ||||||||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) | Board of Nature’s Sunshine Products, Inc. | |||||||
Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | ||||||||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) | Administaff | |||||||
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | ||||||||||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired | None | |||||||
Lewis F. Pennock — 1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||||||
Larry Soll — 1942 Trustee | 2004 | Retired | None | |||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) | None | |||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers - (continued)
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Other Directorship(s) | |||||||
Position(s) Held with the Trust | or Officer | During Past 5 Years | Held by Trustee | |||||||
Since | ||||||||||
Other Officers | ||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC | N/A | |||||||
Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | N/A | |||||||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® | N/A | |||||||
Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | |||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® | N/A | |||||||
Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. | N/A | |||||||
Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | ||||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 100 | Invesco Advisers, Inc. | Invesco Aim Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 100 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Independent Trustees | Invesco Aim Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-2
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AIM V.I. PowerShares ETF Allocation Fund
Annual Report to Shareholders n December 31, 2009
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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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2009, Series I shares of AIM V.I. PowerShares ETF Allocation Fund returned 25.40%, excluding variable product issuer charges, and underperformed its broad market benchmark, the MSCI World Index, but outperformed its style-specific index, the Custom V.I. PowerShares ETF Allocation Fund Index. The Custom V.I. PowerShares ETF Allocation Fund Index approximates the broad asset allocation of the Fund over time. Outperformance was primarily driven by the Fund’s allocation to emerging market debt, high yield corporate debt as well as small/mid-cap stocks and emerging market equities.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 25.40 | % | ||
Series II Shares | 25.15 | |||
MSCI World Index6 (Broad Market Index) | 29.99 | |||
Custom V.I. PowerShares ETF Allocation Fund Indexn (Style-Specific Index) | 20.33 | |||
Lipper VUF Global Core Funds Index6 (Peer Group Index) | 33.54 |
6Lipper Inc.; nInvesco, Lipper Inc.
How we invest
Invesco Global Asset Allocation’s (IGAA) investment process is a quantitative, actively managed three-step investment strategy designed to generate a unique source of excess returns from a macro based, multi-asset investment discipline.
Step One — Fundamental Research
Fundamental research is used to identify the key drivers of relative performance for asset class, country and other investment decision models. This research includes the following:
n | An analysis of markets to determine the distinctive characteristics of each market relative to its comparison universe. | |
n | The generation of hypotheses about how various economic events will interact with these characteristics and affect relative performance. | |
n | Confirmation or revision of hypothesis through empirical research. |
Step Two — Quantitative Modeling
Fundamental research from Step One is used to create quantitative models focusing on valuation and dynamics.
n | To address valuation, IGAA determines if competing investment alternatives are cheap or expensive relative to their underlying fundamentals. Valuation focuses on the longer term, secular influences on each asset and suggests that there is a mean reverting, long-term or equilibrium relationship between prices and fundamentals. | |
n | Shorter term factors, which are largely proxies for the economic environment and investor positioning, reconcile the short-run behavior of asset prices with their long-run behavior and recognizes that these misvaluations may not correct instantaneously. |
The output of the modeling is expressed in the form of probabilities that one asset will outperform another, resulting in a quantitative expression of IGAA’s fundamental investment process in a mathematical-based approach.
Step Three — Portfolio Strategy
IGAA directly maps the probabilities to express the relative attractiveness of any investment decision within the Fund’s specified allocation ranges. Ranges around target allocations for each decision are determined through IGAA’s proprietary allocation budgeting process that is based on the number of available decisions, the amount of expected aggregate portfolio outperformance and the risk characteristics of each available decision. Generally speaking, riskier asset decisions will have smaller ranges, while less risky, low correlation asset decisions will tend to have larger ranges.
Market conditions and your Fund
While global economic growth remained weak in the aftermath of the credit crisis and future growth looked uncertain, investors’ improving risk appetite, combined with significant global fiscal and monetary stimulus, resulted in a significant equity market rally beginning in March 2009 and continuing throughout the remainder of the year. The Fund’s absolute and relative performance versus its custom index benefited primarily from strong performance within several of the PowerShares ETF portfolios, as well as the tactical asset allocation component, which also aided relative returns.
Equities, as represented by the MSCI World Index, returned 29.99% for the year ended December 31, 2009.1 From a historical perspective, this was consistent with the type of performance equity markets have experienced coming out of previous recessions. Late in the reporting period, our research indicated that more moderate gains for most equity markets were likely through 2010, unless economic growth and corporate earnings manage to surprise on the upside. As a result, we positioned the portfolio accordingly.
Japanese equities lagged other developed markets during the period, mainly due to the recent strength of the yen, which jeopardized the earnings outlook for many of the blue chip companies with a global franchise in Japan. Our equity exposure was the most significant contributor to absolute performance during the reporting period.
Low short-term interest rates made most assets more attractive than cash. Long–term U.S. Treasury security yields remain low by historical standards, and the cyclical environment makes it unlikely that this will change dramatically in the near future. Inflation declined over the year, and we believe it will remain subdued given anemic global economic growth. Additionally, based on our research, we do not expect yields to begin rising materially until monetary policy becomes much more restrictive, and we have positioned the portfolio given these expectations. Our bond positions were generally positive contributors to results during the reporting period, driven by our exposure to emerging market and corporate high yield fixed-income securities.
Portfolio Composition
Target | % of Total Net Assets | |||||||
Asset Class | Allocation Range | As of 12/31/09 | ||||||
Asia ex-Japan Equity | 0 - 14 | % | 7.48 | % | ||||
Domestic Equity Large Cap | 0 - 20 | 11.17 | ||||||
Domestic Equity Small-Mid Cap | 0 - 14 | 7.31 | ||||||
Emerging Markets Equity | 0 - 12 | 6.80 | ||||||
Emerging Markets Fixed-Income | 0 - 20 | 9.62 | ||||||
European Equity | 0 - 16 | 7.54 | ||||||
Foreign Equity Small-Mid Cap | 0 - 16 | 8.56 | ||||||
High Yield Fixed-Income | 0 - 12 | 6.82 | ||||||
Investment Grade Fixed-Income | 15 - 45 | 22.08 | ||||||
Japanese Equity | 0 - 16 | 7.69 | ||||||
Money Market Funds Plus Other Assets Less Liabilities | N/A | 4.93 |
AIM V.I. PowerShares ETF Allocation Fund
After the spring of 2009, our active positioning strategy favored equities, a stance that remained in place largely for the balance of the reporting period. While the tactical asset allocation element only had a modest impact on performance, the true benefits of this tactical component to the strategy typically occurs when there is a significant shift in the direction of returns in the markets — a development that did not occur during the second half of the calendar year.
We thank you for your investment in AIM V.I. PowerShares ETF Allocation Fund.
1 | Lipper Inc. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
![(PHOTO OF MARK AHNRUD)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6942302.jpg)
Mark Ahnrud
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. PowerShares ETF Allocation Fund. Mr. Ahnrud joined Invesco in 2000. His responsibilities include fundamental research, quantitative modeling and portfolio investment decisions for asset classes —fixed-income market allocations. Mr. Ahnrud began his investment career in 1985. He earned a B.S. in finance and investments from Babson College and an M.B.A. degree from the Fuqua School of Business at Duke University.
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Chris Devine
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. PowerShares ETF Allocation Fund. Mr. Devine joined Invesco in 1998. He is responsible for portfolio construction, risk management and trading. He began his investment management career in 1996. Mr. Devine earned a B.A. in economics from Wake Forest University and an M.B.A. from the University of Georgia.
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Scott Hixon
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. PowerShares ETF Allocation Fund. Mr. Hixon joined Invesco in 1994. He is responsible for the fundamental research, quantitative modeling and portfolio investment decisions for asset classes and currencies. Mr. Hixon began his investment management career in 1992. He earned a B.B.A. in finance, graduating magna cum laude, from Georgia Southern University. He earned an M.B.A. in Finance from Georgia State University.
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Christian Ulrich
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. PowerShares ETF Allocation Fund. He joined Invesco in 2000. Mr. Ulrich earned the equivalent of a B.B.A. from the KV Zurich Business School in Zurich, Switzerland.
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Scott Wolle
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. PowerShares ETF Allocation Fund. Mr. Wolle joined Invesco in 1999. He is responsible for the fundamental research, quantitative modeling and portfolio investment decisions for country allocations and commodities. Mr. Wolle began his investment management career in 1991. He earned a B.S. in finance from Virginia Polytechnic Institute and State University, graduating magna cum laude. He earned an M.B.A. from the Fuqua School of Business at Duke University where he earned the distinction of Fuqua Scholar.
Assisted by the Global Asset
Allocation Team
Allocation Team
Your Fund’s Long-Term Performance
Average Annual Total Returns
As of 12/31/09
As of 12/31/09
Series I Shares | ||||
Inception (10/24/08) | 33.93 | % | ||
1 Year | 25.40 | |||
Series II Shares | ||||
Inception (10/24/08) | 33.49 | % | ||
1 Year | 25.15 |
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 adviser 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 net 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 0.74% and 0.99%, respectively.1 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 2.12% and 2.37%, 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. PowerShares ETF Allocation 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
continued on next page
AIM V.I. PowerShares ETF Allocation Fund
Your Fund’s Long-Term Performance (Continued)
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 the 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 adviser.
Had the adviser not waived fees and/ or reimbursed expenses, performance would have been lower.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. |
AIM V.I. PowerShares ETF Allocation Fund’s investment objective is to provide total return consistent with a moderate level of risk relative to the broad stock market.
n | Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets. | |
n | Unless otherwise noted, all data provided by Invesco. |
Principal risks of investing in the Fund
Credit risk is the risk of loss on an investment due to the deterioration of an issuer’s financial health. Such a deterioration of financial health may result in a reduction of the credit rating of the issuer’s securities and may lead to the issuer’s inability to honor its contractual obligations, including making timely payment of interest and principal.
The Fund may use enhanced investment techniques such as derivatives. The principal risk of derivatives is that the fluctuations in their values may not correlate perfectly with the overall securities markets. Derivatives are subject to counterparty risk — the risk that the other party will not complete the transaction with the Fund.
Investing in developing countries can add additional risk, such as high rates of inflation or sharply devalued currencies against the U.S. dollar. Transaction costs are often higher, and there may be delays in settlement procedures.
Government obligors in emerging market countries are among the world’s largest debtors to commercial banks, other governments, international financial organizations and other financial institutions. Historically, certain issuers of the government debt securities have experienced substantial difficulties in meeting their external debt obligations, resulting in defaults on certain obligations and the restructuring of certain indebtedness.
Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
ETF shares may trade above or below their net asset value. An active trading market for PowerShares’ ETFs may not develop or be maintained. Trading of a PowerShares ETF may be halted if the listing exchange’s officials deem such action appropriate. PowerShares’ ETFs are not actively managed and may not fulfill their objective of tracking the performance of a specified index. PowerShares’ ETFs would not necessarily sell a security because the issuer of the security was in financial trouble unless the security is removed from the index that the ETF seeks to track. The value of an investment in a PowerShares ETF will decline, more or less, in correlation with any decline in the value of the index it seeks to track. In addition, certain PowerShares ETFs may be composed of a significant percentage of issuers in a single industry or sector of the economy and may present more risk than if they were broadly diversified.
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, relative lack of information, relatively low market liquidity, and the potential lack of strict financial and accounting controls and standards.
The Fund pursues its investment objectives by investing its assets primarily in underlying PowerShares ETFs rather than investing directly in stocks, bonds, cash or other investments. The Fund’s investment performance depends on the investment performance of the underlying PowerShares ETFs and other underlying funds and securities in which it invests. An investment in the Fund, because it is a fund of funds, is subject to the risks associated with investments in the underlying funds in which the fund invests. The Fund will indirectly pay a proportional share of the asset-based fees of the underlying PowerShares ETFs in which the Fund invests. There is risk that the adviser’s evaluations and assumptions regarding the Fund’s asset classes may be out of favor and under perform other segments; or that the Fund will vary from the target asset class weighting due to factors such as market fluctuations. There can be no assurance that the underlying PowerShares ETFs and any other underlying funds will achieve their investment objectives, and the performance of the underlying PowerShares ETFs and any other underlying funds may be lower than that of the asset classes they represent. The underlying PowerShares ETFs and any other underlying funds may change their investment objectives or policies without the approval of the Fund. If that were to occur, the Fund might be forced to withdraw its investments from an underlying PowerShares ETF and/or any other underlying funds at an unfavorable time. The adviser has the ability to select and substitute the underlying funds in which the Fund invests and may be subject to potential conflicts of interest in selecting underlying PowerShares ETFs and other affiliated underlying funds
AIM V.I. PowerShares ETF Allocation Fund
because the adviser and/or PowerShares may receive higher fees from certain underlying PowerShares ETFs and other affiliated underlying funds than others. However, as a fiduciary of the Fund, the advisor is required to act in the Fund’s best interest when selecting the underlying funds.
High-coupon, U.S. government agency mortgage-backed securities provide a higher coupon than current prevailing market interest rates, and the Fund may purchase such securities at a premium. If these securities experience a faster-than-expected principal prepayment rate, both the market value and income from such securities will decrease.
Lower rated securities may be more susceptible to real or perceived adverse economic and competitive industry conditions, and the secondary markets in which lower rated securities are traded may be less liquid than higher grade securities. The loans in which the Fund may invest are typically noninvestment-grade and involve a greater risk of default on interest and principal payments and of price changes due to the changes in the credit quality of the issuer.
Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa.
Leveraging entails risks such as magnifying changes in the value of the portfolio’s securities.
A majority of the Fund’s assets are likely to be invested in loans and securities that are less liquid than those rated on national exchanges.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
Stocks fall into three broad market capitalization categories — large, medium, and small. Investing primarily in one category carries the risk that, due to current market conditions, that category may be out of favor with investors. Small and mid-sized companies may tend to be more vulnerable to adverse developments and more volatile than larger companies. Investments in small and mid-sized companies may involve special risks, including those associated with dependence on a small management group, little of no operating history, little or no track record of success, and limited product lines, market and financial resources. Also, there may be less publicly available information about the issuers of the securities or less market interest in such securities than in the case of larger companies, each of which can cause significant price volatility. The securities of small and mid-sized companies may be illiquid, restricted as to resale, or may trade less frequently and in smaller volume than more widely held securities, which may make it difficult for fund to establish or close out a position in these securities at prevailing market prices.
The prices of securities held by the Fund may decline in response to market risks.
Nondiversification increases the risk that the value of the Fund’s shares may vary more widely, and the Fund may be subject to greater investment and credit risk than if it invested more broadly.
The ability of an issuer of a floating rate loan or debt security to repay principal prior to maturity can limit the potential for gains by the Fund.
Reinvestment risk is the risk that a bond’s cash flows will be reinvested at an interest rate below that of the original bond.
Sovereign debt securities are subject to the additional risk that — under some political, diplomatic, social or economic circumstances — some developing countries that issue lower quality debt securities may be unable or unwilling to make principal or interest payments as they come due.
The Fund 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 U.S. government. The U.S. government may choose not to provide financial support to U.S.-government-sponsored agencies or instrumentalities if it is not legally obligated to do so. In this case, if the issuer defaulted, the fund holding securities of such an issuer might not be able to recover its investment from the U.S. government.
About indexes used in this report The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries.
The Custom V.I. PowerShares ETF Allocation Fund Index, created by Invesco Aim to serve as a benchmark for AIM V.I. PowerShares ETF Allocation Fund, is composed of the following indexes: MSCI World (54%) and Barclays Capital U.S. Universal (46%).
The Lipper VUF Global Core Funds Index is an unmanaged index considered representative of global core variable insurance underlying funds tracked by Lipper.
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 the peer group reflects fund expenses; performance of a market index does not.
Other information
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Schedule of Investments
December 31, 2009
Schedule of Investments in Affiliated Issuers–102.43%(a)
Change in | ||||||||||||||||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||||||||||||||
% of Net | Value | Purchases | Proceeds | Appreciation | Realized | Dividend | Shares | Value | ||||||||||||||||||||||||||||
Assets | 12/31/08 | at Cost | from Sales | (Depreciation) | Gain (Loss) | Income | 12/31/09 | 12/31/09 | ||||||||||||||||||||||||||||
Domestic Equity ETFs–18.93% | ||||||||||||||||||||||||||||||||||||
PowerShares FTSE RAFI US 1000 Portfolio | 11.44 | % | $ | 47,754 | $ | 5,125,936 | $ | (495,332 | ) | $ | 705,329 | $ | (20,764 | ) | $ | 44,201 | 112,975 | $ | 5,362,923 | |||||||||||||||||
PowerShares FTSE RAFI US 1500 Small Mid Portfolio | 7.49 | % | 35,505 | 3,160,055 | (343,278 | ) | 672,882 | (17,331 | ) | 16,560 | 69,270 | 3,507,833 | ||||||||||||||||||||||||
Total Domestic Equity ETFs | 83,259 | 8,285,991 | (838,610 | ) | 1,378,211 | (38,095 | ) | 60,761 | 182,245 | 8,870,756 | ||||||||||||||||||||||||||
Fixed-Income ETFs–39.45% | ||||||||||||||||||||||||||||||||||||
PowerShares 1-30 Laddered Treasury Portfolio | 22.61 | % | 170,466 | 12,034,231 | (1,182,746 | ) | (353,971 | ) | (63,281 | ) | 120,972 | 398,895 | 10,598,640 | |||||||||||||||||||||||
PowerShares Emerging Markets Sovereign Debt Portfolio | 9.85 | % | 45,024 | 4,923,746 | (571,883 | ) | 237,284 | (15,965 | ) | 120,966 | 180,850 | 4,617,101 | ||||||||||||||||||||||||
PowerShares High Yield Corporate Bond Portfolio | 6.99 | % | 30,217 | 3,179,432 | (115,578 | ) | 183,176 | (3,389 | ) | 106,514 | 181,780 | 3,273,858 | ||||||||||||||||||||||||
Total Fixed-Income ETFs | 245,707 | 20,137,409 | (1,870,207 | ) | 66,489 | (82,635 | ) | 348,452 | 761,525 | 18,489,599 | ||||||||||||||||||||||||||
Foreign Equity ETFs–38.99% | ||||||||||||||||||||||||||||||||||||
iShares MSCI Japan Index Fund(b) | 7.88 | % | 24,307 | 3,759,583 | (121,319 | ) | 31,849 | (3,934 | ) | 35,406 | 378,900 | 3,690,486 | ||||||||||||||||||||||||
iShares S&P/TOPIX 150 Index Fund(b) | — | % | 15,725 | 1,169,868 | (1,251,271 | ) | (1,392 | ) | 67,070 | 3,237 | — | — | ||||||||||||||||||||||||
PowerShares FTSE RAFI Asia Pacific ex-Japan Portfolio | 7.66 | % | 35,015 | 3,263,873 | (307,201 | ) | 601,955 | (2,847 | ) | 124,110 | 76,710 | 3,590,795 | ||||||||||||||||||||||||
PowerShares FTSE RAFI Developed Markets ex-US Small- Mid Portfolio | 8.77 | % | 39,480 | 3,965,490 | (328,184 | ) | 453,755 | (22,252 | ) | 107,514 | 195,260 | 4,108,289 | ||||||||||||||||||||||||
PowerShares FTSE RAFI Emerging Markets Portfolio | 6.96 | % | 30,802 | 3,003,769 | (359,695 | ) | 586,870 | 958 | 20,469 | 141,795 | 3,262,704 | |||||||||||||||||||||||||
PowerShares FTSE RAFI Europe Portfolio | 7.72 | % | 39,434 | 3,523,899 | (424,606 | ) | 505,524 | (26,129 | ) | 34,459 | 100,420 | 3,618,122 | ||||||||||||||||||||||||
Total Foreign Equity ETFs | 184,763 | 18,686,482 | (2,792,276 | ) | 2,178,561 | 12,866 | 325,195 | 893,085 | 18,270,396 | |||||||||||||||||||||||||||
Money Market Funds–5.06% | ||||||||||||||||||||||||||||||||||||
Liquid Assets Portfolio–Institutional Class | 2.53 | % | 16,377 | 17,682,481 | (16,515,365 | ) | — | — | 1,432 | 1,183,493 | 1,183,493 | |||||||||||||||||||||||||
Premier Portfolio–Institutional Class | 2.53 | % | 16,377 | 17,682,481 | (16,515,365 | ) | — | — | 1,045 | 1,183,493 | 1,183,493 | |||||||||||||||||||||||||
Total Money Market Funds | 32,754 | 35,364,962 | (33,030,730 | ) | — | — | 2,477 | 2,366,986 | 2,366,986 | |||||||||||||||||||||||||||
TOTAL INVESTMENTS IN AFFILIATED ISSUERS (Cost $44,331,390) | 102.43 | % | $ | 546,483 | $ | 82,474,844 | $ | (38,531,823 | ) | $ | 3,623,261 | (c) | $ | (107,864 | ) | $ | 736,885 | 47,997,737 | ||||||||||||||||||
OTHER ASSETS LESS LIABILITIES | (2.43 | )% | (1,137,142 | ) | ||||||||||||||||||||||||||||||||
NET ASSETS | 100.00 | % | $ | 46,860,595 | ||||||||||||||||||||||||||||||||
Investment Abbreviations:
ETF | – Exchange-Traded Fund |
Notes to Schedule of Investments:
(a) | Unless otherwise indicated, each exchange-traded fund or mutual fund and the Fund are affiliated by either having the same investment adviser or an investment adviser under common control with the Fund’s investment adviser. | |
(b) | Non-affiliate of the Fund or its investment adviser. | |
(c) | Includes $7,164 of return of capital from PowerShares 1-30 Laddered Treasury Portfolio and PowerShares Emerging Markets Sovereign Debt Portfolio. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. PowerShares ETF Allocation Fund
Statement of Assets and Liabilities
December 31, 2009
Assets: | ||||
Investments — non affiliates at value (Cost $3,656,118) | $ | 3,690,486 | ||
Investments — affiliates, at value (Cost $40,675,272) | 44,307,251 | |||
Total investments, at value (Cost $44,331,390) | 47,997,737 | |||
Cash | 682,362 | |||
Receivables for: | ||||
Fund shares sold | 20,395 | |||
Dividends from affiliates | 138 | |||
Investment for trustee deferred compensation | 2,402 | |||
Total assets | 48,703,034 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased — non affiliates | 133,508 | |||
Investments purchased — affiliates | 1,620,777 | |||
Fund shares reacquired | 37 | |||
Accrued fees to affiliates | 44,203 | |||
Accrued other operating expenses | 41,512 | |||
Trustee deferred compensation | 2,402 | |||
Total liabilities | 1,842,439 | |||
Net assets applicable to shares outstanding | $ | 46,860,595 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 43,175,100 | ||
Undistributed net investment income | 211,260 | |||
Undistributed net realized gain (loss) | (192,112 | ) | ||
Unrealized appreciation | 3,666,347 | |||
$ | 46,860,595 | |||
Net Assets: | ||||
Series I | $ | 898,614 | ||
Series II | $ | 45,961,981 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 65,624 | |||
Series II | 3,366,270 | |||
Series I: | ||||
Net asset value per share | $ | 13.69 | ||
Series II: | ||||
Net asset value per share | $ | 13.65 | ||
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Dividends — non affiliates | $ | 31,484 | ||
Dividends — affiliates | 705,401 | |||
Total investment income | 736,885 | |||
Expenses: | ||||
Advisory fees | 116,197 | |||
Administrative services fees | 92,158 | |||
Custodian fees | 4,316 | |||
Distribution fees — Series II | 42,377 | |||
Transfer agent fees | 1,848 | |||
Trustees’ and officers’ fees and benefits | 20,103 | |||
Professional services fees | 50,736 | |||
Other | 22,538 | |||
Total expenses | 350,273 | |||
Less: Fees waived and expenses reimbursed | (270,282 | ) | ||
Net expenses | 79,991 | |||
Net investment income | 656,894 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities — non affiliates | 63,136 | |||
Investment securities — affiliates | (171,000 | ) | ||
(107,864 | ) | |||
Change in net unrealized appreciation of: | ||||
Investment securities — non affiliates | 30,457 | |||
Investment securities — affiliates | 3,592,804 | |||
3,623,261 | ||||
Net realized and unrealized gain | 3,515,397 | |||
Net increase in net assets resulting from operations | $ | 4,172,291 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. PowerShares ETF Allocation Fund
Statement of Changes in Net Assets
For the year ended December 31, 2009 and the period October 24, 2008 (commencement date) through December 31, 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 656,894 | $ | 3,633 | ||||
Net realized gain (loss) | (107,864 | ) | 497 | |||||
Change in net unrealized appreciation | 3,623,261 | 43,086 | ||||||
Net increase in net assets resulting from operations | 4,172,291 | 47,216 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (10,312 | ) | (2,420 | ) | ||||
Series II | (452,703 | ) | (5,746 | ) | ||||
Total distributions from net investment income | (463,015 | ) | (8,166 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | (1,782 | ) | — | |||||
Series II | (84,532 | ) | — | |||||
Total distributions from net realized gains | (86,314 | ) | — | |||||
Share transactions-net: | ||||||||
Series I | 690,765 | 127,430 | ||||||
Series II | 42,009,701 | 370,687 | ||||||
Net increase in net assets resulting from share transactions | 42,700,466 | 498,117 | ||||||
Net increase in net assets | 46,323,428 | 537,167 | ||||||
Net assets: | ||||||||
Beginning of year | 537,167 | — | ||||||
End of year (includes undistributed net investment income of $211,260 and $3,753, respectively) | $ | 46,860,595 | $ | 537,167 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. PowerShares ETF Allocation Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is to provide total return consistent with a moderate level of risk relative to the broad stock market. The Fund primarily invests in exchange-traded funds (“underlying funds”) advised by Invesco PowerShares Capital Management LLC (“Invesco PowerShares”). The Fund may also invest in affiliated mutual funds advised by Invesco Aim Advisors (“Invesco Aim”); in unaffiliated mutual funds and exchange-traded funds and in other
securities. Invesco Aim and Invesco PowerShares (collectively the “Advisors”) are affiliates of each other as they are indirect wholly owned subsidiaries of Invesco Ltd. (“Invesco”). Invesco Aim may change the Fund’s asset class allocations, the underlying funds or the target weightings in the underlying funds without shareholder approval. The underlying funds may engage in a number of investment techniques and practices, which involve certain risks. Each underlying fund’s accounting policies are outlined in the underlying fund’s financial statements and the affiliated underlying funds are available upon request.
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”).
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 |
AIM V.I. PowerShares ETF Allocation Fund
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 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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
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. Distributions from income from underlying funds, if any, are recorded as dividend income on ex-dividend date. Distributions from net realized capital gains from underlying funds, if any, are recorded as realized gains on the ex-dividend date. Interest income is recorded on the accrual basis from settlement date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds 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 adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
D. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and 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. |
AIM V.I. PowerShares ETF Allocation Fund
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. | ||
E. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
F. | 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. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
G. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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, including the Fund’s servicing agreements, 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. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .67% | ||
Next $250 million | 0 | .655% | ||
Next $500 million | 0 | .64% | ||
Next $1.5 billion | 0 | .625% | ||
Next $2.5 billion | 0 | .61% | ||
Next $2.5 billion | 0 | .595% | ||
Next $2.5 billion | 0 | .58% | ||
Over $10 billion | 0 | .565% | ||
Under the terms of a master sub-advisory agreement approved by shareholders of the Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.18% and Series II shares to 0.43% of average daily net assets, through at least April 30, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; (5) expenses of the underlying funds that are paid indirectly as a result of share ownership of the underlying funds; and (6) expenses that the Funds have incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time.
Further, the Adviser has contractually agreed, through at least June 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2009, the Adviser waived advisory fees of $116,197 and reimbursed Fund expenses of $154,085.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco 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’
AIM V.I. PowerShares ETF Allocation Fund
accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $42,158 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 year ended December 31, 2009, 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 year ended December 31, 2009, 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, IAIS and/or IADI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 47,997,737 | $ | — | $ | — | $ | 47,997,737 | ||||||||
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $2,781 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, 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, not to exceed the contractually agreed upon rate.
AIM V.I. PowerShares ETF Allocation Fund
NOTE 6—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Year Ended December 31, 2009 and the period October 24, 2008 (commencement date) to December 31, 2008:
2009 | 2008 | |||||||
Ordinary income | $ | 549,329 | $ | 8,166 | ||||
Tax Components of Net Assets at Period-End:
2009 | ||||
Undistributed ordinary income | $ | 213,847 | ||
Net unrealized appreciation — investments | 3,474,235 | |||
Temporary book/tax differences | (2,587 | ) | ||
Shares of beneficial interest | 43,175,100 | |||
Total net assets | $ | 46,860,595 | ||
The difference between book-basis and tax-basis unrealized appreciation is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
The Fund does not have a capital loss carryforward at period-end.
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 year ended December 31, 2009 was $47,109,882 and $5,501,093, 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 | $ | 3,814,800 | ||
Aggregate unrealized (depreciation) of investment securities | (340,565 | ) | ||
Net unrealized appreciation of investment securities | $ | 3,474,235 | ||
Cost of investments for tax purposes is $44,523,502. |
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of excise taxes, startup cost and distributions, on December 31, 2009, undistributed net investment income was increased by $13,628, undistributed net realized gain (loss) was increased by $1,569 and shares of beneficial interest decreased by $15,197. This reclassification had no effect on the net assets of the Fund.
AIM V.I. PowerShares ETF Allocation Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
October 24, 2008 (commencement | ||||||||||||||||
Year ended | date) to | |||||||||||||||
December 31, 2009(a) | December 31, 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 56,401 | $ | 738,272 | 12,501 | $ | 125,010 | ||||||||||
Series II | 3,459,519 | 43,759,281 | 35,270 | 365,022 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 880 | 12,094 | 223 | 2,420 | ||||||||||||
Series II | 39,214 | 537,235 | 530 | 5,746 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (4,381 | ) | (59,601 | ) | — | — | ||||||||||
Series II | (168,256 | ) | (2,286,815 | ) | (7 | ) | (81 | ) | ||||||||
Net increase in share activity | 3,383,377 | $ | 42,700,466 | 48,517 | $ | 498,117 | ||||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 96% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, 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 and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco 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—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | on securities | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 11.09 | $ | 0.53 | $ | 2.27 | $ | 2.80 | $ | (0.17 | ) | $ | (0.03 | ) | $ | (0.20 | ) | $ | 13.69 | 25.19 | % | $ | 899 | 0.22 | %(d) | 1.78 | %(d) | 4.03 | %(d) | 32 | % | |||||||||||||||||||||||||
Year ended 12/31/08(e) | 10.00 | 0.11 | 1.17 | 1.28 | (0.19 | ) | — | (0.19 | ) | 11.09 | 12.88 | 141 | 0.17 | (f) | 79.26 | (f) | 5.72 | (f) | 6 | |||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 11.07 | 0.49 | 2.27 | 2.76 | (0.15 | ) | (0.03 | ) | (0.18 | ) | 13.65 | 24.95 | 45,962 | 0.47 | (d) | 2.03 | (d) | 3.78 | (d) | 32 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/08(e) | 10.00 | 0.11 | 1.15 | 1.26 | (0.19 | ) | — | (0.19 | ) | 11.07 | 12.66 | 396 | 0.42 | (f) | 79.51 | (f) | 5.47 | (f) | 6 | |||||||||||||||||||||||||||||||||||||
(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, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $392 and $16,951 for Series I and Series II shares, respectively. | |
(e) | Commencement date of October 24, 2008. | |
(f) | Annualized. |
AIM V.I. PowerShares ETF Allocation Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. PowerShares ETF Allocation Fund:
In our opinion, the accompanying statements of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. PowerShares ETF Allocation Fund, (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of each of their operations for the year then ended, and the changes in each of their net assets and the financial highlights for the year then ended and for the period October 24, 2008 (commencement date) through December 31, 2008, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 10, 2010
Houston, Texas
AIM V.I. PowerShares ETF Allocation 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 July 1, 2009 through December 31, 2009.
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 | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,168.60 | $ | 0.93 | $ | 1,024.35 | $ | 0.87 | 0.17 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,167.10 | 2.29 | 1,023.09 | 2.14 | 0.42 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. PowerShares ETF Allocation Fund
Tax Information |
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2009:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 7.04% | |||
U.S. Treasury Obligations* | 17.06% |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
AIM V.I. PowerShares ETF Allocation Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Trustee and/ | ||||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | None | |||||
Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | ||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | None | |||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||||
Frank S. Bayley — 1939 Trustee | 2001 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | None | |||||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans Scholars Foundation and Executive Committee, United States Golf Association | |||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | Board of Nature’s Sunshine Products, Inc. | |||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) | Administaff | |||||
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | ||||||||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired | None | |||||
Lewis F. Pennock — 1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||||
Larry Soll — 1942 Trustee | 2004 | Retired | None | |||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) | None |
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers — (continued)
Trustee and/ | ||||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC | N/A | |||||
Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | ||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | N/A | |||||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | N/A | |||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) | N/A | |||||
Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® | N/A | |||||
Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. | N/A | |||||
Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 100 | Invesco Advisers, Inc. | Invesco Aim Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 100 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Independent Trustees | Invesco Aim Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-2
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AIM V.I. Small Cap Equity Fund
Annual Report to Shareholders n December 31, 2009
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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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
For the year ended December 31, 2009, Series I shares of AIM V.I. Small Cap Equity Fund had double-digit positive returns, but underperformed the Fund’s style-specific index, the Russell 2000 Index. In 2009, many lower quality companies with significant debt levels or other high-risk business practices saw their stocks surge, but those are not the companies we desire to own in the portfolio. Additionally, much of the Fund’s underperformance was due to stock selection in several sectors.
The Fund also underperformed the broad market, as measured by the S&P 500 Index.
Your Fund’s long-term performance appears later in this report.
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 21.29 | % | ||
Series II Shares | 20.90 | |||
S&P 500 Index▼ (Broad Market Index) | 26.47 | |||
Russell 2000 Index▼ (Style-Specific Index) | 27.17 | |||
Lipper VUF Small-Cap Core Funds Index▼ (Peer Group Index) | 29.83 |
▼ | Lipper Inc. |
Our investment process seeks to identify attractively valued small-cap companies with high growth potential, demonstrated by consistent and accelerating revenue and earnings growth.
We begin with a quantitative model that ranks companies based on a set of fundamental, valuation and timeliness factors. This proprietary model provides an objective approach to identifying new investment opportunities as the highest-ranked stocks become the primary focus of our research efforts.
Our stock selection process is based on a rigorous three-step process that includes fundamental, valuation and timeliness analysis.
1. | Fundamental analysis. Building financial models and conducting in-depth interviews with company management. |
2. | Valuation analysis. Identifying attractively valued stocks given their growth potential over a one- to two-year horizon. |
3. | Timeliness analysis. Identifying the “timeliness” of a stock purchase. We review trading volume characteristics and trend analysis to make sure there are no signs of the stock deterioration. This also serves as a risk management measure that helps us confirm our high conviction candidates. |
Portfolio construction plays an important role in risk management. We align the Fund with the S&P 600 Small-Cap Index, the benchmark we believe represents the small-cap-growth asset class. We seek to manage risk by keeping the Fund’s sector weightings in line with the benchmark by staying fully diversified in all those sectors. We also seek to limit stock-specific risk by investing in typically 120-130 holdings.
We consider selling a stock when it no longer meets our investment criteria, based on:
n | Our original investment thesis is not valid because the fundamentals are no longer intact. |
n | The price target set at purchase is exceeded. |
n | The company’s timeliness profile deteriorates. |
The year ended December 31, 2009, was truly a tale of two markets. During the first two months of the reporting period, equity markets experienced steep declines as severe problems in credit markets, a rapidly deteriorating housing market, rising energy and food prices and a deteriorating outlook for corporate earnings led to a global recession. However, the U.S. economy began to show signs that the economic contraction was moderating, and equity markets rapidly reversed direction beginning in early March 2009 and rallied strongly for most of the remaining months in the year.
In this environment, indexes measuring the performance of large-, mid- and small-cap stocks all had positive returns, with mid-cap stocks outperforming large- and small-cap stocks.1 In terms of investment style, growth stocks outperformed value stocks.1 The sectors with the highest returns in the broad market as represented by the S&P 500 Index included more economically sensitive sectors such as information technology (IT), materials and consumer discretionary.1
The Fund had double-digit absolute returns, but underperformed the Russell 2000 Index due primarily to stock selection in several sectors, including industrials, IT, materials and health care. The Fund underperformed by the widest margin in the industrials sector, driven by both stock selection and an overweight position. One of the leading detractors from performance was Team, a company that provides maintenance and construction services for high pressure piping systems. Other key detractors from performance included technological product designer AeroVironment, steel pipeline maker Northwest Pipe and tool
Portfolio Composition | ||||
By sector | ||||
Information Technology | 20.7 | % | ||
Industrials | 19.0 | |||
Financials | 14.5 | |||
Health Care | 13.8 | |||
Consumer Discretionary | 13.6 | |||
Energy | 8.2 | |||
Materials | 3.4 | |||
Telecommunication Services | 2.2 | |||
Utilities | 1.8 | |||
Consumer Staples | 1.5 | |||
Money Market Funds Plus | ||||
Other Assets Less Liabilities | 1.3 |
Top 10 Equity Holdings* | ||||||
1. | Ariba Inc. | 1.3 | % | |||
2. | Complete Production Services, Inc. | 1.3 | ||||
3. | Cooper Cos., Inc. | 1.3 | ||||
4. | OSI Systems, Inc. | 1.2 | ||||
5. | TRW Automotive Holdings Corp. | 1.2 | ||||
6. | ABM Industries Inc. | 1.2 | ||||
7. | LaSalle Hotel Properties | 1.1 | ||||
8. | Arris Group Inc. | 1.1 | ||||
9. | Anixter International Inc. | 1.1 | ||||
10. | Phillips-Van Heusen Corp. | 1.1 |
Top Five Industries* | ||||||
1. | Oil & Gas Equipment & Services | 4.4 | % | |||
2. | Oil & Gas Exploration & Production | 3.8 | ||||
3. | Regional Banks | 3.5 | ||||
4. | Restaurants | 3.4 | ||||
5. | Electrical Components & Equipment | 3.1 |
Total Net Assets | $193.0 million | |||
Total Number of Holdings* | 119 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* | Excluding money market fund holdings. |
AIM V.I. Small Cap Equity Fund
maker Snap-On. Despite weak performance, we continued to own AeroVironment and Northwest Pipe, but we sold Snap-On due to deteriorating fundamentals.
The Fund also underperformed in the IT sector, driven by stock selection. A leading detractor from Fund performance was Comtech Telecommunications, a company that designs and manufactures innovative communication products and services. Much of the remaining under-performance in the IT sector was because the Fund did not have exposure to many of the more highly leveraged and/or cyclical companies that had the strongest performance during the market rebound. Our investment process focuses on companies that can self-fund their growth initiatives, so many of our holdings underperformed these more highly leveraged companies as credit markets began to improve following the March market inflection point.
Underperformance in the materials sector was due to both stock selection and an underweight position. Similar to what happened in the IT sector, much of the Fund’s underperformance in the materials sector was because the Fund did not own many of the highly leveraged and/or cyclical companies that outperformed during the market rebound.
The Fund underperformed in the health care sector due to stock selection. The leading detractor from overall Fund performance was ViroPharma, a pharmaceutical company that focuses on discovering drugs to combat RNA viruses. A second company that detracted from Fund performance was Cardiac Science, a medical device company that makes cardiovascular monitoring and therapeutic equipment. We sold Cardiac Science.
Some of this underperformance was offset by outperformance in other sectors, including financials, energy and utilities. The Fund outperformed by the widest margin in the financials sector, due to stock selection and an underweight position. Several of the Fund’s diversified financials holdings had strong performance driven by improving equity markets, including Gamco Investors, Affiliated Managers Group and KBW.
The Fund also benefited from stock selection and an underweight position in the banks industry group.
Outperformance in the energy sector was due to stock selection and an overweight position. Many energy equipment and services holdings had strong performance following the market
rebound, including Oceaneering International, Natco Group and Lufkin Industries. These companies benefited from accelerating demand for their products and services as the global economy showed signs of dramatic improvement and oil prices rebounded. We sold Natco Group.
Outperformance in the utilities sector was driven by stock selection and an underweight position. Energen was a key contributor to Fund performance during the period.
During the year, the most significant positioning changes included additions in more economically sensitive sectors including IT, energy and consumer discretionary. Purchases in these sectors were funded by reducing exposure to the more defensive sectors including consumer staples and utilities. All changes to the Fund were based on our bottom-up stock selection process of identifying high-quality growth companies trading at what we believe are attractive valuations.
We thank you for your commitment to AIM V.I. Small Cap Equity Fund.
1 | Lipper Inc. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
![(PHOTO OF JULIET ELLIS)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6944202.gif)
Juliet Ellis
Chartered Financial Analyst, senior portfolio manager, is lead manager of AIM V.I. Small Cap Equity Fund. Ms. Ellis joined Invesco Aim in 2004. She previously served as senior portfolio manager of two small-cap funds for another company and was responsible for the management of more than $2 billion in assets. Ms. Ellis began her investment career in 1981 as a financial consultant. She is a cum laude and Phi Beta Kappa graduate of Indiana University with a B.A. in economics and political science.
Chartered Financial Analyst, senior portfolio manager, is lead manager of AIM V.I. Small Cap Equity Fund. Ms. Ellis joined Invesco Aim in 2004. She previously served as senior portfolio manager of two small-cap funds for another company and was responsible for the management of more than $2 billion in assets. Ms. Ellis began her investment career in 1981 as a financial consultant. She is a cum laude and Phi Beta Kappa graduate of Indiana University with a B.A. in economics and political science.
![(PHOTO OF JUAN HARTSFIELD)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6944203.gif)
Juan Hartsfield
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Small Cap Equity Fund. Prior to joining Invesco Aim in 2004, he began his investment career in 2000 as an equity analyst and most recently served as a portfolio manager. Mr. Hartsfield earned a B.S. in petroleum engineering from The University of Texas and his M.B.A. from the University of Michigan.
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Small Cap Equity Fund. Prior to joining Invesco Aim in 2004, he began his investment career in 2000 as an equity analyst and most recently served as a portfolio manager. Mr. Hartsfield earned a B.S. in petroleum engineering from The University of Texas and his M.B.A. from the University of Michigan.
Assisted by the Small Cap Growth/Core Team
AIM V.I. Small Cap Equity Fund
Results of a $10,000 Investment – Oldest Share Classes since inception
Fund data from 8/29/03, index data from 8/31/03
Fund data from 8/29/03, index data from 8/31/03
![(PERFORMANCE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6944204.gif)
1 | Lipper Inc. |
Past performance cannot guarantee comparable future results.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating
changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a
doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000.
Average Annual Total Returns | ||||
As of 12/31/09 | ||||
Series I Shares | ||||
Inception (8/29/03) | 5.28 | % | ||
5 Years | 2.16 | |||
1 Year | 21.29 | |||
Series II Shares | ||||
Inception (8/29/03) | 5.05 | % | ||
5 Years | 1.91 | |||
1 Year | 20.90 |
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 adviser 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 1.10% and 1.35%, 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. Small Cap Equity 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 the 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 adviser.
Had the adviser not waived fees and/ or reimbursed expenses in the past, performance would have been lower.
AIM V.I. Small Cap Equity Fund
n | Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
The values of convertible securities in which the Fund invests may be affected by market interest rates, the risk that the issuer may default on interest or principal payments, and the value of the underlying common stock into which these securities may be converted.
Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, relative lack of information, relatively low market liquidity, and the potential lack of strict financial and accounting controls and standards.
Since 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.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
The prices of securities held by the Fund may decline in response to market risks.
Investing in a fund that invests in smaller companies involves risks not associated with investing in more established companies, such as business risk, stock price fluctuations and illiquidity.
Although the Fund's return during certain periods was positively impacted by its investments in initial public offerings (IPOs), there can be no assurance that the fund will have favorable IPO investment opportunities in the future.
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Russell 2000® Index is an unmanaged index considered representative of small-cap stocks. The Russell 2000 Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Small-Cap Core Funds Index is an unmanaged index considered representative of small-cap core variable insurance underlying funds tracked by Lipper.
The S&P SmallCap 600 Index is a market-value weighted index that consists of 600 small cap domestic stocks chosen for market size, liquidity, and industry group representation.
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 the peer group reflects fund expenses; performance of a market index does not.
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
AIM V.I. Small Cap Equity Fund
Schedule of Investments(a)
December 31, 2009
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.71% | ||||||||
Advertising–1.04% | ||||||||
Interpublic Group of Cos., Inc. (The)(b) | 271,919 | $ | 2,006,762 | |||||
Aerospace & Defense–2.37% | ||||||||
AAR Corp.(b) | 90,293 | 2,074,933 | ||||||
Aerovironment Inc.(b) | 40,083 | 1,165,614 | ||||||
Curtiss-Wright Corp. | 42,710 | 1,337,677 | ||||||
4,578,224 | ||||||||
Airlines–0.86% | ||||||||
Allegiant Travel Co.(b)(c) | 35,309 | 1,665,526 | ||||||
Apparel Retail–1.79% | ||||||||
Citi Trends Inc.(b) | 57,300 | 1,582,626 | ||||||
J. Crew Group, Inc.(b) | 42,036 | 1,880,691 | ||||||
3,463,317 | ||||||||
Apparel, Accessories & Luxury Goods–2.83% | ||||||||
Carter’s, Inc.(b) | 70,262 | 1,844,377 | ||||||
Phillips-Van Heusen Corp. | 53,073 | 2,159,010 | ||||||
Volcom, Inc.(b) | 87,566 | 1,465,855 | ||||||
5,469,242 | ||||||||
Application Software–2.56% | ||||||||
Blackbaud, Inc. | 45,368 | 1,072,046 | ||||||
Parametric Technology Corp.(b) | 111,017 | 1,814,018 | ||||||
Quest Software, Inc.(b) | 111,166 | 2,045,454 | ||||||
4,931,518 | ||||||||
Asset Management & Custody Banks–2.31% | ||||||||
Affiliated Managers Group, Inc.(b) | 21,500 | 1,448,025 | ||||||
GAMCO Investors, Inc.–Class A | 26,931 | 1,300,498 | ||||||
SEI Investments Co. | 97,352 | 1,705,607 | ||||||
Teton Advisers, Inc.–Class A | 1 | 9 | ||||||
4,454,139 | ||||||||
Auto Parts & Equipment–1.18% | ||||||||
TRW Automotive Holdings Corp.(b) | 95,222 | 2,273,901 | ||||||
Biotechnology–0.35% | ||||||||
InterMune, Inc.(b) | 52,404 | 683,348 | ||||||
Casinos & Gaming–1.03% | ||||||||
Bally Technologies Inc.(b) | 48,288 | 1,993,812 | ||||||
Communications Equipment–2.60% | ||||||||
Arris Group Inc.(b) | 190,171 | 2,173,654 | ||||||
Comtech Telecommunications Corp.(b) | 46,992 | 1,647,070 | ||||||
JDS Uniphase Corp.(b) | 145,465 | 1,200,086 | ||||||
5,020,810 | ||||||||
Construction & Engineering–1.37% | ||||||||
MYR Group Inc.(b) | 82,811 | 1,497,223 | ||||||
Northwest Pipe Co.(b) | 42,548 | 1,142,839 | ||||||
2,640,062 | ||||||||
Construction, Farm Machinery & Heavy Trucks–1.64% | ||||||||
Titan International, Inc. | 220,946 | 1,791,872 | ||||||
Trinity Industries, Inc. | 78,783 | 1,373,976 | ||||||
3,165,848 | ||||||||
Data Processing & Outsourced Services–2.06% | ||||||||
CyberSource Corp.(b) | 102,609 | 2,063,467 | ||||||
Wright Express Corp.(b) | 59,901 | 1,908,446 | ||||||
3,971,913 | ||||||||
Diversified Chemicals–0.88% | ||||||||
FMC Corp. | 30,558 | 1,703,914 | ||||||
Diversified Metals & Mining–0.98% | ||||||||
Compass Minerals International, Inc. | 28,152 | 1,891,533 | ||||||
Diversified Support Services–0.54% | ||||||||
EnerNOC, Inc.(b) | 34,029 | 1,034,141 | ||||||
Electrical Components & Equipment–3.09% | ||||||||
Baldor Electric Co. | 67,748 | 1,903,041 | ||||||
Belden Inc. | 64,652 | 1,417,172 | ||||||
General Cable Corp.(b) | 38,995 | 1,147,233 | ||||||
GrafTech International Ltd.(b) | 96,365 | 1,498,476 | ||||||
5,965,922 | ||||||||
Electronic Equipment & Instruments–1.71% | ||||||||
OSI Systems, Inc.(b) | 83,887 | 2,288,437 | ||||||
Rofin-Sinar Technologies, Inc.(b) | 42,774 | 1,009,894 | ||||||
3,298,331 | ||||||||
Environmental & Facilities Services–2.73% | ||||||||
ABM Industries Inc. | 109,760 | 2,267,642 | ||||||
Team, Inc.(b) | 70,086 | 1,318,318 | ||||||
Waste Connections, Inc.(b) | 50,531 | 1,684,703 | ||||||
5,270,663 | ||||||||
Gas Utilities–1.49% | ||||||||
Energen Corp. | 30,573 | 1,430,816 | ||||||
UGI Corp. | 59,926 | 1,449,610 | ||||||
2,880,426 | ||||||||
General Merchandise Stores–0.53% | ||||||||
Pantry, Inc. (The)(b) | 75,375 | 1,024,346 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Small Cap Equity Fund
Shares | Value | |||||||
Health Care Distributors–0.84% | ||||||||
Owens & Minor, Inc. | 37,550 | $ | 1,612,022 | |||||
Health Care Equipment–1.97% | ||||||||
ev3 Inc.(b) | 141,449 | 1,886,930 | ||||||
Invacare Corp. | 77,148 | 1,924,071 | ||||||
3,811,001 | ||||||||
Health Care Facilities–1.73% | ||||||||
Skilled Healthcare Group Inc.–Class A(b) | 172,380 | 1,284,231 | ||||||
Universal Health Services, Inc.–Class B | 67,382 | 2,055,151 | ||||||
3,339,382 | ||||||||
Health Care Services–1.80% | ||||||||
Emdeon, Inc.–Class A(b) | 110,418 | 1,683,874 | ||||||
Gentiva Health Services, Inc.(b) | 66,578 | 1,798,272 | ||||||
3,482,146 | ||||||||
Health Care Supplies–2.10% | ||||||||
Cooper Cos., Inc. (The) | 63,447 | 2,418,600 | ||||||
Haemonetics Corp.(b) | 29,641 | 1,634,701 | ||||||
4,053,301 | ||||||||
Health Care Technology–1.19% | ||||||||
athenahealth Inc.(b) | 21,403 | 968,272 | ||||||
Omnicell, Inc.(b) | 113,756 | 1,329,807 | ||||||
2,298,079 | ||||||||
Home Furnishings–0.78% | ||||||||
Ethan Allen Interiors Inc.(c) | 111,760 | 1,499,819 | ||||||
Industrial Machinery–2.35% | ||||||||
Chart Industries, Inc.(b) | 57,894 | 958,146 | ||||||
Gardner Denver Inc. | 6,058 | 257,768 | ||||||
RBC Bearings Inc.(b) | 61,489 | 1,496,027 | ||||||
Valmont Industries, Inc. | 23,147 | 1,815,882 | ||||||
4,527,823 | ||||||||
Insurance Brokers–1.50% | ||||||||
Arthur J. Gallagher & Co. | 69,324 | 1,560,483 | ||||||
eHealth, Inc.(b) | 81,136 | 1,333,065 | ||||||
2,893,548 | ||||||||
Integrated Telecommunication Services–1.82% | ||||||||
Alaska Communications Systems Group Inc. | 190,916 | 1,523,510 | ||||||
Cincinnati Bell Inc.(b) | 577,776 | 1,993,327 | ||||||
3,516,837 | ||||||||
Internet Software & Services–2.56% | ||||||||
Ancestry.com, Inc.(b) | 76,052 | 1,065,488 | ||||||
GSI Commerce, Inc.(b) | 74,530 | 1,892,317 | ||||||
Open Text Corp. (Canada)(b) | 49,005 | 1,992,053 | ||||||
4,949,858 | ||||||||
Investment Banking & Brokerage–1.02% | ||||||||
KBW Inc.(b) | 71,963 | 1,968,908 | ||||||
IT Consulting & Other Services–0.98% | ||||||||
CACI International Inc.–Class A(b) | 38,534 | 1,882,386 | ||||||
Life Sciences Tools & Services–1.37% | ||||||||
Dionex Corp.(b) | 25,100 | 1,854,137 | ||||||
eResearch Technology, Inc.(b) | 130,919 | 786,823 | ||||||
2,640,960 | ||||||||
Marine–0.59% | ||||||||
DryShips Inc. (Greece)(b) | 194,150 | 1,129,953 | ||||||
Metal & Glass Containers–0.87% | ||||||||
AptarGroup, Inc. | 46,900 | 1,676,206 | ||||||
Movies & Entertainment–1.00% | ||||||||
World Wrestling Entertainment, Inc.–Class A | 126,256 | 1,935,504 | ||||||
Office REIT’s–1.81% | ||||||||
Alexandria Real Estate Equities, Inc.(c) | 25,124 | 1,615,222 | ||||||
Digital Realty Trust, Inc. | 37,300 | 1,875,444 | ||||||
3,490,666 | ||||||||
Oil & Gas Equipment & Services–4.36% | ||||||||
Complete Production Services, Inc.(b) | 187,932 | 2,443,116 | ||||||
Dresser-Rand Group, Inc.(b) | 59,837 | 1,891,448 | ||||||
Lufkin Industries, Inc. | 28,585 | 2,092,422 | ||||||
Oceaneering International, Inc.(b) | 33,862 | 1,981,604 | ||||||
8,408,590 | ||||||||
Oil & Gas Exploration & Production–3.83% | ||||||||
Arena Resources, Inc.(b) | 46,316 | 1,997,146 | ||||||
Comstock Resources, Inc.(b) | 40,560 | 1,645,519 | ||||||
Forest Oil Corp.(b) | 88,857 | 1,977,068 | ||||||
Penn Virginia Corp. | 83,347 | 1,774,458 | ||||||
7,394,191 | ||||||||
Packaged Foods & Meats–1.51% | ||||||||
Flowers Foods, Inc. | 52,123 | 1,238,443 | ||||||
TreeHouse Foods, Inc.(b) | 42,998 | 1,670,902 | ||||||
2,909,345 | ||||||||
Pharmaceuticals–2.49% | ||||||||
Biovail Corp. (Canada) | 124,041 | 1,731,612 | ||||||
ViroPharma Inc.(b) | 172,458 | 1,446,923 | ||||||
VIVUS, Inc.(b) | 176,470 | 1,621,759 | ||||||
4,800,294 | ||||||||
Property & Casualty Insurance–1.70% | ||||||||
FPIC Insurance Group, Inc.(b) | 45,475 | 1,756,244 | ||||||
Hanover Insurance Group Inc. (The) | 34,490 | 1,532,391 | ||||||
3,288,635 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Small Cap Equity Fund
Shares | Value | |||||||
Regional Banks–3.51% | ||||||||
BancFirst Corp. | 29,032 | $ | 1,075,345 | |||||
Commerce Bancshares, Inc. | 42,667 | 1,652,066 | ||||||
Community Trust Bancorp, Inc. | 52,394 | 1,281,034 | ||||||
First Financial Bankshares, Inc. | 25,508 | 1,383,299 | ||||||
FirstMerit Corp. | 68,392 | 1,377,415 | ||||||
6,769,159 | ||||||||
Restaurants–3.42% | ||||||||
Brinker International, Inc. | 92,381 | 1,378,324 | ||||||
DineEquity, Inc.(b) | 51,364 | 1,247,632 | ||||||
Papa John’s International, Inc.(b) | 52,578 | 1,228,222 | ||||||
Sonic Corp.(b) | 139,013 | 1,399,861 | ||||||
Texas Roadhouse, Inc.(b) | 119,888 | 1,346,342 | ||||||
6,600,381 | ||||||||
Semiconductor Equipment–2.80% | ||||||||
ATMI, Inc.(b) | 88,933 | 1,655,932 | ||||||
Cymer, Inc.(b) | 53,440 | 2,051,027 | ||||||
MKS Instruments, Inc.(b) | 98,006 | 1,706,285 | ||||||
5,413,244 | ||||||||
Semiconductors–2.08% | ||||||||
ON Semiconductor Corp.(b) | 230,466 | 2,030,405 | ||||||
Semtech Corp.(b) | 116,859 | 1,987,772 | ||||||
4,018,177 | ||||||||
Specialized REIT’s–2.60% | ||||||||
LaSalle Hotel Properties | 104,148 | 2,211,062 | ||||||
Senior Housing Properties Trust | 70,946 | 1,551,589 | ||||||
Universal Health Realty Income Trust | 39,289 | 1,258,427 | ||||||
5,021,078 | ||||||||
Specialty Chemicals–0.69% | ||||||||
Zep, Inc. | 76,868 | 1,331,354 | ||||||
Systems Software–1.28% | ||||||||
Ariba Inc.(b) | 197,837 | 2,476,919 | ||||||
Technology Distributors–2.10% | ||||||||
Anixter International Inc.(b) | 45,876 | 2,160,760 | ||||||
Ingram Micro Inc.–Class A(b) | 108,947 | 1,901,125 | ||||||
4,061,885 | ||||||||
Trading Companies & Distributors–0.92% | ||||||||
Beacon Roofing Supply, Inc.(b) | 110,506 | 1,768,096 | ||||||
Trucking–2.53% | ||||||||
Landstar System, Inc. | 46,887 | 1,817,809 | ||||||
Marten Transport, Ltd.(b) | 69,458 | 1,246,771 | ||||||
Old Dominion Freight Line, Inc.(b) | 58,958 | 1,810,011 | ||||||
4,874,591 | ||||||||
Water Utilities–0.27% | ||||||||
Cascal N.V. (United Kingdom) | 94,858 | 513,182 | ||||||
Wireless Telecommunication Services–0.40% | ||||||||
NTELOS Holdings Corp. | 43,251 | 770,733 | ||||||
Total Common Stocks & Other Equity Interests (Cost $175,969,065) | 190,515,951 | |||||||
Money Market Funds–2.18% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 2,101,527 | 2,101,527 | ||||||
Premier Portfolio–Institutional Class(d) | 2,101,527 | 2,101,527 | ||||||
Total Money Market Funds (Cost $4,203,054) | 4,203,054 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.89% (Cost $180,172,119) | 194,719,005 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–1.73% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $3,340,596)(d)(e) | 3,340,596 | 3,340,596 | ||||||
TOTAL INVESTMENTS–102.62% (Cost $183,512,715) | 198,059,601 | |||||||
OTHER ASSETS LESS LIABILITIES–(2.62)% | (5,062,901 | ) | ||||||
NET ASSETS–100.00% | $ | 192,996,700 | ||||||
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 December 31, 2009. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(e) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 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
December 31, 2009
Assets: | ||||
Investments, at value (Cost $175,969,065)* | $ | 190,515,951 | ||
Investments in affiliated money market funds, at value and cost | 7,543,650 | |||
Total investments, at value (Cost $183,512,715) | 198,059,601 | |||
Receivables for: | ||||
Investments sold | 277,912 | |||
Fund shares sold | 162,889 | |||
Dividends | 187,669 | |||
Investment for trustee deferred compensation and retirement plans | 14,033 | |||
Total assets | 198,702,104 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 2,142,508 | |||
Fund shares reacquired | 28,668 | |||
Collateral upon return of securities loaned | 3,340,596 | |||
Accrued fees to affiliates | 127,810 | |||
Accrued other operating expenses | 42,512 | |||
Trustee deferred compensation and retirement plans | 23,310 | |||
Total liabilities | 5,705,404 | |||
Net assets applicable to shares outstanding | $ | 192,996,700 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 217,393,534 | ||
Undistributed net investment income (loss) | (24,065 | ) | ||
Undistributed net realized gain (loss) | (38,919,655 | ) | ||
Unrealized appreciation | 14,546,886 | |||
$ | 192,996,700 | |||
Net Assets: | ||||
Series I | $ | 178,948,615 | ||
Series II | $ | 14,048,085 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 13,914,570 | |||
Series II | 1,106,895 | |||
Series I: | ||||
Net asset value per share | $ | 12.86 | ||
Series II: | ||||
Net asset value per share | $ | 12.69 | ||
* | At December 31, 2009, securities with an aggregate value of $3,241,694 were on loan to brokers. |
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Dividends (net of foreign withholding taxes of $3,001) | $ | 1,639,947 | ||
Dividends from affiliated money market funds (includes securities lending income of $153,338) | 169,279 | |||
Total investment income | 1,809,226 | |||
Expenses: | ||||
Advisory fees | 1,247,396 | |||
Administrative services fees | 468,254 | |||
Custodian fees | 22,570 | |||
Distribution fees — Series II | 23,111 | |||
Transfer agent fees | 17,978 | |||
Trustees’ and officers’ fees and benefits | 25,419 | |||
Other | 49,311 | |||
Total expenses | 1,854,039 | |||
Less: Fees waived | (4,276 | ) | ||
Net expenses | 1,849,763 | |||
Net investment income (loss) | (40,537 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from investment securities (includes net gains from securities sold to affiliates of $34,634) | (20,760,004 | ) | ||
Change in net unrealized appreciation of investment securities | 54,460,389 | |||
Net realized and unrealized gain | 33,700,385 | |||
Net increase in net assets resulting from operations | $ | 33,659,848 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Small Cap Equity Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (40,537 | ) | $ | 281,807 | |||
Net realized gain (loss) | (20,760,004 | ) | (17,937,663 | ) | ||||
Change in net unrealized appreciation (depreciation) | 54,460,389 | (52,374,299 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 33,659,848 | (70,030,155 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (278,362 | ) | — | |||||
Series II | (15,577 | ) | — | |||||
Total distributions from net investment income | (293,939 | ) | — | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | — | (660,008 | ) | |||||
Series II | — | (21,507 | ) | |||||
Total distributions from net realized gains | — | (681,515 | ) | |||||
Share transactions-net: | ||||||||
Series I | (4,469,997 | ) | 53,423,230 | |||||
Series II | 6,233,450 | 6,837,898 | ||||||
Net increase in net assets resulting from share transactions | 1,763,453 | 60,261,128 | ||||||
Net increase (decrease) in net assets | 35,129,362 | (10,450,542 | ) | |||||
Net assets: | ||||||||
Beginning of year | 157,867,338 | 168,317,880 | ||||||
End of year (includes undistributed net investment income (loss) of $(24,065) and $261,903, respectively) | $ | 192,996,700 | $ | 157,867,338 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. Small Cap Equity Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is long-term growth of capital.
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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on 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 ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
AIM V.I. Small Cap Equity Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, 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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
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 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 adviser. | ||
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 adviser 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. |
AIM V.I. Small Cap Equity Fund
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. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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, including the Fund’s servicing agreements, 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. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could 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, if any. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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 Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
AIM V.I. Small Cap Equity Fund
Further, the Adviser has contractually agreed, through at least June 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended December 31, 2009, the Adviser waived advisory fees of $4,276.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $418,254 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 year ended December 31, 2009, 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 year ended December 31, 2009, 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, IAIS and/or IADI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 198,059,601 | $ | — | $ | — | $ | 198,059,601 | ||||||||
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 adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2009, the Fund engaged in securities sales of $302,756, which resulted in net realized gains of $34,634.
AIM V.I. Small Cap Equity Fund
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $3,146 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, 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, not to exceed the contractually agreed upon rate.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2009 and 2008:
2009 | 2008 | |||||||
Ordinary income | $ | 293,939 | $ | 566,079 | ||||
Long-term capital gain | — | 115,436 | ||||||
Total distributions | $ | 293,939 | $ | 681,515 | ||||
Tax Components of Net Assets at Period-End:
2009 | ||||
Net unrealized appreciation — investments | $ | 11,137,672 | ||
Temporary book/tax differences | (24,065 | ) | ||
Post-October deferrals | (556,059 | ) | ||
Capital loss carryforward | (34,954,382 | ) | ||
Shares of beneficial interest | 217,393,534 | |||
Total net assets | $ | 192,996,700 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 12,193,641 | ||
December 31, 2017 | 22,760,741 | |||
Total capital loss carryforward | $ | 34,954,382 | ||
* | 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. Small Cap Equity Fund
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2009 was $77,495,950 and $74,987,312, 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 | $ | 27,566,446 | ||
Aggregate unrealized (depreciation) of investment securities | (16,428,774 | ) | ||
Net unrealized appreciation of investment securities | $ | 11,137,672 | ||
Cost of investments for tax purposes is $186,921,929. |
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of net operating losses, on December 31, 2009, undistributed net investment income (loss) was increased by $48,508 and shares of beneficial interest decreased by $48,508. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended December 31, | ||||||||||||||||
2009(a) | 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 3,683,269 | $ | 39,156,749 | 7,106,974 | $ | 99,325,405 | ||||||||||
Series II | 780,951 | 8,298,387 | 581,209 | 7,454,266 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 22,558 | 278,362 | 64,391 | 660,008 | ||||||||||||
Series II | 1,279 | 15,577 | 2,121 | 21,507 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (4,128,279 | ) | (43,905,108 | ) | (3,672,675 | ) | (46,562,183 | ) | ||||||||
Series II | (204,276 | ) | (2,080,514 | ) | (56,485 | ) | (637,875 | ) | ||||||||
Net increase in share activity | 155,502 | $ | 1,763,453 | 4,025,535 | $ | 60,261,128 | ||||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 82% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, 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 and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco 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.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | (losses) on | Dividends | Distributions | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||||
value, | investment | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | (loss)(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 10.62 | $ | (0.00 | ) | $ | 2.26 | $ | 2.26 | $ | (0.02 | ) | $ | — | $ | (0.02 | ) | $ | 12.86 | 21.29 | % | $ | 178,949 | 1.09 | %(d) | 1.09 | %(d) | (0.01 | )%(d) | 46 | % | |||||||||||||||||||||||||
Year ended 12/31/08 | 15.53 | 0.02 | (4.88 | ) | (4.86 | ) | — | (0.05 | ) | (0.05 | ) | 10.62 | (31.31 | ) | 152,310 | 1.09 | 1.09 | 0.16 | 55 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 15.19 | (0.01 | ) | 0.81 | 0.80 | (0.01 | ) | (0.45 | ) | (0.46 | ) | 15.53 | 5.19 | 168,286 | 1.12 | 1.15 | (0.07 | ) | 45 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 13.46 | (0.01 | ) | 2.37 | 2.36 | — | (0.63 | ) | (0.63 | ) | 15.19 | 17.44 | 93,243 | 1.15 | 1.33 | (0.06 | ) | 52 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 12.45 | (0.06 | ) | 1.07 | 1.01 | — | — | — | 13.46 | 8.11 | 42,752 | 1.22 | 1.57 | (0.44 | ) | 70 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 10.51 | (0.03 | ) | 2.23 | 2.20 | (0.02 | ) | — | (0.02 | ) | 12.69 | 20.90 | 14,048 | 1.34 | (d) | 1.34 | (d) | (0.26 | )(d) | 46 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 15.39 | 0.00 | (4.83 | ) | (4.83 | ) | — | (0.05 | ) | (0.05 | ) | 10.51 | (31.40 | ) | 5,557 | 1.34 | 1.34 | (0.09 | ) | 55 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 15.10 | (0.05 | ) | 0.79 | 0.74 | — | (0.45 | ) | (0.45 | ) | 15.39 | 4.84 | 32 | 1.37 | 1.40 | (0.32 | ) | 45 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 13.41 | (0.04 | ) | 2.36 | 2.32 | — | (0.63 | ) | (0.63 | ) | 15.10 | 17.20 | 854 | 1.40 | 1.58 | (0.31 | ) | 52 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 12.43 | (0.08 | ) | 1.06 | 0.98 | — | — | — | 13.41 | 7.88 | 679 | 1.42 | 1.82 | (0.64 | ) | 70 | ||||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. 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 Fund into the Fund | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $158,191 and $9,244 for Series I and Series II shares, respectively. |
AIM V.I. Small Cap Equity Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Small Cap Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. Small Cap Equity Fund, (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 10, 2010
Houston, Texas
AIM V.I. Small Cap 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 July 1, 2009 through December 31, 2009.
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 | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,167.80 | $ | 5.96 | $ | 1,019.71 | $ | 5.55 | 1.09 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,165.70 | 7.31 | 1,018.45 | 6.82 | 1.34 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. Small Cap Equity Fund
Tax Information |
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2009:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 98.52% |
* | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
AIM V.I. Small Cap Equity Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Other Directorship(s) | |||||||
Position(s) Held with the Trust | or Officer | During Past 5 Years | Held by Trustee | |||||||
Since | ||||||||||
Interested Persons | ||||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | None | |||||||
Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | ||||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co- Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC | None | |||||||
Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||||||
Independent Trustees | ||||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||||||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||||||
Frank S. Bayley — 1939 Trustee | 2001 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | None | |||||||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans | |||||||
Scholars Foundation and Executive Committee, United States Golf Association | ||||||||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) | Board of Nature’s Sunshine Products, Inc. | |||||||
Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | ||||||||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) | Administaff | |||||||
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | ||||||||||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired | None | |||||||
Lewis F. Pennock — 1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||||||
Larry Soll — 1942 Trustee | 2004 | Retired | None | |||||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) | None | |||||||
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers – (continued)
Name, Year of Birth and | Trustee and/ | Principal Occupation(s) | Other Directorship(s) | |||||||
Position(s) Held with the Trust | or Officer | During Past 5 Years | Held by Trustee | |||||||
Since | ||||||||||
Other Officers | ||||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC | N/A | |||||||
Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | ||||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | N/A | |||||||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® | N/A | |||||||
Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | ||||||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | N/A | |||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® | N/A | |||||||
Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. | N/A | |||||||
Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | ||||||||||
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 100 | Invesco Advisers, Inc. | Invesco Aim Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 100 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Independent Trustees | Invesco Aim Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 |
T-2
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AIM V.I. Technology Fund
Annual Report to Shareholders n December 31, 2009
Annual Report to Shareholders n December 31, 2009
![(IMAGE)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943301.gif)
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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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
Management’s Discussion of Fund Performance
Performance summary
The year was characterized by two dramatically different market environments. In early 2009, equity markets declined steeply as credit markets froze and risk premiums rose dramatically in response to the global recession. As central banks coordinated easing efforts and companies cut costs aggressively, access to funding improved and market valuations in both the credit and equity markets recovered from their March lows.
The information technology (IT) sector enjoyed a banner year with significant double-digit gains — well ahead of other market sectors. As a result, AIM V.I. Technology Fund, excluding variable product issuer charges, outperformed the broad market, as measured by the S&P 500 Index, for the year ended December 31, 2009. However, the Fund underperformed its style-specific index, the Merrill Lynch 100 Technology Index, as our quality-biased investment process was out of favor and stocks with low returns on invested capital appreciated most in 2009. Specifically, stock selection in the computer and peripherals industry, as well as stock selection and an overweight position in the software industry, negatively affected Fund performance relative to its style-specific index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 57.40 | % | ||
Series II Shares | 57.14 | |||
S&P 500 Index6 (Broad Market Index) | 26.47 | |||
BofA Merrill Lynch 100 Technology Index6 (Style-Specific Index)* | 66.86 | |||
S&P North American Technology Sector Index6 (Former Style-Specific Index)* | 63.19 | |||
Lipper VUF Science & Technology Funds Category Average6 (Peer Group) | 57.34 | |||
6Lipper Inc. |
* | During the reporting period, the Fund elected to use the BofA Merrill Lynch 100 Technology Index as its style-specific index rather than the S&P North American Technology Sector Index because it more appropriately reflects the Fund’s investment style. |
How we invest
We seek to grow capital by investing in companies we believe generate sustainable, superior earnings and cash flow growth that is not fully reflected in investor expectations or equity valuations. The Fund emphasizes companies believed to have a strategic advantage over their competition and operating in industries believed to be beneficiaries of secular trends. The Fund invests in industries such as hardware, software, telecommunications equipment and services, semiconductors and service-related companies in the IT sector. We use a research oriented bottom-up investment approach focusing on company fundamentals and growth prospects.
We place great emphasis on companies exhibiting high returns on invested capital and generating free cash flow, metrics we believe are good indicators of financial health and growth potential. Also, we seek management teams that maintain high quality balance sheets and manageable debt levels. Valuation also plays a critical role in stock selection.
Risk management is an integral part of our portfolio construction, as our target portfolio attempts to limit volatility and downside risk. Only stocks that represent a proper risk and reward profile are chosen for inclusion in the portfolio. We seek to accomplish this goal by thoroughly understanding the key business drivers of companies in which we invest. The portfolio is constructed with the goal of holding approximately 40-60 individual stocks we believe are best suited to capitalize on secular trends prevalent in the IT sector.
We may reduce or eliminate a stock when:
§ | A stock’s price reaches its valuation target. | |
§ | A company’s fundamentals change or deteriorate. | |
§ | It no longer meets our investment criteria. |
Market conditions and your Fund
Though the beginning of the year was marked by headlines claiming economic “Armageddon,” the U.S. economy began to show signs that the contraction was moderating. Economic data indicated that the rampant decline in business spending and consumption that occurred in 2008 and early 2009 may have eased. Given signs that the economic downturn may be moderating, equity and credit markets improved. In addition, financial markets benefited from various government programs introduced to improve bank balance sheets and reduce credit spreads.
A variety of emergency fiscal and monetary initiatives of governments and central banks appeared to have succeeded in averting a global economic collapse. However, high unemployment levels and the long-term implications of the sovereign debt burden for Western economies continued to cause concern. Additionally,
Portfolio Composition
By sector
By sector
Information Technology | 93.3 | % | ||
Consumer Discretionary | 1.3 | |||
Telecommunication Services | 1.1 | |||
Financials | 0.7 | |||
Money Market Funds Plus Other Assets Less Liabilities | 3.6 |
Top 10 Equity Holdings*
1. Apple Inc. | 5.2 | % | ||
2. Google Inc.-Class A | 4.6 | |||
3. Hewlett-Packard Co. | 3.9 | |||
4. Cognizant Technology Solutions Corp.- Class A | 3.9 | |||
5. Microsoft Corp. | 3.9 | |||
6. Intel Corp. | 3.2 | |||
7. Check Point Software Technologies Ltd. | 3.2 | |||
8. Marvell Technology Group Ltd. | 3.1 | |||
9. QUALCOMM Inc. | 2.6 | |||
10. EMC Corp. | 2.4 | |||
Total Net Assets | $119.8 million | |||
Total Number of Holdings* | 61 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* | Excluding money market fund holdings. |
AIM V.I. Technology Fund
businesses and households still had a considerable way to go in reducing their debt levels.
Against this backdrop, telecommunication services, utilities and energy were among the weakest performing sectors of the S&P 500 Index.1 Conversely, IT, materials and consumer discretionary were the best performing sectors.1
On an absolute basis, holdings in the semiconductors and semiconductor equipment and the computer and peripherals industries made the greatest positive contribution to Fund performance during the year. In addition to a legacy private equity holding, the only other industries to detract from Fund performance were the media and diversified telecommunication services industries.
Relative to the BofA Merrill Lynch 100 Technology Index, our security selection and overweight exposure to the IT services industry had the greatest positive effect on Fund performance. Additionally, our lack of office electronics and electrical equipment holdings benefited our benchmark-relative performance. On the other hand, stock selection in the computer and peripherals industry, as well as stock selection and an overweight position in the software industry, detracted from relative performance. Our cash weighting, although minor, also hurt benchmark-relative performance during the strong equity rally.
Among specific holdings, Apple and Cognizant Technology Solutions were the top contributors to Fund performance during the year. In fact, Apple graced the Fund’s top contributors list each quarter in 2009. Besides recently announcing price cuts and new features for existing products, Apple also unveiled a new version of its iPhone, the 3GS, complete with new applications, an improved camera and faster downloading capabilities. Perhaps most significant is the lower price for the entry-level iPhone, not to mention the ever-growing application downloads, which highlight Apple’s efforts to expand market share.
We believed Cognizant, a leading provider of software solutions with primary clients in North America and Europe, maintained a unique competitive advantage in the realm of global IT outsourcing. Although headquartered in New Jersey, Cognizant boasts regional sales and client relationship offices worldwide with an emphasis in operations in India. The firm recently beat Wall Street expectations through top-line growth, or revenue growth, with a tight control on expenses.
On the negative side, Harris Corp. and Nokia, communications equipment companies, detracted from the Fund’s performance during the year. Investors worried that the Obama administration would cut defense spending, which would negatively affect Harris Corp. In addition to suffering slowing sales due to macroeconomic conditions, competition from Apple took more market share from Nokia than we anticipated. We eliminated Harris Corp. from the portfolio before the close of the year.
In past commentaries we mentioned that conditions were favorable for the IT sector. We believed those trends continued to assert themselves, which led to IT outperforming the broad market during the reporting period. This fiscal year was similar as we saw continued signs of improvement in credit markets, stabilization of demand patterns and conditions for secular growth.
Given that markets experienced a strong recovery during the year, we would like to caution investors against making investment decisions based on short-term performance. As always, we recommend that you consult a financial adviser to discuss your individual financial program. We thank you for your continued investment in AIM V.I. Technology Fund.
1 | Lipper Inc. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
![(PHOTO OF WARREN TENNANT)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943302.jpg)
Warren Tennant
Chartered Financial Analyst, portfolio manager, is lead manager of AIM V.I. Technology Fund. Mr. Tennant joined Invesco Aim in 2000 and was named a portfolio manager in 2007 before becoming lead manager of the Fund in 2008. He earned both his B.B.A. in finance and his M.B.A. from The University of Texas at Austin.
![(PHOTO OF BRIAN NELSON)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6943303.jpg)
Brian Nelson
Chartered Financial Analyst, portfolio manager, is manager of AIM V.I. Technology Fund. He began his investment career in 1995 and joined Invesco Aim in 2004. Mr. Nelson earned a B.A. from the University of California-Santa Barbara and is a member of the CFA Society of San Francisco.
Assisted by the Technology Team
AIM V.I. Technology Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment — Oldest Share Class since Inception
Fund data from 5/20/97, index data from 5/31/97
Fund data from 5/20/97, index data from 5/31/97
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Past performance cannot guarantee comparable future results.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on.
Average Annual Total Returns
As of 12/31/09
As of 12/31/09
Series I Shares | ||||
Inception (5/20/97) | 2.29 | % | ||
10 Years | –9.81 | |||
5 Years | 1.21 | |||
1 Year | 57.40 | |||
Series II Shares | ||||
10 Years | –10.06 | % | ||
5 Years | 0.95 | |||
1 Year | 57.14 |
Series II shares’ inception date is April 30, 2004. 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 20, 1997. 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 adviser 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 net 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 1.16% and 1.41%, respectively.1 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 1.17% and 1.42%, 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. Technology 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 the 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 adviser.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2010. See current prospectus for more information. |
AIM V.I. Technology Fund
AIM V.I. Technology Fund’s investment objective is capital growth.
§ | Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets. | |
§ | Unless otherwise noted, all data provided by Invesco. |
Principal risks of investing in the Fund
Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, relative lack of information, relatively low market liquidity, and the potential lack of strict financial and accounting controls and standards.
Since 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.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
The prices of securities held by the Fund may decline in response to market 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 securities of companies in this sector.
The prices of initial public offering (IPO) securities may go up and down more than prices of equity securities of companies with longer trading histories. In addition, companies offering securities in IPOs may have less experienced management or limited operating histories. There can be no assurance that the fund will have favorable IPO investment opportunities.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The BofA Merrill Lynch 100 Technology Index is a price-only equal-dollar weighted index of 100 stocks designed to measure the performance of a cross section of large, actively traded technology stocks and American Depositary Receipts.
The S&P North American Technology Sector Index is a capitalization-weighted index considered representative of 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.
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 the peer group reflects fund expenses; performance of a market index does not.
Other information
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
AIM V.I. Technology Fund
Schedule of Investments(a)
December 31, 2009
Shares | Value | |||||||
Common Stocks & Other Equity Interests–96.34% | ||||||||
Application Software–4.50% | ||||||||
Adobe Systems Inc.(b) | 15,385 | $ | 565,860 | |||||
Autodesk, Inc.(b) | 45,231 | 1,149,320 | ||||||
NICE Systems Ltd.–ADR (Israel)(b) | 64,391 | 1,998,697 | ||||||
Shanda Games Ltd.–ADR (Cayman Islands)(b)(c) | 57,865 | 589,644 | ||||||
Solera Holdings Inc. | 30,140 | 1,085,342 | ||||||
5,388,863 | ||||||||
Communications Equipment–9.46% | ||||||||
Brocade Communications Systems, Inc.(b) | 115,028 | 877,664 | ||||||
Cisco Systems, Inc.(b) | 120,173 | 2,876,942 | ||||||
Nokia Corp.–ADR (Finland) | 67,704 | 869,996 | ||||||
Plantronics, Inc. | 42,456 | 1,103,007 | ||||||
Polycom, Inc.(b) | 34,024 | 849,579 | ||||||
QUALCOMM Inc. | 66,610 | 3,081,379 | ||||||
Research In Motion Ltd. (Canada)(b) | 24,734 | 1,670,534 | ||||||
11,329,101 | ||||||||
Computer Hardware–11.25% | ||||||||
Apple Inc.(b) | 29,587 | 6,238,715 | ||||||
Dell Inc.(b) | 69,158 | 993,109 | ||||||
Hewlett-Packard Co. | 90,153 | 4,643,781 | ||||||
International Business Machines Corp. | 12,238 | 1,601,954 | ||||||
13,477,559 | ||||||||
Computer Storage & Peripherals–6.79% | ||||||||
EMC Corp.(b) | 166,134 | 2,902,361 | ||||||
NetApp, Inc.(b) | 24,768 | 851,772 | ||||||
QLogic Corp.(b) | 71,875 | 1,356,281 | ||||||
Seagate Technology | 79,906 | 1,453,490 | ||||||
Western Digital Corp.(b) | 35,484 | 1,566,619 | ||||||
8,130,523 | ||||||||
Data Processing & Outsourced Services–5.33% | ||||||||
Alliance Data Systems Corp.(b)(c) | 44,834 | 2,895,828 | ||||||
MasterCard, Inc.–Class A | 5,444 | 1,393,555 | ||||||
VeriFone Holdings, Inc.(b) | 62,067 | 1,016,658 | ||||||
Western Union Co. (The) | 57,260 | 1,079,351 | ||||||
6,385,392 | ||||||||
Electronic Components–2.34% | ||||||||
Corning Inc. | 84,311 | 1,628,045 | ||||||
Dolby Laboratories Inc.–Class A(b) | 24,519 | 1,170,292 | ||||||
2,798,337 | ||||||||
Electronic Equipment & Instruments–0.68% | ||||||||
Cogent Inc.(b) | 78,572 | 816,363 | ||||||
Electronic Manufacturing Services–3.97% | ||||||||
Flextronics International Ltd. (Singapore)(b) | 318,373 | 2,327,306 | ||||||
Tyco Electronics Ltd. (Switzerland) | 99,063 | 2,431,997 | ||||||
4,759,303 | ||||||||
Home Entertainment Software–0.46% | ||||||||
Nintendo Co., Ltd. (Japan) | 2,300 | 545,428 | ||||||
Internet Retail–1.29% | ||||||||
Amazon.com, Inc.(b) | 11,495 | 1,546,307 | ||||||
Internet Software & Services–7.11% | ||||||||
DivX, Inc.(b) | 88,235 | 497,645 | ||||||
eBay Inc.(b) | 45,500 | 1,071,070 | ||||||
Google Inc.–Class A(b) | 8,927 | 5,534,562 | ||||||
VeriSign, Inc.(b) | 23,788 | 576,621 | ||||||
Yahoo! Inc.(b) | 49,973 | 838,547 | ||||||
8,518,445 | ||||||||
IT Consulting & Other Services–4.92% | ||||||||
Amdocs Ltd.(b) | 44,071 | 1,257,346 | ||||||
Cognizant Technology Solutions Corp.–Class A(b) | 102,322 | 4,635,186 | ||||||
5,892,532 | ||||||||
Other Diversified Financial Services–0.68% | ||||||||
BlueStream Ventures L.P. (Acquired 08/03/00-06/13/08; Cost $3,149,655)(d)(e) | — | 808,731 | ||||||
Semiconductor Equipment–4.90% | ||||||||
Applied Materials, Inc. | 136,270 | 1,899,604 | ||||||
ASML Holding N.V.–New York Shares (Netherlands) | 66,591 | 2,270,087 | ||||||
Cymer, Inc.(b) | 44,443 | 1,705,722 | ||||||
5,875,413 | ||||||||
Semiconductors–17.82% | ||||||||
Avago Technologies Ltd. (Singapore)(b) | 99,281 | 1,815,850 | ||||||
Intel Corp. | 188,998 | 3,855,559 | ||||||
Intersil Corp.–Class A | 137,116 | 2,103,359 | ||||||
Marvell Technology Group Ltd.(b) | 177,316 | 3,679,307 | ||||||
Microsemi Corp.(b) | 126,482 | 2,245,056 | ||||||
ON Semiconductor Corp.(b) | 226,582 | 1,996,187 | ||||||
Semtech Corp.(b) | 73,731 | 1,254,164 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd.–ADR (Taiwan) | 152,568 | 1,745,378 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Technology Fund
Shares | Value | |||||||
Semiconductors–(continued) | ||||||||
Texas Instruments Inc. | 39,027 | $ | 1,017,044 | |||||
Xilinx, Inc. | 65,169 | 1,633,135 | ||||||
21,345,039 | ||||||||
Systems Software–12.27% | ||||||||
Ariba Inc.(b) | 138,846 | 1,738,352 | ||||||
Check Point Software Technologies Ltd. (Israel)(b) | 112,268 | 3,803,640 | ||||||
Microsoft Corp. | 148,828 | 4,537,766 | ||||||
Oracle Corp. | 90,417 | 2,218,833 | ||||||
SonicWALL, Inc.(b) | 156,125 | 1,188,111 | ||||||
Symantec Corp.(b) | 67,878 | 1,214,337 | ||||||
14,701,039 | ||||||||
Technology Distributors–1.50% | ||||||||
Anixter International Inc.(b) | 38,267 | 1,802,376 | ||||||
Wireless Telecommunication Services–1.07% | ||||||||
American Tower Corp.–Class A(b) | 29,796 | 1,287,485 | ||||||
Total Common Stocks & Other Equity Interests (Cost $98,224,910) | 115,408,236 | |||||||
Money Market Funds–3.45% | ||||||||
Liquid Assets Portfolio–Institutional Class(f) | 2,064,600 | 2,064,600 | ||||||
Premier Portfolio–Institutional Class(f) | 2,064,600 | 2,064,600 | ||||||
Total Money Market Funds (Cost $4,129,200) | 4,129,200 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–99.79% (Cost $102,354,110) | 119,537,436 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–2.25% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $2,691,742)(f)(g) | 2,691,742 | 2,691,742 | ||||||
TOTAL INVESTMENTS–102.04% (Cost $105,045,852) | 122,229,178 | |||||||
OTHER ASSETS LESS LIABILITIES–(2.04)% | (2,444,142 | ) | ||||||
NET ASSETS–100.00% | $ | 119,785,036 | ||||||
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) | All or a portion of this security was out on loan at December 31, 2009. | |
(d) | The Fund has a remaining commitment of $101,250 to purchase additional interests in BlueStream Ventures L.P., which is subject to the terms of the limited partnership agreement. | |
(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 December 31, 2009 represented 0.68% of the Fund’s Net Assets. | |
(f) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(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 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
December 31, 2009
Assets: | ||||
Investments, at value (Cost $98,224,910)* | $ | 115,408,236 | ||
Investments in affiliated money market funds, at value and cost | 6,820,942 | |||
Total investments, at value (Cost $105,045,852) | 122,229,178 | |||
Cash | 197,923 | |||
Foreign currencies, at value (Cost $11,521) | 11,282 | |||
Receivables for: | ||||
Investments sold | 122,314 | |||
Fund shares sold | 106,767 | |||
Dividends | 42,589 | |||
Investment for trustee deferred compensation and retirement plans | 26,876 | |||
Total assets | 122,736,929 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 116,875 | |||
Collateral upon return of securities loaned | 2,691,742 | |||
Accrued fees to affiliates | 72,143 | |||
Accrued other operating expenses | 29,603 | |||
Trustee deferred compensation and retirement plans | 41,530 | |||
Total liabilities | 2,951,893 | |||
Net assets applicable to shares outstanding | $ | 119,785,036 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 148,683,154 | ||
Undistributed net investment income | 1,797,307 | |||
Undistributed net realized gain (loss) | (47,878,511 | ) | ||
Unrealized appreciation | 17,183,086 | |||
$ | 119,785,036 | |||
Net Assets: | ||||
Series I | $ | 119,368,524 | ||
Series II | $ | 416,512 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 9,049,012 | |||
Series II | 32,090 | |||
Series I: | ||||
Net asset value per share | $ | 13.19 | ||
Series II: | ||||
Net asset value per share | $ | 12.98 | ||
* | At December 31, 2009, securities with an aggregate value of $2,614,064 were on loan to brokers. |
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Dividends (net of foreign withholding taxes of $19,361) | $ | 718,413 | ||
Dividends from affiliated money market funds (includes securities lending income of $101,399) | 120,189 | |||
Total investment income | 838,602 | |||
Expenses: | ||||
Advisory fees | 686,790 | |||
Administrative services fees | 275,564 | |||
Custodian fees | 8,306 | |||
Distribution fees — Series II | 486 | |||
Transfer agent fees | 30,347 | |||
Trustees’ and officers’ fees and benefits | 22,783 | |||
Other | 65,585 | |||
Total expenses | 1,089,861 | |||
Less: Fees waived | (5,103 | ) | ||
Net expenses | 1,084,758 | |||
Net investment income (loss) | (246,156 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (7,586,580 | ) | ||
Foreign currencies | (164,183 | ) | ||
Futures contracts | 41,488 | |||
(7,709,275 | ) | |||
Change in net unrealized appreciation of: | ||||
Investment securities | 49,727,675 | |||
Foreign currencies | 90,866 | |||
49,818,541 | ||||
Net realized and unrealized gain | 42,109,266 | |||
Net increase in net assets resulting from operations | $ | 41,863,110 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Technology Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (246,156 | ) | $ | 60,765 | |||
Net realized gain (loss) | (7,709,275 | ) | (5,883,278 | ) | ||||
Change in net unrealized appreciation (depreciation) | 49,818,541 | (57,731,412 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 41,863,110 | (63,553,925 | ) | |||||
Share transactions-net: | ||||||||
Series I | 6,048,496 | (23,694,566 | ) | |||||
Series II | 212,164 | 41,258 | ||||||
Net increase (decrease) in net assets resulting from share transactions | 6,260,660 | (23,653,308 | ) | |||||
Net increase (decrease) in net assets | 48,123,770 | (87,207,233 | ) | |||||
Net assets: | ||||||||
Beginning of year | 71,661,266 | 158,868,499 | ||||||
End of year (includes undistributed net investment income of $1,797,307 and $16,648, respectively) | $ | 119,785,036 | $ | 71,661,266 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. Technology Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objective is capital growth.
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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on 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 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 |
AIM V.I. Technology Fund
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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
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 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 adviser. | ||
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 adviser 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. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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 |
AIM V.I. Technology Fund
contracts, including the Fund’s servicing agreements, 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. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could 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, if any. | |
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 — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts 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. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. | |
M. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). 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. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, 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. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. 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. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. |
AIM V.I. Technology Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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 Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended December 31, 2009, the Adviser waived advisory fees of $5,103.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $225,564 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 year ended December 31, 2009, 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 year ended December 31, 2009, 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, IAIS and/or IADI.
AIM V.I. Technology Fund
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 120,875,019 | $ | 545,428 | $ | 808,731 | $ | 122,229,178 | ||||||||
NOTE 4—Derivative Investments
Effective with the beginning of the Fund’s fiscal year, the Fund has implemented new required disclosures about derivative instruments and hedging activities in accordance with GAAP. GAAP has 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. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Effect of Derivative Instruments for the year ended December 31, 2009
The table below summarizes the gains on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain on | ||||
Statement of Operations | ||||
Futures* | ||||
Realized Gain | ||||
Index risk | $ | 41,488 | ||
* | The average value of futures contracts outstanding during the period was $109,838. |
NOTE 5—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 adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2009, the Fund engaged in securities purchases of $84,663.
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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 Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $2,959 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. Technology 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, 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, not to exceed the contractually agreed upon rate.
NOTE 8—Distributions to Shareholders and Tax Components of Net Assets
There were no ordinary income or long-term capital gain distributions paid during the years ended December 31, 2009 and 2008.
Tax Components of Net Assets at Period-End:
2009 | ||||
Net unrealized appreciation — investments | $ | 18,984,807 | ||
Net unrealized appreciation (depreciation) — other investments | (240 | ) | ||
Temporary book/tax differences | (41,398 | ) | ||
Post-October deferrals | (313,874 | ) | ||
Capital loss carryforward | (47,527,413 | ) | ||
Shares of beneficial interest | 148,683,154 | |||
Total net assets | $ | 119,785,036 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales and partnership interests.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. Under these limitation rules, the Fund is limited to utilizing $47,527,413 of capital loss carryforward in the fiscal year ending December 31, 2010
The Fund has a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2010 | $ | 33,793,498 | ||
December 31, 2016 | 2,325,578 | |||
December 31, 2017 | 11,408,337 | |||
Total capital loss carryforward | $ | 47,527,413 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2009 was $40,473,059 and $36,106,398, 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 | $ | 25,915,141 | ||
Aggregate unrealized (depreciation) of investment securities | (6,930,334 | ) | ||
Net unrealized appreciation of investment securities | $ | 18,984,807 | ||
Cost of investments for tax purposes is $103,244,371. |
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of expired capital loss carryforward and net operating losses, on December 31, 2009, undistributed net investment income was increased by $2,026,815, undistributed net realized gain (loss) was increased by $152,202,397 and shares of beneficial interest decreased by $154,229,212. This reclassification had no effect on the net assets of the Fund.
AIM V.I. Technology Fund
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended December 31, | ||||||||||||||||
2009(a) | 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 2,735,605 | $ | 28,624,111 | 1,720,789 | $ | 21,453,022 | ||||||||||
Series II | 21,914 | 249,444 | 8,278 | 74,875 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,226,031 | ) | (22,575,615 | ) | (3,692,517 | ) | (45,147,588 | ) | ||||||||
Series II | (3,726 | ) | (37,280 | ) | (3,056 | ) | (33,617 | ) | ||||||||
Net increase (decrease) in share activity | 527,762 | $ | 6,260,660 | (1,966,506 | ) | $ | (23,653,308 | ) | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 63% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, 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 and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||
Net asset | Net | (losses) on | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||
value, | investment | securities (both | Total from | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | ||||||||||||||||||||||||||||||||||
of period | (loss) | unrealized) | operations | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | ||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 8.38 | $ | (0.03 | )(c) | $ | 4.84 | $ | 4.81 | $ | 13.19 | 57.40 | % | $ | 119,369 | 1.18 | %(d) | 1.19 | %(d) | (0.27 | )%(d) | 42 | % | |||||||||||||||||||||
Year ended 12/31/08 | 15.10 | 0.01 | (c) | (6.73 | ) | (6.72 | ) | 8.38 | (44.50 | ) | 71,546 | 1.15 | 1.16 | 0.05 | 81 | |||||||||||||||||||||||||||||
Year ended 12/31/07 | 14.02 | (0.06 | ) | 1.14 | 1.08 | 15.10 | 7.70 | 158,739 | 1.10 | 1.10 | (0.38 | ) | 59 | |||||||||||||||||||||||||||||||
Year ended 12/31/06 | 12.69 | (0.08 | ) | 1.41 | 1.33 | 14.02 | 10.48 | 173,321 | 1.12 | 1.12 | (0.54 | ) | 116 | |||||||||||||||||||||||||||||||
Year ended 12/31/05 | 12.42 | (0.07 | ) | 0.34 | 0.27 | 12.69 | 2.17 | 190,700 | 1.12 | 1.12 | (0.60 | ) | 114 | |||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 8.26 | (0.06 | )(c) | 4.78 | 4.72 | 12.98 | 57.14 | 417 | 1.43 | (d) | 1.44 | (d) | (0.52 | )(d) | 42 | |||||||||||||||||||||||||||||
Year ended 12/31/08 | 14.95 | (0.02 | )(c) | (6.67 | ) | (6.69 | ) | 8.26 | (44.75 | ) | 115 | 1.40 | 1.41 | (0.20 | ) | 81 | ||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.91 | (0.10 | ) | 1.14 | 1.04 | 14.95 | 7.48 | 130 | 1.35 | 1.35 | (0.63 | ) | 59 | |||||||||||||||||||||||||||||||
Year ended 12/31/06 | 12.62 | (0.12 | ) | 1.41 | 1.29 | 13.91 | 10.22 | 134 | 1.37 | 1.37 | (0.79 | ) | 116 | |||||||||||||||||||||||||||||||
Year ended 12/31/05 | 12.39 | (0.11 | ) | 0.34 | 0.23 | 12.62 | 1.86 | 142 | 1.37 | 1.37 | (0.85 | ) | 114 | |||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $91,378 and $194 for Series I and Series II shares, respectively. |
AIM V.I. Technology Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Technology Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. Technology Fund (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for the each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 10, 2010
Houston, Texas
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 July 1, 2009 through December 31, 2009.
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 | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,290.60 | $ | 6.58 | $ | 1,019.46 | $ | 5.80 | 1.14 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,289.00 | 8.19 | 1,018.05 | 7.22 | 1.42 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. Technology Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Trustee and/ | ||||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | None | |||||
Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | ||||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co- Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | None | |||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||||
Frank S. Bayley — 1939 Trustee | 2001 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | None | |||||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans Scholars Foundation and Executive Committee, United States Golf Association | |||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) | Board of Nature’s Sunshine Products, Inc. | |||||
Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | ||||||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) | Administaff | |||||
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | ||||||||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired | None | |||||
Lewis F. Pennock — 1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||||
Larry Soll — 1942 Trustee | 2004 | Retired | None | |||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) | None |
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers – (continued)
Trustee and/ | ||||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC | N/A | |||||
Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | ||||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® | N/A | |||||
Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | ||||||||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | N/A | |||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) | N/A | |||||
Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | ||||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® | N/A | |||||
Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. | N/A | |||||
Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund | Investment Adviser | Distributor | Auditors | |||
11 Greenway Plaza, Suite 100 | Invesco Advisers, Inc. | Invesco Aim Distributors, Inc. | PricewaterhouseCoopers LLP | |||
Houston, TX 77046-1173 | 1555 Peachtree Street, N.E. | 11 Greenway Plaza, Suite 100 | 1201 Louisiana Street, Suite 2900 | |||
Atlanta, GA 30309 | Houston, TX 77046-1173 | Houston, TX 77002-5678 | ||||
Counsel to the Fund | Counsel to the | Transfer Agent | Custodian | |||
Stradley Ronon Stevens & Young, LLP | Independent Trustees | Invesco Aim Investment Services, Inc. | State Street Bank and Trust Company | |||
2600 One Commerce Square | Kramer, Levin, Naftalis & Frankel LLP | P.O. Box 4739 | 225 Franklin | |||
Philadelphia, PA 19103 | 1177 Avenue of the Americas | Houston, TX 77210-4739 | Boston, MA 02110-2801 | |||
New York, NY 10036-2714 | ||||||
T-2 |
![(INVESCO LOGO)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6944300.gif)
AIM V.I. Utilities Fund
Annual Report to Shareholders § December 31, 2009
Annual Report to Shareholders § December 31, 2009
![(IMAGE)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6944301.gif)
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 website, 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 202 551 8090 or 800 732 0330, or by electronic request at the following email 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 website, invescoaim.com. On the home page, scroll down and click on Proxy Policy. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2009, is available at our website, invescoaim.com. Click the About Us tab at the top of the home page; click Legal Information; and then click Proxy Voting Search. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Aim Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
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
Management’s Discussion of Fund Performance
Performance summary
Due to their generally defensive nature, utilities stocks held up well in the early months of 2009 as the financial crisis roiled equity markets. However, that trend reversed abruptly following the markets’ March low. As a result, the utilities sector lagged the broad market as measured by the S&P 500 Index for the remainder of the year.
Similarly, AIM V.I. Utilities Fund had positive returns for the 12 months ended December 31, 2009 — but it lagged the S&P 500 Index. Performance drivers were largely stock-specific, with the electric, gas and multi-utilities industries having the largest positive effect on the Fund’s results. The diversified telecommunication services industry detracted from the Fund’s returns.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/08 to 12/31/09, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 14.93 | % | ||
Series II Shares | 14.61 | |||
S&P 500 Index6 (Broad Market Index) | 26.47 | |||
Lipper VUF Utility Funds Category Average6 (Peer Group) | 22.30 |
6 | Lipper Inc. |
How we invest
The Fund’s prior management team invested primarily in natural gas, electricity and telecommunication services companies based on empirical research of individual companies. Using fundamental analysis to focus on positive cash flows and predictable earnings, managers sought to identify strong balance sheets, competent management and sustainable dividends and distributions. Managers also looked for attractively valued companies that could potentially benefit from industry trends, such as increased demand for certain products and deregulation of state markets.
On January 23, 2009, we assumed responsibility for managing AIM V.I. Utilities Fund. We are committed to providing strategic exposure to a traditionally defensive and income-oriented asset class, and we manage the Fund using a total return approach — emphasizing capital appreciation, current income and capital preservation.
In selecting investments, we focus on dividend-paying companies within the electric utility, natural gas, water and telecommunications industries. We emphasize companies with solid balance sheets and operational cash flows that support sustained or increasing dividends. Fundamental research and financial statement analysis are the backbone of our bottom-up investment process. Using a variety of valuation techniques, we estimate the potential return over a two-year investment period. We construct the portfolio to provide what we consider to be the best combination of price appreciation potential, dividend income and risk profile. The Fund typically maintains full sector exposure, and we manage risk by maintaining an average of 30-50 positions, low turnover and a rigorous sell discipline.
Market conditions and your Fund
The year covered by this report was characterized by two dramatically different market environments. In early 2009, equity markets declined sharply as credit markets froze and risk premiums rose dramatically in response to the global recession. As central banks coordinated easing efforts and companies cut costs aggressively, access to liquidity improved and market valuations in both the credit and equity markets recovered from the March 2009 lows.
Major equity indexes generated positive returns for the year.1 Economically sensitive sectors such as information technology (IT), consumer discretionary and materials had the highest returns, while the traditionally defensive telecommunication services and utilities sectors had the lowest returns overall.1 Many utilities companies were negatively affected by reduced industrial and residential demand as a result of the weak economy.
The largest contributor to Fund performance was CMS Energy in the multi-utilities industry. The company’s Michigan-based subsidiary, Consumers Energy, benefited from recent energy reforms that produced a more favorable rate structure for the state’s regulated utility companies.
Oil and gas producer Williams Companies also had a positive effect on the Fund’s results. Largely exploration and production-driven, the company was affected considerably by natural gas prices, which depressed corporate earnings for much of the year. However, within Williams’ pipeline business, higher volumes and lucrative hedges offset some of this impact. In the fourth quarter of 2009, the company raised its estimate for full-year 2009 earnings, and reiterated its projections for higher gas prices in 2010.
Portfolio Composition
By sector
By sector
Utilities | 86.0 | % | ||
Telecommunication Services | 5.1 | |||
Energy | 3.6 | |||
Money Market Funds Plus Other Assets Less Liabilities | 5.3 |
Top 10 Equity Holdings*
1. Entergy Corp. | 4.7 | % | ||
2. CMS Energy Corp. | 4.4 | |||
3. PG&E Corp. | 4.4 | |||
4. FirstEnergy Corp. | 4.3 | |||
5. Dominion Resources, Inc. | 4.1 | |||
6. PPL Corp. | 4.0 | |||
7. Edison International | 4.0 | |||
8. Xcel Energy, Inc. | 3.7 | |||
9. American Electric Power Co., Inc. | 3.6 | |||
10. ONEOK, Inc. | 3.6 | |||
Total Net Assets | $ | 72.4 million | ||
Total Number of Holdings* | 31 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* | Excluding money market fund holdings. |
AIM V.I. Utilities Fund
Gas utility ONEOK raised its dividend during the year and was a top contributor to Fund returns. Despite weakness in a number of its business units due to lower commodity prices, new pipeline capacity increased gathering and processing volumes and provided a consistent source of cash flows. The company’s multi-year expansion plan includes further increases in pipeline capacity, which we believe may provide additional earnings.
Alaska Communications Systems, a provider of wireless, broadband, long-distance and local phone service in Alaska, was the largest detractor from Fund performance. Concerns about the company’s future subscriber growth and profitability in the face of the weakening Alaskan economy and increased competition were exacerbated by the company’s weakening balance sheet. Declining cash flow and weakening credit trends caused us to question the company’s ability to meet required capital expenditure needs; as a result, we sold our position in the stock.
Another detractor from Fund performance was Ameren, a public utility company. Early in 2009, the company reduced its 2009 earnings guidance, and in an effort to enhance financial strength and flexibility, the company announced a dividend reduction of approximately 39%. We eliminated our position during the year.
Exelon, one of the largest nuclear power generators in the U.S., also detracted from Fund performance. A failed takeover attempt of NRG Energy and the strategic direction of the company weighed on shares for much of the year. Sensitivity to falling natural gas prices also contributed to weakness.
During the year, we made a number of modest changes to the Fund’s positioning, which included reducing exposure to the telecommunications industry and emphasizing regulated over non-regulated utilities, given the relatively attractive valuations of regulated utilities. At the end of the year, the Fund’s largest industry allocations were in the electric, natural gas and multi-utilities industries.
At the close of 2009, there were a number of competing issues for the utilities sector. On the positive side, lower commodity prices benefited regulated utilities as they were better able to manage their input costs. Additionally, the country’s outdated electric system will require ongoing infrastructure improvements that may provide opportunities for increased efficiency. However, utilities were not completely immune to the economic cycle.
For the first time in many years, both residential and industrial customers reduced their electric consumption during 2009. This demand destruction, combined with tighter credit markets, caused utility companies to reassess their capital expenditure plans. While maintenance and environmental improvements were still expected, discretionary spending plans were constrained.
We would like to thank you for your continued investment in AIM V.I. Utilities Fund. We are committed to providing investors strategic exposure to a traditionally defensive and income-oriented asset class through our total return approach.
1 | Lipper Inc. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and index disclosures later in this report.
![(PHOTO OF MEGGAN WALSH)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6944302.jpg)
Meggan Walsh
Chartered Financial Analyst, senior portfolio manager, is lead manager of AIM V.I. Utilities Fund. She has worked in the investment industry since 1987 and joined Invesco Aim in 1991. Ms. Walsh earned a B.S. in finance from the University of Maryland and an M.B.A. from Loyola University Maryland.
![(PHOTO OF DAVIS PADDOCK)](https://capedge.com/proxy/N-CSR/0000950123-10-017727/h69434h6944303.jpg)
Davis Paddock
Chartered Financial Analyst, portfolio manager, is co-manager of AIM V.I. Utilities Fund. He joined Invesco Aim in 2001. Mr. Paddock earned his B.A. and M.B.A. from The University of Texas at Austin.
Assisted by the Utilities Team
AIM V.I. Utilities Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment — Oldest Share Class since Inception
Fund data from 12/30/94, index data from 12/31/94
Fund data from 12/30/94, index data from 12/31/94
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1 Lipper Inc.
Past performance cannot guarantee comparable future results.
This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on.
Average Annual Total Returns
As of 12/31/09
As of 12/31/09
Series I Shares | ||||
Inception (12/30/94) | 6.49 | % | ||
10 Years | 1.24 | |||
5 Years | 6.57 | |||
1 Year | 14.93 | |||
Series II Shares | ||||
10 Years | 0.99 | % | ||
5 Years | 6.32 | |||
1 Year | 14.61 |
Series II shares’ inception date is April 30, 2004. 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 December 30, 1994. 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 adviser 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 net 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 0.93% and 1.18%, respectively.1,2 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 0.96% and 1.21%, 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. Utilities 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 the 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 adviser.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. | |
2 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2010. See current prospectus for more information. |
AIM V.I. Utilities Fund
AIM V.I. Utilities Fund’s investment objectives are capital growth and income.
n Unless otherwise stated, information presented in this report is as of December 31, 2009, and is based on total net assets.
n Unless otherwise noted, all data provided by Invesco.
n Unless otherwise noted, all data provided by Invesco.
Principal risks of investing in the Fund
Prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
Foreign securities have additional risks, including exchange rate changes, political and economic upheaval, relative lack of information, relatively low market liquidity, and the potential lack of strict financial and accounting controls and standards.
Since 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.
There is no guarantee that the investment techniques and risk analysis used by the Fund’s portfolio managers will produce the desired results.
The prices of securities held by the Fund may decline in response to market 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.
Government regulation, difficulty in obtaining adequate financing and investment return, environmental issues, fuel prices for generation of electricity, natural gas availability, power marketing and trading risks, and risks associated with nuclear power facilities may adversely affect the market value of the Fund’s holdings.
Although the Fund’s return during certain periods was positively impacted by its investments in initial public offerings (IPOs), there can be no assurance that the Fund will have favorable IPO investment opportunities in the future.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Lipper VUF Utility Funds Category Average represents an average of all of the variable insurance underlying funds in the Lipper Utility Funds category.
The S&P 500 Utilities Index is an unmanaged index considered representative of the utilities market. On May 1, 2010, the Fund will adopt the S&P 500 Utilities Index as its style-specific index because we believe it more closely reflects the performance of the type of securities in which the Fund invests.
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 the peer group reflects fund expenses; performance of a market index does not.
Other information
The Chartered Financial Analyst® (CFA®) designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
AIM V.I. Utilities Fund
Schedule of Investments(a)
December 31, 2009
Shares | Value | |||||||
Common Stocks–94.65% | ||||||||
Electric Utilities–44.03% | ||||||||
American Electric Power Co., Inc. | 75,518 | $ | 2,627,271 | |||||
Duke Energy Corp. | 126,045 | 2,169,235 | ||||||
E.ON AG (Germany) | 54,422 | 2,268,893 | ||||||
Edison International | 82,310 | 2,862,742 | ||||||
Entergy Corp. | 41,255 | 3,376,309 | ||||||
Exelon Corp. | 48,299 | 2,360,372 | ||||||
FirstEnergy Corp. | 66,755 | 3,100,770 | ||||||
FPL Group, Inc. | 32,955 | 1,740,683 | ||||||
Northeast Utilities | 51,749 | 1,334,607 | ||||||
Pepco Holdings, Inc. | 145,565 | 2,452,770 | ||||||
Portland General Electric Co. | 110,188 | 2,248,937 | ||||||
PPL Corp. | 89,810 | 2,901,761 | ||||||
Southern Co. | 72,731 | 2,423,397 | ||||||
31,867,747 | ||||||||
Gas Utilities–10.96% | ||||||||
AGL Resources Inc. | 62,907 | 2,294,218 | ||||||
EQT Corp. | 25,461 | 1,118,247 | ||||||
ONEOK, Inc. | 58,078 | 2,588,537 | ||||||
Questar Corp. | 28,969 | 1,204,241 | ||||||
UGI Corp. | 29,949 | 724,466 | ||||||
7,929,709 | ||||||||
Independent Power Producers & Energy Traders–2.91% | ||||||||
NRG Energy, Inc.(b) | 89,264 | 2,107,523 | ||||||
Integrated Telecommunication Services–5.10% | ||||||||
AT&T Inc. | 61,369 | 1,720,173 | ||||||
Verizon Communications Inc. | 59,436 | 1,969,115 | ||||||
3,689,288 | ||||||||
Multi-Utilities–28.08% | ||||||||
CMS Energy Corp. | 203,799 | 3,191,492 | ||||||
Dominion Resources, Inc. | 77,162 | 3,003,145 | ||||||
National Grid PLC (United Kingdom) | 219,056 | 2,395,522 | ||||||
PG&E Corp. | 71,277 | 3,182,518 | ||||||
Public Service Enterprise Group Inc. | 65,172 | 2,166,969 | ||||||
Sempra Energy | 43,756 | 2,449,461 | ||||||
Wisconsin Energy Corp. | 25,384 | 1,264,885 | ||||||
Xcel Energy, Inc. | 125,730 | 2,667,991 | ||||||
20,321,983 | ||||||||
Oil & Gas Storage & Transportation–3.57% | ||||||||
El Paso Corp. | 83,283 | 818,672 | ||||||
Williams Cos., Inc. (The) | 83,881 | 1,768,211 | ||||||
2,586,883 | ||||||||
Total Common Stocks (Cost $58,534,199) | 68,503,133 | |||||||
Money Market Funds–5.14% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 1,859,705 | 1,859,705 | ||||||
Premier Portfolio–Institutional Class(c) | 1,859,705 | 1,859,705 | ||||||
Total Money Market Funds (Cost $3,719,410) | 3,719,410 | |||||||
TOTAL INVESTMENTS–99.79% (Cost $62,253,609) | 72,222,543 | |||||||
OTHER ASSETS LESS LIABILITIES–0.21% | 150,513 | |||||||
NET ASSETS–100.00% | $ | 72,373,056 | ||||||
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) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Utilities Fund
Statement of Assets and Liabilities
December 31, 2009
Assets: | ||||
Investments, at value (Cost $58,534,199) | $ | 68,503,133 | ||
Investments in affiliated money market funds, at value and cost | 3,719,410 | |||
Total investments, at value (Cost $62,253,609) | 72,222,543 | |||
Receivables for: | ||||
Fund shares sold | 24,072 | |||
Dividends | 272,611 | |||
Investment for trustee deferred compensation and retirement plans | 33,862 | |||
Total assets | 72,553,088 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 44,903 | |||
Amount due custodian | 14,758 | |||
Accrued fees to affiliates | 44,079 | |||
Accrued other operating expenses | 30,401 | |||
Trustee deferred compensation and retirement plans | 45,891 | |||
Total liabilities | 180,032 | |||
Net assets applicable to shares outstanding | $ | 72,373,056 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 64,041,081 | ||
Undistributed net investment income | 2,314,631 | |||
Undistributed net realized gain (loss) | (3,957,446 | ) | ||
Unrealized appreciation | 9,974,790 | |||
$ | 72,373,056 | |||
Net Assets: | ||||
Series I | $ | 70,671,028 | ||
Series II | $ | 1,702,028 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 4,871,631 | |||
Series II | 117,988 | |||
Series I: | ||||
Net asset value per share | $ | 14.51 | ||
Series II: | ||||
Net asset value per share | $ | 14.43 | ||
Statement of Operations
For the year ended December 31, 2009
Investment income: | ||||
Dividends (net of foreign withholding taxes of $17,771) | $ | 3,015,008 | ||
Dividends from affiliated money market funds | 7,676 | |||
Total investment income | 3,022,684 | |||
Expenses: | ||||
Advisory fees | 423,507 | |||
Administrative services fees | 208,871 | |||
Custodian fees | 8,163 | |||
Distribution fees — Series II | 3,931 | |||
Transfer agent fees | 19,390 | |||
Trustees’ and officers’ fees and benefits | 22,345 | |||
Professional services fees | 40,280 | |||
Other | 10,215 | |||
Total expenses | 736,702 | |||
Less: Fees waived | (79,410 | ) | ||
Net expenses | 657,292 | |||
Net investment income | 2,365,392 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (3,578,691 | ) | ||
Foreign currencies | 12,432 | |||
(3,566,259 | ) | |||
Change in net unrealized appreciation of: | ||||
Investment securities | 9,981,917 | |||
Foreign currencies | 921 | |||
9,982,838 | ||||
Net realized and unrealized gain | 6,416,579 | |||
Net increase in net assets resulting from operations | $ | 8,781,971 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
AIM V.I. Utilities Fund
Statement of Changes in Net Assets
For the years ended December 31, 2009 and 2008
2009 | 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 2,365,392 | $ | 3,211,845 | ||||
Net realized gain (loss) | (3,566,259 | ) | 1,506,366 | |||||
Change in net unrealized appreciation (depreciation) | 9,982,838 | (52,819,002 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 8,781,971 | (48,100,791 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (3,146,581 | ) | (2,992,914 | ) | ||||
Series II | (69,727 | ) | (56,469 | ) | ||||
Total distributions from net investment income | (3,216,308 | ) | (3,049,383 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | (793,124 | ) | (10,996,910 | ) | ||||
Series II | (19,073 | ) | (235,824 | ) | ||||
Total distributions from net realized gains | (812,197 | ) | (11,232,734 | ) | ||||
Share transactions-net: | ||||||||
Series I | (14,677,265 | ) | (13,874,354 | ) | ||||
Series II | (124,013 | ) | (362,485 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (14,801,278 | ) | (14,236,839 | ) | ||||
Net increase (decrease) in net assets | (10,047,812 | ) | (76,619,747 | ) | ||||
Net assets: | ||||||||
Beginning of year | 82,420,868 | 159,040,615 | ||||||
End of year (includes undistributed net investment income of $2,314,631 and $3,155,248, respectively) | $ | 72,373,056 | $ | 82,420,868 | ||||
Notes to Financial Statements
December 31, 2009
NOTE 1—Significant Accounting Policies
AIM V.I. Utilities Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. 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 Fund’s investment objectives are capital growth and income.
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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on 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 ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
AIM V.I. Utilities Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, 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 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. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
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. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
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 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 adviser. | ||
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 adviser 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. |
AIM V.I. Utilities Fund
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. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust 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, including the Fund’s servicing agreements, 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 may invest a large percentage of assets in securities of a limited number of companies, such that each investment may have 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. | 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 — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts 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. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser 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 Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
On December 31, 2009, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc., Invesco Private Asset Management, Inc. and Invesco Global Asset Management (N.A.), Inc. merged into Invesco Institutional (N.A.), Inc. and the consolidated adviser firm was renamed Invesco Advisers, Inc.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (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, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes;
AIM V.I. Utilities Fund
(3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time.
Further, the Adviser has contractually agreed, through at least June 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2009, the Adviser waived advisory fees of $79,410.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the year ended December 31, 2009, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2009, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $158,871 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 year ended December 31, 2009, 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 year ended December 31, 2009, 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, IAIS and/or IADI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP 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 significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using 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. |
The following is a summary of the tiered valuation input levels, as of December 31, 2009. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 67,558,128 | $ | 4,664,415 | $ | — | $ | 72,222,543 | ||||||||
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ 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 Officers’ 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. Utilities Fund
and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the year ended December 31, 2009, the Fund paid legal fees of $2,943 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, 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, not to exceed the contractually agreed upon rate.
NOTE 6—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2009 and 2008:
2009 | 2008 | |||||||
Ordinary income | $ | 3,218,442 | $ | 3,099,788 | ||||
Long-term capital gain | 810,063 | 11,182,329 | ||||||
Total distributions | $ | 4,028,505 | $ | 14,282,117 | ||||
Tax Components of Net Assets at Period-End:
2009 | ||||
Undistributed ordinary income | $ | 2,362,820 | ||
Net unrealized appreciation — investments | 9,656,738 | |||
Net unrealized appreciation — other investments | 5,856 | |||
Temporary book/tax differences | (48,189 | ) | ||
Capital loss carryforward | (3,645,250 | ) | ||
Shares of beneficial interest | 64,041,081 | |||
Total net assets | $ | 72,373,056 | ||
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2017 | $ | 3,645,250 | ||
* | 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 year ended December 31, 2009 was $9,260,915 and $28,070,307, 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 | $ | 12,786,794 | ||
Aggregate unrealized (depreciation) of investment securities | (3,130,056 | ) | ||
Net unrealized appreciation of investment securities | $ | 9,656,738 | ||
Cost of investments for tax purposes is $62,565,805. |
AIM V.I. Utilities Fund
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of expired capital loss carryforward and net operating losses, on December 31, 2009, undistributed net investment income was increased by $10,299, undistributed net realized gain (loss) was increased by $909,343 and shares of beneficial interest decreased by $919,642. This reclassification had no effect on the net assets of the Fund.
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended December 31, | ||||||||||||||||
2009(a) | 2008 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 609,839 | $ | 8,004,977 | 1,346,697 | $ | 28,997,020 | ||||||||||
Series II | 12,671 | 166,300 | 26,485 | 551,996 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 276,664 | 3,939,705 | 1,077,799 | 13,989,824 | ||||||||||||
Series II | 6,267 | 88,800 | 22,659 | 292,293 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,046,142 | ) | (26,621,947 | ) | (2,890,405 | ) | (56,861,198 | ) | ||||||||
Series II | (30,065 | ) | (379,113 | ) | (58,398 | ) | (1,206,774 | ) | ||||||||
Net increase (decrease) in share activity | (1,170,766 | ) | $ | (14,801,278 | ) | (475,163 | ) | $ | (14,236,839 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 58% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, 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 and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco 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 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | $ | 13.38 | $ | 0.45 | $ | 1.53 | $ | 1.98 | $ | (0.68 | ) | $ | (0.17 | ) | $ | (0.85 | ) | $ | 14.51 | 14.93 | % | $ | 70,671 | 0.93 | %(d) | 1.04 | %(d) | 3.35 | %(d) | 14 | % | |||||||||||||||||||||||||
Year ended 12/31/08 | 23.97 | 0.52 | (8.36 | ) | (7.84 | ) | (0.59 | ) | (2.16 | ) | (2.75 | ) | 13.38 | (32.35 | ) | 80,704 | 0.93 | 0.96 | 2.53 | 15 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 21.23 | 0.47 | 3.94 | 4.41 | (0.47 | ) | (1.20 | ) | (1.67 | ) | 23.97 | 20.64 | 155,748 | 0.93 | 0.94 | 1.97 | 30 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 17.83 | 0.47 | 4.06 | 4.53 | (0.70 | ) | (0.43 | ) | (1.13 | ) | 21.23 | 25.46 | 139,080 | 0.93 | 0.96 | 2.40 | 38 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 15.61 | 0.42 | 2.21 | 2.63 | (0.41 | ) | — | (0.41 | ) | 17.83 | 16.83 | 114,104 | 0.93 | 0.96 | 2.49 | 49 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 13.30 | 0.41 | 1.52 | 1.93 | (0.63 | ) | (0.17 | ) | (0.80 | ) | 14.43 | 14.61 | 1,702 | 1.18 | (d) | 1.29 | (d) | 3.10 | (d) | 14 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 23.80 | 0.46 | (8.28 | ) | (7.82 | ) | (0.52 | ) | (2.16 | ) | (2.68 | ) | 13.30 | (32.51 | ) | 1,717 | 1.18 | 1.21 | 2.28 | 15 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 21.12 | 0.41 | 3.91 | 4.32 | (0.44 | ) | (1.20 | ) | (1.64 | ) | 23.80 | 20.32 | 3,293 | 1.18 | 1.19 | 1.72 | 30 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 17.76 | 0.42 | 4.06 | 4.48 | (0.69 | ) | (0.43 | ) | (1.12 | ) | 21.12 | 25.25 | 2,462 | 1.18 | 1.21 | 2.15 | 38 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 15.57 | 0.38 | 2.20 | 2.58 | (0.39 | ) | — | (0.39 | ) | 17.76 | 16.55 | 801 | 1.18 | 1.21 | 2.24 | 49 | ||||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $69,012 and $1,572 for Series I and Series II shares, respectively. |
AIM V.I. Utilities Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V. I. Utilities Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of AIM V.I. Utilities Fund, (one of the funds constituting AIM Variable Insurance Funds, hereafter referred to as the “Fund”) at December 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 10, 2010
Houston, Texas
AIM V.I. Utilities 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 July 1, 2009 through December 31, 2009.
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 | (07/01/09) | (12/31/09)1 | Period2 | (12/31/09) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,146.70 | $ | 5.03 | $ | 1,020.52 | $ | 4.74 | 0.93 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,145.20 | 6.38 | 1,019.26 | 6.01 | 1.18 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2009 through December 31, 2009, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/365 to reflect the most recent fiscal half year. |
AIM V.I. Utilities Fund
Tax Information |
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisers.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2009:
Federal and State Income Tax | ||||
Long-Term Capital Gain Dividends | $ | 810,063 | ||
Corporate Dividends Received Deduction* | 100.00% |
* | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
AIM V.I. Utilities Fund
Trustees and Officers
The address of each trustee and officer of AIM Variable Insurance Funds (the “Trust”), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. Each trustee oversees 105 portfolios in the AIM Funds complex. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Trustee and/ | ||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||
Interested Persons | ||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco Aim and a global investment management firm); Adviser to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The AIM Family of Funds®; Board of Governors, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business | None | |||
Formerly: Chairman, Invesco Aim Advisors, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco Aim and a global investment management firm); Director, Invesco Ltd.; Chairman and Vice Chairman, Investment Company Institute | ||||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co- Chief Executive Officer, Invesco Advisers, inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc. and 1371 Preferred Inc. (holding company); Director, Chairman, Chief Executive Officer and President, Invesco Aim Management Group, Inc. (financial services holding company); Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent) and AIM GP Canada Inc. (general partner for limited partnerships); Director, Invesco Aim Distributors, Inc. (registered broker dealer); Director and Chairman, Invesco Aim Investment Services, Inc. (registered transfer agent) and INVESCO Distributors, Inc. (registered broker dealer); Director, President and Chairman, INVESCO Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, AIM Trimark Corporate Class Inc. (corporate mutual fund company) and AIM Trimark Canada Fund Inc. (corporate mutual fund company); Director and Chief Executive Officer, Invesco Trimark Ltd./Invesco Trimark Ltèe (registered investment adviser and registered transfer agent) and Invesco Trimark Dealer Inc. (registered broker dealer); Trustee, President and Principal Executive Officer, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); Trustee and Executive Vice President, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only); and Manager, Invesco PowerShares Capital Management LLC | None | |||
Formerly: Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Aim Advisors, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | ||||||
Independent Trustees | ||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technology Associates (technology consulting company) | ACE Limited (insurance company); Captaris, Inc. (unified messaging provider); and Investment Company Institute | |||
Bob R. Baker — 1936 Trustee | 2004 | Retired | None | |||
Frank S. Bayley — 1939 Trustee | 2001 | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) | None | |||
James T. Bunch — 1942 Trustee | 2004 | Founder, Green, Manning & Bunch Ltd., (investment banking firm) | Board of Governors, Western Golf Association/Evans Scholars Foundation and Executive Committee, United States Golf Association | |||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (registered investment company); and Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company) | Board of Nature’s Sunshine Products, Inc. | |||
Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations | ||||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit) | Administaff | |||
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) | ||||||
Carl Frischling — 1937 Trustee | 1993 | Partner, law firm of Kramer Levin Naftalis and Frankel LLP | Director, Reich & Tang Funds (16 portfolios) | |||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired | None | |||
Lewis F. Pennock — 1942 Trustee | 1993 | Partner, law firm of Pennock & Cooper | None | |||
Larry Soll — 1942 Trustee | 2004 | Retired | None | |||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) | None |
1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. | |
2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
T-1
Trustees and Officers — (continued)
Trustee and/ | ||||||
Name, Year of Birth and | or Officer | Principal Occupation(s) | Other Directorship(s) | |||
Position(s) Held with the Trust | Since | During Past 5 Years | Held by Trustee | |||
Other Officers | ||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer of The AIM Family of Funds® | N/A | |||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc., Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Director, Senior Vice President and Secretary, Invesco Aim Distributors, Inc.; Director, Vice President and Secretary, Invesco Aim Investment Services, Inc. and INVESCO Distributors, Inc.; Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; and Manager, Invesco PowerShares Capital Management LLC | N/A | |||
Formerly: Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisors, Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | ||||||
Lisa O. Brinkley — 1959 Vice President | 2004 | Global Compliance Director, Invesco Ltd.; Chief Compliance Officer, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc.; and Vice President, The AIM Family of Funds® | N/A | |||
Formerly: Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and The AIM Family of Funds®; Vice President and Chief Compliance Officer, Invesco Aim Capital Management, Inc. and Invesco Aim Distributors, Inc.; Vice President, Invesco Aim Investment Services, Inc. and Fund Management Company | ||||||
Kevin M. Carome — 1956 Vice President | 2003 | General Counsel, Secretary and Senior Managing Director, Invesco Ltd.; Director, Invesco Holding Company Limited and INVESCO Funds Group, Inc.; Director and Executive Vice President, IVZ, Inc., Invesco Group Services, Inc., Invesco North American Holdings, Inc. and Invesco Investments (Bermuda) Ltd.; Director and Secretary, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); and Vice President, The AIM Family of Funds® | N/A | |||
Formerly: Senior Managing Director and Secretary, Invesco North American Holdings, Inc.; Vice President and Secretary, IVZ, Inc. and Invesco Group Services, Inc.; Senior Managing Director and Secretary, Invesco Holding Company Limited; Director, Senior Vice President, Secretary and General Counsel, Invesco Aim Management Group, Inc. and Invesco Aim Advisors, Inc.; Senior Vice President, Invesco Aim Distributors, Inc.; Director, General Counsel and Vice President, Fund Management Company; Vice President, Invesco Aim Capital Management, Inc. and Invesco Aim Investment Services, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The AIM Family of Funds®; Director and Vice President, INVESCO Distributors, Inc.; and Chief Executive Officer and President, INVESCO Funds Group, Inc. | ||||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The AIM Family of Funds®; and Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.) Formerly: Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The AIM Family of Funds® and Assistant Vice President, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | N/A | |||
Karen Dunn Kelley — 1960 Vice President | 1993 | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Executive Vice President, Invesco Aim Distributors, Inc.; Senior Vice President, Invesco Aim Management Group, Inc.; and Director, Invesco Mortgage Capital Inc.; Vice President, The AIM Family of Funds® (other than AIM Treasurer’s Series Trust and Short-Term Investments Trust); and President and Principal Executive Officer, The AIM Family of Funds® (AIM Treasurer’s Series Trust and Short-Term Investments Trust only) | N/A | |||
Formerly: Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Aim Advisors, Inc. and The AIM Family of Funds® (AIM Treasurer’s Series Trust, Short-Term Investments Trust and Tax-Free Investments Trust only) | ||||||
Lance A. Rejsek — 1967 Anti-Money Laundering Compliance Officer | 2005 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Invesco Aim Distributors, Inc., Invesco Aim Investment Services, Inc., and The AIM Family of Funds® | N/A | |||
Formerly: Anti-Money Laundering Compliance Officer, Fund Management Company, Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc. | ||||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Aim Management Group, Inc.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The AIM Family of Funds®, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser) and Invesco Senior Secured Management, Inc. (registered investment adviser); Vice President, Invesco Aim Distributors, Inc. and Invesco Aim Investment Services, Inc. | N/A | |||
Formerly: Senior Vice President and Chief Compliance Officer, Invesco Aim Advisors, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, Invesco Global Asset Management (N.A.), Inc.; Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 100 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Aim Distributors, Inc. 11 Greenway Plaza, Suite 100 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2600 One Commerce Square Philadelphia, PA 19103 | Counsel to the Independent Trustees Kramer, Levin, Naftalis & Frankel LLP 1177 Avenue of the Americas New York, NY 10036-2714 | Transfer Agent Invesco Aim Investment Services, Inc. P.O. Box 4739 Houston, TX 77210-4739 | Custodian State Street Bank and Trust Company 225 Franklin Boston, MA 02110-2801 |
T-2
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the Registrant had adopted a code of ethics (the “Code”) that applies to the Registrant’s principal executive officer (“PEO”) and principal financial officer (“PFO”). There were no amendments to the Code during the period covered by the report. The Registrant did not grant any waivers, including implicit waivers, from any provisions of the Code to the PEO or PFO during the period covered by this report. |
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that the Registrant has at least one audit committee financial expert serving on its Audit Committee. The Audit Committee financial expert is Raymond Stickel, Jr. Mr. Stickel is “independent” within the meaning of that term as used in Form N-CSR. |
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Fees Billed by Principal Accountant Related to the Registrant
PWC billed the Registrant aggregate fees for services rendered to the Registrant for the last two fiscal years as follows:
Percentage of Fees | Percentage of Fees | |||||||||||||||
Billed Applicable to | Billed Applicable to | |||||||||||||||
Non-Audit Services | Non-Audit Services | |||||||||||||||
Fees Billed for | Provided for fiscal | Provided for fiscal | ||||||||||||||
Services Rendered to | year end 2009 | Fees Billed for | year end 2008 | |||||||||||||
the Registrant for | Pursuant to Waiver of | Services Rendered to | Pursuant to Waiver of | |||||||||||||
fiscal | Pre-Approval | the Registrant for | Pre-Approval | |||||||||||||
year end 2009 | Requirement(1) | fiscal year end 2008 | Requirement(1) | |||||||||||||
Audit Fees | $ | 556,364 | N/A | $ | 569,248 | N/A | ||||||||||
Audit-Related Fees(2) | $ | 0 | 0 | % | $ | 5,500 | 0 | % | ||||||||
Tax Fees(3) | $ | 75,879 | 0 | % | $ | 85,297 | 0 | % | ||||||||
All Other Fees | $ | 0 | 0 | % | $ | 0 | 0 | % | ||||||||
Total Fees | $ | 632,243 | 0 | % | $ | 660,045 | 0 | % |
PWC billed the Registrant aggregate non-audit fees of $75,879 for the fiscal year ended 2009, and $90,797 for the fiscal year ended 2008, for non-audit services rendered to the Registrant.
(1) | With respect to the provision of non-audit services, the pre-approval requirement is waived pursuant to a de minimis exception if (i) such services were not recognized as non-audit services by the Registrant at the time of engagement, (ii) the aggregate amount of all such services provided is no more than 5% of the aggregate audit and non-audit fees paid by the Registrant during a fiscal year; and (iii) such services are promptly brought to the attention of the Registrant’s Audit Committee and approved by the Registrant’s Audit Committee prior to the completion of the audit. | |
(2) | Audit-Related Fees for the fiscal year ended December 31, 2008 includes fees billed for completing agreed-upon procedures related to reorganization transactions. | |
(3) | Tax Fees for the fiscal year end December 31, 2009 includes fees billed for reviewing tax returns and consultation services. Tax fees for fiscal year end December 31, 2008 includes fees billed for reviewing tax returns and consultation services. |
Fees Billed by Principal Accountant Related to Invesco and Invesco Affiliates
PWC billed Invesco Advisers, Inc. (“Invesco”), the Registrant’s adviser, and any entity controlling, controlled by or under common control with Invesco that provides ongoing services to the Registrant (“Invesco Affiliates”) aggregate fees for pre-approved non-audit services rendered to Invesco and Invesco Affiliates as follows:
Fees Billed for Non- | Fees Billed for Non- | |||||||||||||||
Audit Services | Audit Services | |||||||||||||||
Rendered to Invesco | Percentage of Fees | Rendered to Invesco | Percentage of Fees | |||||||||||||
and Invesco Affiliates | Billed Applicable to | and Invesco Affiliates | Billed Applicable to | |||||||||||||
for fiscal year end | Non-Audit Services | for fiscal year end | Non-Audit Services | |||||||||||||
2009 That Were | Provided for fiscal year | 2008 That Were | Provided for fiscal year | |||||||||||||
Required | end 2009 Pursuant to | Required | end 2008 Pursuant to | |||||||||||||
to be Pre-Approved | Waiver of Pre- | to be Pre-Approved | Waiver of Pre- | |||||||||||||
by the Registrant’s | Approval | by the Registrant’s | Approval | |||||||||||||
Audit Committee | Requirement(1) | Audit Committee | Requirement(1) | |||||||||||||
Audit-Related Fees | $ | 0 | 0 | % | $ | 0 | 0 | % | ||||||||
Tax Fees | $ | 0 | 0 | % | $ | 0 | 0 | % | ||||||||
All Other Fees | $ | 0 | 0 | % | $ | 0 | 0 | % | ||||||||
Total Fees(2) | $ | 0 | 0 | % | $ | 0 | 0 | % |
(1) | With respect to the provision of non-audit services, the pre-approval requirement is waived pursuant to a de minimis exception if (i) such services were not recognized as non-audit services by the Registrant at the time of engagement, (ii) the aggregate amount of all such services provided is no more than 5% of the aggregate audit and non-audit fees paid by the Registrant, Invesco and Invesco Affiliates during a fiscal year; and (iii) such services are promptly brought to the attention of the Registrant’s Audit Committee and approved by the Registrant’s Audit Committee prior to the completion of the audit. | |
(2) | Including the fees for services not required to be pre-approved by the registrant’s audit committee, PWC billed Invesco and Invesco Affiliates aggregate non-audit fees of $0 for the fiscal year ended 2009, and $0 for the fiscal year ended 2008, for non-audit services rendered to Invesco and Invesco Affiliates. | |
The Audit Committee also has considered whether the provision of non-audit services that were rendered to Invesco and Invesco Affiliates that were not required to be pre-approved pursuant to SEC regulations, if any, is compatible with maintaining the principal accountant’s independence. |
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the AIM Funds (the “Funds”)
Last Amended September 18, 2006
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the AIM Funds (the “Funds”)
Last Amended September 18, 2006
Statement of Principles
Under the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and Exchange Commission (“SEC”) (“Rules”), the Audit Committees of the Funds’ (the “Audit Committee”) Board of Trustees (the “Board”) are responsible for the appointment, compensation and oversight of the work of independent accountants (an “Auditor”). As part of this responsibility and to assure that the Auditor’s independence is not impaired, the Audit Committees pre-approve the audit and non-audit services provided to the Funds by each Auditor, as well as all non-audit services provided by the Auditor to the Funds’ investment adviser and to affiliates of the adviser that provide ongoing services to the Funds (“Service Affiliates”) if the services directly impact the Funds’ operations or financial reporting. The SEC Rules also specify the types of services that an Auditor may not provide to its audit client. The following policies and procedures comply with the requirements for pre-approval and provide a mechanism by which management of the Funds may request and secure pre-approval of audit and non-audit services in an orderly manner with minimal disruption to normal business operations.
Proposed services either may be pre-approved without consideration of specific case-by-case services by the Audit Committees (“general pre-approval”) or require the specific pre-approval of the Audit Committees (“specific pre-approval”). As set forth in these policies and procedures, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committees. Additionally, any fees exceeding 110% of estimated pre-approved fee levels provided at the time the service was pre-approved will also require specific approval by the Audit Committees before payment is made. The Audit Committees will also consider the impact of additional fees on the Auditor’s independence when determining whether to approve any additional fees for previously pre-approved services.
The Audit Committees will annually review and generally pre-approve the services that may be provided by each Auditor without obtaining specific pre-approval from the Audit Committee. The term of any general pre-approval runs from the date of such pre-approval through September 30th of the following year, unless the Audit Committees consider a different period and state otherwise. The Audit Committees will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations.
The purpose of these policies and procedures is to set forth the guidelines to assist the Audit Committees in fulfilling their responsibilities.
Delegation
The Audit Committees may from time to time delegate pre-approval authority to one or more of its members who are Independent Trustees. All decisions to pre-approve a service by a delegated member shall be reported to the Audit Committee at its next quarterly meeting.
Audit Services
The annual audit services engagement terms will be subject to specific pre-approval of the Audit Committees. Audit services include the annual financial statement audit and other procedures such as tax provision work that is required to be performed by the independent auditor to be able to form an opinion on the Funds’ financial statements. The Audit Committee will obtain, review and consider sufficient information concerning the proposed Auditor to make a reasonable evaluation of the Auditor’s qualifications and independence.
In addition to the annual Audit services engagement, the Audit Committees may grant either general or specific pre-approval of other audit services, which are those services that only the independent auditor reasonably can provide. Other Audit services may include services such as issuing consents for the
inclusion of audited financial statements with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.
Non-Audit Services
The Audit Committees may provide either general or specific pre-approval of any non-audit services to the Funds and its Service Affiliates if the Audit Committees believe that the provision of the service will not impair the independence of the Auditor, is consistent with the SEC’s Rules on auditor independence, and otherwise conforms to the Audit Committee’s general principles and policies as set forth herein.
Audit-Related Services
“Audit-related services” are assurance and related services that are reasonably related to the performance of the audit or review of the Fund’s financial statements or that are traditionally performed by the independent auditor. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters not classified as “Audit services”; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; and agreed-upon procedures related to mergers, compliance with ratings agency requirements and interfund lending activities.
Tax Services
“Tax services” include, but are not limited to, the review and signing of the Funds’ federal tax returns, the review of required distributions by the Funds and consultations regarding tax matters such as the tax treatment of new investments or the impact of new regulations. The Audit Committee will scrutinize carefully the retention of the Auditor in connection with a transaction initially recommended by the Auditor, the major business purpose of which may be tax avoidance or the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committee will consult with the Funds’ Treasurer (or his or her designee) and may consult with outside counsel or advisors as necessary to ensure the consistency of Tax services rendered by the Auditor with the foregoing policy.
No Auditor shall represent any Fund or any Service Affiliate before a tax court, district court or federal court of claims.
Under rules adopted by the Public Company Accounting Oversight Board and approved by the SEC, in connection with seeking Audit Committee pre-approval of permissible Tax services, the Auditor shall:
1. | Describe in writing to the Audit Committees, which writing may be in the form of the proposed engagement letter: |
a. | The scope of the service, the fee structure for the engagement, and any side letter or amendment to the engagement letter, or any other agreement between the Auditor and the Fund, relating to the service; and | ||
b. | Any compensation arrangement or other agreement, such as a referral agreement, a referral fee or fee-sharing arrangement, between the Auditor and any person (other than the Fund) with respect to the promoting, marketing, or recommending of a transaction covered by the service; |
2. | Discuss with the Audit Committees the potential effects of the services on the independence of the Auditor; and |
3. | Document the substance of its discussion with the Audit Committees. |
All Other Auditor Services
The Audit Committees may pre-approve non-audit services classified as “All other services” that are not categorically prohibited by the SEC, as listed in Exhibit 1 to this policy.
Pre-Approval Fee Levels or Established Amounts
Pre-approval of estimated fees or established amounts for services to be provided by the Auditor under general or specific pre-approval policies will be set periodically by the Audit Committees. Any proposed fees exceeding 110% of the maximum estimated pre-approved fees or established amounts for pre-approved audit and non-audit services will be reported to the Audit Committees at the quarterly Audit Committees meeting and will require specific approval by the Audit Committees before payment is made. The Audit Committee will always factor in the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services and in determining whether to approve any additional fees exceeding 110% of the maximum pre-approved fees or established amounts for previously pre-approved services.
Procedures
On an annual basis, A I M Advisors, Inc. (“AIM”) will submit to the Audit Committees for general pre-approval, a list of non-audit services that the Funds or Service Affiliates of the Funds may request from the Auditor. The list will describe the non-audit services in reasonable detail and will include an estimated range of fees and such other information as the Audit Committee may request.
Each request for services to be provided by the Auditor under the general pre-approval of the Audit Committees will be submitted to the Funds’ Treasurer (or his or her designee) and must include a detailed description of the services to be rendered. The Treasurer or his or her designee will ensure that such services are included within the list of services that have received the general pre-approval of the Audit Committees. The Audit Committees will be informed at the next quarterly scheduled Audit Committees meeting of any such services for which the Auditor rendered an invoice and whether such services and fees had been pre-approved and if so, by what means.
Each request to provide services that require specific approval by the Audit Committees shall be submitted to the Audit Committees jointly by the Fund’s Treasurer or his or her designee and the Auditor, and must include a joint statement that, in their view, such request is consistent with the policies and procedures and the SEC Rules.
Each request to provide tax services under either the general or specific pre-approval of the Audit Committees will describe in writing: (i) the scope of the service, the fee structure for the engagement, and any side letter or amendment to the engagement letter, or any other agreement between the Auditor and the audit client, relating to the service; and (ii) any compensation arrangement or other agreement between the Auditor and any person (other than the audit client) with respect to the promoting, marketing, or recommending of a transaction covered by the service. The Auditor will discuss with the Audit Committees the potential effects of the services on the Auditor’s independence and will document the substance of the discussion.
Non-audit services pursuant to the de minimis exception provided by the SEC Rules will be promptly brought to the attention of the Audit Committees for approval, including documentation that each of the conditions for this exception, as set forth in the SEC Rules, has been satisfied.
On at least an annual basis, the Auditor will prepare a summary of all the services provided to any entity in the investment company complex as defined in section 2-01(f)(14) of Regulation S-X in sufficient detail as to the nature of the engagement and the fees associated with those services.
The Audit Committees have designated the Funds’ Treasurer to monitor the performance of all services provided by the Auditor and to ensure such services are in compliance with these policies and procedures. The Funds’ Treasurer will report to the Audit Committee on a periodic basis as to the results of such monitoring. Both the Funds’ Treasurer and management of AIM will immediately report to the chairman of the Audit Committee any breach of these policies and procedures that comes to the attention of the Funds’ Treasurer or senior management of AIM.
Exhibit 1 to Pre-Approval of Audit and Non-Audit Services Policies and Procedures
Conditionally Prohibited Non-Audit Services (not prohibited if the Fund can reasonably conclude that the results of the service would not be subject to audit procedures in connection with the audit of the Fund’s financial statements)
• | Bookkeeping or other services related to the accounting records or financial statements of the audit client | ||
• | Financial information systems design and implementation | ||
• | Appraisal or valuation services, fairness opinions, or contribution-in-kind reports | ||
• | Actuarial services | ||
• | Internal audit outsourcing services |
Categorically Prohibited Non-Audit Services
• | Management functions | ||
• | Human resources | ||
• | Broker-dealer, investment adviser, or investment banking services | ||
• | Legal services | ||
• | Expert services unrelated to the audit | ||
• | Any service or product provided for a contingent fee or a commission | ||
• | Services related to marketing, planning, or opining in favor of the tax treatment of confidential transactions or aggressive tax position transactions, a significant purpose of which is tax avoidance | ||
• | Tax services for persons in financial reporting oversight roles at the Fund | ||
• | Any other service that the Public Company Oversight Board determines by regulation is impermissible. |
PwC advised the Funds’ Audit Committee that PwC had identified following matter for consideration under the SEC’s auditor independence rules.
PwC became aware that certain aspects of investment advisory services provided by a PwC network member Firm’s Wealth Advisory Practice to its clients (generally high net worth individuals not associated with Invesco) were inconsistent with the SEC’s auditor independence requirements of the SEC. The technical violations occurred as a result of professionals of the Wealth Advisory Practice making a single recommendation of an audit client’s product to its clients rather than also identifying one or more suitable alternatives for the Wealth Advisory Practice’s client to consider. The Wealth Advisory Practice also received commissions from the fund manager. With respect to Invesco and its affiliates, there were 33 cases of single product recommendation and 20 cases of commissions received totaling approximately £7,000. These violations occurred over a two year period and ended in November 2007.
It should be noted that at no time did The Wealth Advisory Practice recommend products on behalf Invesco and its affiliates. Additionally, members of the audit engagement team were not aware of these violations or services; the advice provided was based on an understanding of the investment objectives of the clients of the Wealth Advisory Practice and not to promote the Company and its affiliates, and the volume and nature of the violations were insignificant. Although PwC received commissions, PwC derived no economic benefit from the commission as any commissions received were deducted from the time based fees charged to the investor client and created no incentive for PwC to recommend the investment.
PwC advised the Audit Committee that it believes its independence had not been adversely affected as it related to the audits of the Funds by this matter. In reaching this conclusion, PwC noted that during the time of its audits, the engagement team was not aware of the services provided and noted the insignificance of the services provided. Based on the foregoing, PwC did not believe this matter affected PwC’s ability to act objectively and impartially and to issue a report on financial statements as the Funds’ independent auditor, and, believes that a reasonable investor with knowledge of all the facts would agree with this conclusion.
Based upon PwC’s review, discussion and representations above, the audit committee, in its business judgment, concurred with PwC’s conclusions in relation to its independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Investments in securities of unaffiliated issuers is included as part of the reports to stockholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 11. CONTROLS AND PROCEDURES.
(a) | As of December 15, 2009, an evaluation was performed under the supervision and with the participation of the officers of the Registrant, including the PEO and PFO, to assess the effectiveness of the Registrant’s disclosure controls and procedures, as that term is defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”), as amended. Based on that evaluation, the Registrant’s officers, including the PEO and PFO, concluded that, as of December 15, 2009, the Registrant’s disclosure controls and procedures were reasonably designed to ensure: (1) that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Securities and Exchange Commission; and (2) that material information relating to the Registrant is made known to the PEO and PFO as appropriate to allow timely decisions regarding required disclosure. | |
(b) | There have been no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
ITEM 12. EXHIBITS.
12(a) (1) | Code of Ethics. | |
12(a) (2) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. | |
12(a) (3) | Not applicable. | |
12(b) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Variable Insurance Funds | ||||
By: | /s/ PHILIP A. TAYLOR | |||
Philip A. Taylor | ||||
Principal Executive Officer |
Date: February 26, 2010
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: | /s/ PHILIP A. TAYLOR | |||
Philip A. Taylor | ||||
Principal Executive Officer |
Date: February 26, 2010
By: | /s/ Sheri Morris | |||
Sheri Morris | ||||
Principal Financial Officer |
Date: February 26, 2010
EXHIBIT INDEX
12(a)(1) | Code of Ethics. | |
12(a)(2) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. | |
12(a)(3) | Not applicable. | |
12(b) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. |