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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-07452
AIM Variable Insurance Funds
(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 100 Houston, Texas 77046
(Address of principal executive offices) (Zip code)
Philip A. Taylor 11 Greenway Plaza, Suite 100 Houston, Texas 77046
(Name and address of agent for service)
Registrant's telephone number, including area code: (713) 626-1919
Date of fiscal year end: 12/31
Date of reporting period: 6/30/08
Item 1. Reports to Stockholders.
[INVESCO AIM LOGO] AIM V.I. BASIC BALANCED FUND
- SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008
AIM Investments [MOUNTAIN GRAPHIC]
became INVESCO AIM
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FUND PERFORMANCE
=======================================================================================
PERFORMANCE SUMMARY
FUND VS. INDEXES SHARES WAS 0.91% AND 1.16%,
Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer RESPECTIVELY.(1,2) THE TOTAL ANNUAL FUND
charges. If variable product issuer charges were included, returns would be lower. OPERATING EXPENSE RATIO SET FORTH IN THE
MOST RECENT FUND PROSPECTUS AS OF THE DATE
Series I Shares -11.94% OF THIS REPORT FOR SERIES I AND SERIES II
Series II Shares -12.11 SHARES WAS 1.18% AND 1.43%, RESPECTIVELY.
S&P 500 Index(TRIANGLE) (Broad Market Index) -11.90 THE EXPENSE RATIOS PRESENTED ABOVE MAY
Custom Basic Balanced Index(BOX) (Style-Specific Index) -7.75 VARY FROM THE EXPENSE RATIOS PRESENTED IN
Lipper VUF Mixed-Asset Target Allocation Moderate Funds Index(TRIANGLE) OTHER SECTIONS OF THIS REPORT THAT ARE
(Peer Group Index) -5.78 BASED ON EXPENSES INCURRED DURING THE
PERIOD COVERED BY THIS REPORT.
(TRIANGLE)Lipper Inc.; (BOX)Invesco Aim, Lipper Inc. AIM V.I. BASIC BALANCED FUND, A SERIES
PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS,
The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted index IS CURRENTLY OFFERED THROUGH INSURANCE
covering all major areas of the U.S. economy. It is not the 500 largest companies, but COMPANIES ISSUING VARIABLE PRODUCTS. YOU
rather the most widely held 500 companies chosen with respect to market size, CANNOT PURCHASE SHARES OF THE FUND
liquidity, and their industry. DIRECTLY. PERFORMANCE FIGURES GIVEN
The CUSTOM BASIC BALANCED INDEX is an index created by Invesco Aim Advisors, Inc. to REPRESENT THE FUND AND ARE NOT INTENDED TO
benchmark the Fund. The index consists of the following indexes: 60% Russell REFLECT ACTUAL VARIABLE PRODUCT VALUES.
1000--REGISTERED TRADEMARK-- Value Index and 40% Lehman Brothers U.S. Aggregate Bond THEY DO NOT REFLECT SALES CHARGES,
Index. The Russell 1000--REGISTERED TRADEMARK-- Value Index measures the performance of EXPENSES AND FEES ASSESSED IN CONNECTION
those Russell 1000 companies with lower price-to-book ratios and lower forecasted WITH A VARIABLE PRODUCT. SALES CHARGES,
growth values. The Russell 1000 Value Index is a trademark/service mark of the Frank EXPENSES AND FEES, WHICH ARE DETERMINED BY
Russell Company. Russell--REGISTERED TRADEMARK-- is a trademark of the Frank Russell THE VARIABLE PRODUCT ISSUERS, WILL VARY
Company. The Lehman Brothers U.S. Aggregate Bond Index covers U.S. investment-grade AND WILL LOWER THE TOTAL RETURN.
fixed-rate bonds with components for government and corporate securities, mortgage THE MOST RECENT MONTH-END PERFORMANCE
pass-throughs, and asset-backed securities. DATA AT THE FUND LEVEL, EXCLUDING VARIABLE
The LIPPER VUF MIXED-ASSET TARGET ALLOCATION MODERATE FUNDS INDEX is an equally PRODUCT CHARGES, IS AVAILABLE ON THE
weighted representation of the largest variable insurance underlying funds in the INVESCO AIM AUTOMATED INFORMATION LINE,
Lipper Mixed-Asset Target Allocation Moderate Funds category. These funds, by portfolio 866 702 4402. AS MENTIONED ABOVE, FOR THE
practice, maintain a mix of between 40% to 60% equity securities, with the remainder MOST RECENT MONTH-END PERFORMANCE
invested in bonds, cash, and cash equivalents. INCLUDING VARIABLE PRODUCT CHARGES, PLEASE
The Fund is not managed to track the performance of any particular index, including CONTACT YOUR VARIABLE PRODUCT ISSUER OR
the indexes defined here, and consequently, the performance of the Fund may deviate FINANCIAL ADVISOR.
significantly from the performance of the indexes. HAD THE ADVISOR NOT WAIVED FEES AND/OR
A direct investment cannot be made in an index. Unless otherwise indicated, index REIMBURSED EXPENSES, PERFORMANCE WOULD
results include reinvested dividends, and they do not reflect sales charges. HAVE BEEN LOWER.
Performance of an index of funds reflects fund expenses; performance of a market index
does not. (1) Total annual operating expenses less
======================================================================================= contractual advisory fee waivers by
========================================== the advisor in effect through at least
AVERAGE ANNUAL TOTAL RETURNS II SHARES. THE INCEPTION DATE OF SERIES I December 31, 2009. See current
As of 6/30/08 SHARES IS MAY 1, 1998. THE PERFORMANCE OF prospectus for more information.
THE FUND'S SERIES I AND SERIES II SHARE
SERIES I SHARES CLASSES WILL DIFFER PRIMARILY DUE TO (2) Total annual operating expenses less
Inception (5/1/98) 2.17% DIFFERENT CLASS EXPENSES. any contractual fee waivers and/or
10 Years 2.05 THE PERFORMANCE DATA QUOTED REPRESENT expense reimbursements by the advisor
5 Years 4.06 PAST PERFORMANCE AND CANNOT GUARANTEE in effect through at least April 30,
1 Year -15.06 COMPARABLE FUTURE RESULTS; CURRENT 2010. See current prospectus for more
PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE information.
SERIES II SHARES CONTACT YOUR VARIABLE PRODUCT ISSUER OR
10 Years 1.79% FINANCIAL ADVISOR FOR THE MOST RECENT
5 Years 3.78 MONTH-END VARIABLE PRODUCT PERFORMANCE.
1 Year -15.33 PERFORMANCE FIGURES REFLECT FUND EXPENSES,
========================================== REINVESTED DISTRIBUTIONS AND CHANGES IN
NET ASSET VALUE. INVESTMENT RETURN AND
SERIES II SHARES' INCEPTION DATE IS PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU
JANUARY 24, 2002. RETURNS SINCE THAT DATE MAY HAVE A GAIN OR LOSS WHEN YOU SELL
ARE HISTORICAL. ALL OTHER RETURNS ARE THE SHARES.
BLENDED RETURNS OF THE HISTORICAL THE NET ANNUAL FUND OPERATING EXPENSE
PERFORMANCE OF SERIES II SHARES SINCE RATIO SET FORTH IN THE MOST RECENT FUND
THEIR INCEPTION AND THE RESTATED PROSPECTUS AS OF THE DATE OF THIS REPORT
HISTORICAL PERFORMANCE OF SERIES I SHARES FOR SERIES I AND SERIES II
(FOR PERIODS PRIOR TO INCEPTION OF SERIES
II SHARES) ADJUSTED TO REFLECT THE RULE
12B-1 FEES APPLICABLE TO SERIES
AIM V.I. BASIC BALANCED FUND
PORTFOLIO COMPOSITION
By security type, based on Net Assets
as of June 30, 2008
<Table>
- -------------------------------------------------------------------------
Common Stocks & Other Equity Interests 61.9%
- -------------------------------------------------------------------------
Bonds & Notes 24.9
- -------------------------------------------------------------------------
U.S. Government Sponsored Mortgage-Backed Securities 15.4
- -------------------------------------------------------------------------
Preferred Stocks 3.6
- -------------------------------------------------------------------------
Asset-Backed Securities 1.8
- -------------------------------------------------------------------------
U.S. Government Sponsored Agency Securities 0.9
- -------------------------------------------------------------------------
Municipal Obligations 0.6
- -------------------------------------------------------------------------
Money Market Funds Plus Other Assets Less Liabilities (9.1)
_________________________________________________________________________
=========================================================================
</Table>
SCHEDULE OF INVESTMENTS(A)
June 30, 2008
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-61.90%
ADVERTISING-3.21%
Interpublic Group of Cos., Inc. (The)(b) 91,406 $ 786,092
- ------------------------------------------------------------------------------
Omnicom Group Inc. 18,156 814,841
==============================================================================
1,600,933
==============================================================================
AEROSPACE & DEFENSE-0.26%
Honeywell International Inc. 2,604 130,929
==============================================================================
APPAREL RETAIL-0.87%
Gap, Inc. (The) 26,110 435,254
==============================================================================
BREWERS-1.61%
Molson Coors Brewing Co.-Class B 14,812 804,736
==============================================================================
COMPUTER HARDWARE-2.18%
Dell Inc.(b) 49,559 1,084,351
==============================================================================
CONSTRUCTION MATERIALS-1.75%
Cemex S.A.B. de C.V.-ADR (Mexico)(b) 35,293 871,731
==============================================================================
CONSUMER FINANCE-1.25%
SLM Corp.(b) 32,124 621,599
==============================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.17%
Western Union Co. 43,707 1,080,437
==============================================================================
DEPARTMENT STORES-1.03%
Kohl's Corp.(b) 12,800 512,512
==============================================================================
DIVERSIFIED BANKS-0.55%
Wachovia Corp. 17,575 272,940
==============================================================================
EDUCATION SERVICES-1.06%
Apollo Group Inc.-Class A(b) 11,900 526,694
==============================================================================
ELECTRONIC MANUFACTURING SERVICES-0.65%
Tyco Electronics Ltd. 9,036 323,670
==============================================================================
GENERAL MERCHANDISE STORES-1.39%
Target Corp. 14,900 692,701
==============================================================================
HEALTH CARE DISTRIBUTORS-1.54%
Cardinal Health, Inc. 14,905 768,800
==============================================================================
HEALTH CARE EQUIPMENT-1.15%
Baxter International Inc. 8,965 573,222
==============================================================================
HOME IMPROVEMENT RETAIL-1.46%
Home Depot, Inc. (The) 31,092 728,175
==============================================================================
HOUSEHOLD APPLIANCES-1.03%
Whirlpool Corp. 8,300 512,359
==============================================================================
HUMAN RESOURCE & EMPLOYMENT SERVICES-1.87%
Robert Half International, Inc. 38,956 933,775
==============================================================================
INDUSTRIAL CONGLOMERATES-2.02%
General Electric Co. 17,058 455,278
- ------------------------------------------------------------------------------
Tyco International Ltd. 13,787 552,031
==============================================================================
1,007,309
==============================================================================
INDUSTRIAL MACHINERY-1.53%
Illinois Tool Works Inc. 15,996 759,970
==============================================================================
INSURANCE BROKERS-1.26%
Marsh & McLennan Cos., Inc. 23,658 628,120
==============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-2.09%
Merrill Lynch & Co., Inc. 16,087 $ 510,119
- ------------------------------------------------------------------------------
Morgan Stanley 14,787 533,367
==============================================================================
1,043,486
==============================================================================
MANAGED HEALTH CARE-2.00%
UnitedHealth Group Inc. 37,940 995,925
==============================================================================
MOVIES & ENTERTAINMENT-0.89%
Walt Disney Co. (The) 14,166 441,979
==============================================================================
MULTI-LINE INSURANCE-1.35%
American International Group, Inc. 19,247 509,276
- ------------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 2,504 161,683
==============================================================================
670,959
==============================================================================
OIL & GAS DRILLING-0.96%
Transocean Inc. 3,150 480,028
==============================================================================
OIL & GAS EQUIPMENT & SERVICES-3.99%
Halliburton Co. 20,838 1,105,872
- ------------------------------------------------------------------------------
Schlumberger Ltd. 8,197 880,604
==============================================================================
1,986,476
==============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.74%
Citigroup Inc. 43,468 728,524
- ------------------------------------------------------------------------------
JPMorgan Chase & Co. 18,581 637,514
==============================================================================
1,366,038
==============================================================================
PACKAGED FOODS & MEATS-0.86%
Unilever N.V. (Netherlands) 15,070 427,797
==============================================================================
PHARMACEUTICALS-2.12%
Sanofi-Aventis (France)(c) 8,014 533,135
- ------------------------------------------------------------------------------
Wyeth 10,902 522,860
==============================================================================
1,055,995
==============================================================================
PROPERTY & CASUALTY INSURANCE-0.98%
XL Capital Ltd.-Class A 23,731 487,909
==============================================================================
PUBLISHING-1.41%
McGraw-Hill Cos., Inc. (The) 17,500 702,100
==============================================================================
SEMICONDUCTOR EQUIPMENT-3.97%
ASML Holding N.V. (Netherlands)(c) 35,553 865,898
- ------------------------------------------------------------------------------
KLA-Tencor Corp. 27,331 1,112,645
==============================================================================
1,978,543
==============================================================================
SEMICONDUCTORS-1.75%
Maxim Integrated Products, Inc. 41,225 871,909
==============================================================================
SPECIALIZED FINANCE-2.27%
Moody's Corp. 32,816 1,130,183
==============================================================================
SYSTEMS SOFTWARE-2.33%
CA Inc. 25,444 587,502
- ------------------------------------------------------------------------------
Microsoft Corp. 20,882 574,464
==============================================================================
1,161,966
==============================================================================
THRIFTS & MORTGAGE FINANCE-2.35%
Fannie Mae 45,191 881,676
- ------------------------------------------------------------------------------
Washington Mutual, Inc. 58,949 290,619
==============================================================================
1,172,295
==============================================================================
Total Common Stocks & Other Equity Interests
(Cost $32,641,571) 30,843,805
==============================================================================
<Caption>
PRINCIPAL
AMOUNT
BONDS & NOTES-24.92%
AEROSPACE & DEFENSE-0.29%
Systems 2001 Asset Trust LLC (United
Kingdom)-Series 2001, Class G, Jr. Sec. Pass
Through Ctfs., (INS-MBIA Insurance Corp.)
6.66%, 09/15/13(d)(e)(f) $ 140,516 144,373
==============================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.73%
Bank of New York Institutional Capital
Trust-Series A, Jr. Sub. Trust Pfd. Capital
Securities, 7.78%, 12/01/26(d)(e) 350,000 364,396
==============================================================================
BROADCASTING & CABLE TV-2.26%
Comcast Cable Communications Holdings Inc.,
Sr. Unsec. Gtd. Global Notes,
9.46%, 11/15/22(e) 167,000 203,286
- ------------------------------------------------------------------------------
Comcast Holdings Corp., Sr. Gtd. Sub. Notes,
10.63%, 07/15/12(e) 130,000 150,981
- ------------------------------------------------------------------------------
Cox Communications Inc.,
Sr. Unsec. Notes,
6.40%, 08/01/08(e) 70,000 70,177
- ------------------------------------------------------------------------------
Unsec. Notes,
3.88%, 10/01/08(e) 350,000 349,968
- ------------------------------------------------------------------------------
Cox Enterprises, Inc.,
Sr. Unsec. Notes,
7.88%, 09/15/10(d)(e) 35,000 36,963
- ------------------------------------------------------------------------------
Time Warner Entertainment Co. L.P.,
Sr. Unsec. Gtd. Notes,
10.15%, 05/01/12(e) 280,000 316,341
==============================================================================
1,127,716
==============================================================================
CONSUMER FINANCE-0.72%
American Express Credit Corp.,
Series C, Sr. Unsec.
Floating Rate Medium-Term Notes,
3.88%, 05/27/10(e)(g) 40,000 40,020
- ------------------------------------------------------------------------------
Sr. Unsec. Medium-Term Notes,
5.88%, 05/02/13(e) 55,000 54,816
- ------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
CONSUMER FINANCE-(CONTINUED)
Capital One Capital III,
Jr. Gtd. Sub. Notes,
7.69%, 08/15/36(e)
$50,000 $ 41,585
- ------------------------------------------------------------------------------
SLM Corp., Series A,
Sr. Unsec. Unsub. Medium-Term Notes,
3.95%, 08/15/08(e) 220,000 219,672
==============================================================================
356,093
==============================================================================
DEPARTMENT STORES-0.43%
Macys Retail Holdings Inc.,
Sr. Unsec. Gtd. Notes,
6.30%, 04/01/09(e) 215,000 215,099
==============================================================================
DIVERSIFIED BANKS-2.28%
Bangkok Bank PCL (Hong Kong),
Unsec. Sub. Notes,
9.03%, 03/15/29(d)(e) 60,000 65,802
- ------------------------------------------------------------------------------
BankAmerica Institutional-
Series A, Jr. Unsec. Gtd.
Sub. Trust Pfd. Capital Securities, 8.07%,
12/31/26(d)(e) 100,000 103,089
- ------------------------------------------------------------------------------
BBVA International Preferred S.A. Unipersonal
(Spain), Jr. Unsec. Gtd. Sub. Notes,
5.92%(e)(h) 140,000 114,869
- ------------------------------------------------------------------------------
Centura Capital Trust I, Gtd. Trust Pfd. Capital
Securities,
8.85%, 06/01/27(d)(e) 50,000 51,606
- ------------------------------------------------------------------------------
First Union Institutional Capital I,
Jr. Unsec. Gtd. Sub. Trust Pfd. Capital
Securities,
8.04%, 12/01/26(e) 100,000 96,937
- ------------------------------------------------------------------------------
Lloyds TSB Bank PLC (United Kingdom)-
Series 1, Unsec. Sub. Floating Rate Euro Notes,
3.50%(e)(g)(h) 130,000 85,264
- ------------------------------------------------------------------------------
Mizuho Financial Group Cayman Ltd. (Cayman
Islands),
Jr. Unsec. Gtd. Sub. Second Tier Euro Bonds,
8.38%(e)(h) 30,000 30,065
- ------------------------------------------------------------------------------
National Bank of Canada (Canada),
Unsec. Sub. Floating Rate Euro Deb.,
3.19%, 08/29/87(g)(i) 60,000 38,700
- ------------------------------------------------------------------------------
National Westminster Bank PLC (United
Kingdom)-Series B, Unsec. Sub. Floating Rate
Euro Notes,
3.25%(e)(g)(h) 100,000 65,500
- ------------------------------------------------------------------------------
RBD Capital S.A. (Luxembourg),
Euro Notes,
6.50%, 08/11/08(e) 100,000 99,972
- ------------------------------------------------------------------------------
RBS Capital Trust III,
Jr. Unsec. Gtd. Sub. Trust Pfd. Global Notes,
5.51%(e)(h) 60,000 51,537
- ------------------------------------------------------------------------------
Sovereign Bankcorp Inc.,
Sr. Unsec. Floating Rate Global Notes,
2.96%, 03/01/09(e)(g) 60,000 57,704
- ------------------------------------------------------------------------------
Sumitomo Mitsui Banking Corp. (Japan),
Sub. Second Tier Euro Notes,
8.15%(e)(h) 90,000 90,582
- ------------------------------------------------------------------------------
Wachovia Capital Trust V,
Jr. Unsec. Gtd. Sub. Trust Pfd. Capital
Securities, 7.97%, 06/01/27(d)(e) 180,000 182,000
==============================================================================
1,133,627
==============================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-0.48%
Erac USA Finance Co.,
Sr. Unsec. Gtd. Notes,
7.00%, 10/15/37(d)(e) 140,000 118,232
- ------------------------------------------------------------------------------
Unsec. Gtd. Notes,
5.80%, 10/15/12(d)(e) 130,000 122,188
==============================================================================
240,420
==============================================================================
DIVERSIFIED METALS & MINING-0.06%
Reynolds Metals Co.,
Sr. Unsec. Unsub. Medium-Term Notes,
7.00%, 05/15/09(e) 29,000 29,702
==============================================================================
ELECTRIC UTILITIES-0.32%
Niagara Mohawk Power Corp.-Series G,
Sr. Unsec. Notes,
7.75%, 10/01/08(e) 160,000 161,512
==============================================================================
ENVIRONMENTAL & FACILITIES SERVICES-0.14%
Waste Management Inc.,
Sr. Unsec. Unsub. Notes,
6.50%, 11/15/08(e) 70,000 70,621
==============================================================================
HOMEBUILDING-0.33%
D.R. Horton Inc.,
Sr. Unsec. Gtd. Unsub. Notes,
5.00%, 01/15/09(e) 165,000 162,731
==============================================================================
HOUSEWARES & SPECIALTIES-0.08%
Newell Rubbermaid Inc.-
Series A, Sr. Unsec. Unsub. Medium-Term Notes,
6.35%, 07/15/28(e) 40,000 40,119
==============================================================================
INDUSTRIAL CONGLOMERATES-0.08%
General Electric Capital Corp.,
Sr. Unsec. Medium-Term Global Notes,
5.88%, 01/14/38(e) 45,000 40,905
==============================================================================
INTEGRATED OIL & GAS-0.66%
Husky Oil Ltd. (Canada),
Unsec. Sub. Yankee Capital Securities, 8.90%,
08/15/28(e) 325,000 326,498
==============================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.23%
AT&T Inc.,
Sr. Unsec. Global Notes,
4.95%, 01/15/13(e) 60,000 59,842
- ------------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes,
6.40%, 05/15/38(e) 70,000 67,310
- ------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-(CONTINUED)
Southwestern Bell Telephone L.P.,
Sr. Unsec. Gtd. Unsub. Deb.,
7.20%, 10/15/26(e)
$110,000 $ 111,404
- ------------------------------------------------------------------------------
Verizon New York Inc.,
Sr. Unsec. Bonds,
7.00%, 12/01/33(e) 90,000 89,241
- ------------------------------------------------------------------------------
Verizon Virginia Inc.-
Series A, Sr. Unsec. Global Bonds, 4.63%,
03/15/13(e) 170,000 165,509
- ------------------------------------------------------------------------------
Windstream Georgia Communications Corp.,
Sr. Unsec. Deb.,
6.50%, 11/15/13(e) 117,000 117,998
==============================================================================
611,304
==============================================================================
INTERNET RETAIL-0.12%
Expedia, Inc.,
Sr. Unsec. Gtd. Putable Global Notes,
7.46%, 08/15/13(e) 60,000 57,300
==============================================================================
INVESTMENT BANKING & BROKERAGE-1.34%
Bear Stearns Cos. Inc., (The),
Floating Rate Notes,
3.22%, 07/19/10(e)(g) 180,000 177,091
- ------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The),
Sr. Unsec. Global Notes,
6.15%, 04/01/18(e) 30,000 29,222
- ------------------------------------------------------------------------------
Jefferies Group, Inc.,
Sr. Unsec. Notes,
5.88%, 06/08/14(e) 230,000 211,600
- ------------------------------------------------------------------------------
6.45%, 06/08/27(e) 50,000 39,282
- ------------------------------------------------------------------------------
Lehman Brothers Holdings Inc.,
Series I, Sr. Floating Rate Medium-Term Notes,
2.53%, 11/24/08(e)(g) 40,000 39,421
- ------------------------------------------------------------------------------
Merrill Lynch & Co Inc.,
Sr. Unsec. Medium-Term Notes,
6.88%, 04/25/18(e) 85,000 80,945
- ------------------------------------------------------------------------------
Morgan Stanley, Series F,
Sr. Unsec. Medium-Term Global Notes,
5.95%, 12/28/17(e) 100,000 91,516
==============================================================================
669,077
==============================================================================
LIFE & HEALTH INSURANCE-0.55%
Prudential Holdings, LLC-
Series B, Sr. Sec. Bonds,
(INS-Financial Security Assurance Inc.)
7.25%, 12/18/23(d)(e)(f) 190,000 203,298
- ------------------------------------------------------------------------------
Prundential Financial, Inc.,
Jr. Unsec. Sub. Global Notes,
8.88%, 06/15/38(e) 70,000 69,552
==============================================================================
272,850
==============================================================================
MORTGAGE BACKED SECURITIES-0.32%
U.S. Bank N.A.,
Sr. Unsec. Medium-Term Notes,
5.92%, 05/25/12(e) 152,275 159,467
==============================================================================
MORTGAGE REIT'S-0.16%
iStar Financial Inc.,
Sr. Unsec. Notes,
8.75%, 08/15/08(e) 81,000 80,028
==============================================================================
MOVIES & ENTERTAINMENT-0.06%
Time Warner Cable, Inc.,
Sr. Unsec. Gtd. Global Notes,
6.75%, 07/01/18(e) 30,000 30,211
==============================================================================
MULTI-LINE INSURANCE-0.17%
American International Group, Inc.,
Jr. Sub. Deb.,
8.18%, 05/15/58(d)(e) 40,000 39,256
- ------------------------------------------------------------------------------
Liberty Mutual Group,
Jr. Gtd. Sub. Notes,
10.75%, 06/15/58(d)(e) 45,000 44,062
==============================================================================
83,318
==============================================================================
MULTI-SECTOR HOLDINGS-0.37%
Capmark Financial Group, Inc.,
Sr. Unsec. Gtd. Floating Rate Global Notes,
3.37%, 05/10/10(e)(g) 240,000 184,920
==============================================================================
MULTI-UTILITIES-0.29%
Dominion Capital Trust I,
Jr. Unsec. Gtd. Sub. Trust Pfd. Capital
Securities, 7.83%, 12/01/27(e) 140,000 144,661
==============================================================================
OFFICE ELECTRONICS-0.10%
Xerox Corp.,
Sr. Unsec. Notes,
5.65%, 05/15/13(e) 50,000 49,626
==============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.97%
BankAmerica Capital II-
Series 2, Jr. Unsec. Gtd. Sub.
Trust Pfd. Capital Securities,
8.00%, 12/15/26(e) 80,000 81,155
- ------------------------------------------------------------------------------
BankAmerica Capital III,
Jr. Unsec. Gtd. Sub. Floating Rate
Trust Pfd. Capital Securities,
3.28%, 01/15/27(e)(g) 137,000 108,788
- ------------------------------------------------------------------------------
Citigroup Inc.,
Series E, Jr. Sub. Notes,
8.40%(e)(h) 75,000 69,680
- ------------------------------------------------------------------------------
JPMorgan Chase & Co.,
Sr. Unsec. Notes,
4.75%, 05/01/13(e) 65,000 62,645
- ------------------------------------------------------------------------------
6.40%, 05/15/38(e) 150,000 141,459
- ------------------------------------------------------------------------------
Series 1, Jr. Unsec. Sub. Notes,
7.90%(e)(h) 80,000 74,998
- ------------------------------------------------------------------------------
Lazard Group,
Sr. Unsec. Global Notes,
6.85%, 06/15/17(e) 70,000 61,508
- ------------------------------------------------------------------------------
Mantis Reef Ltd. (Cayman Islands),
Notes,
4.69%, 11/14/08(d)(e) 355,000 356,349
- ------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
NB Capital Trust II,
Jr. Unsec. Gtd. Sub. Trust Pfd. Capital Securities, 7.83%, 12/15/26(e)
$50,000 $ 49,663
- ------------------------------------------------------------------------------
Old Mutual Capital Funding L.P. (United Kingdom),
Gtd. Euro Bonds,
8.00%(e)(h) 130,000 123,825
- ------------------------------------------------------------------------------
Pemex Finance Ltd. (Mexico)-
Series 1999-2, Class A1, Global Bonds, 9.69%,
08/15/09(e) 140,000 142,927
- ------------------------------------------------------------------------------
Regional Diversified Funding,
Sr. Notes,
9.25%, 03/15/30(d)(e) 143,333 161,114
- ------------------------------------------------------------------------------
Twin Reefs Pass-Through Trust,
Floating Rate Pass Through Ctfs.,
3.45% (Acquired 12/07/04; Cost
$90,000)(d)(e)(g)(h)(i) 90,000 3,308
- ------------------------------------------------------------------------------
Two-Rock Pass-Through Trust (Bermuda),
Floating Rate Pass Through Ctfs.,
3.66%,
(Acquired 11/10/06; Cost
$100,118)(d)(e)(g)(h)(i) 100,000 3,675
- ------------------------------------------------------------------------------
UFJ Finance Aruba AEC (Japan),
Unsec. Gtd. Sub. Euro Bonds,
8.75%,(e)(h) 40,000 40,049
==============================================================================
1,481,143
==============================================================================
PACKAGED FOODS & MEATS-0.29%
Kraft Foods Inc.,
Notes,
6.13%, 08/23/18(e) 75,000 72,678
- ------------------------------------------------------------------------------
Sr. Unsec. Notes,
6.88%, 01/26/39(e) 75,000 73,628
==============================================================================
146,306
==============================================================================
PAPER PRODUCTS-0.06%
International Paper Co.,
Sr. Unsec. Unsub. Notes,
5.13%, 11/15/12(e) 30,000 27,650
==============================================================================
PROPERTY & CASUALTY INSURANCE-1.87%
Chubb Corp. (The),
Sr. Notes,
5.75%, 05/15/18(e) 30,000 29,113
- ------------------------------------------------------------------------------
Series 1, Sr. Notes,
6.50%, 05/15/38(e) 30,000 29,230
- ------------------------------------------------------------------------------
First American Capital Trust I,
Gtd. Trust Pfd. Capital Securities,
8.50%, 04/15/12(e) 285,000 275,760
- ------------------------------------------------------------------------------
North Front Pass-Through Trust,
Sec. Pass Through Ctfs.,
5.81%, 12/15/24(d)(e) 100,000 92,932
- ------------------------------------------------------------------------------
Oil Casualty Insurance Ltd. (Bermuda),
Unsec. Gtd. Bonds,
8.00%, 09/15/34(d)(e) 200,000 175,656
- ------------------------------------------------------------------------------
Oil Insurance Ltd.,
Notes,
7.56%(d)(e)(h) 360,000 312,620
- ------------------------------------------------------------------------------
QBE Capital Funding II L.P. (Australia),
Gtd. Sub. Bonds,
6.80%(d)(e)(h) 20,000 17,103
==============================================================================
932,414
==============================================================================
REGIONAL BANKS-1.60%
Cullen/Frost Capital Trust I,
Jr. Unsec. Gtd. Sub. Floating Rate Notes,
4.23%, 03/01/34(e)(g) 200,000 186,436
- ------------------------------------------------------------------------------
PNC Capital Trust C,
Unsec. Gtd. Sub. Floating Rate Trust Pfd.
Capital Securities,
3.25%, 06/01/28(e)(g) 100,000 83,538
- ------------------------------------------------------------------------------
Silicon Valley Bank,
Unsec. Sub. Notes,
6.05%, 06/01/17(e) 110,000 96,764
- ------------------------------------------------------------------------------
TCF National Bank,
Sub. Notes,
5.00%, 06/15/14(e) 60,000 60,010
- ------------------------------------------------------------------------------
Western Financial Bank,
Unsec. Sub. Capital Deb.,
9.63%, 05/15/12(e) 360,000 371,325
==============================================================================
798,073
==============================================================================
REINSURANCE-0.07%
Stingray Pass-Through Trust,
Pass Through Ctfs.,
5.90%, 01/12/15 (Acquired 01/07/05-11/03/05;
Cost $196,920)(d)(e)(i) 200,000 35,000
- ------------------------------------------------------------------------------
RESIDENTIAL REIT'S-0.06%
AvalonBay Communities Inc.,
Sr. Unsec. Medium-Term Notes,
8.25%, 07/15/08(e) 30,000 30,037
- ------------------------------------------------------------------------------
SPECIALIZED FINANCE-0.26%
CIT Group Inc.,
Sr. Unsec. Unsub. Medium-Term Notes,
4.75%, 08/15/08(e) 130,000 129,038
- ------------------------------------------------------------------------------
SPECIALIZED REIT'S-0.64%
HCP, Inc.,
Sr. Unsec. Floating Rate Medium-Term Notes,
3.23%, 09/15/08(e)(g) 140,000 139,511
- ------------------------------------------------------------------------------
Sr. Unsec. Medium-Term Notes,
6.70%, 01/30/18(e) 100,000 90,063
- ------------------------------------------------------------------------------
Health Care REIT Inc.,
Sr. Unsec. Notes,
5.88%, 05/15/15(e) 100,000 91,633
==============================================================================
321,207
==============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
SPECIALTY CHEMICALS-0.11%
Valspar Corp.,
Sr. Unsec. Unsub. Notes,
5.63%, 05/01/12(e) $ 25,000 $ 24,618
- ------------------------------------------------------------------------------
6.05%, 05/01/17(e) 30,000 28,289
==============================================================================
52,907
==============================================================================
STEEL-0.18%
United States Steel Corp.,
Sr. Unsec. Unsub. Notes,
5.65%, 06/01/13(e) 90,000 87,352
==============================================================================
THRIFTS & MORTGAGE FINANCE-0.67%
Countrywide Financial Corp.,
Unsec. Gtd. Unsub. Medium-Term Global Notes,
5.80%, 06/07/12(e) 90,000 85,050
- ------------------------------------------------------------------------------
Series B, Sr. Unsec. Gtd. Conv. Putable Floating
Rate Global Notes,
0.43%, 05/15/09(e)(g) 150,000 141,570
- ------------------------------------------------------------------------------
Series B, Sr. Unsec. Gtd. Unsub. Floating Rate
Medium-Term Notes,
2.80%, 09/02/08(e)(g) 110,000 108,774
==============================================================================
335,394
==============================================================================
TOBACCO-0.20%
Philip Morris International Inc.,
Sr. Unsec. Unsub. Global Notes,
5.65%, 05/16/18(e) 100,000 97,609
==============================================================================
TRADING COMPANIES & DISTRIBUTORS-0.11%
Western Power Distribution Holdings Ltd. (United
Kingdom),
Sr. Unsec. Unsub. Notes,
7.38%, 12/15/28(d)(e) 50,000 56,785
==============================================================================
TRUCKING-0.74%
Roadway Corp.,
Sr. Sec. Gtd. Global Notes,
8.25%, 12/01/08(e) 230,000 230,697
- ------------------------------------------------------------------------------
Stagecoach Transport Holdings PLC (United
Kingdom), Unsec. Unsub. Yankee Notes,
8.63%, 11/15/09(e) 130,000 136,978
==============================================================================
367,675
==============================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.52%
Alamosa Delaware Inc.,
Sr. Unsec. Gtd. Global Notes,
8.50%, 01/31/12(e) 290,000 288,161
- ------------------------------------------------------------------------------
Nextel Communications, Inc.-
Series D, Sr. Unsec. Gtd. Notes,
7.38%, 08/01/15(e) 250,000 208,420
- ------------------------------------------------------------------------------
Sprint Nextel Corp.,
Sr. Unsec. Bonds,
9.25%, 04/15/22(e) 140,000 134,732
- ------------------------------------------------------------------------------
US Unwired Inc.-
Series B, Sec. Gtd. Unsub. Second Priority
Global Notes,
10.00%, 06/15/12(e) 125,000 128,180
==============================================================================
759,493
==============================================================================
Total Bonds & Notes (Cost $13,448,628) 12,414,657
==============================================================================
U.S. GOVERNMENT SPONSORED MORTGAGE-BACKED SECURITIES-15.42%
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)-4.76%
Pass Through Ctfs.,
7.00%, 06/01/15 to 06/01/32(e) 98,893 104,652
- ------------------------------------------------------------------------------
6.00%, 04/01/16 to 11/01/33(e) 398,146 405,308
- ------------------------------------------------------------------------------
5.50%, 10/01/18 to 02/01/37(e) 173,517 175,864
- ------------------------------------------------------------------------------
7.50%, 11/01/30 to 05/01/31(e) 16,200 17,507
- ------------------------------------------------------------------------------
6.50%, 05/01/32 to 08/01/32(e) 26,117 27,149
- ------------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 07/01/38(e)(j) 603,000 577,843
- ------------------------------------------------------------------------------
5.50%, 07/01/38(e)(j) 275,000 270,918
- ------------------------------------------------------------------------------
6.00%, 07/01/38(e)(j) 785,000 792,972
==============================================================================
2,372,213
==============================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-8.53%
Pass Through Ctfs.,
6.50%, 04/01/14 to 10/01/35(e) 400,841 416,711
- ------------------------------------------------------------------------------
7.50%, 11/01/15 to 03/01/31(e) 89,817 96,715
- ------------------------------------------------------------------------------
7.00%, 02/01/16 to 09/01/32(e) 59,092 62,342
- ------------------------------------------------------------------------------
6.00%, 01/01/17 to 03/01/37(e)(k) 84,502 86,904
- ------------------------------------------------------------------------------
5.00%, 04/01/18(e) 189,337 189,128
- ------------------------------------------------------------------------------
4.50%, 11/01/18(e) 83,600 81,781
- ------------------------------------------------------------------------------
5.50%, 03/01/21(e) 1,451 1,463
- ------------------------------------------------------------------------------
8.00%, 08/01/21 to 12/01/23(e) 20,064 21,718
- ------------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.50%, 07/01/23 to 07/01/38(e)(j) 1,831,000 1,810,556
- ------------------------------------------------------------------------------
6.00%, 07/01/23(e)(j) 173,000 177,352
- ------------------------------------------------------------------------------
7.00%, 07/01/38(e)(j) 451,000 472,846
- ------------------------------------------------------------------------------
6.00%, 08/01/38(e)(j) 159,000 159,969
- ------------------------------------------------------------------------------
5.00%, 07/01/38(e)(j) 700,000 671,016
==============================================================================
4,248,501
==============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC BALANCED FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)-2.13%
Pass Through Ctfs.,
7.50%, 06/15/23 to 10/15/31(e) $ 31,627 $ 34,026
- ------------------------------------------------------------------------------
8.50%, 11/15/24(e) 57,824 63,916
- ------------------------------------------------------------------------------
8.00%, 08/15/25(e) 9,349 10,232
- ------------------------------------------------------------------------------
6.50%, 03/15/29 to 01/15/37(e) 387,322 403,231
- ------------------------------------------------------------------------------
6.00%, 09/15/31 to 05/15/33(e) 248,005 253,105
- ------------------------------------------------------------------------------
5.50%, 12/15/33 to 02/15/34(e) 181,781 181,630
- ------------------------------------------------------------------------------
7.00%, 06/15/37(e) 111,630 117,516
==============================================================================
1,063,656
==============================================================================
Total U.S. Government Sponsored Mortgage-
Backed Securities (Cost $7,719,091) 7,684,370
==============================================================================
<Caption>
SHARES
PREFERRED STOCKS-3.58%
OFFICE SERVICES & SUPPLIES-1.17%
Pitney Bowes International Holdings Inc.,-
Series D, 4.85% Pfd.(e)(g) 6 585,757
==============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.41%
Auction Pass Through Trust,
Series 2007-T2, Class A, 7.78% Pfd. (Acquired
12/14/07; Cost $600,000)(d)(g)(i) 8 600,004
- ------------------------------------------------------------------------------
Series 2007-T3, Class A, 8.40% Pfd. (Acquired
10/22/07; Cost $600,000)(d)(g)(i) 8 600,004
==============================================================================
1,200,008
==============================================================================
Total Preferred Stocks (Cost $1,778,455) 1,785,765
==============================================================================
<Caption>
PRINCIPAL
AMOUNT
ASSET-BACKED SECURITIES-1.81%
COLLATERALIZED MORTGAGE OBLIGATIONS-0.64%
Federal Home Loan Bank-
Series TQ-2015, Class A, Pass Through Ctfs.,
5.07%, 10/20/15(e) $ 102,933 103,146
- ------------------------------------------------------------------------------
Morgan Stanley Capital I-
Series 2008-T29, Class A1, Pass Through Ctfs.,
6.23%, 01/11/43(e)(i) 58,489 58,900
- ------------------------------------------------------------------------------
Option One Mortgage Securities Corp.-
Series 2007-4A, Floating Rate Notes,
2.58%, 04/25/12
(Acquired 05/11/07; Cost $47,228)(d)(g)(i) 47,228 41,560
- ------------------------------------------------------------------------------
Structured Asset Securities Corp.,
Series 2007-OSI, Class A2, Floating Rate Pass
Through Ctfs.,
2.57%, 06/25/37(e)(g) 126,049 114,395
==============================================================================
318,001
==============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.17%
Citicorp Lease Pass-Through Trust-
Series 1999-1, Class A2, Pass Through Ctfs.,
8.04%, 12/15/19(d)(e) 325,000 337,725
- ------------------------------------------------------------------------------
LILACS Repackaging 2005-I-
Series A, Sr. Sec. Notes,
5.14%, 04/15/15 (Acquired 07/14/05; Cost
$484,024)(d)(i) 484,024 245,400
==============================================================================
583,125
==============================================================================
Total Asset-Backed Securities (Cost
$1,176,668) 901,126
==============================================================================
U.S. GOVERNMENT SPONSORED AGENCY SECURITIES-0.89%
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-0.40%
Sr. Unsec. Floating Rate Global Notes,
5.12%, 02/17/09(e)(g) 200,000 202,432
==============================================================================
STUDENT LOAN MARKETING ASSOCIATION-0.49%
Sr. Unsec. Unsub. Floating Rate Medium-Term Notes,
2.49%, 12/15/08(e)(g) 90,000 86,259
- ------------------------------------------------------------------------------
Series A,
Sr. Unsec. Unsub. Medium-Term Notes,
4.00%, 01/15/09(e) 100,000 99,045
- ------------------------------------------------------------------------------
Sr. Unsec. Unsub. Medium-Term Notes,
5.05%, 11/14/14(e) 70,000 57,770
==============================================================================
243,074
==============================================================================
Total U.S. Government Sponsored Agency
Securities (Cost $450,636) 445,506
==============================================================================
MUNICIPAL OBLIGATIONS-0.56%
Denver (City & County of) Colorado;
Airport Series 2000 C, Ref. VRD RB, (INS-MBIA
Insurance Corp.)
10.00%, 11/15/25(f)(l)(m)(n) 100,000 100,000
- ------------------------------------------------------------------------------
Detroit (City of), Michigan;
Series 2005 A-1, Taxable Capital Improvement
Limited Tax GO, (INS-Ambac Assurance Corp.)
4.96%, 04/01/20(e)(f) 65,000 57,696
- ------------------------------------------------------------------------------
Industry (City of), California Urban Development
Agency (Project No. 3);
Series 2003, Taxable Allocation RB, (INS-MBIA
Insurance Corp.)
6.10%, 05/01/24(e)(f) 125,000 121,169
==============================================================================
Total Municipal Obligations (Cost $292,785) 278,865
==============================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-0.02%
Liquid Assets Portfolio-Institutional Class(o) 5,123 5,123
- ------------------------------------------------------------------------------
Premier Portfolio-Institutional Class(o) 5,123 5,123
==============================================================================
Total Money Market Funds (Cost $10,246) 10,246
==============================================================================
TOTAL INVESTMENTS-109.10% (Cost $57,518,080) 54,364,340
==============================================================================
OTHER ASSETS LESS LIABILITIES-(9.10)% (4,534,919)
==============================================================================
NET ASSETS-100.00% $49,829,421
______________________________________________________________________________
==============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC BALANCED FUND
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debentures
GO - General Obligation Bonds
Gtd. - Guaranteed
INS - Insurer
Jr. - Junior
LILACS - Life Insurance and Life Annuities Based Charitable Securities
Pfd. - Preferred
RB - Revenue Bonds
Ref. - Refunding
REIT - Real Estate Investment Trust
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
TBA - To Be Announced
Unsec. - Unsecured
Unsub. - Unsubordinated
VRD - Variable Rate Demand
</Table>
Notes to Schedule of Investments:
(a) Industry and/or sector classifications used in this report are generally
according to the Global Industry Classification Standard, which was
developed by and is the exclusive property and a service mark of MSCI Inc.
and Standard & Poor's.
(b) Non-income producing security.
(c) In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate value of these securities at June 30, 2008 was $1,399,033,
which represented 2.81% of the Fund's Net Assets. See Note 1A.
(d) Security purchased or received in a transaction exempt from registration
under the Securities Act of 1933, as amended. The security may be resold
pursuant to an exemption from registration under the 1933 Act, typically
to qualified institutional buyers. The aggregate value of these securities
at June 30, 2008 was $4,514,500, which represented 9.06% of the Fund's Net
Assets. Unless otherwise indicated, these securities are not considered to
be illiquid.
(e) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an
independent pricing service. The aggregate value of these securities at
June 30, 2008 was $21,884,621, which represented 43.92% of the Fund's Net
Assets. See Note 1A.
(f) Principal and/or interest payments are secured by the bond insurance
company listed.
(g) Interest or dividend rate is redetermined periodically. Rate shown is the
rate in effect on June 30, 2008.
(h) Perpetual bond with no specified maturity date.
(i) Security considered to be illiquid. The Fund is limited to investing 15%
of net assets in illiquid securities at the time of purchase. The
aggregate value of these securities considered illiquid at June 30, 2008
was $1,626,551, which represented 3.26% of the Fund's Net Assets.
(j) Security purchased on a forward commitment basis. This security is subject
to dollar roll transactions. See Note 1I.
(k) All or a portion of the value was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1L and Note 8.
(l) Security subject to the alternative minimum tax.
(m) Demand security payable upon demand by the Fund at specified time
intervals no greater than thirteen months. Interest rate is redetermined
periodically. Rate shown is the rate in effect on June 30, 2008.
(n) Security is considered a cash equivalent.
(o) The money market fund and the Fund are affiliated by having the same
investment advisor.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, at value (Cost $57,507,834) $54,354,094
- ------------------------------------------------------
Investments in affiliated money market
funds (Cost $10,246) 10,246
======================================================
Total investments (Cost
$57,518,080) 54,364,340
======================================================
Cash 434,021
- ------------------------------------------------------
Foreign currencies, at value (Cost
$41,037) 41,590
- ------------------------------------------------------
Receivables for:
Investments sold 561,297
- ------------------------------------------------------
Variation margin 1,500
- ------------------------------------------------------
Fund shares sold 428
- ------------------------------------------------------
Dividends and Interest 182,809
- ------------------------------------------------------
Principal paydowns 3,061
- ------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 32,650
======================================================
Total assets 55,621,696
______________________________________________________
======================================================
LIABILITIES:
Payables for:
Investments purchased 5,312,933
- ------------------------------------------------------
Fund shares reacquired 28,130
- ------------------------------------------------------
Accrued fees to affiliates 31,877
- ------------------------------------------------------
Accrued other operating expenses 55,001
- ------------------------------------------------------
Trustee deferred compensation and
retirement plans 40,461
- ------------------------------------------------------
Unrealized depreciation on swap
agreements 270,750
- ------------------------------------------------------
Premiums received on swap agreements 53,123
======================================================
Total liabilities 5,792,275
======================================================
Net assets applicable to shares
outstanding $49,829,421
______________________________________________________
======================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $59,443,098
- ------------------------------------------------------
Undistributed net investment income 2,780,738
- ------------------------------------------------------
Undistributed net realized gain (loss) (8,994,381)
- ------------------------------------------------------
Unrealized appreciation (depreciation) (3,400,034)
======================================================
$49,829,421
______________________________________________________
======================================================
NET ASSETS:
Series I $45,387,872
______________________________________________________
======================================================
Series II $ 4,441,549
______________________________________________________
======================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 4,366,242
______________________________________________________
======================================================
Series II 430,665
______________________________________________________
======================================================
Series I:
Net asset value per share $ 10.40
______________________________________________________
======================================================
Series II:
Net asset value per share $ 10.31
______________________________________________________
======================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $ 661,161
- ------------------------------------------------------
Dividends (net of foreign withholding
taxes of $6,540) 433,002
- ------------------------------------------------------
Dividends from affiliated money market
funds 8,643
======================================================
Total investment income 1,102,806
======================================================
EXPENSES:
Advisory fees 211,527
- ------------------------------------------------------
Administrative services fees 82,659
- ------------------------------------------------------
Custodian fees 19,436
- ------------------------------------------------------
Distribution fees -- Series II 6,073
- ------------------------------------------------------
Transfer agent fees 4,498
- ------------------------------------------------------
Trustees' and officer's fees and
benefits 8,973
- ------------------------------------------------------
Professional services fees 27,410
- ------------------------------------------------------
Other 13,322
======================================================
Total expenses 373,898
======================================================
Less: Fees waived and expense offset
arrangement(s) (111,471)
======================================================
Net expenses 262,427
======================================================
Net investment income 840,379
======================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM:
Net realized gain (loss) from:
Investment securities (includes net
gains (losses) from securities sold
to affiliates of $(26,674)) 1,647,219
- ------------------------------------------------------
Foreign currencies (50)
- ------------------------------------------------------
Futures contracts 28,360
- ------------------------------------------------------
Swap agreements 49,800
======================================================
1,725,329
======================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (9,715,454)
- ------------------------------------------------------
Foreign currencies 649
- ------------------------------------------------------
Futures contracts 18,490
- ------------------------------------------------------
Swap agreements (89,762)
======================================================
(9,786,077)
======================================================
Net realized and unrealized gain (loss) (8,060,748)
======================================================
Net increase (decrease) in net assets
resulting from operations $(7,220,369)
______________________________________________________
======================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC BALANCED FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- --------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 840,379 $ 1,896,485
- --------------------------------------------------------------------------------------------------------
Net realized gain 1,725,329 6,821,284
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) (9,786,077) (6,118,608)
========================================================================================================
Net increase (decrease) in net assets resulting from operations (7,220,369) 2,599,161
========================================================================================================
Distributions to shareholders from net investment income:
Series I -- (1,869,328)
- --------------------------------------------------------------------------------------------------------
Series II -- (151,655)
========================================================================================================
Total distributions from net investment income -- (2,020,983)
========================================================================================================
Share transactions-net:
Series I (7,012,241) (25,823,599)
- --------------------------------------------------------------------------------------------------------
Series II (232,622) (549,210)
========================================================================================================
Net increase (decrease) in net assets resulting from share
transactions (7,244,863) (26,372,809)
========================================================================================================
Net increase (decrease) in net assets (14,465,232) (25,794,631)
========================================================================================================
NET ASSETS:
Beginning of period 64,294,653 90,089,284
========================================================================================================
End of period (including undistributed net investment income of
$2,780,738 and $1,940,359, respectively) $ 49,829,421 $ 64,294,653
________________________________________________________________________________________________________
========================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Basic Balanced Fund (the "Fund") is a series portfolio of AIM Variable
Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is long-term growth of capital and current
income.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
Debt obligations (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing
service. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to specific securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Short-term obligations, including
commercial paper, having 60 days or less to maturity are recorded at
amortized cost which approximates value. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve
some risk of default with respect to interest and/or principal payments.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on
that day. Securities traded in the over-the-counter market are valued
based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service
they may be considered fair valued. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally
traded. Listed options are valued at the mean between the last bid and the
ask prices from the exchange on which they are principally traded. Options
not listed on an exchange are valued by an independent source at the mean
between the last bid and ask prices. For purposes of determining net asset
value per share, futures and option contracts generally are valued 15
minutes after the close of the customary trading session of the New York
Stock Exchange ("NYSE").
Investments in open-end and closed-end registered investment companies
that do not trade on an exchange are valued at the end of day net asset
value per share. Investments in open-end and closed-end registered
investment companies that trade on an exchange are valued at the last
sales price or official closing price as of the close of the customary
trading session on the exchange where the security is principally traded.
Swap agreements are fair valued using an evaluated quote provided by an
independent pricing service. Evaluated quotes provided by the pricing
service are valued based on a model which may include end of day net
present values, spreads, ratings, industry, and company performance.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued
at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price
unreliable, the Fund may fair value the security. If the event is likely
to have affected the closing price of the security, the security will be
valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also
be based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current value as of the close of the NYSE. Foreign securities
meeting the approved degree of certainty that the price is not reflective
of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, American
Depositary Receipts and domestic and foreign index futures. Foreign
securities may have additional risks including exchange rate changes,
potential for sharply devalued currencies and high inflation, political
and economical upheaval, the relative lack of issuer information,
relatively low market liquidity and the potential lack of strict financial
and accounting controls and standards.
Securities for which market prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers following procedures
approved by the Board of Trustees. Issuer specific events, market trends,
bid/ask quotes of brokers and information providers and other market data
may be reviewed in the course of making a good faith determination of a
security's fair value.
Valuations change in response to many factors including the historical
and prospective earnings of the issuer, the value of the issuer's assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date.
AIM V.I. BASIC BALANCED FUND
Paydown gains and losses on mortgage and asset-backed securities are
recorded as adjustments to interest income. Dividend income is recorded on
the ex-dividend date. Bond premiums and discounts are amortized and/or
accreted for financial reporting purposes.
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification
claims is considered remote.
I. DOLLAR ROLL AND FORWARD COMMITMENT TRANSACTIONS -- The Fund may engage in
dollar roll and forward commitment transactions with respect to mortgage-
backed securities issued by GNMA, FNMA and FHLMC. These transactions are
often conducted on a to be announced ("TBA") basis. In a TBA mortgage-
backed transaction, the seller does not specify the particular securities
to be delivered. Rather, a Fund agrees to accept any security that meets
specified terms, such as an agreed upon issuer, coupon rate and terms of
the underlying mortgages. TBA mortgage-backed transactions generally
settle once a month on a specific date.
In a dollar roll transaction, the Fund sells a mortgage-backed security
held in the Fund to a financial institution such as a bank or broker-
dealer, and simultaneously agrees to purchase a substantially similar
security (same type, coupon and maturity) from the institution at an
agreed upon price and future date. The mortgage-backed securities to be
purchased will bear the same coupon as those sold, but generally will be
collateralized by different pools of mortgages with different prepayment
histories. Based on the typical structure of dollar roll transactions by
the Fund, the dollar roll transactions are accounted for as financing
transactions in which the Fund receives compensation as either a "fee" or
a "drop". "Fee" income which is agreed upon amongst the parties at the
commencement of the dollar roll and the "drop" which is the difference
between the selling price and the repurchase price of the mortgage-backed
securities are amortized to income. During the period between the sale and
purchase settlement dates, the Fund will not be entitled to receive
interest and principal payments on securities purchased and not yet
settled. Proceeds of the sale may be invested in short-term instruments,
and the income from these investments, together with any additional fee
income received on the sale, could generate income for the Fund exceeding
the yield on the security sold. Dollar roll transactions are considered
borrowings under the 1940 Act.
Forward commitment transactions involve commitments by the Fund to
acquire or sell TBA mortgage-backed securities from/to a financial
institution, such as a bank or broker-dealer at a specified future date
and amount. The TBA mortgage-backed security is marked to market until
settlement and the unrealized appreciation or depreciation is recorded in
the statement of operations.
At the time the Fund enters into the dollar roll or forward commitment
transaction, mortgage-backed securities or other liquid assets held by the
Fund having a dollar value equal to the purchase price or in an amount
sufficient to honor the forward commitment will be segregated.
AIM V.I. BASIC BALANCED FUND
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the
securities that the Fund has sold but is obligated to purchase under the
agreement. In the event that the buyer of securities in a dollar roll
transaction files for bankruptcy or becomes insolvent, the Fund's use of
the proceeds from the sale of the securities may be restricted pending a
determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to purchase the securities. The return
earned by the Fund with the proceeds of the dollar roll transaction may
not exceed the return on the securities sold.
Forward commitment transactions involve the risk that a counter-party to
the transaction may fail to complete the transaction. If this occurs, the
Fund may lose the opportunity to purchase or sell the security at the
agreed upon price. Settlement dates of forward commitment transactions may
be a month or more after entering into these transactions and as a result
the market values of the securities may vary from the purchase or sale
prices. Therefore, forward commitment transactions may increase the Fund's
overall interest rate exposure.
J. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close
of the NYSE based on quotations posted by banks and major currency
dealers. Portfolio securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i)
sales of foreign currencies, (ii) currency gains or losses realized
between the trade and settlement dates on securities transactions, and
(iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized
foreign currency gains and losses arise from changes in the fair values of
assets and liabilities, other than investments in securities at fiscal
period end, resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to
foreign taxes on income, gains on investments or currency repatriation, a
portion of which may be recoverable.
K. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. Fluctuations in the value of these contracts are recorded as
unrealized appreciation (depreciation) until the contracts are closed.
When these contracts are closed, realized gains (losses) are recorded.
Realized and unrealized gains and losses on these contracts are included
in the Statement of Operations. The Fund could be exposed to risk, which
may be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
L. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts.
Initial margin deposits required upon entering into futures contracts are
satisfied by the segregation of specific securities as collateral for the
account of the broker (the Fund's agent in acquiring the futures
position). During the period the futures contracts are open, changes in
the value of the contracts are recognized as unrealized gains or losses by
recalculating the value of the contracts on a daily basis. Variation
margin payments are received or made depending upon whether unrealized
gains or losses are incurred. When the contracts are closed, the Fund
recognizes a realized gain or loss equal to the difference between the
proceeds from, or cost of, the closing transaction and the Fund's basis in
the contract. If the Fund were unable to liquidate a futures contract
and/or enter into an offsetting closing transaction, the Fund would
continue to be subject to market risk with respect to the value of the
contracts and continue to be required to maintain the margin deposits on
the futures contracts. Risks may exceed amounts recognized in the
Statement of Assets and Liabilities.
M. SWAP AGREEMENTS -- The Fund may enter into various swap transactions,
including interest rate, index, currency exchange rate and credit default
swap contracts ("CDS") for investment purposes or to manage interest rate,
currency or credit risk.
Interest rate, index, and currency exchange rate swap agreements are
two-party contracts entered into primarily to exchange the returns (or
differentials in rates of returns) earned or realized on particular
predetermined investments or instruments. The gross returns to be
exchanged or "swapped" between the parties are calculated with respect to
a notional amount, i.e., the return on or increase in value of a
particular dollar amount invested at a particular interest rate, in a
particular foreign currency, or in a "basket" of securities representing a
particular index.
A CDS is an agreement between two parties ("Counterparties") to exchange
the credit risk of an issuer. A buyer of a CDS is said to buy protection
by paying an upfront payment and/or a fixed payment over the life of the
agreement to the seller of the CDS. If a defined credit event occurs (such
as payment default or bankruptcy), the Fund as a protection buyer would
cease paying its fixed payment, the Fund would deliver the corresponding
bonds, or other similar bonds issued by the same reference entity to the
seller, and the seller would pay the full notional value, or the "par
value", of the referenced obligation to the Fund. A seller of a CDS is
said to sell protection and thus would receive an upfront payment and/or a
fixed payment over the life of the agreement. If a credit event occurs,
the Fund as a protection seller would cease to receive the fixed payment
stream, the Fund would pay the buyer the full notional value of the
referenced obligation, and the Fund would receive the corresponding bonds
or similar bonds issued by the same reference entity. If no credit event
occurs, the Fund receives the fixed payment over the life of the
agreement. As the seller, the Fund would effectively add leverage to its
portfolio because, in addition to its total net assets, the Fund would be
subject to investment exposure on the notional amount of the CDS. Because
the CDS is a bilateral agreement between Counterparties, the transaction
can alternatively be settled by a cash payment in the case of a credit
event.
Changes in the value of swap agreements are recognized as unrealized
gains (losses) in the Statement of Operations by "marking to market" on a
daily basis to reflect the value of the swap agreement at the end of each
trading day. Payments received or paid at the beginning of the agreement
are reflected as such on the Statement of Assets and Liabilities and may
be referred to as upfront payments. The Fund amortizes upfront payments
and/or accrues for the fixed payment stream on swap agreements on a daily
basis with the net amount, recorded as a component of realized gain (loss)
on the Statement of Operations. A liquidation payment received or made at
the termination of a swap agreement is recorded as realized gain (loss) on
the Statement of
AIM V.I. BASIC BALANCED FUND
Operations. The Fund segregates liquid securities having a value at least
equal to the amount of the potential obligation of a Fund under any swap
transaction. Entering into these agreements involves, to varying degrees,
lack of liquidity and elements of credit, market, and counterparty risk in
excess of amounts recognized on the Statement of Assets and Liabilities.
N. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $150 million 0.75%
- -------------------------------------------------------------------
Over $150 million 0.50%
___________________________________________________________________
===================================================================
</Table>
Through December 31, 2009, the Advisor has contractually agreed to waive
advisory fees to the extent necessary so that the advisory fees payable by the
Fund (based on the Fund's average daily net assets) do not exceed the annual
rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $150 million 0.62%
- -------------------------------------------------------------------
Next $4.85 billion 0.50%
- -------------------------------------------------------------------
Next $5 billion 0.475%
- -------------------------------------------------------------------
Over $10 billion 0.45%
___________________________________________________________________
===================================================================
</Table>
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
The Advisor has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 0.91% and Series
II shares to 1.16% of average daily net assets, through at least April 30, 2010.
In determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco")
described more fully below, the expense offset arrangements from which the Fund
may benefit are in the form of credits that the Fund receives from banks where
the Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. These credits are used to pay certain expenses incurred by the Fund. To
the extent that the annualized expense ratio does not exceed the expense
limitation, the Advisor will retain its ability to be reimbursed for such fee
waivers or reimbursements prior to the end of each fiscal year.
Further, the Advisor has contractually agreed, through at least April 30,
2010, to waive the advisory fee payable by the Fund in an amount equal to 100%
of the net advisory fees the Advisor receives from the affiliated money market
funds on investments by the Fund of uninvested cash in such affiliated money
market funds.
For the six months ended June 30, 2008, the Advisor waived advisory fees of
$111,138.
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund
administrative services and reimbursed $57,796 for services provided by
insurance companies.
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily
AIM V.I. BASIC BALANCED FUND
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. For the six months ended June 30, 2008,
expenses incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1 -- Quoted prices in an active market for identical assets.
Level 2 -- Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing
a security. These may include quoted prices for similar securities, interest
rates, prepayment speeds, credit risk and others.
Level 3 -- Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for
example, when there is little or no market activity for an investment at the
end of the period), unobservable inputs may be used. Unobservable inputs
reflect the Fund's own assumptions about the factors market participants would
use in determining fair value of the securities or instruments and would be
based on the best available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS IN OTHER
INPUT LEVEL SECURITIES INVESTMENTS*
- -------------------------------------------------------
Level 1 $29,455,019 $ 23,966
- -------------------------------------------------------
Level 2 24,909,321 (270,750)
- -------------------------------------------------------
Level 3 -- --
=======================================================
$54,364,340 $(246,784)
_______________________________________________________
=======================================================
</Table>
* Other investments include futures and swap contracts, which are included at
the unrealized appreciation/(depreciation).
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, for the six months ended June 30, 2008, the Fund
engaged in securities sales of $404,135, which resulted in net realized gains
(losses) of $(26,674), and securities purchases of $201,750.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2008, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $333.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan and receive benefits under such plan. "Trustees' and Officer's
Fees and Benefits" include amounts accrued by the Fund to fund such retirement
benefits. Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $1,583
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
AIM V.I. BASIC BALANCED FUND
NOTE 7--CASH BALANCES
The Fund is permitted to temporarily carry a negative or overdrawn balance in
its account with The State Street Bank and Trust Company ("SSB"), the custodian
bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund
may either (i) leave funds as a compensating balance in the account so the
custodian bank can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank at a rate agreed upon by the custodian
bank and Invesco Aim, not to exceed the contractually agreed upon rate.
NOTE 8--FUTURES CONTRACTS
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD-END
- -------------------------------------------------------------------------------------------------------------------------
UNREALIZED
NUMBER OF MONTH/ VALUE APPRECIATION
CONTRACT CONTRACTS COMMITMENT 06/30/08 (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 5 Year Notes 4 September-2008/Long $ 442,219 $ (228)
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 10 Year Notes 11 September-2008/Long 1,253,140 24,194
=========================================================================================================================
$1,695,359 $23,966
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
NOTE 9--CREDIT DEFAULT SWAP AGREEMENTS
<Table>
<Caption>
OPEN CREDIT DEFAULT SWAP AGREEMENTS AT PERIOD-END
- -------------------------------------------------------------------------------------------------------------------------------
BUY/SELL (PAY)/RECEIVE EXPIRATION
COUNTERPARTY REFERENCE ENTITY PROTECTION FIXED RATE DATE
- -------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Special
Financing Inc. CDX North America Investment Grade High Volatility Index Sell 0.75%(a) 06/20/12
- -------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Special
Financing Inc. MBIA Inc. Sell 1.90% 09/20/08
- -------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Special
Financing Inc. Residential Capital, LLC Sell 2.75% 09/20/08
- -------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Special
Financing Inc. Residential Capital, LLC Sell 6.80% 09/20/08
- -------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch International AMBAC Financial Group, Inc. Sell 2.30% 12/20/08
- -------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch International AMBAC Financial Group, Inc. Sell 6.75% 12/20/08
- -------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch International Assured Guaranty Sell 5.00% 03/20/09
- -------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch International CIT Group, Inc. Sell 2.40% 09/20/08
- -------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch International CIT Group, Inc. Sell 2.50% 09/20/08
- -------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch International Lehman Brothers Holdings Inc. Sell 0.90% 09/20/08
- -------------------------------------------------------------------------------------------------------------------------------
UBS AG AMBAC Financial Group, Inc. Sell 5.10% 12/20/08
- -------------------------------------------------------------------------------------------------------------------------------
UBS AG AMBAC Financial Group, Inc. Sell 11.00% 12/20/08
- -------------------------------------------------------------------------------------------------------------------------------
UBS AG MBIA Inc. Sell 7.10% 12/20/08
- -------------------------------------------------------------------------------------------------------------------------------
UBS AG Pulte Homes, Inc. Sell 4.20% 12/20/08
===============================================================================================================================
Total Credit Default Swap
Agreements
_______________________________________________________________________________________________________________________________
===============================================================================================================================
<Caption>
OPEN CREDIT DEFAULT SWAP AGREEMENTS AT PERIOD-END
- ------------------------------------------------------
NOTIONAL UNREALIZED
AMOUNT APPRECIATION
COUNTERPARTY (000) (DEPRECIATION)
- ------------------------------------------------------
Lehman Brothers Special
Financing Inc. $1,500 $ (81,650)
- ------------------------------------------------------
Lehman Brothers Special
Financing Inc. 600 (40,844)
- ------------------------------------------------------
Lehman Brothers Special
Financing Inc. 100 (4,610)
- ------------------------------------------------------
Lehman Brothers Special
Financing Inc. 200 (7,391)
- ------------------------------------------------------
Merrill Lynch International 330 (46,865)
- ------------------------------------------------------
Merrill Lynch International 165 (20,289)
- ------------------------------------------------------
Merrill Lynch International 130 (6,653)
- ------------------------------------------------------
Merrill Lynch International 155 (2,664)
- ------------------------------------------------------
Merrill Lynch International 70 (1,187)
- ------------------------------------------------------
Merrill Lynch International 295 (2,396)
- ------------------------------------------------------
UBS AG 165 (21,455)
- ------------------------------------------------------
UBS AG 150 (15,716)
- ------------------------------------------------------
UBS AG 180 (19,936)
- ------------------------------------------------------
UBS AG 330 906
======================================================
Total Credit Default Swap
Agreements $4,370 $(270,750)
______________________________________________________
======================================================
</Table>
(a) Unamortized premium at period-end of $53,123.
NOTE 10--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund had a capital loss carryforward as of December 31, 2007 which expires
as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------------------------
December 31, 2010 $10,514,572
_______________________________________________________________________________________________
===============================================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
AIM V.I. BASIC BALANCED FUND
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the six months ended June 30, 2008 was $14,281,957 and
$20,714,693, respectively. Cost of investments on a tax basis includes the
adjustments for financial reporting purposes as of the most recently completed
Federal income tax reporting period end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 4,398,558
- ------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (7,753,724)
================================================================================================
Net unrealized appreciation (depreciation) of investment securities $(3,355,166)
________________________________________________________________________________________________
================================================================================================
Cost of investments for tax purposes is $57,719,506.
</Table>
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008(A) DECEMBER 31, 2007
------------------------ ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 76,811 $ 857,859 982,742 $ 11,912,341
- -----------------------------------------------------------------------------------------------------------------------
Series II 23,224 253,969 39,272 478,310
=======================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 155,131 1,869,328
- -----------------------------------------------------------------------------------------------------------------------
Series II -- -- 12,669 151,655
=======================================================================================================================
Reacquired:
Series I (707,516) (7,870,100) (3,206,335) (39,605,268)
- -----------------------------------------------------------------------------------------------------------------------
Series II (43,977) (486,591) (96,959) (1,179,175)
=======================================================================================================================
(651,458) $(7,244,863) (2,113,480) $(26,372,809)
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) There are entities that are record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate own 81% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, Invesco
Aim and/or Invesco Aim affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services to
the Fund, Invesco Aim and or Invesco Aim affiliates including but not
limited to services such as, securities brokerage, third party record
keeping and account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record by
these entities are also owned beneficially.
AIM V.I. BASIC BALANCED FUND
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------------
2008 2007 2006 2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.81 $ 11.92 $ 10.99 $ 10.59 $ 9.99 $ 8.75
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.17 0.28 0.25 0.18 0.13 0.14
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (1.58) (0.01) 0.91 0.38 0.62 1.29
=================================================================================================================================
Total from investment operations (1.41) 0.27 1.16 0.56 0.75 1.43
=================================================================================================================================
Less dividends from net investment income -- (0.38) (0.23) (0.16) (0.15) (0.19)
=================================================================================================================================
Net asset value, end of period $ 10.40 $ 11.81 $ 11.92 $ 10.99 $ 10.59 $ 9.99
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) (11.94)% 2.20% 10.55% 5.29% 7.52% 16.36%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $45,388 $59,000 $84,212 $90,633 $99,070 $97,665
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 0.91%(c) 0.91% 0.91% 0.95% 1.12% 1.11%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.30%(c) 1.18% 1.15% 1.15% 1.12% 1.11%
=================================================================================================================================
Ratio of net investment income to average
net assets 3.00%(c) 2.31% 2.16% 1.68% 1.24% 1.47%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(d) 25% 47% 44% 44% 51% 131%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of $51,831,852.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
<Table>
<Caption>
SERIES II
-----------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------
2008 2007 2006 2005 2004 2003
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.73 $11.84 $10.91 $10.53 $ 9.95 $ 8.73
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.15 0.25 0.22 0.15 0.10 0.12
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (1.57) (0.01) 0.91 0.37 0.62 1.29
==========================================================================================================================
Total from investment operations (1.42) 0.24 1.13 0.52 0.72 1.41
==========================================================================================================================
Less dividends from net investment income -- (0.35) (0.20) (0.14) (0.14) (0.19)
==========================================================================================================================
Net asset value, end of period $ 10.31 $11.73 $11.84 $10.91 $10.53 $ 9.95
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) (12.11)% 1.94% 10.36% 4.91% 7.24% 16.15%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 4,442 $5,295 $5,878 $5,870 $5,642 $4,133
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.16%(c) 1.16% 1.16% 1.20% 1.37% 1.36%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.55%(c) 1.43% 1.40% 1.40% 1.37% 1.36%
==========================================================================================================================
Ratio of net investment income to average net
assets 2.75%(c) 2.06% 1.91% 1.43% 0.99% 1.22%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate(d) 25% 47% 44% 44% 51% 131%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of $4,885,251.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. BASIC BALANCED FUND
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor -- Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to Invesco Aim and IADI (Order No. 05-1318). The WVASC makes
findings of fact that Invesco Aim and IADI entered into certain arrangements
permitting market timing of the AIM Funds and failed to disclose these
arrangements in the prospectuses for such Funds, and conclusions of law to the
effect that Invesco Aim and IADI violated the West Virginia securities laws. The
WVASC orders Invesco Aim and IADI to cease any further violations and seeks to
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute. By agreement with the Commissioner of Securities, Invesco Aim's time to
respond to that Order has been indefinitely suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid. The case pending in Illinois State Court regarding fair value
pricing was dismissed with prejudice on May 6, 2008.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA
purportedly brought on behalf of participants in the Invesco 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds remain nominal defendants in the Consolidated Amended Fund
Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco
defendants' motion to dismiss the Amended Class Action Complaint for Violations
of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June
16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this
lawsuit back to the MDL Court for further proceedings.
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, Invesco Aim and IADI have advised the Fund that they are providing
full cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, Invesco Aim and/or related entities and individuals in the
future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. BASIC BALANCED FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $880.60 $4.25 $1,020.34 $4.57 0.91%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 878.90 5.42 1,019.10 5.82 1.16
- ---------------------------------------------------------------------------------------------------
</Table>
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5%
before expenses.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
AIM V.I. BASIC BALANCED FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different
Variable Insurance Funds is required under comparative performance and fee data weight to the various factors. The
the Investment Company Act of 1940 to regarding the AIM Funds prepared by an Trustees recognized that the advisory
approve annually the renewal of the AIM independent company, Lipper, Inc. arrangements and resulting advisory fees
V.I. Basic Balanced Fund (the Fund) (Lipper), under the direction and for the Fund and the other AIM Funds are
investment advisory agreement with Invesco supervision of the independent Senior the result of years of review and
Aim Advisors, Inc. (Invesco Aim). During Officer who also prepares a separate negotiation between the Trustees and
contract renewal meetings held on June analysis of this information for the Invesco Aim, that the Trustees may focus
18-19, 2008, the Board as a whole and the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of
disinterested or "independent" Trustees, recommendations to the Investments these arrangements in some years than in
voting separately, approved the Committee regarding the performance, fees others, and that the Trustees'
continuance of the Fund's investment and expenses of their assigned funds. The deliberations and conclusions in a
advisory agreement for another year, Investments Committee considers each particular year may be based in part on
effective July 1, 2008. In doing so, the Sub-Committee's recommendations and makes their deliberations and conclusions of
Board determined that the Fund's its own recommendations regarding the these same arrangements throughout the
investment advisory agreement is in the performance, fees and expenses of the AIM year and in prior years.
best interests of the Fund and its Funds to the full Board. The Investments
shareholders and that the compensation to Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF
Invesco Aim under the Fund's investment Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION
advisory agreement is fair and reasonable. its annual recommendation to the Board The discussion below serves as a summary
The independent Trustees met separately whether to approve the continuance of each of the Senior Officer's independent
during their evaluation of the Fund's AIM Fund's investment advisory agreement written evaluation with respect to the
investment advisory agreement with and sub-advisory agreements for another Fund's investment advisory agreement as
independent legal counsel from whom they year. well as a discussion of the material
received independent legal advice, and the The independent Trustees are assisted factors and related conclusions that
independent Trustees also received in their annual evaluation of the Fund's formed the basis for the Board's approval
assistance during their deliberations from investment advisory agreement by the of the Fund's investment advisory
the independent Senior Officer, a independent Senior Officer. One agreement and sub-advisory agreements.
full-time officer of the AIM Funds who responsibility of the Senior Officer is to Unless otherwise stated, information set
reports directly to the independent manage the process by which the AIM Funds' forth below is as of June 19, 2008 and
Trustees. proposed management fees are negotiated does not reflect any changes that may have
during the annual contract renewal process occurred since that date, including but
THE BOARD'S FUND EVALUATION PROCESS to ensure that they are negotiated in a not limited to changes to the Fund's
The Board's Investments Committee has manner that is at arms' length and performance, advisory fees, expense
established three Sub-Committees that are reasonable. Accordingly, the Senior limitations and/or fee waivers.
responsible for overseeing the management Officer must either supervise a
of a number of the series portfolios of competitive bidding process or prepare an I. Investment Advisory Agreement
the AIM Funds. This Sub-Committee independent written evaluation. The Senior A. Nature, Extent and Quality of
structure permits the Trustees to focus on Officer has recommended that an Services Provided by Invesco Aim
the performance of the AIM Funds that have independent written evaluation be provided The Board reviewed the advisory services
been assigned to them. The Sub-Committees and, at the direction of the Board, has provided to the Fund by Invesco Aim under
meet throughout the year to review the prepared an independent written the Fund's investment advisory agreement,
performance of their assigned funds, and evaluation. the performance of Invesco Aim in
the Sub-Committees review monthly and During the annual contract renewal providing these services, and the
quarterly comparative performance process, the Board considered the factors credentials and experience of the officers
information and periodic asset flow data discussed below under the heading "Factors and employees of Invesco Aim who provide
for their assigned funds. These materials and Conclusions and Summary of Independent these services. The Board's review of the
are prepared under the direction and Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide
supervision of the independent Senior fairness and reasonableness of the Fund's these services included the Board's
Officer. Over the course of each year, the investment advisory agreement and consideration of Invesco Aim's portfolio
Sub-Committees meet with portfolio sub-advisory agreements at the contract and product review process, various back
managers for their assigned funds and renewal meetings and at their meetings office support functions provided by
other members of management and review throughout the year as part of their Invesco Aim and its affiliates, and
with these individuals the performance, ongoing oversight of the Fund. The Fund's Invesco Aim's equity and fixed income
investment objective(s), policies, investment advisory agreement and trading operations. The Board concluded
strategies and limitations of these funds. sub-advisory agreements were considered that the nature, extent and quality of the
In addition to their meetings separately, although the Board also advisory services provided to the Fund by
throughout the year, the Sub-Committees considered the common interests of all of Invesco Aim were appropriate and that
meet at designated contract renewal the AIM Funds in their deliberations. The Invesco Aim currently is providing
meetings each year to conduct an in-depth Board considered all of the information satisfactory advisory services in
review of the performance, fees and provided to them and did not identify any accordance with the terms of the Fund's
expenses of their assigned funds. During particular factor that was controlling. investment advisory agreement. In
the contract Each Trustee may have evaluated the addition, based on their ongoing meetings
information provided differently throughout the year with the Fund's
portfolio manager or
continued
AIM V.I. BASIC BALANCED FUND
managers, the Board concluded that these the Board's focus on fund performance. the comparative advisory fee information
individuals are competent and able to However, due to the Fund's and the fee waivers/expense limitations
continue to carry out their underperformance, the Board also concluded discussed above, the Board concluded that
responsibilities under the Fund's that it would be appropriate for the Board the Fund's advisory fees were fair and
investment advisory agreement. to continue to monitor more closely the reasonable.
In determining whether to continue the performance of the Fund. Although the
Fund's investment advisory agreement, the independent written evaluation of the D. Economies of Scale and Breakpoints
Board considered the prior relationship Fund's Senior Officer only considered Fund The Board considered the extent to which
between Invesco Aim and the Fund, as well performance through the most recent there are economies of scale in Invesco
as the Board's knowledge of Invesco Aim's calendar year, the Board also reviewed Aim's provision of advisory services to
operations, and concluded that it was more recent Fund performance and this the Fund. The Board also considered
beneficial to maintain the current review did not change their conclusions. whether the Fund benefits from such
relationship, in part, because of such economies of scale through contractual
knowledge. The Board also considered the C. Advisory Fees and Fee Waivers breakpoints in the Fund's advisory fee
steps that Invesco Aim and its affiliates The Board compared the Fund's contractual schedule or through advisory fee waivers
have taken over the last several years to advisory fee rate to the contractual or expense limitations. The Board noted
improve the quality and efficiency of the advisory fee rates of funds in the Fund's that the Fund's contractual advisory fee
services they provide to the AIM Funds in Lipper expense group that are not managed schedule includes one breakpoint, but
the areas of investment performance, by Invesco Aim, at a common asset level that, due to the Fund's asset level at the
product line diversification, and as of the end of the past calendar end of the past calendar year and the way
distribution, fund operations, shareholder year. The Board noted that the Fund's in which the breakpoint has been
services and compliance. The Board contractual advisory fee rate was below structured, the Fund has yet to benefit
concluded that the quality and efficiency the median contractual advisory fee rate from the breakpoint. The Board also noted
of the services Invesco Aim and its of funds in its expense group. The Board that Invesco Aim's contractual advisory
affiliates provide to the AIM Funds in also reviewed the methodology used by fee waiver discussed above includes
each of these areas have generally Lipper in determining contractual fee breakpoints based on net asset levels.
improved, and support the Board's approval rates. Based on this information, the Board
of the continuance of the Fund's The Board also compared the Fund's concluded that the Fund's advisory fees
investment advisory agreement. effective fee rate (the advisory fee after would reflect economies of scale at higher
any advisory fee waivers and before any asset levels. The Board also noted that
B. Fund Performance expense limitations/waivers) to the the Fund shares directly in economies of
The Board compared the Fund's performance advisory fee rates of other clients of scale through lower fees charged by third
during the past one, three and five Invesco Aim and its affiliates with party service providers based on the
calendar years to the performance of funds investment strategies comparable to those combined size of all of the AIM Funds and
in the Fund's performance group that are of the Fund, including two mutual funds affiliates.
not managed by Invesco Aim, and against advised by Invesco Aim. The Board noted
the performance of all funds in the Lipper that the Fund's rate was above the rates E. Profitability and Financial
Variable Annuity Underlying Funds - for the two mutual funds, one of which is Resources of Invesco Aim
Mixed-Asset Target Allocation Moderate an asset allocation fund that does not pay The Board reviewed information from
Index. The Board also reviewed the an advisory fee. Invesco Aim concerning the costs of the
criteria used by Invesco Aim to identify The Board noted that Invesco Aim has advisory and other services that Invesco
the funds in the Fund's performance group contractually agreed to waive advisory Aim and its affiliates provide to the Fund
for inclusion in the Lipper reports. The fees of the Fund through December 31, 2009 and the profitability of Invesco Aim and
Board noted that the Fund's performance and that this fee waiver includes its affiliates in providing these
was in the fourth quintile of its breakpoints based on net asset levels. The services. The Board also reviewed
performance group for the one year period Board considered the contractual nature of information concerning the financial
and the fifth quintile for the three and this fee waiver and noted that it remains condition of Invesco Aim and its
five year periods (the first quintile in effect until December 31, 2009. The affiliates. The Board also reviewed with
being the best performing funds and the Board also noted that Invesco Aim has Invesco Aim the methodology used to
fifth quintile being the worst performing contractually agreed to waive fees and/or prepare the profitability information. The
funds). The Board noted that the Fund's limit expenses of the Fund through at Board considered the overall profitability
performance was below the performance of least April 30, 2010 in an amount of Invesco Aim, as well as the
the Index for the one, three and five year necessary to limit total annual operating profitability of Invesco Aim in connection
periods. The Board also noted that Invesco expenses to a specified percentage of with managing the Fund. The Board noted
Aim acknowledges the Fund's average daily net assets for each class of that Invesco Aim continues to operate at a
underperformance and is focused on the the Fund. The Board considered the net profit, although increased expenses in
longer term and business issues that contractual nature of this fee waiver and recent years have reduced the
affect the Fund's performance. The Board noted that it remains in effect until at profitability of Invesco Aim and its
also considered the steps Invesco Aim has least April 30, 2010. The Board also affiliates. The Board concluded that the
taken over the last several years to considered the effect this fee waiver Fund's fees were fair and reasonable, and
improve the quality and efficiency of the would have on the Fund's total estimated that the level of profits realized by
services that Invesco Aim provides to the expenses. Invesco Aim and its affiliates from
AIM Funds. The Board concluded that After taking account of the Fund's providing services to the Fund was not
Invesco Aim continues to be responsive to contractual advisory fee rate, as well as excessive in light of the nature, quality
and extent of the services provided. The
continued
AIM V.I. BASIC BALANCED FUND
Board considered whether Invesco Aim is Aim's expenses. The Board also noted that and personnel that are geographically
financially sound and has the resources research obtained through soft dollar dispersed in financial centers around the
necessary to perform its obligations under arrangements may be used by Invesco Aim in world, have been formed in part for the
the Fund's investment advisory agreement, making investment decisions for the Fund purpose of researching and compiling
and concluded that Invesco Aim has the and may therefore benefit Fund information and making recommendations on
financial resources necessary to fulfill shareholders. The Board concluded that the markets and economies of various
these obligations. Invesco Aim's soft dollar arrangements countries and securities of companies
were appropriate. The Board also concluded located in such countries or on various
F. Independent Written Evaluation of that, based on their review and types of investments and investment
the Fund's Senior Officer representations made by Invesco Aim, these techniques, and providing investment
The Board noted that, at their direction, arrangements were consistent with advisory services. The Board concluded
the Senior Officer of the Fund, who is regulatory requirements. that the sub-advisory agreements will
independent of Invesco Aim and Invesco The Board considered the fact that the benefit the Fund and its shareholders by
Aim's affiliates, had prepared an Fund's uninvested cash and cash collateral permitting Invesco Aim to utilize the
independent written evaluation to assist from any securities lending arrangements additional resources and talent of the
the Board in determining the may be invested in money market funds Affiliated Sub-Advisers in managing the
reasonableness of the proposed management advised by Invesco Aim pursuant to Fund.
fees of the AIM Funds, including the Fund. procedures approved by the Board. The
The Board noted that they had relied upon Board noted that Invesco Aim will receive B. Fund Performance
the Senior Officer's written evaluation advisory fees from these affiliated money The Board did not view Fund performance as
instead of a competitive bidding process. market funds attributable to such a relevant factor in considering whether
In determining whether to continue the investments, although Invesco Aim has to approve the sub-advisory agreements for
Fund's advisory agreement, the Board contractually agreed to waive through at the Fund, as no Affiliated Sub-Adviser
considered the Senior Officer's written least April 30, 2010, the advisory fees served as sub-adviser to the Fund prior to
evaluation. payable by the Fund in an amount equal to May 1, 2008.
100% of the net advisory fees Invesco Aim
G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees
and its Affiliates funds with respect to the Fund's The Board considered the services to be
The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers
benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements
affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco
relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment
fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the
affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and
administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to
distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board
Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no
Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its
providing these services and the shareholders. shareholders, as they are paid by Invesco
organizational structure employed by Aim to the Affiliated Sub-Advisers, and
Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements that Invesco Aim and the Affiliated
these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking
that these services are provided to the Services Provided by Affiliated account of the Fund's contractual
Fund pursuant to written contracts which Sub-Advisers sub-advisory fee rate, as well as other
are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that
basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and
that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, reasonable.
providing these services in a satisfactory Invesco Asset Management Limited, Invesco
manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco D. Financial Resources of the
their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers
continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each
Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially
The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to
realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its
portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and
through Osoft dollarO arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser
these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to
commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations.
funds advised by Invesco Aim are used to Sub-Advisers who will provide these
pay for research and execution services. services. The Board concluded that the
The Board noted that soft dollar nature, extent and quality of the services
arrangements shift the payment obligation to be provided by the Affiliated
for the research and execution services Sub-Advisers were appropriate. The Board
from Invesco Aim to the funds and noted that the Affiliated Sub-Advisers,
therefore may reduce Invesco which have offices
AIM V.I. BASIC BALANCED FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. Basic Balanced Fund,
an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory
trust ("Trust"), was held on February 29, 2008. The Meeting was held for the
following purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will
serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust that
would permit the Board of Trustees of the Trust to terminate the Trust, the
Fund, and each other series portfolio of the Trust, or a share class without
a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and
each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland,
GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.),
Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and
Invesco Senior Secured Management, Inc.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- -----------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker...................................................... 474,883,590 19,741,622
Frank S. Bayley................................................... 474,653,109 19,972,103
James T. Bunch.................................................... 475,597,417 19,027,795
Bruce L. Crockett................................................. 474,900,579 19,724,633
Albert R. Dowden.................................................. 474,749,929 19,875,283
Jack M. Fields.................................................... 475,205,840 19,419,372
Martin L. Flanagan................................................ 475,248,336 19,376,876
Carl Frischling................................................... 474,453,674 20,171,538
Prema Mathai-Davis................................................ 473,569,192 21,056,020
Lewis F. Pennock.................................................. 475,072,501 19,552,711
Larry Soll, Ph.D. ................................................ 475,170,544 19,454,668
Raymond Stickel, Jr. ............................................. 475,420,825 19,204,387
Philip A. Taylor.................................................. 475,640,570 18,984,642
</Table>
<Table>
<Caption>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
- ------------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of
Trustees of the Trust to terminate the Trust, the Fund,
and each other series portfolio of the Trust, or a share
class without a shareholder vote......................... 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between Invesco Aim
Advisors, Inc. and each of AIM Funds Management, Inc.;
Invesco Asset Management Deutschland, GmbH; Invesco Asset
Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset
Management (N.A.), Inc.; Invesco Hong Kong Limited;
Invesco Institutional (N.A.), Inc.; and Invesco Senior
Secured Management, Inc. ................................ 5,077,445 81,476 202,711
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. BASIC BALANCED FUND
[INVESCO AIM LOGO] AIM V.I. BASIC VALUE FUND
- SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008
AIM Investments [MOUNTAIN GRAPHIC]
became INVESCO AIM
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FUND PERFORMANCE
=======================================================================================
PERFORMANCE SUMMARY
FUND VS. INDEXES
Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer
charges. If variable product issuer charges were included, returns would be
lower.
Series I Shares -17.20%
Series II Shares -17.35
S&P 500 Index(TRIANGLE) (Broad Market Index) -11.90
Russell 1000 Value Index(TRIANGLE) (Style-Specific Index) -13.57
Lipper VUF Large-Cap Value Funds Index(TRIANGLE) (Peer Group Index) -13.81
(TRIANGLE)Lipper Inc.
The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted
index covering all major areas of the U.S. economy. It is not the 500 largest
companies, but rather the most widely held 500 companies chosen with respect to
market size, liquidity, and their industry.
The RUSSELL 1000--REGISTERED TRADEMARK-- VALUE INDEX measures the performance of
those Russell 1000 companies with lower price-to-book ratios and lower forecasted
growth values. The Russell 1000 Value Index is a trademark/service mark of the Frank
Russell Company. Russell--REGISTERED TRADEMARK-- is a trademark of the Frank Russell
Company.
The LIPPER VUF LARGE-CAP VALUE FUNDS INDEX is an equally weighted representation of
the largest variable insurance underlying funds in the Lipper Large-Cap Value Funds
category. These funds typically have a below-average price-to-earnings ratio,
price-to-book ratio, and three-year sales-per-share growth value, compared to the S&P
500 Index.
The Fund is not managed to track the performance of any particular index, including
the indexes defined here, and consequently, the performance of the Fund may deviate
significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index
results include reinvested dividends, and they do not reflect sales charges.
Performance of an index of funds reflects fund expenses; performance of a market index
does not.
=======================================================================================
==========================================
AVERAGE ANNUAL TOTAL RETURNS PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU ABLE PRODUCT ISSUERS, WILL VARY AND WILL
As of 6/30/08 MAY HAVE A GAIN OR LOSS WHEN YOU SELL LOWER THE TOTAL RETURN.
SHARES. THE MOST RECENT MONTH-END PERFORMANCE
SERIES I SHARES THE TOTAL ANNUAL FUND OPERATING EXPENSE DATA AT THE FUND LEVEL, EXCLUDING VARIABLE
INCEPTION (9/10/01) 2.63% RATIO SET FORTH IN THE MOST RECENT FUND PRODUCT CHARGES, IS AVAILABLE ON THE
5 YEARS 5.71 PROSPECTUS AS OF THE DATE OF THIS REPORT INVESCO AIM AUTOMATED INFORMATION LINE,
1 YEAR -21.94 FOR SERIES I AND SERIES II SHARES WAS 866 702 4402. AS MENTIONED ABOVE, FOR THE
0.96% AND 1.21%, RESPECTIVELY. THE EXPENSE MOST RECENT MONTH-END PERFORMANCE
SERIES II SHARES RATIOS PRESENTED ABOVE MAY VARY FROM THE INCLUDING VARIABLE PRODUCT CHARGES, PLEASE
INCEPTION (9/10/01) 2.39% EXPENSE RATIOS PRESENTED IN OTHER SECTIONS CONTACT YOUR VARIABLE PRODUCT ISSUER OR
5 YEARS 5.44 OF THIS REPORT THAT ARE BASED ON EXPENSES FINANCIAL ADVISOR.
1 YEAR -22.11 INCURRED DURING THE PERIOD COVERED BY THIS
REPORT.
========================================== AIM V.I. BASIC VALUE FUND, A SERIES
PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS,
THE PERFORMANCE OF THE FUND'S SERIES I AND IS CURRENTLY OFFERED THROUGH INSURANCE
SERIES II SHARE CLASSES WILL DIFFER COMPANIES ISSUING VARIABLE PRODUCTS. YOU
PRIMARILY DUE TO DIFFERENT CLASS EXPENSES. CANNOT PURCHASE SHARES OF THE FUND
THE PERFORMANCE DATA QUOTED REPRESENT DIRECTLY. PERFORMANCE FIGURES GIVEN
PAST PERFORMANCE AND CANNOT GUARANTEE REPRESENT THE FUND AND ARE NOT INTENDED TO
COMPARABLE FUTURE RESULTS; CURRENT REFLECT ACTUAL VARIABLE PRODUCT VALUES.
PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE THEY DO NOT REFLECT SALES CHARGES,
CONTACT YOUR VARIABLE PRODUCT ISSUER OR EXPENSES AND FEES ASSESSED IN CONNECTION
FINANCIAL ADVISOR FOR THE MOST RECENT WITH A VARIABLE PRODUCT. SALES CHARGES,
MONTH-END VARIABLE PRODUCT PERFORMANCE. EXPENSES AND FEES, WHICH ARE DETERMINED BY
PERFORMANCE FIGURES REFLECT FUND EXPENSES, THE VARI-
REINVESTED DISTRIBUTIONS AND CHANGES IN
NET ASSET VALUE. INVESTMENT RETURN AND
AIM V.I. BASIC VALUE FUND
PORTFOLIO COMPOSITION
By sector, based on Net Assets
as of June 30, 2008
<Table>
- -------------------------------------------------------------------------
Financials 22.8%
- -------------------------------------------------------------------------
Information Technology 20.8
- -------------------------------------------------------------------------
Consumer Discretionary 19.5
- -------------------------------------------------------------------------
Health Care 11.0
- -------------------------------------------------------------------------
Energy 8.7
- -------------------------------------------------------------------------
Industrials 8.6
- -------------------------------------------------------------------------
Consumer Staples 4.0
- -------------------------------------------------------------------------
Materials 2.8
- -------------------------------------------------------------------------
Money Market Funds Plus Other Assets Less Liabilities 1.8
_________________________________________________________________________
=========================================================================
</Table>
SCHEDULE OF INVESTMENTS(a)
June 30, 2008
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.24%
ADVERTISING-5.14%
Interpublic Group of Cos., Inc. (The)(b)(c) 1,592,806 $ 13,698,131
- -------------------------------------------------------------------------------
Omnicom Group Inc. 296,661 13,314,146
===============================================================================
27,012,277
===============================================================================
APPAREL RETAIL-1.36%
Gap, Inc. (The) 428,070 7,135,927
===============================================================================
BREWERS-2.62%
Molson Coors Brewing Co.-Class B 253,490 13,772,112
===============================================================================
COMPUTER HARDWARE-3.49%
Dell Inc.(c) 836,659 18,306,099
===============================================================================
CONSTRUCTION MATERIALS-2.81%
Cemex S.A.B. de C.V.-ADR (Mexico)(b)(c) 597,818 14,766,105
===============================================================================
CONSUMER FINANCE-1.99%
SLM Corp.(c) 539,667 10,442,556
===============================================================================
DATA PROCESSING & OUTSOURCED SERVICES-3.48%
Western Union Co. 738,380 18,252,754
===============================================================================
DEPARTMENT STORES-1.59%
Kohl's Corp.(c) 208,800 8,360,352
===============================================================================
DIVERSIFIED BANKS-0.85%
Wachovia Corp.(b) 285,774 4,438,070
===============================================================================
EDUCATION SERVICES-1.66%
Apollo Group Inc.-Class A(c) 196,400 8,692,664
===============================================================================
ELECTRONIC MANUFACTURING SERVICES-1.00%
Tyco Electronics Ltd. 146,301 5,240,502
===============================================================================
GENERAL MERCHANDISE STORES-2.20%
Target Corp. 248,820 11,567,642
===============================================================================
HEALTH CARE DISTRIBUTORS-2.47%
Cardinal Health, Inc. 251,896 12,992,796
===============================================================================
HOME IMPROVEMENT RETAIL-2.30%
Home Depot, Inc. (The) 516,042 12,085,704
===============================================================================
HOUSEHOLD APPLIANCES-1.58%
Whirlpool Corp.(b) 134,400 8,296,512
===============================================================================
HUMAN RESOURCE & EMPLOYMENT SERVICES-2.92%
Robert Half International, Inc. 638,870 15,313,714
===============================================================================
INDUSTRIAL CONGLOMERATES-3.19%
General Electric Co. 284,342 7,589,088
- -------------------------------------------------------------------------------
Tyco International Ltd. 229,269 9,179,931
===============================================================================
16,769,019
===============================================================================
INDUSTRIAL MACHINERY-2.52%
Illinois Tool Works Inc. 278,647 13,238,519
===============================================================================
INSURANCE BROKERS-1.97%
Marsh & McLennan Cos., Inc.(b) 389,136 10,331,561
===============================================================================
INVESTMENT BANKING & BROKERAGE-3.36%
Merrill Lynch & Co., Inc. 264,364 8,382,982
- -------------------------------------------------------------------------------
Morgan Stanley 256,783 9,262,163
===============================================================================
17,645,145
===============================================================================
LIFE SCIENCES TOOLS & SERVICES-2.05%
Waters Corp.(c) 167,023 10,772,983
===============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC VALUE FUND
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------------
MANAGED HEALTH CARE-3.12%
UnitedHealth Group Inc. 624,628 $ 16,396,485
===============================================================================
MOVIES & ENTERTAINMENT-1.47%
Walt Disney Co. (The) 246,879 7,702,625
===============================================================================
MULTI-LINE INSURANCE-1.61%
American International Group, Inc. 319,000 8,440,740
===============================================================================
OIL & GAS DRILLING-1.57%
Transocean Inc. 54,172 8,255,271
===============================================================================
OIL & GAS EQUIPMENT & SERVICES-7.13%
Halliburton Co. 351,276 18,642,217
- -------------------------------------------------------------------------------
Weatherford International Ltd.(c) 378,986 18,793,916
===============================================================================
37,436,133
===============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-4.33%
Citigroup Inc. 717,997 12,033,630
- -------------------------------------------------------------------------------
JPMorgan Chase & Co. 311,585 10,690,481
===============================================================================
22,724,111
===============================================================================
PACKAGED FOODS & MEATS-1.37%
Unilever N.V. (Netherlands) 253,501 7,196,217
===============================================================================
PHARMACEUTICALS-3.37%
Sanofi-Aventis (France)(b)(d) 136,245 9,063,764
- -------------------------------------------------------------------------------
Wyeth 180,470 8,655,341
===============================================================================
17,719,105
===============================================================================
PROPERTY & CASUALTY INSURANCE-1.53%
XL Capital Ltd.-Class A 391,219 8,043,463
===============================================================================
PUBLISHING-2.20%
McGraw-Hill Cos., Inc. (The) 288,100 11,558,572
===============================================================================
SEMICONDUCTOR EQUIPMENT-6.34%
ASML Holding N.V. (Netherlands)(d) 590,431 14,380,025
- -------------------------------------------------------------------------------
KLA-Tencor Corp.(b) 465,121 18,935,076
===============================================================================
33,315,101
===============================================================================
SEMICONDUCTORS-2.79%
Maxim Integrated Products, Inc. 692,623 14,648,976
===============================================================================
SPECIALIZED FINANCE-3.50%
Moody's Corp.(b) 532,892 18,352,800
===============================================================================
SYSTEMS SOFTWARE-3.72%
CA Inc. 432,806 9,993,491
- -------------------------------------------------------------------------------
Microsoft Corp. 347,318 9,554,718
===============================================================================
19,548,209
===============================================================================
THRIFTS & MORTGAGE FINANCE-3.64%
Fannie Mae 733,525 14,311,073
- -------------------------------------------------------------------------------
Washington Mutual, Inc.(b) 973,690 4,800,291
===============================================================================
19,111,364
===============================================================================
Total Common Stocks & Other Equity Interests
(Cost $521,844,887) 515,882,185
===============================================================================
MONEY MARKET FUNDS-0.95%
Liquid Assets Portfolio-Institutional Class(e) 2,491,067 2,491,067
- -------------------------------------------------------------------------------
Premier Portfolio-Institutional Class(e) 2,491,067 2,491,067
===============================================================================
Total Money Market Funds (Cost $4,982,134) 4,982,134
===============================================================================
TOTAL INVESTMENTS (excluding investments purchased
with cash collateral from securities on
loan)-99.19% (Cost $526,827,021) 520,864,319
===============================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON
LOAN
MONEY MARKET FUNDS-7.96%
Liquid Assets Portfolio-Institutional Class (Cost
$41,782,155)(e)(f) 41,782,155 41,782,155
===============================================================================
TOTAL INVESTMENTS-107.15% (Cost $568,609,176) 562,646,474
===============================================================================
OTHER ASSETS LESS LIABILITIES-(7.15)% (37,525,912)
===============================================================================
NET ASSETS-100.00% $525,120,562
_______________________________________________________________________________
===============================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Industry and/or sector classifications used in this report are generally
according to the Global Industry Classification Standard, which was
developed by and is the exclusive property and a service mark of MSCI Inc.
and Standard & Poor's.
(b) All or a portion of this security was out on loan at June 30, 2008.
(c) Non-income producing security.
(d) In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate value of these securities at June 30, 2008 was $23,443,789,
which represented 4.46% of the Fund's Net Assets. See Note 1A.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor.
(f) The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 1I.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, at value (Cost
$521,844,887)* $515,882,185
- ------------------------------------------------------
Investments in affiliated money market
funds (Cost $46,764,289) 46,764,289
======================================================
Total investments (Cost
$568,609,176) 562,646,474
======================================================
Cash 519,878
- ------------------------------------------------------
Receivables for:
Investments sold 4,081,598
- ------------------------------------------------------
Fund shares sold 470,640
- ------------------------------------------------------
Dividends 304,540
- ------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 25,202
- ------------------------------------------------------
Other assets 24,856
======================================================
Total assets 568,073,188
______________________________________________________
======================================================
LIABILITIES:
Payables for:
Fund shares reacquired 524,469
- ------------------------------------------------------
Collateral upon return of securities
loaned 41,782,155
- ------------------------------------------------------
Accrued fees to affiliates 525,140
- ------------------------------------------------------
Accrued other operating expenses 43,223
- ------------------------------------------------------
Trustee deferred compensation and
retirement plans 77,639
======================================================
Total liabilities 42,952,626
======================================================
Net assets applicable to shares
outstanding $525,120,562
______________________________________________________
======================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $396,319,352
- ------------------------------------------------------
Undistributed net investment income 6,010,250
- ------------------------------------------------------
Undistributed net realized gain 128,753,667
- ------------------------------------------------------
Unrealized appreciation (depreciation) (5,962,707)
======================================================
$525,120,562
______________________________________________________
======================================================
NET ASSETS:
Series I $295,053,988
______________________________________________________
======================================================
Series II $230,066,574
______________________________________________________
======================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 27,990,441
______________________________________________________
======================================================
Series II 22,053,114
______________________________________________________
======================================================
Series I:
Net asset value per share $ 10.54
______________________________________________________
======================================================
Series II:
Net asset value per share $ 10.43
______________________________________________________
======================================================
</Table>
* At June 30, 2008, securities with an aggregate value of $40,467,303 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding
taxes of $106,893) $ 5,840,251
- -------------------------------------------------------
Dividends from affiliated money market
funds (includes securities lending
income of $137,566) 264,225
=======================================================
Total investment income 6,104,476
=======================================================
EXPENSES:
Advisory fees 2,031,384
- -------------------------------------------------------
Administrative services fees 814,393
- -------------------------------------------------------
Custodian fees 15,698
- -------------------------------------------------------
Distribution fees -- Series II 327,507
- -------------------------------------------------------
Transfer agent fees 14,605
- -------------------------------------------------------
Trustees' and officer's fees and
benefits 16,280
- -------------------------------------------------------
Other 166,819
=======================================================
Total expenses 3,386,686
=======================================================
Less: Fees waived and expense offset
arrangement(s) (7,201)
- -------------------------------------------------------
Net expenses 3,379,485
=======================================================
Net investment income 2,724,991
=======================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM:
Net realized gain from:
Investment securities (includes net
gains (losses) from securities
sold to affiliates of $(29,674)) 40,823,889
- -------------------------------------------------------
Foreign currencies 29,023
=======================================================
40,852,912
=======================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (159,155,420)
- -------------------------------------------------------
Foreign currencies 2
=======================================================
(159,155,418)
=======================================================
Net realized and unrealized gain (loss) (118,302,506)
=======================================================
Net increase (decrease) in net assets
resulting from operations $(115,577,515)
_______________________________________________________
=======================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- ---------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,724,991 $ 3,355,188
- ---------------------------------------------------------------------------------------------------------
Net realized gain 40,852,912 90,845,412
- ---------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) (159,155,418) (79,569,597)
=========================================================================================================
Net increase (decrease) in net assets resulting from operations (115,577,515) 14,631,003
=========================================================================================================
Distributions to shareholders from net investment income:
Series I -- (2,486,739)
- ---------------------------------------------------------------------------------------------------------
Series II -- (1,064,477)
=========================================================================================================
Total distributions from net investment income -- (3,551,216)
=========================================================================================================
Distributions to shareholders from net realized gains:
Series I -- (23,181,770)
- ---------------------------------------------------------------------------------------------------------
Series II -- (17,896,086)
=========================================================================================================
Total distributions from net realized gains -- (41,077,856)
=========================================================================================================
Share transactions-net:
Series I (39,713,987) (72,884,455)
- ---------------------------------------------------------------------------------------------------------
Series II (23,190,150) (22,324,644)
=========================================================================================================
Net increase (decrease) in net assets resulting from share
transactions (62,904,137) (95,209,099)
=========================================================================================================
Net increase (decrease) in net assets (178,481,652) (125,207,168)
_________________________________________________________________________________________________________
=========================================================================================================
NET ASSETS:
Beginning of period 703,602,214 828,809,382
- ---------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of
$6,010,250 and $3,285,259, respectively) $ 525,120,562 $ 703,602,214
_________________________________________________________________________________________________________
=========================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. BASIC VALUE FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Basic Value Fund (the "Fund") is a series portfolio of AIM Variable
Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is long-term growth of capital.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on
that day. Securities traded in the over-the-counter market are valued
based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service
they may be considered fair valued. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally
traded. Listed options are valued at the mean between the last bid and the
ask prices from the exchange on which they are principally traded. Options
not listed on an exchange are valued by an independent source at the mean
between the last bid and ask prices. For purposes of determining net asset
value per share, futures and option contracts generally are valued 15
minutes after the close of the customary trading session of the New York
Stock Exchange ("NYSE").
Investments in open-end and closed-end registered investment companies
that do not trade on an exchange are valued at the end of day net asset
value per share. Investments in open-end and closed-end registered
investment companies that trade on an exchange are valued at the last
sales price or official closing price as of the close of the customary
trading session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing
service. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to specific securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Short-term obligations, including
commercial paper, having 60 days or less to maturity are recorded at
amortized cost which approximates value. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve
some risk of default with respect to interest and/or principal payments.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued
at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price
unreliable, the Fund may fair value the security. If the event is likely
to have affected the closing price of the security, the security will be
valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also
be based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current value as of the close of the NYSE. Foreign securities
meeting the approved degree of certainty that the price is not reflective
of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, American
Depositary Receipts and domestic and foreign index futures. Foreign
securities may have additional risks including exchange rate changes,
potential for sharply devalued currencies and high inflation, political
and economical upheaval, the relative lack of issuer information,
relatively low market liquidity and the potential lack of strict financial
and accounting controls and standards.
Securities for which market prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers following procedures
approved by the Board of Trustees. Issuer specific events, market trends,
bid/ask quotes of brokers and information providers and other market data
may be reviewed in the course of making a good faith determination of a
security's fair value.
Valuations change in response to many factors including the historical
and prospective earnings of the issuer, the value of the issuer's assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
AIM V.I. BASIC VALUE FUND
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification
claims is considered remote.
I. SECURITIES LENDING -- The Fund may lend portfolio securities having a
market value up to one-third of the Fund's total assets. Such loans are
secured by collateral equal to no less than the market value of the loaned
securities determined daily by the securities lending provider. Such
collateral will be cash or debt securities issued or guaranteed by the
U.S. Government or any of its sponsored agencies. Cash collateral received
in connection with these loans is invested in short-term money market
instruments or affiliated money market funds and is shown as such on the
Schedule of Investments. It is the Fund's policy to obtain additional
collateral from or return excess collateral to the borrower by the end of
the next business day, following the valuation date of the securities
loaned. Therefore, the value of the collateral held may be temporarily
less than the value of the securities on loan. Lending securities entails
a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase
the collateral accordingly, and the borrower fails to return the
securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any
loss on the collateral invested. Dividends received on cash collateral
investments for securities lending transactions, which are net of
compensation to counterparties, is included in Dividends from affiliates
on the Statement of Operations. The aggregate value of securities out on
loan is shown as a footnote on the Statement of Assets and Liabilities.
J. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close
of the NYSE based on quotations posted by banks and major currency
dealers. Portfolio securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i)
sales of foreign currencies, (ii) currency gains or losses realized
between the trade and settlement dates on securities transactions, and
(iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized
foreign currency gains and losses arise from changes in the fair values of
assets and liabilities, other than investments in securities at fiscal
period end, resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to
foreign taxes on income, gains on investments or currency repatriation, a
portion of which may be recoverable.
AIM V.I. BASIC VALUE FUND
K. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. Fluctuations in the value of these contracts are recorded as
unrealized appreciation (depreciation) until the contracts are closed.
When these contracts are closed, realized gains (losses) are recorded.
Realized and unrealized gains and losses on these contracts are included
in the Statement of Operations. The Fund could be exposed to risk, which
may be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $250 million 0.695%
- -------------------------------------------------------------------
Next $250 million 0.67%
- -------------------------------------------------------------------
Next $500 million 0.645%
- -------------------------------------------------------------------
Next $1.5 billion 0.62%
- -------------------------------------------------------------------
Next $2.5 billion 0.595%
- -------------------------------------------------------------------
Next $2.5 billion 0.57%
- -------------------------------------------------------------------
Next $2.5 billion 0.545%
- -------------------------------------------------------------------
Over $10 billion 0.52%
___________________________________________________________________
===================================================================
</Table>
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
The Advisor has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.30% and Series
II shares to 1.45% of average daily net assets, through at least April 30, 2010.
In determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco")
described more fully below, the expense offset arrangements from which the Fund
may benefit are in the form of credits that the Fund receives from banks where
the Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. These credits are used to pay certain expenses incurred by the Fund. To
the extent that the annualized expense ratio does not exceed the expense
limitation, the Advisor will retain its ability to be reimbursed for such fee
waivers or reimbursements prior to the end of each fiscal year. The Advisor did
not waive fees and/or reimburse expenses during the period under this expense
limitation.
Further, the Advisor has contractually agreed, through at least April 30,
2010, to waive the advisory fee payable by the Fund in an amount equal to 100%
of the net advisory fees the Advisor receives from the affiliated money market
funds on investments by the Fund of uninvested cash (but not cash collateral
from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2008, the Advisor waived advisory fees of
$5,897.
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $74,085 for accounting and fund
administrative services and reimbursed $740,308 for services provided by
insurance companies.
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
AIM V.I. BASIC VALUE FUND
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily net
assets of the Series II shares may be paid to insurance companies who furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. For the six months ended June 30, 2008, expenses
incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1--Quoted prices in an active market for identical assets.
Level 2--Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest
rates, prepayment speeds, credit risk and others.
Level 3--Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for
example, when there is little or no market activity for an investment at the end
of the period), unobservable inputs may be used. Unobservable inputs reflect the
Fund's own assumptions about the factors market participants would use in
determining fair value of the securities or instruments and would be based on
the best available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS IN
INPUT LEVEL SECURITIES
- --------------------------------------
Level 1 $539,202,685
- --------------------------------------
Level 2 23,443,789
- --------------------------------------
Level 3 --
======================================
$562,646,474
______________________________________
======================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, for the six months ended June 30, 2008, the Fund
engaged in securities sales of $752,164, which resulted in net realized gains
(losses) of $(29,674), and securities purchases of $424,631.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2008, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $1,304.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan and receive benefits under such plan. "Trustees' and Officer's
Fees and Benefits" include amounts accrued by the Fund to fund such retirement
benefits. Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $2,356
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
AIM V.I. BASIC VALUE FUND
NOTE 7--CASH BALANCES
The Fund is permitted to temporarily carry a negative or overdrawn balance in
its account with The State Street Bank and Trust Company ("SSB"), the custodian
bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund
may either (i) leave funds as a compensating balance in the account so the
custodian bank can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank at a rate agreed upon by the custodian
bank and Invesco Aim, not to exceed the contractually agreed upon rate.
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
The Fund did not have a capital loss carryforward as of December 31, 2007.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the six months ended June 30, 2008 was $173,912,688 and
$231,919,073, respectively. Cost of investments on a tax basis includes the
adjustments for financial reporting purposes as of the most recently completed
Federal income tax reporting period end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 87,755,803
- ------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (96,581,430)
================================================================================================
Net unrealized appreciation (depreciation) of investment securities $ (8,825,627)
________________________________________________________________________________________________
================================================================================================
Cost of investments for tax purposes is $571,472,101.
</Table>
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008(a) DECEMBER 31, 2007
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 428,639 $ 5,038,495 1,186,578 $ 16,337,122
- -------------------------------------------------------------------------------------------------------------------------
Series II 668,392 7,646,865 3,442,657 47,498,968
=========================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 1,956,442 25,668,509
- -------------------------------------------------------------------------------------------------------------------------
Series II -- -- 1,458,505 18,960,563
=========================================================================================================================
Reacquired:
Series I (3,848,897) (44,752,482) (8,375,086) (114,890,086)
- -------------------------------------------------------------------------------------------------------------------------
Series II (2,678,447) (30,837,015) (6,480,533) (88,784,175)
=========================================================================================================================
(5,430,313) $(62,904,137) (6,811,437) $ (95,209,099)
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) There are entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate own 64% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, Invesco Aim and/or Invesco Aim affiliates may make payments to these
entities, which are considered to be related to the Fund, for providing
services to the Fund, Invesco Aim and or Invesco Aim affiliates including
but not limited to services such as, securities brokerage, third party
record keeping and account servicing and administrative services. The
Trust has no knowledge as to whether all or any portion of the shares
owned of record by these entities are also owned beneficially.
AIM V.I. BASIC VALUE FUND
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
---------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------
2008 2007 2006 2005 2004 2003
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.73 $ 13.35 $ 12.37 $ 11.84 $ 10.66 $ 7.98
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.07 0.07(a) 0.07(a) 0.05 0.02 0.00
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.26) 0.17 1.54 0.63 1.16 2.68
===============================================================================================================================
Total from investment operations (2.19) 0.24 1.61 0.68 1.18 2.68
===============================================================================================================================
Less distributions:
Dividends from net investment income -- (0.08) (0.05) (0.01) -- (0.00)
- -------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.78) (0.58) (0.14) -- --
===============================================================================================================================
Total distributions -- (0.86) (0.63) (0.15) -- (0.00)
===============================================================================================================================
Net asset value, end of period $ 10.54 $ 12.73 $ 13.35 $ 12.37 $ 11.84 $ 10.66
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) (17.20)% 1.62% 13.12% 5.74% 11.07% 33.63%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $295,054 $399,974 $489,352 $487,332 $496,837 $309,384
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.02%(c) 0.96% 0.97% 0.97% 1.02% 1.04%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.02%(c) 0.99% 1.02% 1.02% 1.02% 1.04%
===============================================================================================================================
Ratio of net investment income to average
net assets 1.02%(c) 0.52% 0.54% 0.38% 0.17% 0.01%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(d) 29% 25% 15% 16% 14% 18%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$340,832,287.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. BASIC VALUE FUND
NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
---------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------
2008 2007 2006 2005 2004 2003
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.62 $ 13.24 $ 12.26 $ 11.76 $ 10.61 $ 7.96
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.05 0.04(a) 0.04(a) 0.02 (0.01) (0.02)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.24) 0.16 1.54 0.62 1.16 2.67
===============================================================================================================================
Total from investment operations (2.19) 0.20 1.58 0.64 1.15 2.65
===============================================================================================================================
Less distributions:
Dividends from net investment income -- (0.04) (0.02) -- -- (0.00)
- -------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.78) (0.58) (0.14) -- --
===============================================================================================================================
Total distributions -- (0.82) (0.60) (0.14) -- (0.00)
===============================================================================================================================
Net asset value, end of period $ 10.43 $ 12.62 $ 13.24 $ 12.26 $ 11.76 $ 10.61
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) (17.35)% 1.36% 12.94% 5.43% 10.84% 33.29%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $230,067 $303,628 $339,457 $363,393 $353,605 $253,877
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.27%(c) 1.21% 1.22% 1.22% 1.27% 1.29%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.27%(c) 1.24% 1.27% 1.27% 1.27% 1.29%
===============================================================================================================================
Ratio of net investment income (loss) to
average net assets 0.77%(c) 0.27% 0.29% 0.13% (0.08)% (0.24)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(d) 29% 25% 15% 16% 14% 18%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$263,445,360.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor -- Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to Invesco Aim and IADI (Order No. 05-1318). The WVASC makes
findings of fact that Invesco Aim and IADI entered into certain arrangements
permitting market timing of the AIM Funds and failed to disclose these
arrangements in the prospectuses for such Funds, and conclusions of law to the
effect that Invesco Aim and IADI violated the West Virginia securities laws. The
WVASC orders Invesco Aim and IADI to cease any further violations and seeks to
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute. By agreement with the Commissioner of Securities, Invesco Aim's time to
respond to that Order has been indefinitely suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid. The case pending in Illinois State Court regarding fair value
pricing was dismissed with prejudice on May 6, 2008.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA
purportedly brought on behalf of participants in the Invesco 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds
AIM V.I. BASIC VALUE FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
remain nominal defendants in the Consolidated Amended Fund Derivative Complaint.
On September 15, 2006, the MDL Court granted the Invesco defendants' motion to
dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed
such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth
Court of Appeals reversed the dismissal and remanded this lawsuit back to the
MDL Court for further proceedings..
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, Invesco Aim and IADI have advised the Fund that they are providing
full cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, Invesco Aim and/or related entities and individuals in the
future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. BASIC VALUE FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $828.00 $4.64 $1,019.79 $5.12 1.02%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 826.50 5.77 1,018.55 6.37 1.27
- ---------------------------------------------------------------------------------------------------
</Table>
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5%
before expenses.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
AIM V.I. BASIC VALUE FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different
Variable Insurance Funds is required under comparative performance and fee data weight to the various factors. The
the Investment Company Act of 1940 to regarding the AIM Funds prepared by an Trustees recognized that the advisory
approve annually the renewal of the AIM independent company, Lipper, Inc. arrangements and resulting advisory fees
V.I. Basic Value Fund (the Fund) (Lipper), under the direction and for the Fund and the other AIM Funds are
investment advisory agreement with Invesco supervision of the independent Senior the result of years of review and
Aim Advisors, Inc. (Invesco Aim). During Officer who also prepares a separate negotiation between the Trustees and
contract renewal meetings held on June analysis of this information for the Invesco Aim, that the Trustees may focus
18-19, 2008, the Board as a whole and the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of
disinterested or "independent" Trustees, recommendations to the Investments these arrangements in some years than in
voting separately, approved the Committee regarding the performance, fees others, and that the Trustees'
continuance of the Fund's investment and expenses of their assigned funds. The deliberations and conclusions in a
advisory agreement for another year, Investments Committee considers each particular year may be based in part on
effective July 1, 2008. In doing so, the Sub-Committee's recommendations and makes their deliberations and conclusions of
Board determined that the Fund's its own recommendations regarding the these same arrangements throughout the
investment advisory agreement is in the performance, fees and expenses of the AIM year and in prior years.
best interests of the Fund and its Funds to the full Board. The Investments
shareholders and that the compensation to Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF
Invesco Aim under the Fund's investment Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION
advisory agreement is fair and reasonable. its annual recommendation to the Board The discussion below serves as a summary
The independent Trustees met separately whether to approve the continuance of each of the Senior Officer's independent
during their evaluation of the Fund's AIM Fund's investment advisory agreement written evaluation with respect to the
investment advisory agreement with and sub-advisory agreements for another Fund's investment advisory agreement as
independent legal counsel from whom they year. well as a discussion of the material
received independent legal advice, and the The independent Trustees are assisted factors and related conclusions that
independent Trustees also received in their annual evaluation of the Fund's formed the basis for the Board's approval
assistance during their deliberations from investment advisory agreement by the of the Fund's investment advisory
the independent Senior Officer, a independent Senior Officer. One agreement and sub-advisory agreements.
full-time officer of the AIM Funds who responsibility of the Senior Officer is to Unless otherwise stated, information set
reports directly to the independent manage the process by which the AIM Funds' forth below is as of June 19, 2008 and
Trustees. proposed management fees are negotiated does not reflect any changes that may have
during the annual contract renewal process occurred since that date, including but
THE BOARD'S FUND EVALUATION PROCESS to ensure that they are negotiated in a not limited to changes to the Fund's
The Board's Investments Committee has manner that is at arms' length and performance, advisory fees, expense
established three Sub-Committees that are reasonable. Accordingly, the Senior limitations and/or fee waivers.
responsible for overseeing the management Officer must either supervise a
of a number of the series portfolios of competitive bidding process or prepare an I. Investment Advisory Agreement
the AIM Funds. This Sub-Committee independent written evaluation. The Senior A.Nature, Extent and Quality of
structure permits the Trustees to focus on Officer has recommended that an Services Provided by Invesco Aim
the performance of the AIM Funds that have independent written evaluation be provided The Board reviewed the advisory services
been assigned to them. The Sub-Committees and, at the direction of the Board, has provided to the Fund by Invesco Aim under
meet throughout the year to review the prepared an independent written the Fund's investment advisory agreement,
performance of their assigned funds, and evaluation. the performance of Invesco Aim in
the Sub-Committees review monthly and During the annual contract renewal providing these services, and the
quarterly comparative performance process, the Board considered the factors credentials and experience of the officers
information and periodic asset flow data discussed below under the heading "Factors and employees of Invesco Aim who provide
for their assigned funds. These materials and Conclusions and Summary of Independent these services. The Board's review of the
are prepared under the direction and Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide
supervision of the independent Senior fairness and reasonableness of the Fund's these services included the Board's
Officer. Over the course of each year, the investment advisory agreement and consideration of Invesco Aim's portfolio
Sub-Committees meet with portfolio sub-advisory agreements at the contract and product review process, various back
managers for their assigned funds and renewal meetings and at their meetings office support functions provided by
other members of management and review throughout the year as part of their Invesco Aim and its affiliates, and
with these individuals the performance, ongoing oversight of the Fund. The Fund's Invesco Aim's equity and fixed income
investment objective(s), policies, investment advisory agreement and trading operations. The Board concluded
strategies and limitations of these funds. sub-advisory agreements were considered that the nature, extent and quality of the
In addition to their meetings separately, although the Board also advisory services provided to the Fund by
throughout the year, the Sub-Committees considered the common interests of all of Invesco Aim were appropriate and that
meet at designated contract renewal the AIM Funds in their deliberations. The Invesco Aim currently is providing
meetings each year to conduct an in-depth Board considered all of the information satisfactory advisory services in
review of the performance, fees and provided to them and did not identify any accordance with the terms of the Fund's
expenses of their assigned funds. During particular factor that was controlling. investment advisory agreement. In
the contract Each Trustee may have evaluated the addition, based on their ongoing meetings
information provided differently throughout the year with the Fund's
portfolio manager or
continued
AIM V.I. BASIC VALUE FUND
managers, the Board concluded that these focus on fund performance. However, due to noted that it remains in effect until at
individuals are competent and able to the Fund's underperformance, the Board least April 30, 2010. The Board also
continue to carry out their also concluded that it would be considered the effect this expense
responsibilities under the Fund's appropriate for the Board to continue to limitation would have on the Fund's
investment advisory agreement. monitor and review the performance of the estimated total expenses.
In determining whether to continue the Fund closely. Although the independent After taking account of the Fund's
Fund's investment advisory agreement, the written evaluation of the Fund's Senior contractual advisory fee rate, as well as
Board considered the prior relationship Officer only considered Fund performance the comparative advisory fee information
between Invesco Aim and the Fund, as well through the most recent calendar year, the and the expense limitation discussed
as the Board's knowledge of Invesco Aim's Board also reviewed more recent Fund above, the Board concluded that the Fund's
operations, and concluded that it was performance and this review did not change advisory fees were fair and reasonable.
beneficial to maintain the current their conclusions.
relationship, in part, because of such D. Economies of Scale and Breakpoints
knowledge. The Board also considered the C. Advisory Fees and Fee Waivers The Board considered the extent to
steps that Invesco Aim and its affiliates The Board compared the Fund's contractual which there are economies of scale in
have taken over the last several years to advisory fee rate to the contractual Invesco Aim's provision of advisory
improve the quality and efficiency of the advisory fee rates of funds in the Fund's services to the Fund. The Board also
services they provide to the AIM Funds in Lipper expense group that are not managed considered whether the Fund benefits from
the areas of investment performance, by Invesco Aim, at a common asset level such economies of scale through
product line diversification, and as of the end of the past calendar contractual breakpoints in the Fund's
distribution, fund operations, shareholder year. The Board noted that the Fund's advisory fee schedule or through advisory
services and compliance. The Board contractual advisory fee rate was above fee waivers or expense limitations. The
concluded that the quality and efficiency the median contractual advisory fee rate Board noted that the Fund's contractual
of the services Invesco Aim and its of funds in its expense group. The Board advisory fee schedule includes seven
affiliates provide to the AIM Funds in also reviewed the methodology used by breakpoints and that the level of the
each of these areas have generally Lipper in determining contractual fee Fund's advisory fees, as a percentage of
improved, and support the Board's approval rates. the Fund's net assets, has decreased as
of the continuance of the Fund's The Board also compared the Fund's net assets increased because of the
investment advisory agreement. effective fee rate (the advisory fee after breakpoints. Based on this information,
any advisory fee waivers and before any the Board concluded that the Fund's
B. Fund Performance expense limitations/waivers) to the advisory fees appropriately reflect
The Board compared the Fund's performance advisory fee rates of other clients of economies of scale at current asset
during the past one, three and five Invesco Aim and its affiliates with levels. The Board also noted that the Fund
calendar years to the performance of funds investment strategies comparable to those shares directly in economies of scale
in the Fund's performance group that are of the Fund, including three mutual funds through lower fees charged by third party
not managed by Invesco Aim, and against advised by Invesco Aim. The Board noted service providers based on the combined
the performance of all funds in the Lipper that the Fund's rate was above the rates size of all of the AIM Funds and
Variable Annuity Underlying Funds - Large for the three mutual funds. affiliates.
Cap Value Index. The Board also reviewed Additionally, the Board compared the
the criteria used by Invesco Aim to Fund's effective fee rate to the advisory E. Profitability and Financial
identify the funds in the Fund's fees paid by numerous separately managed Resources of Invesco Aim
performance group for inclusion in the accounts/wrap accounts advised by Invesco The Board reviewed information from
Lipper reports. The Board noted that the Aim affiliates. The Board noted that the Invesco Aim concerning the costs of the
Fund's performance was in the fourth Fund's rate was generally above the rates advisory and other services that Invesco
quintile of its performance group for the for the separately managed accounts/wrap Aim and its affiliates provide to the Fund
one and five year periods and the fifth accounts. The Board considered that and the profitability of Invesco Aim and
quintile for the three year period (the management of the separately managed its affiliates in providing these
first quintile being the best performing accounts/wrap accounts by the Invesco Aim services. The Board also reviewed
funds and the fifth quintile being the affiliates involves different levels of information concerning the financial
worst performing funds). The Board noted services and different operational and condition of Invesco Aim and its
that the Fund's performance was below the regulatory requirements than Invesco Aim's affiliates. The Board also reviewed with
performance of the Index for the one, management of the Fund. The Board Invesco Aim the methodology used to
three and five year periods. The Board concluded that these differences are prepare the profitability information. The
also noted that Invesco Aim acknowledges appropriately reflected in the fee Board considered the overall profitability
the Fund's underperformance and is focused structure for the Fund. of Invesco Aim, as well as the
on the longer term and business issues The Board noted that Invesco Aim has profitability of Invesco Aim in connection
that affect the Fund's performance. The contractually agreed to waive fees and/or with managing the Fund. The Board noted
Board also considered the steps Invesco limit expenses of the Fund through at that Invesco Aim continues to operate at a
Aim has taken over the last several years least April 30, 2010 in an amount net profit, although increased expenses in
to improve the quality and efficiency of necessary to limit total annual operating recent years have reduced the
the services that Invesco Aim provides to expenses to a specified percentage of profitability of Invesco Aim and its
the AIM Funds. The Board concluded that average daily net assets for each class of affiliates. The Board concluded that the
Invesco Aim continues to be responsive to the Fund. The Board considered the Fund's fees were fair and reasonable, and
the Board's contractual nature of this fee waiver and that the level of profits realized by
Invesco Aim and its affiliates from
continued
AIM V.I. BASIC VALUE FUND
providing services to the Fund was not ment obligation for the research and by the Affiliated Sub-Advisers were
excessive in light of the nature, quality execution services from Invesco Aim to the appropriate. The Board noted that the
and extent of the services provided. The funds and therefore may reduce Invesco Affiliated Sub-Advisers, which have
Board considered whether Invesco Aim is Aim's expenses. The Board also noted that offices and personnel that are
financially sound and has the resources research obtained through soft dollar geographically dispersed in financial
necessary to perform its obligations under arrangements may be used by Invesco Aim in centers around the world, have been formed
the Fund's investment advisory agreement, making investment decisions for the Fund in part for the purpose of researching and
and concluded that Invesco Aim has the and may therefore benefit Fund compiling information and making
financial resources necessary to fulfill shareholders. The Board concluded that recommendations on the markets and
these obligations. Invesco Aim's soft dollar arrangements economies of various countries and
were appropriate. The Board also concluded securities of companies located in such
F. Independent Written Evaluation of that, based on their review and countries or on various types of
the Fund's Senior Officer representations made by Invesco Aim, these investments and investment techniques, and
The Board noted that, at their arrangements were consistent with providing investment advisory services.
direction, the Senior Officer of the Fund, regulatory requirements. The Board concluded that the sub-advisory
who is independent of Invesco Aim and The Board considered the fact that the agreements will benefit the Fund and its
Invesco Aim's affiliates, had prepared an Fund's uninvested cash and cash collateral shareholders by permitting Invesco Aim to
independent written evaluation to assist from any securities lending arrangements utilize the additional resources and
the Board in determining the may be invested in money market funds talent of the Affiliated Sub-Advisers in
reasonableness of the proposed management advised by Invesco Aim pursuant to managing the Fund.
fees of the AIM Funds, including the Fund. procedures approved by the Board. The
The Board noted that they had relied upon Board noted that Invesco Aim will receive B. Fund Performance
the Senior Officer's written evaluation advisory fees from these affiliated money The Board did not view Fund performance as
instead of a competitive bidding process. market funds attributable to such a relevant factor in considering whether
In determining whether to continue the investments, although Invesco Aim has to approve the sub-advisory agreements for
Fund's investment advisory agreement, the contractually agreed to waive through at the Fund, as no Affiliated Sub-Adviser
Board considered the Senior Officer's least April 30, 2010, the advisory fees currently manages any portion of the
written evaluation. payable by the Fund in an amount equal to Fund's assets.
100% of the net advisory fees Invesco Aim
G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees
and its Affiliates funds with respect to the Fund's The Board considered the services to be
The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers
benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements
affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco
relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment
fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the
affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and
administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to
distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board
Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no
Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its
providing these services and the shareholders. shareholders, as they are paid by Invesco
organizational structure employed by Aim to the Affiliated Sub-Advisers, and
Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements that Invesco Aim and the Affiliated
these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking
that these services are provided to the Services Provided by Affiliated account of the Fund's contractual
Fund pursuant to written contracts which Sub-Advisers sub-advisory fee rate, as well as other
are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that
basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and
that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, reasonable.
providing these services in a satisfactory Invesco Asset Management Limited, Invesco
manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco D. Financial Resources of the
their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers
continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each
Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially
The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to
realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its
portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and
through "soft dollar" arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser
these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to
commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations.
funds advised by Invesco Aim are used to Sub-Advisers who will provide these
pay for research and execution services. services. The Board concluded that the
The Board noted that soft dollar nature, extent and quality of the services
arrangements shift the pay- to be provided
AIM V.I. BASIC VALUE FUND
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. Basic Value Fund, an
investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust
("Trust"), was held on February 29, 2008. The Meeting was held for the following
purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will
serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust that
would permit the Board of Trustees of the Trust to terminate the Trust, the
Fund, and each other series portfolio of the Trust, or a share class without
a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and
each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland,
GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.),
Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and
Invesco Senior Secured Management, Inc.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- ------------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker.................................................... 474,883,590 19,741,622
Frank S. Bayley................................................. 474,653,109 19,972,103
James T. Bunch.................................................. 475,597,417 19,027,795
Bruce L. Crockett............................................... 474,900,579 19,724,633
Albert R. Dowden................................................ 474,749,929 19,875,283
Jack M. Fields.................................................. 475,205,840 19,419,372
Martin L. Flanagan.............................................. 475,248,336 19,376,876
Carl Frischling................................................. 474,453,674 20,171,538
Prema Mathai-Davis.............................................. 473,569,192 21,056,020
Lewis F. Pennock................................................ 475,072,501 19,552,711
Larry Soll, Ph.D................................................ 475,170,544 19,454,668
Raymond Stickel, Jr............................................. 475,420,825 19,204,387
Philip A. Taylor................................................ 475,640,570 18,984,642
</Table>
<Table>
<Caption>
WITHHELD/
VOTES FOR VOTES AGAINST ABSTENTIONS
- ---------------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of
Trustees of the Trust to terminate the Trust, the
Fund, and each other series portfolio of the Trust, or
a share class without a shareholder vote.............. 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between Invesco
Aim Advisors, Inc. and each of AIM Funds Management,
Inc.; Invesco Asset Management Deutschland, GmbH;
Invesco Asset Management Limited; Invesco Asset
Management (Japan) Limited; Invesco Australia Limited;
Invesco Global Asset Management (N.A.), Inc.; Invesco
Hong Kong Limited; Invesco Institutional (N.A.), Inc.;
and Invesco Senior Secured Management, Inc............ 47,444,423 1,726,481 2,208,825
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. BASIC VALUE FUND
[Invesco Aim Logo] AIM V.I. Capital Appreciation Fund
- - service mark - Semiannual Report to Shareholders - June 30, 2008
AIM Investments [Mountain Graphic]
became Invesco Aim
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec. gov. Copies of the Fund's Forms N-Q may be reviewed and
copied at the SEC Public Reference Room in Washington, D.C. You can obtain
information on the operation of the Public Reference Room, including information
about duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec. gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
This report must be accompanied or preceded by a currently effective Fund
prospectus and variable product prospectus, which contain more complete
information, including sales charges and expenses. Investors should read each
carefully before investing.
Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
Fund Performance
Performance Summary
Fund vs. Indexes
Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer
charges. If variable product issuer charges were included, returns would be
lower.
Series I Shares -11.24%
Series II Shares -11.37
S&P 500 Index+ (Broad Market Index) -11.90
Russell 1000 Growth Index+ (Style-Specific Index) -9.06
Lipper VUF Multi-Cap Growth Funds Category Average+ (Peer Group) -11.94
+Lipper Inc.
The S&P 500--REGISTERED TRADEMARK--Index is a market capitalization-weighted
index covering all major areas of the U.S. economy. It is not the 500 largest
companies, but rather the most widely held 500 companies chosen with respect to
market size, liquidity, and their industry.
The Russell 1000--REGISTERED TRADEMARK--Growth Index measures the
performance of those Russell 1000 companies with higher price-to-book ratios and
higher forecasted growth values. The Russell 1000 Growth Index is a
trademark/service mark of the Frank Russell Company. Russell--REGISTERED
TRADEMARK--is a trademark of the Frank Russell Company.
The Lipper VUF Multi-Cap Growth Funds Category Average represents an
average of all of the variable insurance underlying funds in the Lipper
Multi-Cap Growth Funds category. These funds typically have an above-average
price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share
growth value, compared to the S&P Composite 1500 Index.
The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise
indicated, index results include reinvested dividends, and they do not reflect
sales charges. Performance of an index of funds reflects fund expenses;
performance of a market index does not.
Average Annual Total Returns
As of 6/30/08
Series I Shares
Inception (5/5/93) 7.85%
10 Years 2.31
5 Years 7.36
1 Year -9.32
Series II Shares
10 Years 2.05%
5 Years 7.09
1 Year -9.58
Series II shares inception date is August 21, 2001. Returns since that date are
historical. All other returns are the blended returns of the historical
performance of Series II shares since their inception and the restated
historical performance of Series I shares (for periods prior to inception of
Series II shares) adjusted to reflect the Rule 12b-1 fees applicable to Series
II shares. The inception date of Series I shares is May 5, 1993. The performance
of the Fund's Series I and Series II share classes will differ primarily due to
different class expenses.
The performance data quoted represent past performance and cannot
guarantee comparable future results; current performance may be lower or higher.
Please contact your variable product issuer or financial advisor for the most
recent month-end variable product performance. Performance figures reflect Fund
expenses, reinvested distributions and changes in net asset value. Investment
return and principal value will fluctuate so that you may have a gain or loss
when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent
Fund prospectus as of the date of this report for Series I and Series II shares
was 0.88% and 1.13%, respectively. The expense ratios presented above may vary
from the expense ratios presented in other sections of this report that are
based on expenses incurred during the period covered by this report.
AIM V.I. Capital Appreciation Fund, a series portfolio of AIM Variable
Insurance Funds, is currently offered through insurance companies issuing
variable products. You cannot purchase shares of the Fund directly. Performance
figures given represent the Fund and are not intended to reflect actual variable
product values. They do not reflect sales charges, expenses and fees assessed in
connection with a variable product. Sales charges, expenses and fees, which are
determined by the variable product issuers, will vary and will lower the total
return.
The most recent month-end performance data at the Fund level, excluding
variable product charges, is available on this Invesco Aim automated information
line, 866 702 4402. As mentioned above, for the most recent month-end
performance including variable product charges, please contact your variable
product issuer or financial advisor.
AIM V.I. Capital Appreciation Fund
PORTFOLIO COMPOSITION
By sector, based on Net Assets,
as of June 30, 2008
<Table>
- -------------------------------------------------------------------------
Industrials 23.0%
- -------------------------------------------------------------------------
Energy 17.0
- -------------------------------------------------------------------------
Consumer Staples 15.9
- -------------------------------------------------------------------------
Information Technology 14.0
- -------------------------------------------------------------------------
Materials 10.0
- -------------------------------------------------------------------------
Health Care 9.7
- -------------------------------------------------------------------------
Consumer Discretionary 3.1
- -------------------------------------------------------------------------
Financials 3.0
- -------------------------------------------------------------------------
Telecommunication Services 1.7
- -------------------------------------------------------------------------
Money Market Funds Plus Other Assets Less Liabilities 2.6
=========================================================================
</Table>
SCHEDULE OF INVESTMENTS(a)
June 30, 2008
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.39%
AEROSPACE & DEFENSE-9.99%
General Dynamics Corp. 229,024 $ 19,283,821
- ---------------------------------------------------------------------------------
Honeywell International Inc. 251,146 12,627,621
- ---------------------------------------------------------------------------------
Lockheed Martin Corp. 57,616 5,684,395
- ---------------------------------------------------------------------------------
Precision Castparts Corp. 226,513 21,829,058
- ---------------------------------------------------------------------------------
Raytheon Co. 311,179 17,513,154
- ---------------------------------------------------------------------------------
Rockwell Collins, Inc. 93,841 4,500,614
- ---------------------------------------------------------------------------------
Spirit AeroSystems Holdings Inc.-Class A(b) 744,488 14,279,280
- ---------------------------------------------------------------------------------
Teledyne Technologies Inc.(b) 19,450 948,965
- ---------------------------------------------------------------------------------
United Technologies Corp. 292,899 18,071,868
=================================================================================
114,738,776
=================================================================================
APPLICATION SOFTWARE-2.78%
Adobe Systems Inc.(b) 365,406 14,393,342
- ---------------------------------------------------------------------------------
Amdocs Ltd.(b) 310,128 9,123,966
- ---------------------------------------------------------------------------------
Autodesk, Inc.(b) 247,693 8,374,500
=================================================================================
31,891,808
=================================================================================
AUTO PARTS & EQUIPMENT-0.90%
BorgWarner, Inc. 151,199 6,710,212
- ---------------------------------------------------------------------------------
Johnson Controls, Inc. 124,727 3,577,170
=================================================================================
10,287,382
=================================================================================
BIOTECHNOLOGY-1.74%
Genentech, Inc.(b) 78,777 5,979,174
- ---------------------------------------------------------------------------------
Gilead Sciences, Inc.(b) 263,340 13,943,853
=================================================================================
19,923,027
=================================================================================
COAL & CONSUMABLE FUELS-1.35%
CONSOL Energy Inc. 78,877 8,863,408
- ---------------------------------------------------------------------------------
Peabody Energy Corp. 75,679 6,663,536
=================================================================================
15,526,944
=================================================================================
COMMUNICATIONS EQUIPMENT-3.00%
Cisco Systems, Inc.(b) 811,625 18,878,397
- ---------------------------------------------------------------------------------
Nokia Oyj-ADR (Finland) 489,011 11,980,770
- ---------------------------------------------------------------------------------
Research In Motion Ltd. (Canada)(b) 31,062 3,631,148
=================================================================================
34,490,315
=================================================================================
COMPUTER HARDWARE-0.48%
Apple Inc.(b) 33,104 5,542,934
=================================================================================
COMPUTER STORAGE & PERIPHERALS-0.60%
Seagate Technology 362,640 6,937,303
=================================================================================
CONSTRUCTION & ENGINEERING-4.08%
Chicago Bridge & Iron Co. N.V.-New York Shares 136,873 5,450,283
- ---------------------------------------------------------------------------------
Fluor Corp. 63,038 11,730,111
- ---------------------------------------------------------------------------------
Foster Wheeler Ltd.(b) 321,003 23,481,370
- ---------------------------------------------------------------------------------
Jacobs Engineering Group Inc.(b) 76,562 6,178,553
=================================================================================
46,840,317
=================================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-1.39%
Joy Global Inc. 32,511 2,465,309
- ---------------------------------------------------------------------------------
Komatsu Ltd. (Japan)(c) 486,188 13,521,148
=================================================================================
15,986,457
=================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CAPITAL APPRECIATION FUND
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------------
CONSUMER ELECTRONICS-0.85%
Garmin Ltd.(d) 228,265 $ 9,778,873
=================================================================================
DIVERSIFIED METALS & MINING-4.51%
BHP Billiton Ltd. (Australia)(c) 276,989 11,793,432
- ---------------------------------------------------------------------------------
Companhia Vale do Rio Doce-ADR (Brazil) 141,084 5,053,629
- ---------------------------------------------------------------------------------
Rio Tinto plc (United Kingdom)(c) 124,674 15,286,468
- ---------------------------------------------------------------------------------
Titanium Metals Corp. 196,622 2,750,742
- ---------------------------------------------------------------------------------
Xstrata PLC (United Kingdom)(c) 211,865 16,838,257
=================================================================================
51,722,528
=================================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.75%
Emerson Electric Co. 163,375 8,078,894
- ---------------------------------------------------------------------------------
Woodward Governor Co. 15,928 567,992
=================================================================================
8,646,886
=================================================================================
ELECTRONIC MANUFACTURING SERVICES-0.33%
Trimble Navigation Ltd.(b) 105,895 3,780,452
=================================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-5.24%
Monsanto Co. 208,030 26,303,313
- ---------------------------------------------------------------------------------
Mosaic Co. (The)(b) 158,396 22,919,901
- ---------------------------------------------------------------------------------
Potash Corp. of Saskatchewan Inc. (Canada) 48,062 10,985,532
=================================================================================
60,208,746
=================================================================================
FOOD RETAIL-1.52%
Kroger Co. (The) 605,944 17,493,603
=================================================================================
FOOTWEAR-0.68%
NIKE, Inc.-Class B 130,775 7,795,498
=================================================================================
HEALTH CARE EQUIPMENT-4.08%
Baxter International Inc. 337,176 21,559,034
- ---------------------------------------------------------------------------------
Becton, Dickinson and Co. 162,584 13,218,079
- ---------------------------------------------------------------------------------
St. Jude Medical, Inc.(b) 295,825 12,093,326
=================================================================================
46,870,439
=================================================================================
HEALTH CARE SERVICES-1.34%
Express Scripts, Inc.(b) 148,170 9,293,222
- ---------------------------------------------------------------------------------
Quest Diagnostics Inc. 125,129 6,065,003
=================================================================================
15,358,225
=================================================================================
HEAVY ELECTRICAL EQUIPMENT-1.59%
ABB Ltd. (Switzerland)(c) 647,599 18,280,516
=================================================================================
HOUSEHOLD PRODUCTS-6.81%
Clorox Co. (The) 326,874 17,062,823
- ---------------------------------------------------------------------------------
Colgate-Palmolive Co. 429,815 29,700,217
- ---------------------------------------------------------------------------------
Procter & Gamble Co. (The) 516,461 31,405,993
=================================================================================
78,169,033
=================================================================================
INDUSTRIAL CONGLOMERATES-2.68%
McDermott International, Inc.(b) 496,819 30,748,128
=================================================================================
INDUSTRIAL MACHINERY-0.74%
Fanuc Ltd. (Japan)(c) 86,700 8,449,022
=================================================================================
INTEGRATED OIL & GAS-6.24%
Exxon Mobil Corp. 332,310 29,286,480
- ---------------------------------------------------------------------------------
Marathon Oil Corp. 225,094 11,675,626
- ---------------------------------------------------------------------------------
Occidental Petroleum Corp. 341,635 30,699,321
=================================================================================
71,661,427
=================================================================================
INTERNET SOFTWARE & SERVICES-0.73%
Google Inc.-Class A(b) 15,848 8,342,704
=================================================================================
IT CONSULTING & OTHER SERVICES-2.60%
Accenture Ltd.-Class A 596,535 24,290,905
- ---------------------------------------------------------------------------------
Cognizant Technology Solutions Corp.-Class A(b) 169,441 5,508,527
=================================================================================
29,799,432
=================================================================================
MARINE-1.59%
Mitsui O.S.K. Lines, Ltd. (Japan)(c) 647,000 9,293,670
- ---------------------------------------------------------------------------------
Nippon Yusen Kabushiki Kaisha (Japan)(c) 932,000 8,944,517
=================================================================================
18,238,187
=================================================================================
MULTI-LINE INSURANCE-0.53%
Assurant, Inc. 91,996 6,068,056
=================================================================================
OIL & GAS DRILLING-1.86%
Transocean Inc. 139,922 21,322,714
=================================================================================
OIL & GAS EQUIPMENT & SERVICES-7.31%
Baker Hughes Inc. 191,477 16,723,601
- ---------------------------------------------------------------------------------
Cameron International Corp.(b) 280,883 15,546,874
- ---------------------------------------------------------------------------------
National-Oilwell Varco Inc.(b) 373,046 33,096,641
- ---------------------------------------------------------------------------------
Schlumberger Ltd. 173,137 18,600,108
=================================================================================
83,967,224
=================================================================================
OIL & GAS REFINING & MARKETING-1.11%
Valero Energy Corp. 308,079 12,686,693
=================================================================================
PACKAGED FOODS & MEATS-1.56%
Kellogg Co. 372,502 17,887,546
=================================================================================
PERSONAL PRODUCTS-0.15%
Chattem, Inc.(b)(d) 25,830 1,680,242
=================================================================================
PHARMACEUTICALS-2.52%
Johnson & Johnson 323,965 20,843,908
- ---------------------------------------------------------------------------------
Shire Ltd. (United Kingdom) 451,502 7,406,121
- ---------------------------------------------------------------------------------
Shire Ltd. (United Kingdom)(e) 38,893 637,974
=================================================================================
28,888,003
=================================================================================
PROPERTY & CASUALTY INSURANCE-2.51%
ACE Ltd. 260,472 14,349,403
- ---------------------------------------------------------------------------------
Chubb Corp. (The) 296,335 14,523,378
=================================================================================
28,872,781
=================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CAPITAL APPRECIATION FUND
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------------
PUBLISHING-0.66%
Morningstar, Inc.(b)(d) 104,557 $ 7,531,241
=================================================================================
SEMICONDUCTORS-0.32%
NVIDIA Corp.(b) 197,588 3,698,847
=================================================================================
SOFT DRINKS-5.15%
Coca-Cola Co. (The) 448,351 23,305,285
- ---------------------------------------------------------------------------------
Hansen Natural Corp.(b)(d) 265,916 7,663,699
- ---------------------------------------------------------------------------------
PepsiCo, Inc. 442,310 28,126,493
=================================================================================
59,095,477
=================================================================================
SYSTEMS SOFTWARE-2.70%
Microsoft Corp. 1,127,720 31,023,577
=================================================================================
TOBACCO-0.68%
UST Inc. 143,318 7,826,596
=================================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.74%
China Mobile Ltd. (China)(c) 604,461 8,089,240
- ---------------------------------------------------------------------------------
KDDI Corp. (Japan)(c) 1,924 11,913,227
=================================================================================
20,002,467
=================================================================================
Total Common Stocks & Other Equity Interests
(Cost $986,156,144) 1,118,060,426
=================================================================================
MONEY MARKET FUNDS-3.36%
Liquid Assets Portfolio-Institutional Class(f) 19,249,298 19,249,298
- ---------------------------------------------------------------------------------
Premier Portfolio-Institutional Class(f) 19,249,298 19,249,298
=================================================================================
Total Money Market Funds (Cost $38,498,596) 38,498,596
=================================================================================
TOTAL INVESTMENTS (excluding investments purchased
with cash collateral from securities on
loan)-100.74% (Cost $1,024,654,740) 1,156,559,022
=================================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON
LOAN
MONEY MARKET FUNDS-1.42%
Liquid Assets Portfolio-Institutional Class (Cost
$16,354,115)(f)(g) 16,354,115 16,354,115
=================================================================================
TOTAL INVESTMENTS-102.17% (Cost $1,041,008,855) 1,172,913,137
=================================================================================
OTHER ASSETS LESS LIABILITIES-(2.17)% (24,876,388)
=================================================================================
NET ASSETS-100.00% $1,148,036,749
=================================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Industry and/or sector classifications used in this report are generally
according to the Global Industry Classification Standard, which was
developed by and is the exclusive property and a service mark of MSCI Inc.
and Standard & Poor's.
(b) Non-income producing security.
(c) In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate value of these securities at June 30, 2008 was $122,409,497,
which represented 10.66% of the Fund's Net Assets. See Note 1A.
(d) All or a portion of this security was out on loan at June 30, 2008.
(e) Security purchased or received in a transaction exempt from registration
under the Securities Act of 1933, as amended. The security may be resold
pursuant to an exemption from registration under the 1933 Act, typically
to qualified institutional buyers. The value of this security at June 30,
2008 represented 0.06% of the Fund's Net Assets. Unless otherwise
indicated, this security is not considered to be illiquid.
(f) The money market fund and the Fund are affiliated by having the same
investment advisor.
(g) The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 1I.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, at value (Cost
$986,156,144)* $1,118,060,426
- -------------------------------------------------------
Investments in affiliated money market
funds (Cost $54,852,711) 54,852,711
=======================================================
Total investments (Cost
$1,041,008,855) 1,172,913,137
=======================================================
Foreign currencies, at value (Cost
$380,010) 381,490
- -------------------------------------------------------
Receivables for:
Investments sold 434,552
- -------------------------------------------------------
Fund shares sold 111,539
- -------------------------------------------------------
Dividends 869,146
- -------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 159,723
- -------------------------------------------------------
Other assets 20,973
=======================================================
Total assets 1,174,890,560
=======================================================
LIABILITIES:
Payables for:
Investments purchased 6,968,853
- -------------------------------------------------------
Fund shares reacquired 2,268,584
- -------------------------------------------------------
Collateral upon return of securities
loaned 16,354,115
- -------------------------------------------------------
Accrued fees to affiliates 888,250
- -------------------------------------------------------
Accrued other operating expenses 73,372
- -------------------------------------------------------
Trustee deferred compensation and
retirement plans 300,637
=======================================================
Total liabilities 26,853,811
=======================================================
Net assets applicable to shares
outstanding $1,148,036,749
=======================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,207,418,583
- -------------------------------------------------------
Undistributed net investment income (83,478)
- -------------------------------------------------------
Undistributed net realized gain (loss) (191,203,969)
- -------------------------------------------------------
Unrealized appreciation 131,905,613
=======================================================
$1,148,036,749
=======================================================
NET ASSETS:
Series I $ 860,363,919
=======================================================
Series II $ 287,672,830
=======================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 33,006,285
=======================================================
Series II 11,210,665
=======================================================
Series I:
Net asset value per share $ 26.07
=======================================================
Series II:
Net asset value per share $ 25.66
=======================================================
</Table>
* At June 30, 2008, securities with an aggregate value of $15,638,915 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding
taxes of $41,542) $ 5,283,457
- -------------------------------------------------------
Dividends from affiliated money market
funds (includes securities lending
income of $67,050) 751,888
=======================================================
Total investment income 6,035,345
=======================================================
EXPENSES:
Advisory fees 3,699,615
- -------------------------------------------------------
Administrative services fees 1,551,972
- -------------------------------------------------------
Custodian fees 28,447
- -------------------------------------------------------
Distribution fees -- Series II 378,829
- -------------------------------------------------------
Transfer agent fees 21,048
- -------------------------------------------------------
Trustees' and officer's fees and
benefits 25,780
- -------------------------------------------------------
Other 154,361
=======================================================
Total expenses 5,860,052
=======================================================
Less: Fees waived and expense offset
arrangement(s) (26,032)
=======================================================
Net expenses 5,834,020
=======================================================
Net investment income 201,325
=======================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM:
Net realized gain from:
Investment securities (includes net
gains (losses) from securities
sold to affiliates of $(706,562)) 48,373,567
- -------------------------------------------------------
Foreign currencies 301,425
=======================================================
48,674,992
=======================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (209,547,593)
- -------------------------------------------------------
Foreign currencies 982
=======================================================
(209,546,611)
=======================================================
Net realized and unrealized gain (loss) (160,871,619)
=======================================================
Net increase (decrease) in net assets
resulting from operations $(160,670,294)
=======================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- ---------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 201,325 $ (453,651)
- ---------------------------------------------------------------------------------------
Net realized gain 48,674,992 84,198,829
- ---------------------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) (209,546,611) 90,262,939
=======================================================================================
Net increase (decrease) in net assets
resulting from operations (160,670,294) 174,008,117
=======================================================================================
Share transactions-net:
Series I (104,892,403) (250,049,373)
- ---------------------------------------------------------------------------------------
Series II (22,371,658) (63,863,071)
=======================================================================================
Net increase (decrease) in net assets
resulting from share transactions (127,264,061) (313,912,444)
=======================================================================================
Net increase (decrease) in net assets (287,934,355) (139,904,327)
=======================================================================================
NET ASSETS:
Beginning of period 1,435,971,104 1,575,875,431
=======================================================================================
End of period (including undistributed net
investment income (loss) of $(83,478) and
$(284,803), respectively) $1,148,036,749 $1,435,971,104
=======================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Capital Appreciation Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is growth of capital.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on
that day. Securities traded in the over-the-counter market are valued
based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service
they may be considered fair valued. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally
traded. Listed options are valued at the mean between the last bid and the
ask prices from the exchange on which they are principally traded. Options
not listed on an exchange are valued by an independent source at the mean
between the last bid and ask prices. For purposes of determining net asset
value per share, futures and option contracts generally are valued 15
minutes after the close of the customary trading session of the New York
Stock Exchange ("NYSE").
Investments in open-end and closed-end registered investment companies
that do not trade on an exchange are valued at the end of day net asset
value per share. Investments in open-end and closed-end registered
investment companies that trade on an exchange are valued at the last
sales price or official closing price as of the close of the customary
trading session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing
service. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to specific securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Short-term obligations, including
commercial paper, having 60 days or less to maturity are recorded at
amortized cost which approximates value. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve
some risk of default with respect to interest and/or principal payments.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued
at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price
unreliable, the Fund may fair value the security. If the event is likely
to have affected the closing price of the security, the security will be
valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also
be based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current value as of the close of the NYSE. Foreign securities
meeting the approved degree of certainty that the price is not reflective
of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, American
Depositary Receipts and domestic and foreign index futures. Foreign
securities may have additional risks including exchange rate changes,
potential for sharply devalued currencies and high inflation, political
and economical upheaval, the relative lack of issuer information,
relatively low market liquidity and the potential lack of strict financial
and accounting controls and standards.
Securities for which market prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers following procedures
approved by the Board of Trustees. Issuer specific events, market trends,
bid/ask quotes of brokers and information providers and other market data
may be reviewed in the course of making a good faith determination of a
security's fair value.
Valuations change in response to many factors including the historical
and prospective earnings of the issuer, the value of the issuer's assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
AIM V.I. CAPITAL APPRECIATION FUND
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification
claims is considered remote.
I. SECURITIES LENDING -- The Fund may lend portfolio securities having a
market value up to one-third of the Fund's total assets. Such loans are
secured by collateral equal to no less than the market value of the loaned
securities determined daily by the securities lending provider. Such
collateral will be cash or debt securities issued or guaranteed by the
U.S. Government or any of its sponsored agencies. Cash collateral received
in connection with these loans is invested in short-term money market
instruments or affiliated money market funds and is shown as such on the
Schedule of Investments. It is the Fund's policy to obtain additional
collateral from or return excess collateral to the borrower by the end of
the next business day, following the valuation date of the securities
loaned. Therefore, the value of the collateral held may be temporarily
less than the value of the securities on loan. Lending securities entails
a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase
the collateral accordingly, and the borrower fails to return the
securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any
loss on the collateral invested. Dividends received on cash collateral
investments for securities lending transactions, which are net of
compensation to counterparties, is included in Dividends from affiliates
on the Statement of Operations. The aggregate value of securities out on
loan is shown as a footnote on the Statement of Assets and Liabilities.
J. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close
of the NYSE based on quotations posted by banks and major currency
dealers. Portfolio securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i)
sales of foreign currencies, (ii) currency gains or losses realized
between the trade and settlement dates on securities transactions, and
(iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized
foreign currency gains and losses arise from changes in the fair values of
assets and liabilities, other than investments in securities at fiscal
period end, resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to
foreign taxes on income, gains on investments or currency repatriation, a
portion of which may be recoverable.
AIM V.I. CAPITAL APPRECIATION FUND
K. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. Fluctuations in the value of these contracts are recorded as
unrealized appreciation (depreciation) until the contracts are closed.
When these contracts are closed, realized gains (losses) are recorded.
Realized and unrealized gains and losses on these contracts are included
in the Statement of Operations. The Fund could be exposed to risk, which
may be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------
First $250 million 0.65%
- --------------------------------------------------------------
Over $250 million 0.60%
==============================================================
</Table>
Through December 31, 2009, the Advisor has contractually agreed to waive
advisory fees to the extent necessary so that the advisory fees payable by the
Fund (based on the Fund's average daily net assets) do not exceed the annual
rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------
First $250 million 0.695%
- --------------------------------------------------------------
Next $750 million 0.625%
- --------------------------------------------------------------
Next $1.5 billion 0.62%
- --------------------------------------------------------------
Next $2.5 billion 0.595%
- --------------------------------------------------------------
Next $2.5 billion 0.57%
- --------------------------------------------------------------
Next $2.5 billion 0.545%
- --------------------------------------------------------------
Over $10 billion 0.52%
==============================================================
</Table>
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
The Advisor has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.30% and Series
II shares to 1.45% of average daily net assets, through at least April 30, 2010.
In determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco")
described more fully below, the expense offset arrangements from which the Fund
may benefit are in the form of credits that the Fund receives from banks where
the Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. These credits are used to pay certain expenses incurred by the Fund. The
Advisor did not waive fees and/or reimburse expenses during the period under
this expense limitation.
Further, the Advisor has contractually agreed, through at least April 30,
2010, to waive the advisory fee payable by the Fund in an amount equal to 100%
of the net advisory fees the Advisor receives from the affiliated money market
funds on investments by the Fund of uninvested cash (but not cash collateral
from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2008, the Advisor waived advisory fees of
$25,472.
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $144,409 for accounting and fund
administrative services and reimbursed $1,407,563 for services provided by
insurance companies.
AIM V.I. CAPITAL APPRECIATION FUND
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily net
assets of the Series II shares may be paid to insurance companies who furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. For the six months ended June 30, 2008, expenses
incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1--Quoted prices in an active market for identical assets.
Level 2--Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest
rates, prepayment speeds, credit risk and others.
Level 3--Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for
example, when there is little or no market activity for an investment at the end
of the period), unobservable inputs may be used. Unobservable inputs reflect the
Fund's own assumptions about the factors market participants would use in
determining fair value of the securities or instruments and would be based on
the best available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS IN
INPUT LEVEL SECURITIES
- --------------------------------------
Level 1 $1,050,503,639
- --------------------------------------
Level 2 122,409,498
- --------------------------------------
Level 3 --
======================================
$1,172,913,137
======================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, for the six months ended June 30, 2008, the Fund
engaged in securities sales of $2,538,168, which resulted in net realized gains
(losses) of $(706,562), and securities purchases of $1,643,750.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2008, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $560.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan and receive benefits under such plan. "Trustees' and Officer's
Fees and Benefits" include amounts accrued by the Fund to fund such retirement
benefits. Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $3,193
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 7--CASH BALANCES
The Fund is permitted to temporarily carry a negative or overdrawn balance in
its account with The State Street Bank and Trust Company ("SSB"), the custodian
bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund
may either (i) leave funds as a compensating balance in the account so the
custodian bank can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank at a rate agreed upon by the custodian
bank and Invesco Aim, not to exceed the contractually agreed upon rate.
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited to utilizing
$189,887,985 of capital loss carryforward in the fiscal year ended December 31,
2008.
The Fund had a capital loss carryforward as of December 31, 2007 which expires
as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -------------------------------------------------------------------------------
December 31, 2009 $ 32,326,216
- -------------------------------------------------------------------------------
December 31, 2010 144,685,370
- -------------------------------------------------------------------------------
December 31, 2011 56,312,952
===============================================================================
Total capital loss carryforward $233,324,538
===============================================================================
</Table>
* Capital loss carryforward as of the dates listed above are reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of the dates May 1, 2006, the date of the
reorganization of AIM V.I. Aggressive Growth Fund and V.I. Growth Fund into
the Fund and November 6, 2006, the date of the reorganization of AIM V.I.
Demographic Trends Fund into the Fund are realized on securities held in each
fund at such dates of the reorganizations, the capital loss carryforward may
be further limited for up to five years from the dates of the reorganizations.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the six months ended June 30, 2008 was $804,856,043 and
$934,549,812, respectively. Cost of investments on a tax basis includes the
adjustments for financial reporting purposes as of the most recently completed
Federal income tax reporting period end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $184,930,410
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (59,580,551)
===============================================================================
Net unrealized appreciation of investment securities $125,349,859
===============================================================================
Cost of investments for tax purposes is $1,047,563,278.
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008(a) DECEMBER 31, 2007
---------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 950,588 $ 25,297,005 2,435,959 $ 69,086,990
- --------------------------------------------------------------------------------------------------------------------------
Series II 465,651 11,972,966 1,121,588 30,704,269
==========================================================================================================================
Reacquired:
Series I (4,947,786) (130,189,408) (11,374,631) (319,136,363)
- --------------------------------------------------------------------------------------------------------------------------
Series II (1,322,362) (34,344,624) (3,386,840) (94,567,340)
==========================================================================================================================
(4,853,909) $(127,264,061) (11,203,924) $(313,912,444)
==========================================================================================================================
</Table>
(a) There are entities that are record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate own 52% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, Invesco
Aim and/or Invesco Aim affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services to
the Fund, Invesco Aim and or Invesco Aim affiliates including but not
limited to services such as, securities brokerage, third party record
keeping and account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record by
these entities are also owned beneficially.
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------------------
2008 2007 2006 2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 29.37 $ 26.22 $ 24.67 $ 22.69 $ 21.28 $ 16.43
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) 0.01 0.01 0.01 0.03 0.02(a) (0.04)(b)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) (3.31) 3.14 1.55 1.97 1.39 4.89
===========================================================================================================================
Total from investment
operations (3.30) 3.15 1.56 2.00 1.41 4.85
===========================================================================================================================
Less dividends from net
investment income -- -- (0.01) (0.02) -- --
===========================================================================================================================
Net asset value, end of period $ 26.07 $ 29.37 $ 26.22 $ 24.67 $ 22.69 $ 21.28
===========================================================================================================================
Total return(c) (11.24)% 12.01% 6.34% 8.79% 6.62% 29.52%
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $860,364 $1,086,677 $1,204,559 $822,899 $886,990 $938,820
===========================================================================================================================
Ratio of expenses to average
net assets 0.90%(d) 0.88% 0.91% 0.89% 0.91% 0.85%
===========================================================================================================================
Ratio of net investment income
(loss) to average net assets 0.10%(d) 0.03% 0.06% 0.11% 0.09%(a) (0.23)%
===========================================================================================================================
Portfolio turnover rate(e) 67% 71% 120% 97% 74% 61%
===========================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2, 2004.
Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets excluding the special dividend are
$(0.04) and (0.17)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of
$914,419,497.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
--------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------------
2008 2007 2006 2005 2004 2003
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 28.95 $ 25.91 $ 24.43 $ 22.50 $ 21.16 $ 16.38
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.07) (0.05) (0.03) (0.02)(a) (0.09)(b)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (3.27) 3.11 1.53 1.96 1.36 4.87
==============================================================================================================================
Total from investment operations (3.29) 3.04 1.48 1.93 1.34 4.78
==============================================================================================================================
Net asset value, end of period $ 25.66 $ 28.95 $ 25.91 $ 24.43 $ 22.50 $ 21.16
==============================================================================================================================
Total return(c) (11.37)% 11.73% 6.06% 8.58% 6.33% 29.18%
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $287,673 $349,294 $371,316 $339,190 $136,982 $70,466
==============================================================================================================================
Ratio of expenses to average net assets 1.15%(d) 1.13% 1.16% 1.14% 1.16% 1.10%
==============================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.15)%(d) (0.22)% (0.19)% (0.14)% (0.16)%(a) (0.48)%
==============================================================================================================================
Portfolio turnover rate(e) 67% 71% 120% 97% 74% 61%
==============================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2, 2004.
Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets excluding the special dividend are
$(0.08) and (0.42)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of
$304,728,036.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor -- Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to Invesco Aim and IADI (Order No. 05-1318). The WVASC makes
findings of fact that Invesco Aim and IADI entered into certain arrangements
permitting market timing of the AIM Funds and failed to disclose these
arrangements in the prospectuses for such Funds, and conclusions of law to the
effect that Invesco Aim and IADI violated the West Virginia securities laws. The
WVASC orders Invesco Aim and IADI to cease any further violations and seeks to
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute. By agreement with the Commissioner of Securities, Invesco Aim's time to
respond to that Order has been indefinitely suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid. The case pending in Illinois State Court regarding fair value
pricing was dismissed with prejudice on May 6, 2008.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA
purportedly brought on behalf of participants in the Invesco 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds remain nominal defendants in the Consolidated Amended Fund
Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco
defendants' motion to dismiss the Amended Class Action Complaint for Violations
of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June
16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this
lawsuit back to the MDL Court for further proceedings.
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, Invesco Aim and IADI have advised the Fund that they are providing
full cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, Invesco Aim and/or related entities and individuals in the
future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. CAPITAL APPRECIATION FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $887.60 $4.22 $1,020.39 $4.52 0.90%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 886.30 5.39 1,019.14 5.77 1.15
- ---------------------------------------------------------------------------------------------------
</Table>
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5%
before expenses.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
AIM V.I. CAPITAL APPRECIATION FUND
Approval of Investment Advisory Agreement
The Board of Trustees (the Board) of AIM Variable Insurance Funds is required
under the Investment Company Act of 1940 to approve annually the renewal of the
AIM V.I. Capital Appreciation Fund (the Fund) investment advisory agreement with
Invesco Aim Advisors, Inc. (Invesco Aim). During contract renewal meetings held
on June 18-19, 2008, the Board as a whole and the disinterested or "independent"
Trustees, voting separately, approved the continuance of the Fund's investment
advisory agreement for another year, effective July 1, 2008. In doing so, the
Board determined that the Fund's investment advisory agreement is in the best
interests of the Fund and its shareholders and that the compensation to Invesco
Aim under the Fund's investment advisory agreement is fair and reasonable.
The independent Trustees met separately during their evaluation of the
Fund's investment advisory agreement with independent legal counsel from whom
they received independent legal advice, and the independent Trustees also
received assistance during their deliberations from the independent Senior
Officer, a full-time officer of the AIM Funds who reports directly to the
independent Trustees.
The Board's Fund Evaluation Process
The Board's Investments Committee has established three Sub-Committees that are
responsible for overseeing the management of a number of the series portfolios
of the AIM Funds. This Sub-Committee structure permits the Trustees to focus on
the performance of the AIM Funds that have been assigned to them. The
Sub-Committees meet throughout the year to review the performance of their
assigned funds, and the Sub-Committees review monthly and quarterly comparative
performance information and periodic asset flow data for their assigned funds.
These materials are prepared under the direction and supervision of the
independent Senior Officer. Over the course of each year, the Sub-Committees
meet with portfolio managers for their assigned funds and other members of
management and review with these individuals the performance, investment
objective(s), policies, strategies and limitations of these funds.
In addition to their meetings throughout the year, the Sub-Committees meet
at designated contract renewal meetings each year to conduct an in-depth review
of the performance, fees and expenses of their assigned funds. During the
contract renewal process, the Trustees receive comparative performance and fee
data regarding the AIM Funds prepared by an independent company, Lipper, Inc.
(Lipper), under the direction and supervision of the independent Senior Officer
who also prepares a separate analysis of this information for the Trustees. Each
Sub-Committee then makes recommendations to the Investments Committee regarding
the performance, fees and expenses of their assigned funds. The Investments
Committee considers each Sub-Committee's recommendations and makes its own
recommendations regarding the performance, fees and expenses of the AIM Funds to
the full Board. The Investments Committee also considers each Sub-Committee's
recommendations in making its annual recommendation to the Board whether to
approve the continuance of each AIM Fund's investment advisory agreement and
sub-advisory agreements for another year.
The independent Trustees are assisted in their annual evaluation of the
Fund's investment advisory agreement by the independent Senior Officer. One
responsibility of the Senior Officer is to manage the process by which the AIM
Funds' proposed management fees are negotiated during the annual contract
renewal process to ensure that they are negotiated in a manner that is at arms'
length and reasonable. Accordingly, the Senior Officer must either supervise a
competitive bidding process or prepare an independent written evaluation. The
Senior Officer has recommended that an independent written evaluation be
provided and, at the direction of the Board, has prepared an independent written
evaluation.
During the annual contract renewal process, the Board considered the
factors discussed below under the heading "Factors and Conclusions and Summary
of Independent Written Fee Evaluation" in evaluating the fairness and
reasonableness of the Fund's investment advisory agreement and sub-advisory
agreements at the contract renewal meetings and at their meetings throughout the
year as part of their ongoing oversight of the Fund. The Fund's investment
advisory agreement and sub-advisory agreements were considered separately,
although the Board also considered the common interests of all of the AIM Funds
in their deliberations. The Board considered all of the information provided to
them and did not identify any particular factor that was controlling. Each
Trustee may have evaluated the information provided differently from one another
and attributed different weight to the various factors. The Trustees recognized
that the advisory arrangements and resulting advisory fees for the Fund and the
other AIM Funds are the result of years of review and negotiation between the
Trustees and Invesco Aim, that the Trustees may focus to a greater extent on
certain aspects of these arrangements in some years than in others, and that the
Trustees' deliberations and conclusions in a particular year may be based in
part on their deliberations and conclusions of these same arrangements
throughout the year and in prior years.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
The discussion below serves as a summary of the Senior Officer's independent
written evaluation with respect to the Fund's investment advisory agreement as
well as a discussion of the material factors and related conclusions that formed
the basis for the Board's approval of the Fund's investment advisory agreement
and sub-advisory agreements. Unless otherwise stated, information set forth
below is as of June 19, 2008 and does not reflect any changes that may have
occurred since that date, including but not limited to changes to the Fund's
performance, advisory fees, expense limitations and/or fee waivers.
I. Investment Advisory Agreement
A. Nature, Extent and Quality of Services Provided by Invesco Aim
The Board reviewed the advisory services provided to the Fund by Invesco Aim
under the Fund's investment advisory agreement, the performance of Invesco Aim
in providing these services, and the credentials and experience of the officers
and employees of Invesco Aim who provide these services. The Board's review of
the qualifications of Invesco Aim to provide these services included the Board's
consideration of Invesco Aim's portfolio and product review process, various
back office support functions provided by Invesco Aim, and Invesco Aim's equity
and fixed income trading operations. The Board concluded that the nature, extent
and quality of the advisory services provided to the Fund by Invesco Aim were
appropriate and that Invesco Aim currently is providing satisfactory advisory
services in accordance with the terms of the Fund's investment advisory
agreement. In addition, based on their ongoing meetings throughout the year with
the Fund's portfolio manager or managers,
AIM V.I. Capital Appreciation Fund
the Board concluded that these individuals are competent and able to continue to
carry out their responsibilities under the Fund's investment advisory agreement.
In determining whether to continue the Fund's investment advisory
agreement, the Board considered the prior relationship between Invesco Aim and
the Fund, as well as the Board's knowledge of Invesco Aim's operations, and
concluded that it was beneficial to maintain the current relationship, in part,
because of such knowledge. The Board also considered the steps that Invesco Aim
and its affiliates have taken over the last several years to improve the quality
and efficiency of the services they provide to the AIM Funds in the areas of
investment performance, product line diversification, distribution, fund
operations, shareholder services and compliance. The Board concluded that the
quality and efficiency of the services Invesco Aim and its affiliates provide to
the AIM Funds in each of these areas have generally improved, and support the
Board's approval of the continuance of the Fund's investment advisory agreement.
B. Fund Performance
The Board compared the Fund's performance during the past one, three and five
calendar years to the performance of funds in the Fund's performance group that
are not managed by Invesco Aim, and against the performance of all funds in the
Lipper Variable Annuity Underlying Funds - Multi-Cap Growth Index and the Lipper
Variable Annuity Underlying Funds - Large-Cap Growth Index. The Board also
reviewed the criteria used by Invesco Aim to identify the funds in the Fund's
performance group for inclusion in the Lipper reports. The Board noted that the
Fund's performance was in the fourth quintile of its performance group for the
one, three and five year periods (the first quintile being the best performing
funds and the fifth quintile being the worst performing funds). The Board noted
that the Fund's performance was below the performance of both Indexes for the
one, three and five year periods. The Board noted that Invesco Aim made changes
to the Fund's portfolio management team in 2005 and 2008, which need more time
to be evaluated before a conclusion can be reached that the changes have
adequately addressed the Fund's underperformance. The Board also considered the
steps Invesco Aim has taken over the last several years to improve the quality
and efficiency of the services that Invesco Aim provides to the AIM Funds. The
Board concluded that Invesco Aim continues to be responsive to the Board's focus
on fund performance. Although the independent written evaluation of the Fund's
Senior Officer only considered Fund performance through the most recent calendar
year, the Board also reviewed more recent Fund performance and this review did
not change their conclusions.
C. Advisory Fees and Fee Waivers
The Board compared the Fund's contractual advisory fee rate to the contractual
advisory fee rates of funds in the Fund's expense group that are not managed by
Invesco Aim, at a common asset level and as of the end of the past calendar
year. The Board noted that the Fund's contractual advisory fee rate was below
the median contractual advisory fee of funds in its expense group. The Board
also reviewed the methodology used by Lipper in determining contractual fee
rates.
The Board also compared the Fund's effective fee rate (the advisory fee
after any advisory fee waivers and before any expense limitations/waivers) to
the advisory fee rates of other clients of Invesco Aim and its affiliates with
investment strategies comparable to those of the Fund, including two mutual
funds advised by Invesco Aim and four mutual funds sub-advised by an Invesco Aim
affiliate. The Board noted that the Fund's rate was: (i) below the rate for one
mutual fund and above the rate for the other mutual fund; and (ii) above the
sub-advisory fee rates for the four sub-advised mutual funds.
The Board noted that Invesco Aim has contractually agreed to waive
advisory fees of the Fund through December 31, 2009 and that this fee waiver
includes breakpoints based on net asset levels. The Board considered the
contractual nature of this fee waiver and noted that it remains in effect until
December 31, 2009. The Board also noted that Invesco Aim has contractually
agreed to waive fees and/or limit expenses of the Fund through at least April
30, 2010 in an amount necessary to limit total annual operating expenses to a
specified percentage of average daily net assets for each class of the Fund. The
Board considered the contractual nature of this fee waiver and noted that it
remains in effect until at least April 30, 2010. The Board also considered the
effect these fee waivers/expense limitations would have on the Fund's estimated
total expenses.
After taking account of the Fund's contractual advisory fee rate, as well
as the comparative advisory fee information and the fee waivers/expense
limitations discussed above, the Board concluded that the Fund's advisory fees
were fair and reasonable.
D. Economies of Scale and Breakpoints
The Board considered the extent to which there are economies of scale in Invesco
Aim's provision of advisory services to the Fund. The Board also considered
whether the Fund benefits from such economies of scale through contractual
breakpoints in the Fund's advisory fee schedule or through advisory fee waivers
or expense limitations. The Board noted that the Fund's contractual advisory fee
schedule includes one breakpoint and that the level of the Fund's advisory fees,
as a percentage of the Fund's net assets, has decreased as net assets increased
because of the breakpoint. The Board also noted that Invesco Aim's contractual
advisory fee waiver discussed above includes breakpoints based on net asset
levels. Based on this information, the Board concluded that the Fund's advisory
fees appropriately reflect economies of scale at current asset levels. The Board
also noted that the Fund shares directly in economies of scale through lower
fees charged by third party service providers based on the combined size of all
of the AIM Funds and affiliates.
E. Profitability and Financial Resources of Invesco Aim
The Board reviewed information from Invesco Aim concerning the costs of the
advisory and other services that Invesco Aim and its affiliates provide to the
Fund and the profitability of Invesco Aim and its affiliates in providing these
services. The Board also reviewed information concerning the financial condition
of Invesco Aim and its affiliates. The Board also reviewed with Invesco Aim the
methodology used to prepare the profitability information. The Board considered
the overall profitability of Invesco Aim, as well as the profitability of
Invesco Aim in connection with managing the Fund. The Board noted that Invesco
Aim continues to operate at a net profit, although increased expenses in recent
years have reduced the profitability of Invesco Aim and its affiliates, in light
of Invesco Aim's profitability. The Board concluded that the Fund's fees were
fair and reasonable, and that the level of profits realized by Invesco Aim and
its affiliates from providing services to the Fund was not excessive in light of
the nature, quality and extent of the services provided. The Board considered
whether Invesco Aim is
AIM V.I. Capital Appreciation Fund
financially sound and has the resources necessary to perform its obligations
under the Fund's investment advisory agreement, and concluded that Invesco Aim
has the financial resources necessary to fulfill these obligations.
F. Independent Written Evaluation of the Fund's Senior Officer
The Board noted that, at their direction, the Senior Officer of the Fund, who is
independent of Invesco Aim and Invesco Aim's affiliates, had prepared an
independent written evaluation to assist the Board in determining the
reasonableness of the proposed management fees of the AIM Funds, including the
Fund. The Board noted that they had relied upon the Senior Officer's written
evaluation instead of a competitive bidding process. In determining whether to
continue the Fund's investment advisory agreement, the Board considered the
Senior Officer's written evaluation.
G. Collateral Benefits to Invesco Aim and its Affiliates
The Board considered various other benefits received by Invesco Aim and its
affiliates resulting from Invesco Aim's relationship with the Fund, including
the fees received by Invesco Aim and its affiliates for their provision of
administrative, transfer agency and distribution services to the Fund. The Board
considered the performance of Invesco Aim and its affiliates in providing these
services and the organizational structure employed by Invesco Aim and its
affiliates to provide these services. The Board also considered that these
services are provided to the Fund pursuant to written contracts which are
reviewed and approved on an annual basis by the Board. The Board concluded that
Invesco Aim and its affiliates were providing these services in a satisfactory
manner and in accordance with the terms of their contracts, and were qualified
to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Aim as a result of
portfolio brokerage transactions executed through "soft dollar" arrangements.
Under these arrangements, portfolio brokerage commissions paid by the Fund
and/or other funds advised by Invesco Aim are used to pay for research and
execution services. The Board noted that soft dollar arrangements shift the
payment obligation for the research and execution services from Invesco Aim to
the funds and therefore may reduce Invesco Aim's expenses. The Board also noted
that research obtained through soft dollar arrangements may be used by Invesco
Aim in making investment decisions for the Fund and may therefore benefit Fund
shareholders. The Board concluded that Invesco Aim's soft dollar arrangements
were appropriate. The Board also concluded that, based on their review and
representations made by Invesco Aim, these arrangements were consistent with
regulatory requirements.
The Board considered the fact that the Fund's uninvested cash and cash
collateral from any securities lending arrangements may be invested in money
market funds advised by Invesco Aim pursuant to procedures approved by the
Board. The Board noted that Invesco Aim will receive advisory fees from these
affiliated money market funds attributable to such investments, although Invesco
Aim has contractually agreed to waive through at least April 30, 2010, the
advisory fees payable by the Fund in an amount equal to 100% of the net advisory
fees Invesco Aim receives from the affiliated money market funds with respect to
the Fund's investment of uninvested cash, but not cash collateral. The Board
considered the contractual nature of this fee waiver and noted that it remains
in effect until at least April 30, 2010. The Board concluded that the Fund's
investment of uninvested cash and cash collateral from any securities lending
arrangements in the affiliated money market funds is in the best interests of
the Fund and its shareholders.
II. Sub-Advisory Agreements
A. Nature, Extent and Quality of Services Provided by Affiliated
Sub-Advisers
The Board reviewed the services to be provided by Invesco Trimark Ltd., Invesco
Asset Management Deutschland, GmbH, Invesco Asset Management Limited, Invesco
Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global
Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional
(N.A.), Inc. and Invesco Senior Secured Management, Inc. (collectively, the
"Affiliated Sub-Advisers") under the sub-advisory agreements and the credentials
and experience of the officers and employees of the Affiliated Sub-Advisers who
will provide these services. The Board concluded that the nature, extent and
quality of the services to be provided by the Affiliated Sub-Advisers were
appropriate. The Board noted that the Affiliated Sub-Advisers, which have
offices and personnel that are geographically dispersed in financial centers
around the world, have been formed in part for the purpose of researching and
compiling information and making recommendations on the markets and economies of
various countries and securities of companies located in such countries or on
various types of investments and investment techniques, and providing investment
advisory services. The Board concluded that the sub-advisory agreements will
benefit the Fund and its shareholders by permitting Invesco Aim to utilize the
additional resources and talent of the Affiliated Sub-Advisers in managing the
Fund.
B. Fund Performance
The Board did not view Fund performance as a relevant factor in considering
whether to approve the sub-advisory agreements for the Fund, as no Affiliated
Sub-Adviser currently manages any portion of the Fund's assets.
C. Sub-Advisory Fees
The Board considered the services to be provided by the Affiliated Sub-Advisers
pursuant to the sub-advisory agreements and the services to be provided by
Invesco Aim pursuant to the Fund's investment advisory agreement, as well as the
allocation of fees between Invesco Aim and the Affiliated Sub-Advisers pursuant
to the sub-advisory agreements. The Board noted that the sub-advisory fees have
no direct effect on the Fund or its shareholders, as they are paid by Invesco
Aim to the Affiliated Sub-Advisers, and that Invesco Aim and the Affiliated
Sub-Advisers are affiliates. After taking account of the Fund's contractual
sub-advisory fee rate, as well as other relevant factors, the Board concluded
that the Fund's sub-advisory fees were fair and reasonable.
D. Financial Resources of the Affiliated Sub-Advisers
The Board considered whether each Affiliated Sub-Adviser is financially sound
and has the resources necessary to perform its obligations under its respective
sub-advisory agreement, and concluded that each Affiliated Sub-Adviser has the
financial resources necessary to fulfill these obligations.
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. Capital Appreciation
Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware
statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held
for the following purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will
serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust that
would permit the Board of Trustees of the Trust to terminate the Trust, the
Fund, and each other series portfolio of the Trust, or a share class without
a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and
each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland,
GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.),
Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and
Invesco Senior Secured Management, Inc.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- -----------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker...................................................... 474,883,590 19,741,622
Frank S. Bayley................................................... 474,653,109 19,972,103
James T. Bunch.................................................... 475,597,417 19,027,795
Bruce L. Crockett................................................. 474,900,579 19,724,633
Albert R. Dowden.................................................. 474,749,929 19,875,283
Jack M. Fields.................................................... 475,205,840 19,419,372
Martin L. Flanagan................................................ 475,248,336 19,376,876
Carl Frischling................................................... 474,453,674 20,171,538
Prema Mathai-Davis................................................ 473,569,192 21,056,020
Lewis F. Pennock.................................................. 475,072,501 19,552,711
Larry Soll, Ph.D. ................................................ 475,170,544 19,454,668
Raymond Stickel, Jr. ............................................. 475,420,825 19,204,387
Philip A. Taylor.................................................. 475,640,570 18,984,642
</Table>
<Table>
<Caption>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
- ------------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of
Trustees of the Trust to terminate the Trust, the Fund,
and each other series portfolio of the Trust, or a share
class without a shareholder vote......................... 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between Invesco Aim
Advisors, Inc. and each of AIM Funds Management, Inc.;
Invesco Asset Management Deutschland, GmbH; Invesco Asset
Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset
Management (N.A.), Inc.; Invesco Hong Kong Limited;
Invesco Institutional (N.A.), Inc.; and Invesco Senior
Secured Management, Inc.................................. 41,406,650 1,961,600 2,151,473
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. CAPITAL APPRECIATION FUND
[INVESCO AIM LOGO] AIM V.I. CAPITAL DEVELOPMENT FUND
- SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008
AIM Investments [MOUNTAIN GRAPHIC]
became INVESCO AIM
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FUND PERFORMANCE
=======================================================================================
PERFORMANCE SUMMARY SHARES WAS 1.05% AND 1.30%,
RESPECTIVELY.(1) THE TOTAL ANNUAL FUND
FUND VS. INDEXES OPERATING EXPENSE RATIO SET FORTH IN THE
Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer MOST RECENT FUND PROSPECTUS AS OF THE DATE
charges. If variable product issuer charges were included, returns would be OF THIS REPORT FOR SERIES I AND SERIES II
lower. SHARES WAS 1.06% AND 1.31%, RESPECTIVELY.
THE EXPENSE RATIOS PRESENTED ABOVE MAY
Series I Shares -12.31% VARY FROM THE EXPENSE RATIOS PRESENTED IN
Series II Shares -12.41 OTHER SECTIONS OF THIS REPORT THAT ARE
S&P 500 Indext(TRIANGLE) (Broad Market Index) -11.90 BASED ON EXPENSES INCURRED DURING THE
Russell Midcap Growth Indext(TRIANGLE) (Style-Specific Index) -6.81 PERIOD COVERED BY THIS REPORT.
Lipper VUF Mid-Cap Growth Funds Index (TRIANGLE) (Peer Group Index) -8.98 AIM V.I. CAPITAL DEVELOPMENT FUND, A
SERIES PORTFOLIO OF AIM VARIABLE INSURANCE
(TRIANGLE)Lipper Inc. FUNDS, IS CURRENTLY OFFERED THROUGH
INSURANCE COMPANIES ISSUING VARIABLE
The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted index PRODUCTS. YOU CANNOT PURCHASE SHARES OF
covering all major areas of the U.S. economy. It is not the 500 largest companies, but THE FUND DIRECTLY. PERFORMANCE FIGURES
rather the most widely held 500 companies chosen with respect to market size, GIVEN REPRESENT THE FUND AND ARE NOT
liquidity, and their industry. INTENDED TO REFLECT ACTUAL VARIABLE
The RUSSELL MIDCAP--REGISTERED TRADEMARK-- GROWTH INDEX measures the performance of PRODUCT VALUES. THEY DO NOT REFLECT SALES
those Russell Midcap companies with higher price-to-book ratios and higher forecasted CHARGES, EXPENSES AND FEES ASSESSED IN
growth values. The Russell Midcap Growth Index is a trademark/service mark of the Frank CONNECTION WITH A VARIABLE PRODUCT. SALES
Russell Company. Russell--REGISTERED TRADEMARK-- is a trademark of the Frank Russell CHARGES, EXPENSES AND FEES, WHICH ARE
Company. DETERMINED BY THE VARIABLE PRODUCT
The LIPPER VUF MID-CAP GROWTH FUNDS INDEX is an equally weighted representation of ISSUERS, WILL VARY AND WILL LOWER THE
the largest variable insurance underlying funds in the Lipper Mid-Cap Growth Funds TOTAL RETURN.
category. These funds have an above-average price-to-earnings ratio, price-to-book THE MOST RECENT MONTH-END PERFORMANCE
ratio, and three-year sales-per-share growth value, compared to the S&P MidCap 400 DATA AT THE FUND LEVEL, EXCLUDING VARIABLE
Index. PRODUCT CHARGES, IS AVAILABLE ON THE
The Fund is not managed to track the performance of any particular index, including INVESCO AIM AUTOMATED INFORMATION LINE,
the indexes defined here, and consequently, the performance of the Fund may deviate 866 702 4402. AS MENTIONED ABOVE, FOR THE
significantly from the performance of the indexes. MOST RECENT MONTH-END PERFORMANCE
A direct investment cannot be made in an index. Unless otherwise indicated, index INCLUDING VARIABLE PRODUCT CHARGES, PLEASE
results include reinvested dividends, and they do not reflect sales charges. CONTACT YOUR VARIABLE PRODUCT ISSUER OR
Performance of an index of funds reflects fund expenses; performance of a market index FINANCIAL ADVISOR.
does not.
======================================================================================= (1) Total annual operating expenses less
========================================== contractual advisory fee waivers by
AVERAGE ANNUAL TOTAL RETURNS THE RULE 12B-1 FEES APPLICABLE TO SERIES the advisor in effect through at least
As of 6/30/08 II SHARES. THE INCEPTION DATE OF SERIES I April 30, 2010. See current prospectus
SHARES IS MAY 1, 1998. THE PERFORMANCE OF for more information.
SERIES I SHARES THE FUND'S SERIES I AND SERIES II SHARE
Inception (5/1/98) 6.13% CLASSES WILL DIFFER PRIMARILY DUE TO
10 Years 6.74 DIFFERENT CLASS EXPENSES.
5 Years 11.11 THE PERFORMANCE DATA QUOTED REPRESENT
1 Year -15.46 PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS; CURRENT
SERIES II SHARES PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
10 Years 6.48% CONTACT YOUR VARIABLE PRODUCT ISSUER OR
5 Years 10.82 FINANCIAL ADVISOR FOR THE MOST RECENT
1 Year -15.69 MONTH-END VARIABLE PRODUCT PERFORMANCE.
========================================== PERFORMANCE FIGURES REFLECT FUND EXPENSES,
REINVESTED DISTRIBUTIONS AND CHANGES IN
SERIES II SHARES' INCEPTION DATES IS NET ASSET VALUE. INVESTMENT RETURN AND
AUGUST 21, 2001. RETURNS SINCE THAT DATE PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU
ARE HISTORICAL. ALL OTHER RETURNS ARE THE MAY HAVE A GAIN OR LOSS WHEN YOU SELL
BLENDED RETURNS OF THE HISTORICAL SHARES.
PERFORMANCE OF SERIES II SHARES SINCE THE NET ANNUAL FUND OPERATING EXPENSE
THEIR INCEPTION AND THE RESTATED RATIO SET FORTH IN THE MOST RECENT FUND
HISTORICAL PERFORMANCE OF SERIES I SHARES PROSPECTUS AS OF THE DATE OF THIS REPORT
(FOR PERIODS PRIOR TO INCEPTION OF SERIES FOR SERIES I AND SERIES II
II SHARES) ADJUSTED TO REFLECT
AIM V.I. CAPITAL DEVELOPMENT FUND
PORTFOLIO COMPOSITION
By sector, based on Net Assets
as of June 30, 2008
<Table>
- -------------------------------------------------------------------------
Information Technology 17.0%
- -------------------------------------------------------------------------
Industrials 15.7
- -------------------------------------------------------------------------
Consumer Discretionary 14.7
- -------------------------------------------------------------------------
Energy 13.0
- -------------------------------------------------------------------------
Health Care 11.6
- -------------------------------------------------------------------------
Financials 9.4
- -------------------------------------------------------------------------
Materials 5.8
- -------------------------------------------------------------------------
Telecommunication Services 3.4
- -------------------------------------------------------------------------
Consumer Staples 2.7
- -------------------------------------------------------------------------
Utilities 1.1
- -------------------------------------------------------------------------
Money Market Funds Plus Other Assets Less Liabilities 5.6
_________________________________________________________________________
=========================================================================
</Table>
SCHEDULE OF INVESTMENTS(a)
June 30, 2008
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-94.36%
AEROSPACE & DEFENSE-2.18%
L-3 Communications Holdings, Inc. 30,214 $ 2,745,546
- ------------------------------------------------------------------------------
Precision Castparts Corp. 33,358 3,214,711
==============================================================================
5,960,257
==============================================================================
AIR FREIGHT & LOGISTICS-1.15%
Robinson (C.H.) Worldwide, Inc. 56,968 3,124,125
==============================================================================
APPAREL RETAIL-4.26%
Aeropostale, Inc.(b) 85,532 2,679,717
- ------------------------------------------------------------------------------
Guess?, Inc. 72,195 2,703,703
- ------------------------------------------------------------------------------
Ross Stores, Inc. 86,294 3,065,163
- ------------------------------------------------------------------------------
Urban Outfitters, Inc.(b) 101,941 3,179,540
==============================================================================
11,628,123
==============================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-2.61%
Coach, Inc.(b) 81,626 2,357,359
- ------------------------------------------------------------------------------
Hanesbrands, Inc.(b) 136,165 3,695,518
- ------------------------------------------------------------------------------
Under Armour, Inc.-Class A(b)(c) 41,869 1,073,521
==============================================================================
7,126,398
==============================================================================
APPLICATION SOFTWARE-4.70%
Amdocs Ltd.(b) 93,468 2,749,829
- ------------------------------------------------------------------------------
ANSYS, Inc.(b) 84,842 3,997,755
- ------------------------------------------------------------------------------
Citrix Systems, Inc.(b) 44,945 1,321,832
- ------------------------------------------------------------------------------
Solera Holdings Inc.(b) 171,666 4,748,282
==============================================================================
12,817,698
==============================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.45%
Affiliated Managers Group, Inc.(b) 43,885 3,952,283
==============================================================================
BIOTECHNOLOGY-2.29%
Genzyme Corp.(b) 39,000 2,808,780
- ------------------------------------------------------------------------------
OSI Pharmaceuticals, Inc.(b) 83,473 3,449,104
==============================================================================
6,257,884
==============================================================================
CASINOS & GAMING-0.70%
International Game Technology 76,619 1,913,943
==============================================================================
COAL & CONSUMABLE FUELS-1.61%
Massey Energy Co. 47,000 4,406,250
==============================================================================
COMMUNICATIONS EQUIPMENT-1.29%
Infinera Corp.(b) 117,889 1,039,781
- ------------------------------------------------------------------------------
Juniper Networks, Inc.(b) 111,669 2,476,818
- ------------------------------------------------------------------------------
Lantronix Inc.-Wts. expiring 02/09/11 (Acquired
02/09/07; Cost $0)(b)(d)(e) 576 0
==============================================================================
3,516,599
==============================================================================
COMPUTER & ELECTRONICS RETAIL-0.38%
GameStop Corp.-Class A(b) 25,549 1,032,180
==============================================================================
COMPUTER STORAGE & PERIPHERALS-1.83%
Logitech International S.A. (Switzerland)(b) 95,970 2,571,996
- ------------------------------------------------------------------------------
NetApp, Inc.(b) 112,196 2,430,165
==============================================================================
5,002,161
==============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CAPITAL DEVELOPMENT FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING-2.50%
Chicago Bridge & Iron Co. N.V.-New York Shares 63,660 $ 2,534,941
- ------------------------------------------------------------------------------
Foster Wheeler Ltd.(b) 58,557 4,283,445
==============================================================================
6,818,386
==============================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-1.53%
Joy Global Inc. 55,208 4,186,423
==============================================================================
CONSUMER FINANCE-1.11%
SLM Corp.(b) 156,869 3,035,415
==============================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.28%
Alliance Data Systems Corp.(b) 61,605 3,483,763
==============================================================================
DISTRIBUTORS-0.85%
LKQ Corp.(b) 128,884 2,328,934
==============================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-3.50%
Corrections Corp. of America(b) 139,419 3,829,840
- ------------------------------------------------------------------------------
Equifax Inc. 40,070 1,347,153
- ------------------------------------------------------------------------------
IHS Inc.-Class A(b) 62,936 4,380,346
==============================================================================
9,557,339
==============================================================================
DRUG RETAIL-1.55%
Shoppers Drug Mart Corp. (Canada) 77,000 4,218,320
==============================================================================
EDUCATION SERVICES-2.24%
Apollo Group Inc.-Class A(b) 61,822 2,736,242
- ------------------------------------------------------------------------------
ITT Educational Services, Inc.(b) 40,996 3,387,499
==============================================================================
6,123,741
==============================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.18%
General Cable Corp.(b) 52,979 3,223,772
==============================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.44%
Amphenol Corp.-Class A 87,305 3,918,248
==============================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.75%
Potash Corp. of Saskatchewan Inc. (Canada) 8,958 2,047,530
==============================================================================
HEALTH CARE EQUIPMENT-2.14%
Hologic, Inc.(b) 136,630 2,978,534
- ------------------------------------------------------------------------------
St. Jude Medical, Inc.(b) 70,000 2,861,600
==============================================================================
5,840,134
==============================================================================
HEALTH CARE SERVICES-1.75%
Express Scripts, Inc.(b) 33,000 2,069,760
- ------------------------------------------------------------------------------
Pediatrix Medical Group, Inc.(b) 54,932 2,704,302
==============================================================================
4,774,062
==============================================================================
HOTELS, RESORTS & CRUISE LINES-0.88%
Choice Hotels International, Inc. 90,123 2,388,260
==============================================================================
HOUSEWARES & SPECIALTIES-0.87%
Jarden Corp.(b) 130,266 2,376,052
==============================================================================
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS-1.12%
KGEN Power Corp. (Acquired 01/12/07; Cost
$2,219,196)(b)(d)(e) 158,514 3,051,395
==============================================================================
INDUSTRIAL MACHINERY-1.76%
Flowserve Corp. 35,101 4,798,307
==============================================================================
INVESTMENT BANKING & BROKERAGE-2.24%
Lazard Ltd.-Class A (Bermuda) 87,365 2,983,515
- ------------------------------------------------------------------------------
TD Ameritrade Holding Corp.(b) 173,297 3,134,942
==============================================================================
6,118,457
==============================================================================
IT CONSULTING & OTHER SERVICES-1.13%
Cognizant Technology Solutions Corp.-Class A(b) 94,895 3,085,036
==============================================================================
LIFE SCIENCES TOOLS & SERVICES-2.19%
Covance Inc.(b) 34,000 2,924,680
- ------------------------------------------------------------------------------
Waters Corp.(b) 47,111 3,038,660
==============================================================================
5,963,340
==============================================================================
MANAGED HEALTH CARE-1.44%
Aveta, Inc. (Acquired 12/21/05-02/21/06; Cost
$2,162,718)(b)(d)(e) 157,251 1,258,008
- ------------------------------------------------------------------------------
Humana Inc.(b) 67,483 2,683,799
==============================================================================
3,941,807
==============================================================================
METAL & GLASS CONTAINERS-3.61%
Crown Holdings, Inc.(b) 148,208 3,851,926
- ------------------------------------------------------------------------------
Owens-Illinois, Inc.(b) 78,751 3,283,129
- ------------------------------------------------------------------------------
Pactiv Corp.(b) 127,590 2,708,736
==============================================================================
9,843,791
==============================================================================
MORTGAGE REIT'S-1.00%
Annaly Capital Management Inc. 176,759 2,741,532
==============================================================================
OIL & GAS DRILLING-5.29%
Hercules Offshore, Inc.(b) 96,900 3,684,138
- ------------------------------------------------------------------------------
Nabors Industries Ltd.(b) 55,000 2,707,650
- ------------------------------------------------------------------------------
Noble Corp. 78,000 5,066,880
- ------------------------------------------------------------------------------
Rowan Cos., Inc. 63,898 2,987,231
==============================================================================
14,445,899
==============================================================================
OIL & GAS EQUIPMENT & SERVICES-1.48%
Cameron International Corp.(b) 73,000 4,040,550
==============================================================================
OIL & GAS EXPLORATION & PRODUCTION-3.40%
Quicksilver Resources Inc.(b) 91,000 3,516,240
- ------------------------------------------------------------------------------
Range Resources Corp. 21,800 1,428,772
- ------------------------------------------------------------------------------
Southwestern Energy Co.(b) 91,132 4,338,795
==============================================================================
9,283,807
==============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CAPITAL DEVELOPMENT FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------------
OIL & GAS STORAGE & TRANSPORTATION-1.19%
Williams Cos., Inc. (The) 80,700 $ 3,253,017
==============================================================================
PERSONAL PRODUCTS-1.10%
Estee Lauder Cos. Inc. (The)-Class A 64,579 2,999,695
==============================================================================
PHARMACEUTICALS-1.81%
Allergan, Inc. 51,000 2,654,550
- ------------------------------------------------------------------------------
Shire Ltd.-ADR (United Kingdom) 46,500 2,284,545
==============================================================================
4,939,095
==============================================================================
PUBLISHING-0.97%
McGraw-Hill Cos., Inc. (The) 65,910 2,644,309
==============================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.20%
Meruelo Maddux Properties, Inc.(b) 247,889 540,398
==============================================================================
RESTAURANTS-0.97%
Burger King Holdings Inc. 98,394 2,635,975
==============================================================================
SEMICONDUCTOR EQUIPMENT-0.24%
Lam Research Corp.(b) 18,053 652,616
==============================================================================
SEMICONDUCTORS-3.93%
Altera Corp. 135,403 2,802,842
- ------------------------------------------------------------------------------
Intersil Corp.-Class A 107,707 2,619,434
- ------------------------------------------------------------------------------
Maxim Integrated Products, Inc. 155,824 3,295,678
- ------------------------------------------------------------------------------
ON Semiconductor Corp.(b) 217,556 1,994,988
==============================================================================
10,712,942
==============================================================================
SPECIALIZED FINANCE-3.38%
IntercontinentalExchange Inc.(b) 23,645 2,695,530
- ------------------------------------------------------------------------------
Moody's Corp. 107,183 3,691,383
- ------------------------------------------------------------------------------
MSCI Inc.- Class A(b) 78,205 2,838,059
==============================================================================
9,224,972
==============================================================================
STEEL-1.43%
Cleveland-Cliffs Inc. 21,060 2,510,141
- ------------------------------------------------------------------------------
Steel Dynamics, Inc. 35,383 1,382,414
==============================================================================
3,892,555
==============================================================================
SYSTEMS SOFTWARE-1.20%
McAfee Inc.(b) 95,815 3,260,584
==============================================================================
TRUCKING-1.91%
Con-way Inc. 62,142 2,936,831
- ------------------------------------------------------------------------------
Heartland Express, Inc. 151,968 2,265,843
==============================================================================
5,202,674
==============================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.35%
American Tower Corp.-Class A(b) 67,482 2,851,115
- ------------------------------------------------------------------------------
Crown Castle International Corp.(b) 81,347 3,150,569
- ------------------------------------------------------------------------------
SBA Communications Corp.-Class A(b) 87,098 3,136,399
==============================================================================
9,138,083
==============================================================================
Total Common Stocks & Other Equity Interests
(Cost $227,981,300) 257,469,116
==============================================================================
MONEY MARKET FUNDS-5.15%
Liquid Assets Portfolio-Institutional Class(f) 7,032,839 7,032,839
- ------------------------------------------------------------------------------
Premier Portfolio-Institutional Class(f) 7,032,839 7,032,839
- ------------------------------------------------------------------------------
Total Money Market Funds (Cost $14,065,678) 14,065,678
==============================================================================
TOTAL INVESTMENTS (excluding investments purchased
with cash collateral from securities on
loan)-99.51% (Cost $242,046,978) 271,534,794
==============================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON
LOAN
MONEY MARKET FUNDS-0.16%
Liquid Assets Portfolio-Institutional Class (Cost
$449,215)(f)(g) 449,215 449,215
==============================================================================
TOTAL INVESTMENTS-99.67% (Cost $242,496,193) 271,984,009
==============================================================================
OTHER ASSETS LESS LIABILITIES-0.33% 886,619
==============================================================================
NET ASSETS-100.00% $272,870,628
______________________________________________________________________________
==============================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
REIT - Real Estate Investment Trust
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) Industry and/or sector classifications used in this report are generally
according to the Global Industry Classification Standard, which was
developed by and is the exclusive property and a service mark of MSCI Inc.
and Standard & Poor's.
(b) Non-income producing security.
(c) All or a portion of this security was out on loan at June 30, 2008.
(d) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate value of these
securities at June 30, 2008 was $4,309,403, which represented 1.58% of the
Fund's Net Assets. See Note 1A.
(e) Security purchased or received in a transaction exempt from registration
under the Securities Act of 1933, as amended. The security may be resold
pursuant to an exemption from registration under the 1933 Act, typically
to qualified institutional buyers. The aggregate value of these securities
at June 30, 2008 was $4,309,403, which represented 1.58% of the Fund's Net
Assets. These securities are considered to be illiquid. The Fund is
limited to investing 15% of net assets in illiquid securities at the time
of purchase.
(f) The money market fund and the Fund are affiliated by having the same
investment advisor.
(g) The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 1I.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CAPITAL DEVELOPMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, at value (Cost $227,981,300)* $257,469,116
- --------------------------------------------------------------------------------
Investments in affiliated money market funds (Cost $14,514,893) 14,514,893
================================================================================
Total investments (Cost $242,496,193) 271,984,009
================================================================================
Foreign currencies, at value (Cost $764) 784
- --------------------------------------------------------------------------------
Receivables for:
Investments sold 2,527,939
- --------------------------------------------------------------------------------
Fund shares sold 35,454
- --------------------------------------------------------------------------------
Dividends 193,337
- --------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 33,814
- --------------------------------------------------------------------------------
Other assets 8,379
================================================================================
Total assets 274,783,716
________________________________________________________________________________
================================================================================
LIABILITIES:
Payables for:
Investments purchased 662,289
- --------------------------------------------------------------------------------
Fund shares reacquired 419,180
- --------------------------------------------------------------------------------
Collateral upon return of securities loaned 449,215
- --------------------------------------------------------------------------------
Accrued fees to affiliates 284,093
- --------------------------------------------------------------------------------
Accrued operating expenses 48,121
- --------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 50,190
================================================================================
Total liabilities 1,913,088
================================================================================
Net assets applicable to shares outstanding $272,870,628
________________________________________________________________________________
================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $238,870,292
- --------------------------------------------------------------------------------
Undistributed net investment income (loss) (695,519)
- --------------------------------------------------------------------------------
Undistributed net realized gain 5,208,155
- --------------------------------------------------------------------------------
Unrealized appreciation 29,487,700
================================================================================
$272,870,628
________________________________________________________________________________
================================================================================
NET ASSETS:
Series I $118,149,874
________________________________________________________________________________
================================================================================
Series II $154,720,754
________________________________________________________________________________
================================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 7,149,160
________________________________________________________________________________
================================================================================
Series II 9,535,174
________________________________________________________________________________
================================================================================
Series I:
Net asset value per share $ 16.53
________________________________________________________________________________
================================================================================
Series II:
Net asset value per share $ 16.23
________________________________________________________________________________
================================================================================
</Table>
* At June 30, 2008, securities with an aggregate value of $423,060 were on loan
to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding
taxes of $5,495) $ 896,676
- ------------------------------------------------------
Dividends from affiliated money market
funds (includes securities lending
income of $97,121) 273,318
======================================================
Total investment income 1,169,994
======================================================
EXPENSES:
Advisory fees 1,088,147
- ------------------------------------------------------
Administrative services fees 394,054
- ------------------------------------------------------
Custodian fees 15,588
- ------------------------------------------------------
Distribution fees -- Series II 204,409
- ------------------------------------------------------
Transfer agent fees 19,325
- ------------------------------------------------------
Trustees' and officer's fees and
benefits 12,314
- ------------------------------------------------------
Other 88,046
======================================================
Total expenses 1,821,883
======================================================
Less: Fees waived and expense offset
arrangement(s) (19,090)
======================================================
Net expenses 1,802,793
======================================================
Net investment income (loss) (632,799)
======================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM:
Net realized gain (loss) from:
Investment securities (includes net
gains (losses) from securities
sold to affiliates of $(547,402)) (20,364,528)
- ------------------------------------------------------
Foreign currencies 9,958
======================================================
(20,354,570)
======================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (20,585,605)
- ------------------------------------------------------
Foreign currencies 22
======================================================
(20,585,583)
======================================================
Net realized and unrealized gain (loss) (40,940,153)
======================================================
Net increase (decrease) in net assets
resulting from operations $(41,572,952)
______________________________________________________
======================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CAPITAL DEVELOPMENT FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- ------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (632,799) $ (1,978,295)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) (20,354,570) 27,808,555
- ------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) (20,585,583) 4,000,926
======================================================================================================
Net increase (decrease) in net assets resulting from operations (41,572,952) 29,831,186
======================================================================================================
Distributions to shareholders from net realized gains:
Series I -- (12,026,991)
- ------------------------------------------------------------------------------------------------------
Series II -- (15,317,782)
======================================================================================================
Total distributions from net realized gains -- (27,344,773)
======================================================================================================
Share transactions-net:
Series I (13,553,147) (2,786,456)
- ------------------------------------------------------------------------------------------------------
Series II (12,594,066) 63,232,922
======================================================================================================
Net increase (decrease) in net assets resulting from share
transactions (26,147,213) 60,446,466
======================================================================================================
Net increase (decrease) in net assets (67,720,165) 62,932,879
______________________________________________________________________________________________________
======================================================================================================
NET ASSETS:
Beginning of period 340,590,793 277,657,914
======================================================================================================
End of period (including undistributed net investment income (loss)
of $(695,519) and $(62,720), respectively) $272,870,628 $340,590,793
______________________________________________________________________________________________________
======================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Capital Development Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is long-term growth of capital.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on
that day. Securities traded in the over-the-counter market are valued
based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service
they may be considered fair valued. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally
traded. Listed options are valued at the mean between the last bid and the
ask prices from the exchange on which they are principally traded. Options
not listed on an exchange are valued by an independent source at the mean
between the last bid and ask prices. For purposes of determining net asset
value per share, futures and option contracts generally are valued 15
minutes after the close of the customary trading session of the New York
Stock Exchange ("NYSE").
Investments in open-end and closed-end registered investment companies
that do not trade on an exchange are valued at the end of day net asset
value per share. Investments in open-end and closed-end registered
investment companies that trade on an exchange are valued at the last
sales price or official closing price as of the close of the customary
trading session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing
service. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to specific securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Short-term obligations, including
commercial paper, having 60 days or less to maturity are recorded at
amortized cost which approximates value. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve
some risk of default with respect to interest and/or principal payments.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued
at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price
unreliable, the Fund may fair value the security. If the event is likely
to have affected the closing price of the security, the security will be
valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also
be based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current value as of the close of the NYSE. Foreign securities
meeting the approved degree of certainty that the price is not reflective
of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, American
Depositary Receipts and domestic and foreign index futures. Foreign
securities may have additional risks including exchange rate changes,
potential for sharply devalued currencies and high inflation, political
and economical upheaval, the relative lack of issuer information,
relatively low market liquidity and the potential lack of strict financial
and accounting controls and standards.
Securities for which market prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers following procedures
approved by the Board of Trustees. Issuer specific events, market trends,
bid/ask quotes of brokers and information providers and other market data
may be reviewed in the course of making a good faith determination of a
security's fair value.
Valuations change in response to many factors including the historical
and prospective earnings of the issuer, the value of the issuer's assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
AIM V.I. CAPITAL DEVELOPMENT FUND
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification
claims is considered remote.
I. SECURITIES LENDING -- The Fund may lend portfolio securities having a
market value up to one-third of the Fund's total assets. Such loans are
secured by collateral equal to no less than the market value of the loaned
securities determined daily by the securities lending provider. Such
collateral will be cash or debt securities issued or guaranteed by the
U.S. Government or any of its sponsored agencies. Cash collateral received
in connection with these loans is invested in short-term money market
instruments or affiliated money market funds and is shown as such on the
Schedule of Investments. It is the Fund's policy to obtain additional
collateral from or return excess collateral to the borrower by the end of
the next business day, following the valuation date of the securities
loaned. Therefore, the value of the collateral held may be temporarily
less than the value of the securities on loan. Lending securities entails
a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase
the collateral accordingly, and the borrower fails to return the
securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any
loss on the collateral invested. Dividends received on cash collateral
investments for securities lending transactions, which are net of
compensation to counterparties, is included in Dividends from affiliates
on the Statement of Operations. The aggregate value of securities out on
loan is shown as a footnote on the Statement of Assets and Liabilities.
J. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close
of the NYSE based on quotations posted by banks and major currency
dealers. Portfolio securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i)
sales of foreign currencies, (ii) currency gains or losses realized
between the trade and settlement dates on securities transactions, and
(iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized
foreign currency gains and losses arise from changes in the fair values of
assets and liabilities, other than investments in securities at fiscal
period end, resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to
foreign taxes on income, gains on investments or currency repatriation, a
portion of which may be recoverable.
AIM V.I. CAPITAL DEVELOPMENT FUND
K. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. Fluctuations in the value of these contracts are recorded as
unrealized appreciation (depreciation) until the contracts are closed.
When these contracts are closed, realized gains (losses) are recorded.
Realized and unrealized gains and losses on these contracts are included
in the Statement of Operations. The Fund could be exposed to risk, which
may be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
L. PUT OPTIONS PURCHASED -- The Fund may purchase put options including
options on securities indexes and/or futures contracts. By purchasing a
put option, the Fund obtains the right (but not the obligation) to sell
the option's underlying instrument at a fixed strike price. In return for
this right, the Fund pays an option premium. The option's underlying
instrument may be a security, securities index, or a futures contract. Put
options may be used by the Fund to hedge securities it owns by locking in
a minimum price at which the Fund can sell. If security prices fall, the
put option could be exercised to offset all or a portion of the Fund's
resulting losses. At the same time, because the maximum the Fund has at
risk is the cost of the option, purchasing put options does not eliminate
the potential for the Fund to profit from an increase in the value of the
securities hedged. Realized and unrealized gains and losses on these
contracts are included in the Statement of Operations. A risk in buying an
option is that the Fund pays a premium whether or not the option is
exercised. In addition, there can be no assurance that a liquid secondary
market will exist for any option purchased.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $350 million 0.75%
- -------------------------------------------------------------------
Over $350 million 0.625%
___________________________________________________________________
===================================================================
</Table>
Through at least April 30, 2010, the Advisor has contractually agreed to waive
advisory fees to the extent necessary so that the advisory fees payable by the
Fund (based on the Fund's average daily net assets) do not exceed the annual
rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $250 million 0.745%
- -------------------------------------------------------------------
Next $250 million 0.73%
- -------------------------------------------------------------------
Next $500 million 0.715%
- -------------------------------------------------------------------
Next $1.5 billion 0.70%
- -------------------------------------------------------------------
Next $2.5 billion 0.685%
- -------------------------------------------------------------------
Next $2.5 billion 0.67%
- -------------------------------------------------------------------
Next $2.5 billion 0.655%
- -------------------------------------------------------------------
Over $10 billion 0.64%
___________________________________________________________________
===================================================================
</Table>
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
The Advisor has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.30% and Series
II shares to 1.45% of average daily net assets, through at least April 30, 2010.
In determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
total annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco")
described more fully below, the expense offset arrangements from which the Fund
may benefit are in the form of credits that the Fund receives from banks where
the Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. These credits are used to pay certain expenses incurred by the Fund. The
Advisor did not waive fees and/or reimburse expenses during the period under
this expense limitation.
Further, the Advisor has contractually agreed, through at least April 30,
2010, to waive the advisory fee payable by the Fund in an amount equal to 100%
of the net advisory fees the Advisor receives from the affiliated money market
funds on investments by the Fund of uninvested cash (but not cash collateral
from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2008, the Advisor waived advisory fees of
$17,010.
AIM V.I. CAPITAL DEVELOPMENT FUND
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $38,342 for accounting and fund
administrative services and reimbursed $355,712 for services provided by
insurance companies.
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily net
assets of the Series II shares may be paid to insurance companies who furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. For the six months ended June 30, 2008, expenses
incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1 -- Quoted prices in an active market for identical assets.
Level 2 -- Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest
rates, prepayment speeds, credit risk and others.
Level 3 -- Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for
example, when there is little or no market activity for an investment at the end
of the period), unobservable inputs may be used. Unobservable inputs reflect the
Fund's own assumptions about the factors market participants would use in
determining fair value of the securities or instruments and would be based on
the best available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS IN
INPUT LEVEL SECURITIES
- ------------------------------------
Level 1 $267,674,606
- ------------------------------------
Level 2 4,309,403
- ------------------------------------
Level 3 --
====================================
$271,984,009
____________________________________
====================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, for the six months ended June 30, 2008, the Fund
engaged in securities sales of $1,433,409, which resulted in net realized gains
(losses) of $(547,402), and securities purchases of $1,230,341.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2008, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $2,080.
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan and receive benefits under such plan. "Trustees' and Officer's
Fees and Benefits" include amounts accrued by the Fund to fund such retirement
benefits. Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $1,896
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--CASH BALANCES
The Fund is permitted to temporarily carry a negative or overdrawn balance in
its account with The State Street Bank and Trust Company ("SSB"), the custodian
bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund
may either (i) leave funds as a compensating balance in the account so the
custodian bank can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank at a rate agreed upon by the custodian
bank and Invesco Aim, not to exceed the contractually agreed upon rate.
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
The Fund did not have a capital loss carryforward as of December 31, 2007.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the six months ended June 30, 2008 was $148,016,046 and
$182,553,500, respectively. Cost of investments on a tax basis includes the
adjustments for financial reporting purposes as of the most recently completed
Federal income tax reporting period end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 47,874,997
- ------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (18,963,935)
================================================================================================
Net unrealized appreciation of investment securities $ 28,911,062
________________________________________________________________________________________________
================================================================================================
Cost of investments for tax purposes is $243,072,947.
</Table>
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008(a) DECEMBER 31, 2007
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 431,720 $ 7,279,958 899,466 $ 18,335,807
- ------------------------------------------------------------------------------------------------------------------------
Series II 1,079,100 17,761,412 5,098,023 102,303,777
========================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 620,908 12,026,991
- ------------------------------------------------------------------------------------------------------------------------
Series II -- -- 804,506 15,317,782
========================================================================================================================
Reacquired:
Series I (1,227,437) (20,833,105) (1,642,891) (33,149,254)
- ------------------------------------------------------------------------------------------------------------------------
Series II (1,840,129) (30,355,478) (2,699,333) (54,388,637)
========================================================================================================================
(1,556,746) $(26,147,213) 3,080,679 $ 60,446,466
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There are entities that are record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate own 69% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, Invesco
Aim and/or Invesco Aim affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services to
the Fund, Invesco Aim and or Invesco Aim affiliates including but not
limited to services such as, securities brokerage, third party record
keeping and account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record by
these entities are also owned beneficially.
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------------
2008 2007 2006 2005 2004 2003
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 18.85 $ 18.43 $ 16.09 $ 14.68 $ 12.71 $ 9.39
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03) (0.10)(a) (0.07) (0.04) (0.03)(a) (0.01)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.29) 2.14 2.73 1.45 2.00 3.33
==============================================================================================================================
Total from investment operations (2.32) 2.04 2.66 1.41 1.97 3.32
==============================================================================================================================
Less distributions from net realized gains -- (1.62) (0.32) -- -- --
==============================================================================================================================
Net asset value, end of period $ 16.53 $ 18.85 $ 18.43 $ 16.09 $ 14.68 $ 12.71
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) (12.31)% 10.84% 16.52% 9.61% 15.50% 35.36%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $118,150 $149,776 $148,668 $117,674 $112,028 $93,813
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.10%(c) 1.05% 1.08% 1.09% 1.10% 1.13%
- ------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.11%(c) 1.06% 1.09% 1.09% 1.10% 1.13%
==============================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.30)%(c) (0.47)% (0.48)% (0.22)% (0.21)% (0.13)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate(d) 52% 109% 119% 125% 93% 95%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized and do not reflect charges
assessed in connection with a variable product, which if included would
reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$127,341,449.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
<Table>
<Caption>
SERIES II
------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------
2008 2007 2006 2005 2004 2003
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 18.53 $ 18.19 $ 15.92 $ 14.57 $ 12.64 $ 9.36
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05) (0.15)(a) (0.10) (0.07) (0.06)(a) (0.03)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.25) 2.11 2.69 1.42 1.99 3.31
=============================================================================================================================
Total from investment operations (2.30) 1.96 2.59 1.35 1.93 3.28
=============================================================================================================================
Less distributions from net realized gains -- (1.62) (0.32) -- -- --
=============================================================================================================================
Net asset value, end of period $ 16.23 $ 18.53 $ 18.19 $ 15.92 $ 14.57 $ 12.64
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) (12.41)% 10.55% 16.26% 9.27% 15.27% 35.04%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $154,721 $190,815 $128,990 $83,388 $71,339 $33,550
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.35%(c) 1.30% 1.33% 1.34% 1.35% 1.38%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.36%(c) 1.31% 1.34% 1.34% 1.35% 1.38%
=============================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.55)%(c) (0.72)% (0.73)% (0.47)% (0.46)% (0.38)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate(d) 52% 109% 119% 125% 93% 95%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized and do not reflect charges
assessed in connection with a variable product, which if included would
reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$164,425,504.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to Invesco Aim and IADI (Order No. 05-
1318). The WVASC makes findings of fact that Invesco Aim and IADI entered into
certain arrangements permitting market timing of the AIM Funds and failed to
disclose these arrangements in the prospectuses for such Funds, and conclusions
of law to the effect that Invesco Aim and IADI violated the West Virginia
securities laws. The WVASC orders Invesco Aim and IADI to cease any further
violations and seeks to impose monetary sanctions, including restitution to
affected investors, disgorgement of fees, reimbursement of investigatory,
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute. By agreement with the Commissioner of
Securities, Invesco Aim's time to respond to that Order has been indefinitely
suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid. The case pending in Illinois State Court regarding fair value
pricing was dismissed with prejudice on May 6, 2008.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA
purportedly brought on behalf of participants in the Invesco 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds remain nominal defendants in the Consolidated Amended Fund
Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco
defendants' motion to dismiss the Amended Class Action Complaint for Violations
of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June
16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this
lawsuit back to the MDL Court for further proceedings.
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, Invesco Aim and IADI have advised the Fund that they are providing
full cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, Invesco Aim and/or related entities and individuals in the
future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $876.90 $5.13 $1,019.39 $5.52 1.10%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 875.90 6.30 1,018.15 6.77 1.35
- ---------------------------------------------------------------------------------------------------
</Table>
((1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5% before
expenses.
((2) Expenses are equal to the Fund's annualized expense ratio as indicated
above multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
AIM V.I. CAPITAL DEVELOPMENT FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the Board) of AIM comparative performance and fee data Trustees recognized that the advisory
Variable Insurance Funds is required under regarding the AIM Funds prepared by an arrangements and resulting advisory fees
the Investment Company Act of 1940 to independent company, Lipper, Inc. for the Fund and the other AIM Funds are
approve annually the renewal of the AIM (Lipper), under the direction and the result of years of review and
V.I. Capital Development Fund (the Fund) supervision of the independent Senior negotiation between the Trustees and
investment advisory agreement with Invesco Officer who also prepares a separate Invesco Aim, that the Trustees may focus
Aim Advisors, Inc. (Invesco Aim). During analysis of this information for the to a greater extent on certain aspects of
contract renewal meetings held on June Trustees. Each Sub-Committee then makes these arrangements in some years than in
18-19, 2008, the Board as a whole and the recommendations to the Investments others, and that the Trustees'
disinterested or "independent" Trustees, Committee regarding the performance, fees deliberations and conclusions in a
voting separately, approved the and expenses of their assigned funds. The particular year may be based in part on
continuance of the Fund's investment Investments Committee considers each their deliberations and conclusions of
advisory agreement for another year, Sub-Committee's recommendations and makes these same arrangements throughout the
effective July 1, 2008. In doing so, the its own recommendations regarding the year and in prior years.
Board determined that the Fund's performance, fees and expenses of the AIM
investment advisory agreement is in the Funds to the full Board. The Investments FACTORS AND CONCLUSIONS AND SUMMARY OF
best interests of the Fund and its Committee also considers each INDEPENDENT WRITTEN FEE EVALUATION
shareholders and that the compensation to Sub-Committee's recommendations in making The discussion below serves as a summary
Invesco Aim under the Fund's investment its annual recommendation to the Board of the Senior Officer's independent
advisory agreement is fair and reasonable. whether to approve the continuance of each written evaluation with respect to the
The independent Trustees met separately AIM Fund's investment advisory agreement Fund's investment advisory agreement as
during their evaluation of the Fund's and sub-advisory agreements for another well as a discussion of the material
investment advisory agreement with year. factors and related conclusions that
independent legal counsel from whom they The independent Trustees are assisted formed the basis for the Board's approval
received independent legal advice, and the in their annual evaluation of the Fund's of the Fund's investment advisory
independent Trustees also received investment advisory agreement by the agreement and sub-advisory agreements.
assistance during their deliberations from independent Senior Officer. One Unless otherwise stated, information set
the independent Senior Officer, a responsibility of the Senior Officer is to forth below is as of June 19, 2008 and
full-time officer of the AIM Funds who manage the process by which the AIM Funds' does not reflect any changes that may have
reports directly to the independent proposed management fees are negotiated occurred since that date, including but
Trustees. during the annual contract renewal process not limited to changes to the Fund's
to ensure that they are negotiated in a performance, advisory fees, expense
THE BOARD'S FUND EVALUATION PROCESS manner that is at arms' length and limitations and/or fee waivers.
The Board's Investments Committee has reasonable. Accordingly, the Senior
established three Sub-Committees that are Officer must either supervise a I. Investment Advisory Agreement
responsible for overseeing the management competitive bidding process or prepare an A. Nature, Extent and Quality of
of a number of the series portfolios of independent written evaluation. The Senior Services Provided by Invesco Aim
the AIM Funds. This Sub-Committee Officer has recommended that an The Board reviewed the advisory services
structure permits the Trustees to focus on independent written evaluation be provided provided to the Fund by Invesco Aim under
the performance of the AIM Funds that have and, at the direction of the Board, has the Fund's investment advisory agreement,
been assigned to them. The Sub-Committees prepared an independent written the performance of Invesco Aim in
meet throughout the year to review the evaluation. providing these services, and the
performance of their assigned funds, and During the annual contract renewal credentials and experience of the officers
the Sub-Committees review monthly and process, the Board considered the factors and employees of Invesco Aim who provide
quarterly comparative performance discussed below under the heading "Factors these services. The Board's review of the
information and periodic asset flow data and Conclusions and Summary of Independent qualifications of Invesco Aim to provide
for their assigned funds. These materials Written Fee Evaluation" in evaluating the these services included the Board's
are prepared under the direction and fairness and reasonableness of the Fund's consideration of Invesco Aim's portfolio
supervision of the independent Senior investment advisory agreement and and product review process, various back
Officer. Over the course of each year, the sub-advisory agreements at the contract office support functions provided by
Sub-Committees meet with portfolio renewal meetings and at their meetings Invesco Aim, and Invesco Aim's equity and
managers for their assigned funds and throughout the year as part of their fixed income trading operations. The Board
other members of management and review ongoing oversight of the Fund. The Fund's concluded that the nature, extent and
with these individuals the performance, investment advisory agreement and quality of the advisory services provided
investment objective(s), policies, sub-advisory agreements were considered to the Fund by Invesco Aim were
strategies and limitations of these funds. separately, although the Board also appropriate and that Invesco Aim currently
In addition to their meetings considered the common interests of all of is providing satisfactory advisory
throughout the year, the Sub-Committees the AIM Funds in their deliberations. The services in accordance with the terms of
meet at designated contract renewal Board considered all of the information the Fund's investment advisory agreement.
meetings each year to conduct an in-depth provided to them and did not identify any In addition, based on their ongoing
review of the performance, fees and particular factor that was controlling. meetings throughout the year with the
expenses of their assigned funds. During Each Trustee may have evaluated the Fund's portfolio manager or managers, the
the contract renewal process, the Trustees information provided differently from one Board concluded that these individuals are
receive another and attributed different weight to competent and able to continue to carry
the various factors. The out their responsibilities under the
Fund's investment advisory agreement.
continued
AIM V.I. CAPITAL DEVELOPMENT FUND
In determining whether to continue the recent Fund performance and this review each class of the Fund. The Board
Fund's investment advisory agreement, the did not change their conclusions. considered the contractual nature of this
Board considered the prior relationship fee waiver and noted that it remains in
between Invesco Aim and the Fund, as well C. Advisory Fees and Fee Waivers effect until at least April 30, 2010. The
as the Board's knowledge of Invesco Aim's The Board compared the Fund's contractual Board also considered the effect these fee
operations, and concluded that it was advisory fee rate to the contractual waivers/expense limitations would have on
beneficial to maintain the current advisory fee rates of funds in the Fund's the Fund's estimated total expenses.
relationship, in part, because of such expense group that are not managed by After taking account of the Fund's
knowledge. The Board also considered the Invesco Aim, at a common asset level and contractual advisory fee rate, as well as
steps that Invesco Aim and its affiliates as of the end of the past calendar year. the comparative advisory fee information
have taken over the last several years to The Board noted that the Fund's and the fee waivers/expense limitations
improve the quality and efficiency of the contractual advisory fee rate was below discussed above, the Board concluded that
services they provide to the AIM Funds in the median contractual advisory fee rate the Fund's advisory fees were fair and
the areas of investment performance, of funds in its expense group. The Board reasonable.
product line diversification, also reviewed the methodology used by
distribution, fund operations, shareholder Lipper in determining contractual fee D. Economies of Scale and Breakpoints
services and compliance. The Board rates. The Board considered the extent to which
concluded that the quality and efficiency The Board also compared the Fund's there are economies of scale in Invesco
of the services Invesco Aim and its effective fee rate (the advisory fee after Aim's provision of advisory services to
affiliates provide to the AIM Funds in any advisory fee waivers and before any the Fund. The Board also considered
each of these areas have generally expense limitations/waivers) to the whether the Fund benefits from such
improved, and support the Board's approval advisory fee rates of other clients of economies of scale through contractual
of the continuance of the Fund's Invesco Aim and its affiliates with breakpoints in the Fund's advisory fee
investment advisory agreement. investment strategies comparable to those schedule or through advisory fee waivers
of the Fund, including three mutual funds or expense limitations. The Board noted
B. Fund Performance advised by Invesco Aim and one mutual fund that the Fund's contractual advisory fee
The Board compared the Fund's performance sub-advised by an Invesco Aim affiliate. schedule includes one breakpoint and that
during the past one, three and five The Board noted that the Fund's rate was: the level of the Fund's advisory fees, as
calendar years to the performance of funds (i) above the rates for two of the mutual a percentage of the Fund's net assets, has
in the Fund's performance group that are funds and below the rate for the third decreased as net assets increased because
not managed by Invesco Aim, and against mutual fund; and (ii) above the of the breakpoint. The Board also noted
the performance of all funds in the Lipper sub-advisory fee rate for the sub-advised that Invesco Aim's contractual advisory
Variable Annuity Underlying Funds - mutual fund. fee waiver discussed above includes
Mid-Cap Growth Index. The Board also Additionally, the Board compared the breakpoints based on net asset levels.
reviewed the criteria used by Invesco Aim Fund's effective fee rate to the total Based on this information, the Board
to identify the funds in the Fund's advisory fees paid by a separately managed concluded that the Fund's advisory fees
performance group for inclusion in the account/wrap account advised by Invesco appropriately reflect economies of scale
Lipper reports. The Board noted that the Aim affiliates. The Board noted that the at current asset levels. The Board also
Fund's performance was in the fifth Fund's rate was above the rate for the noted that the Fund shares directly in
quintile of its performance group for the separately managed account/wrap account. economies of scale through lower fees
one year period and the third quintile for The Board considered that management of charged by third party service providers
the three and five year periods (the first the separately managed account/wrap based on the combined size of all of the
quintile being the best performing funds account by the Invesco Aim affiliate AIM Funds and affiliates.
and the fifth quintile being the worst involves different levels of services and
performing funds). The Board noted that different operational and regulatory E. Profitability and Financial
the Fund's performance was below the requirements than Invesco Aim's management Resources of Invesco Aim
performance of the Index for the one and of the Fund. The Board concluded that The Board reviewed information from
five year periods and above the these differences are appropriately Invesco Aim concerning the costs of the
performance for the three year period. The reflected in the fee structure for the advisory and other services that Invesco
Board noted that Invesco Aim acknowledges Fund. Aim and its affiliates provide to the Fund
the Fund's underperformance because of The Board noted that Invesco Aim has and the profitability of Invesco Aim and
shorter term performance results and contractually agreed to waive advisory its affiliates in providing these
continues to monitor the Fund. The Board fees of the Fund through at least April services. The Board also reviewed
also considered the steps Invesco Aim has 30, 2010 and that this fee waiver includes information concerning the financial
taken over the last several years to breakpoints based on net asset levels. The condition of Invesco Aim and its
improve the quality and efficiency of the Board considered the contractual nature of affiliates. The Board also reviewed with
services that Invesco Aim provides to the this fee waiver and noted that it remains Invesco Aim the methodology used to
AIM Funds. The Board concluded that in effect until at least April 30, 2010. prepare the profitability information. The
Invesco Aim continues to be responsive to The Board also noted that Invesco Aim has Board considered the overall profitability
the Board's focus on fund performance. contractually agreed to waive fees and/or of Invesco Aim, as well as the
Although the independent written limit expenses of the Fund through at profitability of Invesco Aim in connection
evaluation of the Fund's Senior Officer least April 30, 2010 in an amount with managing the Fund. The Board noted
only considered Fund performance through necessary to limit total annual operating that Invesco Aim continues to operate at a
the most recent calendar year, the Board expenses to a specified percentage of net profit, although increased expenses in
also reviewed more average daily net assets for recent years have reduced the
profitability of Invesco Aim
continued
AIM V.I. CAPITAL DEVELOPMENT FUND
and its affiliates. The Board concluded Aim are used to pay for research and Board concluded that the nature, extent
that the Fund's fees were fair and execution services. The Board noted that and quality of the services to be provided
reasonable, and that the level of profits soft dollar arrangements shift the payment by the Affiliated Sub-Advisers were
realized by Invesco Aim and its affiliates obligation for the research and execution appropriate. The Board noted that the
from providing services to the Fund was services from Invesco Aim to the funds and Affiliated Sub-Advisers, which have
not excessive in light of the nature, therefore may reduce Invesco Aim's offices and personnel that are
quality and extent of the services expenses. The Board also noted that geographically dispersed in financial
provided. The Board considered whether research obtained through soft dollar centers around the world, have been formed
Invesco Aim is financially sound and has arrangements may be used by Invesco Aim in in part for the purpose of researching and
the resources necessary to perform its making investment decisions for the Fund compiling information and making
obligations under the Fund's investment and may therefore benefit Fund recommendations on the markets and
advisory agreement, and concluded that shareholders. The Board concluded that economies of various countries and
Invesco Aim has the financial resources Invesco Aim's soft dollar arrangements securities of companies located in such
necessary to fulfill these obligations. were appropriate. The Board also concluded countries or on various types of
that, based on their review and investments and investment techniques, and
F. Independent Written Evaluation of representations made by Invesco Aim, these providing investment advisory services.
the Fund's Senior Officer arrangements were consistent with The Board concluded that the sub-advisory
The Board noted that, at their direction, regulatory requirements. agreements will benefit the Fund and its
the Senior Officer of the Fund, who is The Board considered the fact that the shareholders by permitting Invesco Aim to
independent of Invesco Aim and Invesco Fund's uninvested cash and cash collateral utilize the additional resources and
Aim's affiliates, had prepared an from any securities lending arrangements talent of the Affiliated Sub-Advisers in
independent written evaluation to assist may be invested in money market funds managing the Fund.
the Board in determining the advised by Invesco Aim pursuant to
reasonableness of the proposed management procedures approved by the Board. The B. Fund Performance
fees of the AIM Funds, including the Fund. Board noted that Invesco Aim will receive The Board did not view Fund performance as
The Board noted that they had relied upon advisory fees from these affiliated money a relevant factor in considering whether
the Senior Officer's written evaluation market funds attributable to such to approve the sub-advisory agreements for
instead of a competitive bidding process. investments, although Invesco Aim has the Fund, as no Affiliated Sub-Adviser
In determining whether to continue the contractually agreed to waive through at currently manages any portion of the
Fund's investment advisory agreement, the least April 30, 2010, the advisory fees Fund's assets.
Board considered the Senior Officer's payable by the Fund in an amount equal to
written evaluation. 100% of the net advisory fees Invesco Aim C. Sub-Advisory Fees
receives from the affiliated money market The Board considered the services to be
G. Collateral Benefits to Invesco Aim funds with respect to the Fund's provided by the Affiliated Sub-Advisers
and its Affiliates investment of uninvested cash, but not pursuant to the sub-advisory agreements
The Board considered various other cash collateral. The Board considered the and the services to be provided by Invesco
benefits received by Invesco Aim and its contractual nature of this fee waiver and Aim pursuant to the Fund's investment
affiliates resulting from Invesco Aim's noted that it remains in effect until at advisory agreement, as well as the
relationship with the Fund, including the least April 30, 2010. The Board concluded allocation of fees between Invesco Aim and
fees received by Invesco Aim and its that the Fund's investment of uninvested the Affiliated Sub-Advisers pursuant to
affiliates for their provision of cash and cash collateral from any the sub-advisory agreements. The Board
administrative, transfer agency and securities lending arrangements in the noted that the sub-advisory fees have no
distribution services to the Fund. The affiliated money market funds is in the direct effect on the Fund or its
Board considered the performance of best interests of the Fund and its shareholders, as they are paid by Invesco
Invesco Aim and its affiliates in shareholders. Aim to the Affiliated Sub-Advisers, and
providing these services and the that Invesco Aim and the Affiliated
organizational structure employed by II. Sub-Advisory Agreements Sub-Advisers are affiliates. After taking
Invesco Aim and its affiliates to provide A. Nature, Extent and Quality of account of the Fund's contractual
these services. The Board also considered Services Provided by Affiliated sub-advisory fee rate, as well as other
that these services are provided to the Sub-Advisers relevant factors, the Board concluded that
Fund pursuant to written contracts which The Board reviewed the services to be the Fund's sub-advisory fees were fair and
are reviewed and approved on an annual provided by Invesco Trimark Ltd., Invesco reasonable.
basis by the Board. The Board concluded Asset Management Deutschland, GmbH,
that Invesco Aim and its affiliates were Invesco Asset Management Limited, Invesco D. Financial Resources of the
providing these services in a satisfactory Asset Management (Japan) Limited, Invesco Affiliated Sub-Advisers
manner and in accordance with the terms of Australia Limited, Invesco Global Asset The Board considered whether each
their contracts, and were qualified to Management (N.A.), Inc., Invesco Hong Kong Affiliated Sub-Adviser is financially
continue to provide these services to the Limited, Invesco Institutional (N.A.), sound and has the resources necessary to
Fund. Inc. and Invesco Senior Secured perform its obligations under its
The Board considered the benefits Management, Inc. (collectively, the respective sub-advisory agreement, and
realized by Invesco Aim as a result of "Affiliated Sub-Advisers") under the concluded that each Affiliated Sub-Adviser
portfolio brokerage transactions executed sub-advisory agreements and the has the financial resources necessary to
through "soft dollar" arrangements. Under credentials and experience of the officers fulfill these obligations.
these arrangements, portfolio brokerage and employees of the Affiliated
commissions paid by the Fund and/or other Sub-Advisers who will provide these
funds advised by Invesco services. The
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. Capital Development
Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware
statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held
for the following purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will
serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust that
would permit the Board of Trustees of the Trust to terminate the Trust, the
Fund, and each other series portfolio of the Trust, or a share class without
a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and
each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland,
GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.),
Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and
Invesco Senior Secured Management, Inc.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- -----------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker...................................................... 474,883,590 19,741,622
Frank S. Bayley................................................... 474,653,109 19,972,103
James T. Bunch.................................................... 475,597,417 19,027,795
Bruce L. Crockett................................................. 474,900,579 19,724,633
Albert R. Dowden.................................................. 474,749,929 19,875,283
Jack M. Fields.................................................... 475,205,840 19,419,372
Martin L. Flanagan................................................ 475,248,336 19,376,876
Carl Frischling................................................... 474,453,674 20,171,538
Prema Mathai-Davis................................................ 473,569,192 21,056,020
Lewis F. Pennock.................................................. 475,072,501 19,552,711
Larry Soll, Ph.D. ................................................ 475,170,544 19,454,668
Raymond Stickel, Jr. ............................................. 475,420,825 19,204,387
Philip A. Taylor.................................................. 475,640,570 18,984,642
</Table>
<Table>
<Caption>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
- -------------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of
Trustees of the Trust to terminate the Trust, the Fund,
and each other series portfolio of the Trust, or a share
class without a shareholder vote.......................... 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between Invesco Aim
Advisors, Inc. and each of AIM Funds Management, Inc.;
Invesco Asset Management Deutschland, GmbH; Invesco Asset
Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset
Management (N.A.), Inc.; Invesco Hong Kong Limited;
Invesco Institutional (N.A.), Inc.; and Invesco Senior
Secured Management, Inc. ................................. 15,527,694 539,176 557,054
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. CAPITAL DEVELOPMENT FUND
[INVESCO AIM LOGO] AIM V.I. CORE EQUITY FUND
- SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008
AIM Investments [MOUNTAIN GRAPHIC]
became INVESCO AIM
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec. gov. Copies of the Fund's Forms N-Q may be reviewed and
copied at the SEC Public Reference Room in Washington, D.C. You can obtain
information on the operation of the Public Reference Room, including information
about duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec. gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FUND PERFORMANCE
=========================================================================================
PERFORMANCE SUMMARY
FUND VS. INDEXES
Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer
charges. If variable product issuer charges were included, returns would be
lower.
Series I Shares -6.67%
Series II Shares -6.79
S&P 500 Index + (Broad Market Index) -11.90
Russell 1000 Index + (Style-Specific Index) -11.20
Lipper VUF Large-Cap Core Funds Index +(Peer Group Index) -10.56
+ Lipper Inc.
The S&P 500-REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted
index covering all major areas of the U.S. economy. It is not the 500 largest
companies, but rather the most widely held 500 companies chosen with respect to
market size, liquidity, and their industry.
The RUSSELL 1000-REGISTERED TRADEMARK-- INDEX is comprised of 1000 of the
largest capitalized U.S. domiciled companies whose common stock is traded in the
United States. The Russell 1000 Index is a trademark/service mark of the Frank
Russell Company. Russell--REGISTERED TRADEMARK- is a trademark of the Frank
Russell Company.
The LIPPER VUF LARGE-CAP CORE FUNDS INDEX is an equally weighted
representation of the largest variable insurance underlying funds in the Lipper
Large-Cap Core Funds category. These funds typically have an average
price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share
growth value, compared to the S&P 500 Index.
The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
=========================================================================================
===========================================
AVERAGE ANNUAL TOTAL RETURNS THE PERFORMANCE DATA QUOTED REPRESENT CANNOT PURCHASE SHARES OF THE FUND
As of 6/30/08 PAST PERFORMANCE AND CANNOT GUARANTEE DIRECTLY. PERFORMANCE FIGURES GIVEN
COMPARABLE FUTURE RESULTS; CURRENT REPRESENT THE FUND AND ARE NOT INTENDED
SERIES I SHARES PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE TO REFLECT ACTUAL VARIABLE PRODUCT
Inception (5/2/94) 8.65% CONTACT YOUR VARIABLE PRODUCT ISSUER OR VALUES. THEY DO NOT REFLECT SALES
10 Years 3.44 FINANCIAL ADVISOR FOR THE MOST RECENT CHARGES, EXPENSES AND FEES ASSESSED IN
5 Years 8.93 MONTH-END VARIABLE PRODUCT PERFORMANCE. CONNECTION WITH A VARIABLE PRODUCT. SALES
l Year -7.49 PERFORMANCE FIGURES REFLECT FUND EXPENSES, CHARGES, EXPENSES AND FEES, WHICH ARE
REINVESTED DISTRIBUTIONS AND CHANGES IN NET DETERMINED BY THE VARIABLE PRODUCT
SERIES II SHARES ASSET VALUE. INVESTMENT RETURN AND ISSUERS, WILL VARY AND WILL LOWER THE
10 Years 3.19% PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU TOTAL RETURN.
5 Years 8.67 MAY HAVE A GAIN OR LOSS WHEN YOU SELL THE MOST RECENT MONTH-END PERFORMANCE
l Year -7.71 SHARES. DATA AT THE FUND LEVEL, EXCLUDING
=========================================== THE NET ANNUAL FUND OPERATING EXPENSE VARIABLE PRODUCT CHARGES, IS AVAILABLE ON
RATIO SET FORTH IN THE MOST RECENT FUND THIS INVESCO AIM AUTOMATED INFORMATION
SERIES II SHARES' INCEPTION DATE IS OCTOBER PROSPECTUS AS OF THE DATE OF THIS REPORT FOR LINE, 866 702 4402. AS MENTIONED ABOVE,
24, 2001. RETURNS SINCE THAT DATE ARE SERIES I AND SERIES II SHARES WAS 0.89% AND FOR THE MOST RECENT MONTH-END PERFORMANCE
HISTORICAL. ALL OTHER RETURNS ARE THE 1.14%, RESPECTIVELY.(1) THE TOTAL ANNUAL INCLUDING VARIABLE PRODUCT CHARGES,
BLENDED RETURNS OF THE HISTORICAL FUND OPERATING EXPENSE RATIO SET FORTH IN PLEASE CONTACT YOUR VARIABLE PRODUCT
PERFORMANCE OF THE FUND'S SERIES II SHARES THE MOST RECENT FUND PROSPECTUS AS OF THE ISSUER OR FINANCIAL ADVISOR.
SINCE THEIR INCEPTION AND THE RESTATED DATE OF THIS REPORT FOR SERIES I AND SERIES
HISTORICAL PERFORMANCE OF SERIES I SHARES II SHARES WAS 0.90% AND 1.15%, RESPECTIVELY. (1) Total annual operating expenses less
(FOR PERIODS PRIOR TO INCEPTION OF THE THE EXPENSE RATIOS PRESENTED ABOVE MAY VARY any contractual fee waivers and/or
SERIES II SHARES) ADJUSTED TO REFLECT THE FROM THE EXPENSE RATIOS PRESENTED IN OTHER expense reimbursements by the advisor
RULE 12B-1 FEES APPLICABLE TO THE SERIES II SECTIONS OF THIS REPORT THAT ARE BASED ON in effect through at least april 30,
SHARES. THE INCEPTION DATE OF SERIES I EXPENSES INCURRED DURING THE PERIOD COVERED 2010. see current prospectus for more
SHARES IS MAY 2, 1994. THE PERFORMANCE OF BY THIS REPORT. information.
THE FUND'S SERIES I AND SERIES II SHARE AIM V.I. CORE EQUITY FUND, A SERIES
CLASSES WILL DIFFER PRIMARILY DUE TO PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS,
DIFFERENT CLASS EXPENSES. IS CURRENTLY OFFERED THROUGH INSURANCE
COMPANIES ISSUING VARIABLE PRODUCTS. YOU
AIM V.I. CORE EQUITY FUND
PORTFOLIO COMPOSITION
By sector, based on Net Assets
as of June 30, 2008
<Table>
- -------------------------------------------------------------------------
Information Technology 21.6%
- -------------------------------------------------------------------------
Financials 14.8
- -------------------------------------------------------------------------
Health Care 13.4
- -------------------------------------------------------------------------
Industrials 11.8
- -------------------------------------------------------------------------
Consumer Staples 11.4
- -------------------------------------------------------------------------
Energy 10.0
- -------------------------------------------------------------------------
Consumer Discretionary 6.9
- -------------------------------------------------------------------------
Money Market Funds Plus Other Assets Less Liabilities 10.1
_________________________________________________________________________
=========================================================================
</Table>
SCHEDULE OF INVESTMENTS(a)
June 30, 2008
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-89.36%
AEROSPACE & DEFENSE-3.12%
Boeing Co. (The) 230,829 $ 15,170,082
- ----------------------------------------------------------------------------------
Northrop Grumman Corp. 273,326 18,285,509
- ----------------------------------------------------------------------------------
United Technologies Corp. 450,000 27,765,000
==================================================================================
61,220,591
==================================================================================
AIR FREIGHT & LOGISTICS-1.66%
United Parcel Service, Inc.-Class B 529,928 32,574,674
==================================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.95%
Polo Ralph Lauren Corp. 297,069 18,649,992
==================================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.57%
Legg Mason, Inc. 707,755 30,836,885
==================================================================================
AUTOMOBILE MANUFACTURERS-0.49%
Renault S.A. (France)(b) 116,359 9,519,816
==================================================================================
BIOTECHNOLOGY-2.14%
Amgen Inc.(c) 887,000 41,830,920
==================================================================================
BROADCASTING & CABLE TV-2.05%
Comcast Corp.-Class A 2,121,000 40,235,370
==================================================================================
COMMUNICATIONS EQUIPMENT-3.74%
Cisco Systems, Inc.(c) 1,145,338 26,640,562
- ----------------------------------------------------------------------------------
Motorola, Inc. 4,245,000 31,158,300
- ----------------------------------------------------------------------------------
Nokia Oyj-ADR (Finland) 631,565 15,473,342
==================================================================================
73,272,204
==================================================================================
COMPUTER HARDWARE-2.49%
Fujitsu Ltd. (Japan)(b) 3,447,000 25,491,480
- ----------------------------------------------------------------------------------
International Business Machines Corp. 196,925 23,341,520
==================================================================================
48,833,000
==================================================================================
COMPUTER STORAGE & PERIPHERALS-2.00%
EMC Corp.(c) 1,325,936 19,478,000
- ----------------------------------------------------------------------------------
Seagate Technology 1,028,255 19,670,518
==================================================================================
39,148,518
==================================================================================
CONSUMER FINANCE-1.59%
American Express Co. 828,998 31,228,355
==================================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.97%
Automatic Data Processing, Inc. 920,191 38,556,003
==================================================================================
DEPARTMENT STORES-0.53%
Kohl's Corp.(c) 261,393 10,466,176
==================================================================================
DIVERSIFIED BANKS-2.78%
Lloyds TSB Group PLC (United Kingdom)(b) 2,385,248 14,618,525
- ----------------------------------------------------------------------------------
U.S. Bancorp 514,438 14,347,676
- ----------------------------------------------------------------------------------
Wells Fargo & Co. 1,075,000 25,531,250
==================================================================================
54,497,451
==================================================================================
DIVERSIFIED CAPITAL MARKETS-0.19%
UBS AG (Switzerland)(b)(c) 175,451 3,627,976
==================================================================================
DRUG RETAIL-1.33%
Walgreen Co. 802,878 26,101,564
==================================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-2.23%
Agilent Technologies, Inc.(c) 1,228,496 43,660,748
==================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CORE EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------------------------
ELECTRONIC MANUFACTURING SERVICES-1.71%
Tyco Electronics Ltd. 934,677 $ 33,480,130
==================================================================================
ENVIRONMENTAL & FACILITIES SERVICES-2.02%
Waste Management, Inc. 1,048,373 39,534,146
==================================================================================
HEALTH CARE EQUIPMENT-4.36%
Covidien Ltd. 660,440 31,628,472
- ----------------------------------------------------------------------------------
Medtronic, Inc. 1,039,239 53,780,618
==================================================================================
85,409,090
==================================================================================
HOUSEHOLD PRODUCTS-0.08%
Henkel AG & Co. KGaA (Germany)(b) 42,939 1,607,447
==================================================================================
HYPERMARKETS & SUPER CENTERS-2.10%
Wal-Mart Stores, Inc. 732,029 41,140,030
==================================================================================
INDUSTRIAL CONGLOMERATES-5.01%
3M Co. 726,752 50,574,672
- ----------------------------------------------------------------------------------
General Electric Co. 646,452 17,253,804
- ----------------------------------------------------------------------------------
Koninklijke (Royal) Phillips Electronics N.V.
(Netherlands)(b) 615,230 20,775,215
- ----------------------------------------------------------------------------------
Tyco International Ltd. 236,830 9,482,673
==================================================================================
98,086,364
==================================================================================
INSURANCE BROKERS-1.14%
Marsh & McLennan Cos., Inc. 838,646 22,266,051
==================================================================================
INTEGRATED OIL & GAS-0.88%
Total S.A. (France) 203,074 17,329,358
==================================================================================
MANAGED HEALTH CARE-0.91%
UnitedHealth Group Inc. 680,300 17,857,875
==================================================================================
MOVIES & ENTERTAINMENT-0.88%
News Corp.-Class A 1,145,752 17,232,110
==================================================================================
OFFICE ELECTRONICS-1.02%
Xerox Corp. 1,475,605 20,009,204
==================================================================================
OIL & GAS EQUIPMENT & SERVICES-4.91%
BJ Services Co. 1,491,655 47,643,461
- ----------------------------------------------------------------------------------
Tenaris S.A.-ADR (Argentina)(d) 325,621 24,258,764
- ----------------------------------------------------------------------------------
Weatherford International Ltd.(c) 490,318 24,314,870
==================================================================================
96,217,095
==================================================================================
OIL & GAS EXPLORATION & PRODUCTION-4.20%
Apache Corp. 114,138 15,865,182
- ----------------------------------------------------------------------------------
Chesapeake Energy Corp. 748,267 49,355,691
- ----------------------------------------------------------------------------------
XTO Energy, Inc. 248,889 17,051,386
==================================================================================
82,272,259
==================================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.37%
Citigroup Inc. 429,868 7,204,588
==================================================================================
PACKAGED FOODS & MEATS-4.24%
Cadbury PLC (United Kingdom)(b) 4,381,547 54,981,449
- ----------------------------------------------------------------------------------
Unilever N.V. (Netherlands) 992,203 28,165,998
==================================================================================
83,147,447
==================================================================================
PERSONAL PRODUCTS-2.30%
Avon Products, Inc. 584,219 21,043,569
- ----------------------------------------------------------------------------------
Estee Lauder Cos. Inc. (The)-Class A 518,825 24,099,421
==================================================================================
45,142,990
==================================================================================
PHARMACEUTICALS-5.98%
GlaxoSmithKline PLC-ADR (United Kingdom) 359,806 15,910,621
- ----------------------------------------------------------------------------------
Merck & Co. Inc. 296,701 11,182,661
- ----------------------------------------------------------------------------------
Pfizer Inc. 1,550,000 27,078,500
- ----------------------------------------------------------------------------------
Schering-Plough Corp. 849,147 16,719,705
- ----------------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR (Israel) 500,705 22,932,289
- ----------------------------------------------------------------------------------
Wyeth 486,044 23,310,670
==================================================================================
117,134,446
==================================================================================
PROPERTY & CASUALTY INSURANCE-5.85%
Berkshire Hathaway Inc.-Class A(c) 412 49,749,000
- ----------------------------------------------------------------------------------
Progressive Corp. (The) 3,467,839 64,917,946
==================================================================================
114,666,946
==================================================================================
PUBLISHING-0.97%
Washington Post Co. (The)-Class B 32,464 19,053,121
==================================================================================
RAILROADS-1.04%
Union Pacific Corp. 270,748 20,441,474
==================================================================================
REGIONAL BANKS-1.34%
BB&T Corp.(d) 510,367 11,621,056
- ----------------------------------------------------------------------------------
PNC Financial Services Group, Inc. 254,530 14,533,663
==================================================================================
26,154,719
==================================================================================
SEMICONDUCTORS-0.67%
Intel Corp. 608,170 13,063,491
==================================================================================
SOFT DRINKS-0.73%
Coca-Cola Co. (The) 276,986 14,397,732
- ----------------------------------------------------------------------------------
Dr. Pepper Snapple Group, Inc.(c) 1 19
==================================================================================
14,397,751
==================================================================================
SYSTEMS SOFTWARE-5.82%
Microsoft Corp. 1,680,670 46,235,232
- ----------------------------------------------------------------------------------
Symantec Corp.(c) 3,500,000 67,725,000
==================================================================================
113,960,232
==================================================================================
Total Common Stocks & Other Equity Interests
(Cost $1,682,749,319) 1,751,068,607
==================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CORE EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------------------------
PREFERRED STOCK-0.60%
HOUSEHOLD PRODUCTS-0.60%
Henkel AG & Co. KGaA(Germany)-Pfd. (Cost
$16,007,623)(b) 297,000 $ 11,794,313
==================================================================================
MONEY MARKET FUNDS-10.43%
Liquid Assets Portfolio-Institutional Class(e) 102,160,381 102,160,381
- ----------------------------------------------------------------------------------
Premier Portfolio-Institutional Class(e) 102,160,381 102,160,381
- ----------------------------------------------------------------------------------
Total Money Market Funds (Cost $204,320,762) 204,320,762
==================================================================================
TOTAL INVESTMENTS (excluding investments purchased
with cash collateral from securities on
loan)-100.39%. (Cost $1,903,077,704) 1,967,183,682
==================================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON
LOAN
MONEY MARKET FUNDS-0.47%
Liquid Assets Portfolio-Institutional Class (Cost
$9,259,196)(e)(f) 9,259,196 9,259,196
==================================================================================
TOTAL INVESTMENTS-100.86% (Cost $1,912,336,900) 1,976,442,878
==================================================================================
OTHER ASSETS LESS LIABILITIES-(0.86)% (16,855,917)
==================================================================================
NET ASSETS-100.00% $1,959,586,961
__________________________________________________________________________________
==================================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Pfd. - Preferred
</Table>
Notes to Schedule of Investments:
(a) Industry and/or sector classifications used in this report are generally
according to the Global Industry Classification Standard, which was
developed by and is the exclusive property and a service mark of MSCI Inc.
and Standard & Poor's.
(b) In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate value of these securities at June 30, 2008 was $142,416,221,
which represented 7.27% of the Fund's Net Assets. See Note 1A.
(c) Non-income producing security.
(d) All or a portion of this security was out on loan at June 30, 2008.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor.
(f) The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 1I.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CORE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, at value (Cost
$1,698,756,942)* $1,762,862,920
- -------------------------------------------------------
Investments in affiliated money market
funds (Cost $213,579,958) 213,579,958
=======================================================
Total investments (Cost
$1,912,336,900) 1,976,442,878
=======================================================
Foreign currencies, at value (Cost
$656,561) 664,302
- -------------------------------------------------------
Receivables for:
Fund shares sold 3,169,079
- -------------------------------------------------------
Dividends 2,539,183
- -------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 160,500
- -------------------------------------------------------
Other assets 50,394
=======================================================
Total assets 1,983,026,336
_______________________________________________________
=======================================================
LIABILITIES:
Payables for:
Investments purchased 9,450,536
- -------------------------------------------------------
Fund shares reacquired 2,412,798
- -------------------------------------------------------
Amount due custodian 161,260
- -------------------------------------------------------
Foreign currency contracts 361,497
- -------------------------------------------------------
Collateral upon return of securities
loaned 9,259,196
- -------------------------------------------------------
Accrued fees to affiliates 1,261,896
- -------------------------------------------------------
Accrued other operating expenses 111,570
- -------------------------------------------------------
Trustee deferred compensation and
retirement plans 420,622
=======================================================
Total liabilities 23,439,375
=======================================================
Net assets applicable to shares
outstanding $1,959,586,961
_______________________________________________________
=======================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,060,678,563
- -------------------------------------------------------
Undistributed net investment income 51,696,291
- -------------------------------------------------------
Undistributed net realized gain (loss) (216,552,633)
- -------------------------------------------------------
Unrealized appreciation 63,764,740
=======================================================
$1,959,586,961
_______________________________________________________
=======================================================
NET ASSETS:
Series I $1,928,631,431
_______________________________________________________
=======================================================
Series II $ 30,955,530
_______________________________________________________
=======================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 70,980,894
_______________________________________________________
=======================================================
Series II 1,149,949
_______________________________________________________
=======================================================
Series I:
Net asset value per share $ 27.17
_______________________________________________________
=======================================================
Series II:
Net asset value per share $ 26.92
_______________________________________________________
=======================================================
</Table>
* At June 30, 2008, securities with an aggregate value of $8,714,079 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding
taxes of $650,148) $ 18,830,783
- -------------------------------------------------------
Dividends from affiliated money market
funds (includes securities lending
income of $187,450) 4,152,353
=======================================================
Total investment income 22,983,136
=======================================================
EXPENSES:
Advisory fees 6,389,386
- -------------------------------------------------------
Administrative services fees 2,721,649
- -------------------------------------------------------
Custodian fees 33,141
- -------------------------------------------------------
Distribution fees -- Series II 40,357
- -------------------------------------------------------
Transfer agent fees 17,511
- -------------------------------------------------------
Trustees' and officer's fees and
benefits 39,118
- -------------------------------------------------------
Other 331,707
=======================================================
Total expenses 9,572,869
=======================================================
Less: Fees waived and expense offset
arrangement(s) (156,699)
- -------------------------------------------------------
Net expenses 9,416,170
=======================================================
Net investment income 13,566,966
=======================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM:
Net realized gain (loss) from:
Investment securities 56,202,340
- -------------------------------------------------------
Foreign currencies 32,641
- -------------------------------------------------------
Foreign currency contracts (1,608,950)
=======================================================
54,626,031
=======================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (217,733,372)
- -------------------------------------------------------
Foreign currencies 28,827
- -------------------------------------------------------
Foreign currency contracts (356,835)
=======================================================
(218,061,380)
=======================================================
Net realized and unrealized gain (loss) (163,435,349)
=======================================================
Net increase (decrease) in net assets
resulting from operations $(149,868,383)
_______________________________________________________
=======================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CORE EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- ----------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 13,566,966 $ 37,033,376
- ----------------------------------------------------------------------------------------------------------
Net realized gain 54,626,031 387,454,941
- ----------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) (218,061,380) (212,013,364)
==========================================================================================================
Net increase (decrease) in net assets resulting from operations (149,868,383) 212,474,953
==========================================================================================================
Distributions to shareholders from net investment income:
Series I -- (26,080,139)
- ----------------------------------------------------------------------------------------------------------
Series II -- (332,527)
==========================================================================================================
Decrease in net assets resulting from distributions -- (26,412,666)
==========================================================================================================
Share transactions-net:
Series I (221,842,996) (584,578,394)
- ----------------------------------------------------------------------------------------------------------
Series II (1,480,559) (7,686,109)
==========================================================================================================
Net increase (decrease) in net assets resulting from share
transactions (223,323,555) (592,264,503)
==========================================================================================================
Net increase (decrease) in net assets (373,191,938) (406,202,216)
__________________________________________________________________________________________________________
==========================================================================================================
NET ASSETS:
Beginning of period 2,332,778,899 2,738,981,115
==========================================================================================================
End of period (including undistributed net investment income of
$51,696,291 and $38,129,325, respectively) $1,959,586,961 $2,332,778,899
__________________________________________________________________________________________________________
==========================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. CORE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Core Equity Fund (the "Fund") is a series portfolio of AIM Variable
Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is growth of capital.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on
that day. Securities traded in the over-the-counter market are valued
based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service
they may be considered fair valued. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally
traded. Listed options are valued at the mean between the last bid and the
ask prices from the exchange on which they are principally traded. Options
not listed on an exchange are valued by an independent source at the mean
between the last bid and ask prices. For purposes of determining net asset
value per share, futures and option contracts generally are valued 15
minutes after the close of the customary trading session of the New York
Stock Exchange ("NYSE").
Investments in open-end and closed-end registered investment companies
that do not trade on an exchange are valued at the end of day net asset
value per share. Investments in open-end and closed-end registered
investment companies that trade on an exchange are valued at the last
sales price or official closing price as of the close of the customary
trading session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing
service. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to specific securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Short-term obligations, including
commercial paper, having 60 days or less to maturity are recorded at
amortized cost which approximates value. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve
some risk of default with respect to interest and/or principal payments.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued
at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price
unreliable, the Fund may fair value the security. If the event is likely
to have affected the closing price of the security, the security will be
valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also
be based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current value as of the close of the NYSE. Foreign securities
meeting the approved degree of certainty that the price is not reflective
of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, American
Depositary Receipts and domestic and foreign index futures. Foreign
securities may have additional risks including exchange rate changes,
potential for sharply devalued currencies and high inflation, political
and economical upheaval, the relative lack of issuer information,
relatively low market liquidity and the potential lack of strict financial
and accounting controls and standards.
Securities for which market prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers following procedures
approved by the Board of Trustees. Issuer specific events, market trends,
bid/ask quotes of brokers and information providers and other market data
may be reviewed in the course of making a good faith determination of a
security's fair value.
Valuations change in response to many factors including the historical
and prospective earnings of the issuer, the value of the issuer's assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
AIM V.I. CORE EQUITY FUND
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification
claims is considered remote.
I. SECURITIES LENDING -- The Fund may lend portfolio securities having a
market value up to one-third of the Fund's total assets. Such loans are
secured by collateral equal to no less than the market value of the loaned
securities determined daily by the securities lending provider. Such
collateral will be cash or debt securities issued or guaranteed by the
U.S. Government or any of its sponsored agencies. Cash collateral received
in connection with these loans is invested in short-term money market
instruments or affiliated money market funds and is shown as such on the
Schedule of Investments. It is the Fund's policy to obtain additional
collateral from or return excess collateral to the borrower by the end of
the next business day, following the valuation date of the securities
loaned. Therefore, the value of the collateral held may be temporarily
less than the value of the securities on loan. Lending securities entails
a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase
the collateral accordingly, and the borrower fails to return the
securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any
loss on the collateral invested. Dividends received on cash collateral
investments for securities lending transactions, which are net of
compensation to counterparties, is included in Dividends from affiliates
on the Statement of Operations. The aggregate value of securities out on
loan is shown as a footnote on the Statement of Assets and Liabilities.
J. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close
of the NYSE based on quotations posted by banks and major currency
dealers. Portfolio securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i)
sales of foreign currencies, (ii) currency gains or losses realized
between the trade and settlement dates on securities transactions, and
(iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized
foreign currency gains and losses arise from changes in the fair values of
assets and liabilities, other than investments in securities at fiscal
period end, resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to
foreign taxes on income, gains on investments or currency repatriation, a
portion of which may be recoverable.
AIM V.I. CORE EQUITY FUND
K. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. Fluctuations in the value of these contracts are recorded as
unrealized appreciation (depreciation) until the contracts are closed.
When these contracts are closed, realized gains (losses) are recorded.
Realized and unrealized gains and losses on these contracts are included
in the Statement of Operations. The Fund could be exposed to risk, which
may be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $250 million 0.65%
- -------------------------------------------------------------------
Over $250 million 0.60%
___________________________________________________________________
===================================================================
</Table>
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
The Advisor has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.30% and Series
II shares to 1.45% of average daily net assets, through at least April 30, 2010.
In determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco")
described more fully below, the expense offset arrangements from which the Fund
may benefit are in the form of credits that the Fund receives from banks where
the Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. These credits are used to pay certain expenses incurred by the Fund. The
Advisor did not waive fees and/or reimburse expenses during the period under
this expense limitation.
Further, the Advisor has contractually agreed, through at least April 30,
2010, to waive the advisory fee payable by the Fund in an amount equal to 100%
of the net advisory fees the Advisor receives from the affiliated money market
funds on investments by the Fund of uninvested cash (but not cash collateral
from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2008, the Advisor waived advisory fees of
$155,512.
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $216,653 for accounting and fund
administrative services and reimbursed $2,504,996 for services provided by
insurance companies.
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily net
assets of the Series II shares may be paid to insurance companies who furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. For the six months ended June 30, 2008, expenses
incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
AIM V.I. CORE EQUITY FUND
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1-- Quoted prices in an active market for identical assets.
Level 2-- Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use
in pricing a security. These may include quoted prices for similar
securities, interest rates, prepayment speeds, credit risk and
others.
Level 3-- Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable
(for example, when there is little or no market activity for an
investment at the end of the period), unobservable inputs may be
used. Unobservable inputs reflect the Fund's own assumptions about
the factors market participants would use in determining fair value
of the securities or instruments and would be based on the best
available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS IN
INPUT LEVEL SECURITIES
- --------------------------------------
Level 1 $1,834,026,657
- --------------------------------------
Level 2 142,416,221
- --------------------------------------
Level 3 --
======================================
$1,976,442,878
______________________________________
======================================
</Table>
NOTE 4-- SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, for the six months ended June 30, 2008, the Fund
engaged in securities purchases of $1,825,217.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2008, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $1,187.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan and receive benefits under such plan. "Trustees' and Officer's
Fees and Benefits" include amounts accrued by the Fund to fund such retirement
benefits. Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $4,327
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--CASH BALANCES
The Fund is permitted to temporarily carry a negative or overdrawn balance in
its account with The State Street Bank and Trust Company ("SSB"), the custodian
bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund
may either (i) leave funds as a compensating balance in the account so the
custodian bank can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank at a rate agreed upon by the custodian
bank and Invesco Aim, not to exceed the contractually agreed upon rate.
AIM V.I. CORE EQUITY FUND
NOTE 8--FOREIGN CURRENCY CONTRACTS
<Table>
<Caption>
OPEN FOREIGN CURRENCY CONTRACTS AT PERIOD END
- ----------------------------------------------------------------------------------------------------------------
CONTRACT TO
SETTLEMENT ---------------------------------------- VALUE UNREALIZED
DATE DELIVER RECEIVE 06/30/08 APPRECIATION
- ----------------------------------------------------------------------------------------------------------------
09/10/08 EUR 33,125,000 USD 51,970,831 $51,953,480 $ 17,351
________________________________________________________________________________________________________________
================================================================================================================
</Table>
<Table>
<Caption>
CONTRACT TO
SETTLEMENT ---------------------------------------- VALUE UNREALIZED
DATE DELIVER RECEIVE 06/30/08 (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------------
09/10/08 GBP 23,825,000 USD 46,816,363 $47,190,549 $(374,186)
==================================================================================================================
Total open foreign
currency contracts $(356,835)
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
<Table>
<Caption>
CLOSED FOREIGN CURRENCY CONTRACTS AT PERIOD END
- ------------------------------------------------------------------------------------------------------------
CONTRACT TO
CLOSED -------------------------------------- VALUE REALIZED
DATE DELIVER RECEIVE 06/30/08 GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------
09/10/08 EUR 3,700,000 USD 5,805,781 $5,810,443 $ (4,662)
- ------------------------------------------------------------------------------------------------------------
Total closed foreign
currency contracts $ (4,662)
============================================================================================================
Total foreign currency
contracts $(361,497)
____________________________________________________________________________________________________________
============================================================================================================
</Table>
<Table>
Currency Abbreviations:
EUR--Euro
GBP--British Pound Sterling
USD--U.S. Dollar
</Table>
NOTE 9--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund had a capital loss carryforward as of December 31, 2007 which expires
as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ---------------------------------------------------------------------------------
December 31, 2009 $ 89,586,793
- ---------------------------------------------------------------------------------
December 31, 2010 157,184,467
- ---------------------------------------------------------------------------------
December 31, 2011 21,217,854
=================================================================================
Total capital loss carryforward $267,989,114
_________________________________________________________________________________
=================================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of May 1, 2006, the date of the
reorganization of AIM V.I. Core Stock fund and AIM V.I. Premier Equity fund
into the fund are realized on securities held in each fund at such date, the
capital loss carryforward may be further limited for up to five years from the
date of the reorganization.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the six months ended June 30, 2008 was $306,443,634 and
$360,561,359, respectively. Cost of investments on a tax basis includes the
adjustments for financial reporting purposes as of the most recently completed
Federal income tax reporting period end.
<Table>
<Caption>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 250,030,435
- ------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (189,114,007)
================================================================================================
Net unrealized appreciation of investment securities $ 60,916,428
________________________________________________________________________________________________
================================================================================================
Cost of investments for tax purposes is $1,915,526,450.
</Table>
AIM V.I. CORE EQUITY FUND
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008(a) DECEMBER 31, 2007
---------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,014,678 $ 28,488,689 1,426,134 $ 41,447,869
- --------------------------------------------------------------------------------------------------------------------------
Series II 73,392 2,046,795 162,780 4,629,698
==========================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 869,048 26,080,138
- --------------------------------------------------------------------------------------------------------------------------
Series II -- -- 11,166 332,527
==========================================================================================================================
Reacquired:
Series I (8,976,728) (250,331,685) (22,533,393) (652,106,401)
- --------------------------------------------------------------------------------------------------------------------------
Series II (127,657) (3,527,354) (440,110) (12,648,334)
==========================================================================================================================
(8,016,315) $(223,323,555) (20,504,375) $(592,264,503)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There are entities that are record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate own 61% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, Invesco
Aim and/or Invesco Aim affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services to
the Fund, Invesco Aim and or Invesco Aim affiliates including but not
limited to services such as, securities brokerage, third party record
keeping and account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record by
these entities are also owned beneficially.
AIM V.I. CORE EQUITY FUND
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
---------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------------
2008 2007 2006 2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 29.11 $ 27.22 $ 23.45 $ 22.60 $ 20.94 $ 16.99
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18(a) 0.42(a) 0.34(a) 0.24(a) 0.30(b) 0.17(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.12) 1.80 3.58 0.96 1.58 3.97
=================================================================================================================================
Total from investment operations (1.94) 2.22 3.92 1.20 1.88 4.14
=================================================================================================================================
Less Dividends from net investment income -- (0.33) (0.15) (0.35) (0.22) (0.19)
=================================================================================================================================
Net asset value, end of period $ 27.17 $ 29.11 $ 27.22 $ 23.45 $ 22.60 $ 20.94
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (6.67)% 8.12% 16.70% 5.31% 8.97% 24.42%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,928,631 $2,298,007 $2,699,252 $1,246,529 $1,487,462 $1,555,475
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 0.89%(d) 0.87% 0.89% 0.89% 0.91% 0.81%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 0.90%(d) 0.88% 0.89% 0.89% 0.91% 0.82%
=================================================================================================================================
Ratio of net investment income to average net
assets 1.29%(d) 1.44% 1.35% 1.08% 1.25%(b) 0.91%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 16% 45% 45% 52% 52% 31%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share and the ratio of net investment income to
average net assets include a special cash dividend received of $3.00 per
share owned of Microsoft Corp. on December 2, 2004. Net investment income
per share and the ratio of net investment income to average net assets
excluding the special dividend are $0.23 and 0.92%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of
$2,088,201,073.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
<Table>
<Caption>
SERIES II
-------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------
2008 2007 2006 2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 28.88 $ 27.02 $ 23.33 $22.48 $20.85 $16.94
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.14(a) 0.34(a) 0.28(a) 0.18(a) 0.21(b) 0.12(a)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.10) 1.80 3.55 0.96 1.60 3.96
===========================================================================================================================
Total from investment operations (1.96) 2.14 3.83 1.14 1.81 4.08
===========================================================================================================================
Less dividends from net investment income -- (0.28) (0.14) (0.29) (0.18) (0.17)
===========================================================================================================================
Net asset value, end of period $ 26.92 $ 28.88 $ 27.02 $23.33 $22.48 $20.85
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(c) (6.79)% 7.88% 16.42% 5.08% 8.67% 24.15%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $30,956 $34,772 $39,729 $3,858 $4,173 $3,808
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.14%(d) 1.12% 1.14% 1.14% 1.16% 1.06%
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.15%(d) 1.13% 1.14% 1.14% 1.16% 1.07%
===========================================================================================================================
Ratio of net investment income to average net
assets 1.04%(d) 1.19% 1.10% 0.83% 1.00%(b) 0.66%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(e) 16% 45% 45% 52% 52% 31%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share and the ratio of net investment income to
average net assets include a special cash dividend received of $3.00 per
share owned of Microsoft Corp. on December 2, 2004. Net investment income
per share and the ratio of net investment income to average net assets
excluding the special dividend are $0.14 and 0.67%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of $32,463,058.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. CORE EQUITY FUND
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor -- Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to Invesco Aim and IADI (Order No. 05-1318). The WVASC makes
findings of fact that Invesco Aim and IADI entered into certain arrangements
permitting market timing of the AIM Funds and failed to disclose these
arrangements in the prospectuses for such Funds, and conclusions of law to the
effect that Invesco Aim and IADI violated the West Virginia securities laws. The
WVASC orders Invesco Aim and IADI to cease any further violations and seeks to
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute. By agreement with the Commissioner of Securities, Invesco Aim's time to
respond to that Order has been indefinitely suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid. The case pending in Illinois State Court regarding fair value
pricing was dismissed with prejudice on May 6, 2008.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA
purportedly brought on behalf of participants in the Invesco 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds remain nominal defendants in the Consolidated Amended Fund
Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco
defendants' motion to dismiss the Amended Class Action Complaint for Violations
of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June
16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this
lawsuit back to the MDL Court for further proceedings.
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, Invesco Aim and IADI have advised the Fund that they are providing
full cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, Invesco Aim and/or related entities and individuals in the
future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. CORE EQUITY FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $933.30 $4.28 $1,020.44 $4.47 0.89%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 932.10 5.48 1,019.19 5.72 1.14
- ---------------------------------------------------------------------------------------------------
</Table>
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5%
before expenses.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
AIM V.I. CORE EQUITY FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the Board) of AIM comparative performance and fee data Trustees recognized that the advisory
Variable Insurance Funds is required regarding the AIM Funds prepared by an arrangements and resulting advisory fees
under the Investment Company Act of 1940 independent company, Lipper, Inc. (Lipper), for the Fund and the other AIM Funds are
to approve annually the renewal of the under the direction and supervision of the the result of years of review and
AIM V.I. Core Equity Fund (the Fund) independent Senior Officer who also prepares negotiation between the Trustees and
investment advisory agreement with a separate analysis of this information for Invesco Aim, that the Trustees may focus
Invesco Aim Advisors, Inc. (Invesco the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects
Aim). During contract renewal meetings recommendations to the Investments Committee of these arrangements in some years than
held on June 18-19, 2008, the Board as a regarding the performance, fees and expenses in others, and that the Trustees'
whole and the disinterested or of their assigned funds. The Investments deliberations and conclusions in a
"independent" Trustees, voting Committee considers each Sub-Committee's particular year may be based in part on
separately, approved the continuance of recommendations and makes its own their deliberations and conclusions of
the Fund's investment advisory agreement recommendations regarding the performance, these same arrangements throughout the
for another year, effective July 1, fees and expenses of the AIM Funds to the year and in prior years.
2008. In doing so, the Board determined full Board. The Investments Committee also
that the Fund's investment advisory considers each Sub-Committee's FACTORS AND CONCLUSIONS AND SUMMARY OF
agreement is in the best interests of recommendations in making its annual INDEPENDENT WRITTEN FEE EVALUATION
the Fund and its shareholders and that recommendation to the Board whether to The discussion below serves as a summary
the compensation to Invesco Aim under approve the continuance of each Invesco Aim of the Senior Officer's independent
the Fund's investment advisory agreement Fund's investment advisory agreement and written evaluation with respect to the
is fair and reasonable. sub-advisory agreements for another year. Fund's investment advisory agreement as
The independent Trustees met separately The independent Trustees are assisted in well as a discussion of the material
during their evaluation of the Fund's their annual evaluation of the Fund's factors and related conclusions that
investment advisory agreement with investment advisory agreement by the formed the basis for the Board's
independent legal counsel from whom they independent Senior Officer. One approval of the Fund's investment
received independent legal advice, and the responsibility of the Senior Officer is to advisory agreement and sub-advisory
independent Trustees also received manage the process by which the AIM Funds' agreements. Unless otherwise stated,
assistance during their deliberations from proposed management fees are negotiated information set forth below is as of
the independent Senior Officer, a full-time during the annual contract renewal process June 19, 2008 and does not reflect any
officer of the AIM Funds who reports to ensure that they are negotiated in a changes that may have occurred since
directly to the independent Trustees. manner that is at arms' length and that date, including but not limited to
reasonable. Accordingly, the Senior Officer changes to the Fund's performance,
THE BOARD'S FUND EVALUATION PROCESS must either supervise a competitive bidding advisory fees, expense limitations
The Board's Investments Committee has process or prepare an independent written and/or fee waivers.
established three Sub-Committees that are evaluation. The Senior Officer has
responsible for overseeing the management of recommended that an independent written I. Investment Advisory Agreement
a number of the series portfolios of the AIM evaluation be provided and, at the direction A. Nature, Extent and Quality of
Funds. This Sub-Committee structure permits of the Board, has prepared an independent Services Provided by Invesco Aim
the Trustees to focus on the performance of written evaluation. The Board reviewed the advisory services
the AIM Funds that have been assigned to During the annual contract renewal provided to the Fund by Invesco Aim
them. The Sub-Committees meet throughout the process, the Board considered the factors under the Fund's investment advisory
year to review the performance of their discussed below under the heading "Factors agreement, the performance of Invesco
assigned funds, and the Sub-Committees and Conclusions and Summary of Independent Aim in providing these services, and the
review monthly and quarterly comparative Written Fee Evaluation" in evaluating the credentials and experience of the
performance information and periodic asset fairness and reasonableness of the Fund's officers and employees of Invesco Aim
flow data for their assigned funds. These investment advisory agreement and who provide these services. The Board's
materials are prepared under the direction sub-advisory agreements at the contract review of the qualifications of Invesco
and supervision of the independent Senior renewal meetings and at their meetings Aim to provide these services included
Officer. Over the course of each year, the throughout the year as part of their ongoing the Board's consideration of Invesco
Sub-Committees meet with portfolio managers oversight of the Fund. The Fund's investment Aim's portfolio and product review
for their assigned funds and other members advisory agreement and sub-advisory process, various back office support
of management and review with these agreements were considered separately, functions provided by Invesco Aim and
individuals the performance, investment although the Board also considered the its affiliates, and Invesco Aim's equity
objective(s), policies, strategies and common interests of all of the AIM Funds in and fixed income trading operations. The
limitations of these funds. their deliberations. The Board considered Board concluded that the nature, extent
In addition to their meetings throughout all of the information provided to them and and quality of the advisory services
the year, the Sub-Committees meet at did not identify any particular factor that provided to the Fund by Invesco Aim were
designated contract renewal meetings each was controlling. Each Trustee may have appropriate and that Invesco Aim
year to conduct an in-depth review of the evaluated the information provided currently is providing satisfactory
performance, fees and expenses of their differently from one another and attributed advisory services in accordance with the
assigned funds. During the contract renewal different weight to the various factors. The terms of the Fund's investment advisory
process, the Trustees receive agreement. In addition, based on their
ongoing meetings throughout the year
with the Fund's portfolio manager or
managers, the Board concluded that these
individuals are competent and able to
continue to carry out their
responsibili-
continued
AIM V.I. CORE EQUITY FUND
ties under the Fund's investment advisory review did not change their conclusions. each class of the Fund. The Board
agreement. considered the contractual nature of
In determining whether to continue C. Advisory Fees and Fee Waivers this fee waiver and noted that it
the Fund's investment advisory The Board compared the Fund's remains in effect until at least April
agreement, the Board considered the contractual advisory fee rate to the 30, 2010. The Board also considered the
prior relationship between Invesco Aim contractual advisory fee rates of funds effect this fee waiver would have on the
and the Fund, as well as the Board's in the Fund's Lipper expense group that Fund's total estimated expenses.
knowledge of Invesco Aim's operations, are not managed by Invesco Aim, at a After taking account of the Fund's
and concluded that it was beneficial to common asset level and as of the end of contractual advisory fee rate, as well
maintain the current relationship, in the past calendar year. The Board noted as the comparative advisory fee
part, because of such knowledge. The that the Fund's contractual advisory fee information and the fee waivers/expense
Board also considered the steps that rate was at the median contractual limitations discussed above, the Board
Invesco Aim and its affiliates have advisory fee rate of funds in its concluded that the Fund's advisory fees
taken over the last several years to expense group. The Board also reviewed were fair and reasonable.
improve the quality and efficiency of the methodology used by Lipper in
the services they provide to the AIM determining contractual fee rates. D. Economies of Scale and Breakpoints
Funds in the areas of investment The Board also compared the Fund's The Board considered the extent to which
performance, product line effective fee rate (the advisory fee there are economies of scale in Invesco
diversification, distribution, fund after any advisory fee waivers and Aim's provision of advisory services to
operations, shareholder services and before any expense limitations/waivers) the Fund. The Board also considered
compliance. The Board concluded that the to the advisory fee rates of other whether the Fund benefits from such
quality and efficiency of the services clients of Invesco Aim and its economies of scale through contractual
Invesco Aim and its affiliates provide affiliates with investment strategies breakpoints in the Fund's advisory fee
to the AIM Funds in each of these areas comparable to those of the Fund, schedule or through advisory fee waivers
generally have improved, and support the including three mutual funds advised by or expense limitations. The Board noted
Board's approval of the continuance of Invesco Aim and one mutual fund that the Fund's contractual advisory fee
the Fund's investment advisory sub-advised by an Invesco Aim affiliate. schedule includes one breakpoint and
agreement. The Board noted that the Fund's rate that the level of the Fund's advisory
was: (i) above the rate for two of the fees, as a percentage of the Fund's net
B. Fund Performance mutual funds and the same as the rate assets, has decreased as net assets
The Board compared the Fund's for the other mutual fund; and (ii) increased because of the breakpoint. The
performance during the past one, three above the sub-advisory fee rate for the Board also noted that Invesco Aim's
and five calendar years to the sub-advised mutual fund. contractual advisory fee waiver
performance of funds in the Fund's Additionally, the Board compared the discussed above includes breakpoints
performance group that are not managed Fund's effective fee rate to the total based on net asset levels. Based on this
by Invesco Aim, and against the advisory fees paid by numerous information, the Board concluded that
performance of all funds in the Lipper separately managed accounts/wrap the Fund's advisory fees appropriately
Variable Annuity Underlying Funds - accounts advised by Invesco Aim reflect economies of scale at current
Large-Cap Core Index. The Board also affiliates. The Board noted that the asset levels. The Board also noted that
reviewed the criteria used by Invesco Fund's rate was generally above the the Fund shares directly in economies of
Aim to identify the funds in the Fund's rates for the separately managed scale through lower fees charged by
performance group for inclusion in the accounts/wrap accounts. The Board third party service providers based on
Lipper reports. The Board noted that the considered that management of the the combined size of all of the AIM
Fund's performance was in the third separately managed accounts/ wrap Funds and affiliates.
quintile of its performance group for accounts by the Invesco Aim affiliates
the one and five year periods and the involves different levels of services E. Profitability and Financial
second quintile for the three year and different operational and regulatory Resources of Invesco Aim
period (the first quintile being the requirements than Invesco Aim's The Board reviewed information from
best performing funds and the fifth management of the Fund. The Board Invesco Aim concerning the costs of the
quintile being the worst performing concluded that these differences are advisory and other services that Invesco
funds). The Board noted that the Fund's appropriately reflected in the fee Aim and its affiliates provide to the
performance was above the performance of structure for the Fund. Fund and the profitability of Invesco
the Index for the one and three year The Board noted that Invesco Aim has Aim and its affiliates in providing
periods, and below the performance of contractually agreed to waive advisory these services. The Board also reviewed
the Index for the five year period. The fees of the Fund through December 31, information concerning the financial
Board also considered the steps Invesco 2009 and that this fee waiver includes condition of Invesco Aim and its
Aim has taken over the last several breakpoints based on net asset levels. affiliates. The Board also reviewed with
years to improve the quality and The Board considered the contractual Invesco Aim the methodology used to
efficiency of the services that Invesco nature of this fee waiver and noted that prepare the profitability information.
Aim provides to the AIM Funds. The Board it remains in effect until December 31, The Board considered the overall
concluded that Invesco Aim continues to 2009. The Board also noted that Invesco profitability of Invesco Aim, as well as
be responsive to the Board's focus on Aim has contractually agreed to waive the profitability of Invesco Aim in
fund performance. Although the fees and/or limit expenses of the Fund connection with managing the Fund. The
independent written evaluation of the through at least April 30, 2010 in an Board noted that Invesco Aim continues
Fund's Senior Officer only considered amount necessary to limit total annual to operate at a net profit, although
Fund performance through the most recent operating expenses to a specified increased expenses in recent years have
calendar year, the Board also reviewed percentage of average daily net assets reduced the profitability of Invesco Aim
more recent Fund performance and this for
continued
AIM V.I. CORE EQUITY FUND
and its affiliates. The Board concluded Aim are used to pay for research and and quality of the services to be
that the Fund's fees were fair and execution services. The Board noted that provided by the Affiliated Sub-Advisers
reasonable, and that the level of soft dollar arrangements shift the were appropriate. The Board noted that
profits realized by Invesco Aim and its payment obligation for the research and the Affiliated Sub-Advisers, which have
affiliates from providing services to execution services from Invesco Aim to offices and personnel that are
the Fund was not excessive in light of the funds and therefore may reduce geographically dispersed in financial
the nature, quality and extent of the Invesco Aim's expenses. The Board also centers around the world, have been
services provided. The Board considered noted that research obtained through formed in part for the purpose of
whether Invesco Aim is financially sound soft dollar arrangements may be used by researching and compiling information
and has the resources necessary to Invesco Aim in making investment and making recommendations on the
perform its obligations under the Fund's decisions for the Fund and may therefore markets and economies of various
investment advisory agreement, and benefit Fund shareholders. The Board countries and securities of companies
concluded that Invesco Aim has the concluded that Invesco Aim's soft dollar located in such countries or on various
financial resources necessary to fulfill arrangements were appropriate. The Board types of investments and investment
these obligations. also concluded that, based on their techniques, and providing investment
review and representations made by advisory services. The Board concluded
F. Independent Written Evaluation of Invesco Aim, these arrangements were that the sub-advisory agreements will
the Fund's Senior Officer consistent with regulatory requirements. benefit the Fund and its shareholders by
The Board noted that, at their The Board considered the fact that permitting Invesco Aim to utilize the
direction, the Senior Officer of the the Fund's uninvested cash and cash additional resources and talent of the
Fund, who is independent of Invesco Aim collateral from any securities lending Affiliated Sub-Advisers in managing the
and Invesco Aim's affiliates, had arrangements may be invested in money Fund.
prepared an independent written market funds advised by Invesco Aim
evaluation to assist the Board in pursuant to procedures approved by the B. Fund Performance
determining the reasonableness of the Board. The Board noted that Invesco Aim The Board did not view Fund performance
proposed management fees of the AIM will receive advisory fees from these as a relevant factor in considering
Funds, including the Fund. The Board affiliated money market funds whether to approve the sub-advisory
noted that they had relied upon the attributable to such investments, agreements for the Fund, as no
Senior Officer's written evaluation although Invesco Aim has contractually Affiliated Sub-Adviser currently manages
instead of a competitive bidding agreed to waive through at least April any portion of the Fund's assets.
process. In determining whether to 30, 2010, the advisory fees payable by
continue the Fund's investment advisory the Fund in an amount equal to 100% of C. Sub-Advisory Fees
agreement, the Board considered the the net advisory fees Invesco Aim The Board considered the services to be
Senior Officer's written evaluation. receives from the affiliated money provided by the Affiliated Sub-Advisers
market funds with respect to the Fund's pursuant to the sub-advisory agreements
G. Collateral Benefits to Invesco Aim investment of uninvested cash, but not and the services to be provided by
and its Affiliates cash collateral. The Board considered Invesco Aim pursuant to the Fund's
The Board considered various other the contractual nature of this fee investment advisory agreement, as well
benefits received by Invesco Aim and its waiver and noted that it remains in as the allocation of fees between
affiliates resulting from Invesco Aim's effect until at least April 30, 2010. Invesco Aim and the Affiliated
relationship with the Fund, including The Board concluded that the Fund's Sub-Advisers pursuant to the
the fees received by Invesco Aim and its investment of uninvested cash and cash sub-advisory agreements. The Board noted
affiliates for their provision of collateral from any securities lending that the sub-advisory fees have no
administrative, transfer agency and arrangements in the affiliated money direct effect on the Fund or its
distribution services to the Fund. The market funds is in the best interests of shareholders, as they are paid by
Board considered the performance of the Fund and its shareholders. Invesco Aim to the Affiliated
Invesco Aim and its affiliates in Sub-Advisers, and that Invesco Aim and
providing these services and the II. Sub-Advisory Agreements the Affiliated Sub-Advisers are
organizational structure employed by A. Nature, Extent and Quality of affiliates. After taking account of the
Invesco Aim and its affiliates to Services Provided by Affiliated Fund's contractual sub-advisory fee
provide these services. The Board also Sub-Advisers rate, as well as other relevant factors,
considered that these services are The Board reviewed the services to be the Board concluded that the Fund's
provided to the Fund pursuant to written provided by Invesco Trimark Ltd., sub-advisory fees were fair and
contracts which are reviewed and Invesco Asset Management Deutschland, reasonable.
approved on an annual basis by the GmbH, Invesco Asset Management Limited,
Board. The Board concluded that Invesco Invesco Asset Management (Japan) D. Financial Resources of the
Aim and its affiliates were providing Limited, Invesco Australia Limited, Affiliated Sub-Advisers
these services in a satisfactory manner Invesco Global Asset Management (N.A.), The Board considered whether each
and in accordance with the terms of Inc., Invesco Hong Kong Limited, Invesco Affiliated Sub-Adviser is financially
their contracts, and were qualified to Institutional (N.A.), Inc. and Invesco sound and has the resources necessary to
continue to provide these services to Senior Secured Management, Inc. perform its obligations under its
the Fund. (collectively, the "Affiliated respective sub-advisory agreement, and
The Board considered the benefits Sub-Advisers") under the sub-advisory concluded that each Affiliated
realized by Invesco Aim as a result of agreements and the credentials and Sub-Adviser has the financial resources
portfolio brokerage transactions experience of the officers and employees necessary to fulfill these obligations.
executed through "soft dollar" of the Affiliated Sub-Advisers who will
arrangements. Under these arrangements, provide these services. The Board
portfolio brokerage commissions paid by concluded that the nature, extent
the Fund and/or other funds advised by
Invesco
AIM V.I. CORE EQUITY FUND
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. Core Equity Fund, an
investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust
("Trust"), was held on February 29, 2008. The Meeting was held for the following
purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will
serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust that
would permit the Board of Trustees of the Trust to terminate the Trust, the
Fund, and each other series portfolio of the Trust, or a share class without
a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and
each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland,
GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.),
Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and
Invesco Senior Secured Management, Inc.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- -----------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker...................................................... 474,883,590 19,741,622
Frank S. Bayley................................................... 474,653,109 19,972,103
James T. Bunch.................................................... 475,597,417 19,027,795
Bruce L. Crockett................................................. 474,900,579 19,724,633
Albert R. Dowden.................................................. 474,749,929 19,875,283
Jack M. Fields.................................................... 475,205,840 19,419,372
Martin L. Flanagan................................................ 475,248,336 19,376,876
Carl Frischling................................................... 474,453,674 20,171,538
Prema Mathai-Davis................................................ 473,569,192 21,056,020
Lewis F. Pennock.................................................. 475,072,501 19,552,711
Larry Soll, Ph.D. ................................................ 475,170,544 19,454,668
Raymond Stickel, Jr. ............................................. 475,420,825 19,204,387
Philip A. Taylor.................................................. 475,640,570 18,984,642
</Table>
<Table>
<Caption>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
- -------------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of
Trustees of the Trust to terminate the Trust, the Fund,
and each other series portfolio of the Trust, or a share
class without a shareholder vote.......................... 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between Invesco Aim
Advisors, Inc. and each of AIM Funds Management, Inc.;
Invesco Asset Management Deutschland, GmbH; Invesco Asset
Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset
Management (N.A.), Inc.; Invesco Hong Kong Limited;
Invesco Institutional (N.A.), Inc.; and Invesco Senior
Secured Management, Inc. ................................. 67,375,880 2,746,844 3,323,663
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. CORE EQUITY FUND
[INVESCO AIM LOGO] AIM V.I. DIVERSIFIED INCOME FUND
- SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008
AIM Investments [MOUNTAIN GRAPHIC]
became INVESCO AIM
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FUND PERFORMANCE
=======================================================================================
PERFORMANCE SUMMARY
FUND VS. INDEXES
Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer
charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares -2.31%
Series II Shares -2.45
Lehman Brothers U.S. Aggregate Bond Index(TRIANGLE) (Broad Market Index) 1.13
Lehman Brothers U.S. Credit Index(TRIANGLE) (Style-Specific Index) -0.48
Lipper VUF Corporate Debt BBB-Rated Funds Index(TRIANGLE) (Peer Group Index) 0.05
(TRIANGLE)Lipper Inc.
The LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX covers U.S. investment-grade
fixed-rate bonds with components for government and corporate securities,
mortgage pass-throughs, and asset-backed securities.
The LEHMAN BROTHERS U.S. CREDIT INDEX is an unmanaged index that consists of
publicly issued, SEC-registered U.S. corporate and specified foreign debentures
and secured notes that meet the specified maturity, liquidity, and quality
requirements.
The LIPPER VUF CORPORATE DEBT BBB-RATED FUNDS INDEX is an equally weighted
representation of the largest variable insurance underlying funds in the Lipper
Corporate Debt BBB-Rated Funds category. These funds invest at least 65% of
assets in corporate and government debt issues rated in the top four grades.
The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
=======================================================================================
==========================================
AVERAGE ANNUAL TOTAL RETURNS HIGHER. PLEASE CONTACT YOUR VARIABLE SHARES OF THE FUND DIRECTLY. PERFORMANCE
As of 6/30/08 PRODUCT ISSUER OR FINANCIAL ADVISOR FOR FIGURES GIVEN REPRESENT THE FUND AND ARE
THE MOST RECENT MONTH-END VARIABLE PRODUCT NOT INTENDED TO REFLECT ACTUAL VARIABLE
SERIES I SHARES PERFORMANCE. PERFORMANCE FIGURES REFLECT PRODUCT VALUES. THEY DO NOT REFLECT SALES
Inception (5/5/93) 4.40% FUND EXPENSES, REINVESTED DISTRIBUTIONS CHARGES, EXPENSES AND FEES ASSESSED IN
10 Years 2.47 AND CHANGES IN NET ASSET VALUE. INVESTMENT CONNECTION WITH A VARIABLE PRODUCT. SALES
5 Years 2.52 RETURN AND PRINCIPAL VALUE WILL FLUCTUATE CHARGES, EXPENSES AND FEES, WHICH ARE
1 Year -1.93 SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN DETERMINED BY THE VARIABLE PRODUCT
YOU SELL SHARES. ISSUERS, WILL VARY AND WILL LOWER THE
SERIES II SHARES THE NET ANNUAL FUND OPERATING EXPENSE TOTAL RETURN.
10 Years 2.21% RATIO SET FORTH IN THE MOST RECENT FUND THE MOST RECENT MONTH-END PERFORMANCE
5 Years 2.25 PROSPECTUS AS OF THE DATE OF THIS REPORT DATA AT THE FUND LEVEL, EXCLUDING VARIABLE
1 Year -2.17 FOR SERIES I AND SERIES II SHARES WAS PRODUCT CHARGES, IS AVAILABLE ON THE
========================================== 0.75% AND 1.00%, RESPECTIVELY.(1) THE INVESCO AIM AUTOMATED INFORMATION LINE,
TOTAL ANNUAL FUND OPERATING EXPENSE RATIO 866 702 4402. AS MENTIONED ABOVE, FOR THE
SERIES II SHARES' INCEPTION DATE IS MARCH SET FORTH IN THE MOST RECENT FUND MOST RECENT MONTH-END PERFORMANCE
14, 2002. RETURNS SINCE THAT DATE ARE PROSPECTUS AS OF THE DATE OF THIS REPORT INCLUDING VARIABLE PRODUCT CHARGES, PLEASE
HISTORICAL. ALL OTHER RETURNS ARE THE FOR SERIES I AND SERIES II SHARES WAS CONTACT YOUR VARIABLE PRODUCT ISSUER OR
BLENDED RETURNS OF THE HISTORICAL 1.17% AND 1.42%, RESPECTIVELY. THE EXPENSE FINANCIAL ADVISOR.
PERFORMANCE OF SERIES II SHARES SINCE RATIOS PRESENTED ABOVE MAY VARY FROM THE HAD THE ADVISOR NOT WAIVED FEES AND/OR
THEIR INCEPTION AND THE RESTATED EXPENSE RATIOS PRESENTED IN OTHER SECTIONS REIMBURSED EXPENSES, PERFORMANCE WOULD
HISTORICAL PERFORMANCE OF SERIES I SHARES OF THIS REPORT THAT ARE BASED ON EXPENSES HAVE BEEN LOWER.
(FOR PERIODS PRIOR TO INCEPTION OF SERIES INCURRED DURING THE PERIOD COVERED BY THIS
II SHARES) ADJUSTED TO REFLECT THE RULE REPORT. (1) Total annual operating expenses less
12B-1 FEES APPLICABLE TO SERIES II SHARES. AIM V.I. DIVERSIFIED INCOME FUND, A any contractual fee waivers and/or
THE INCEPTION DATE OF SERIES I SHARES IS SERIES PORTFOLIO OF AIM VARIABLE INSURANCE expense reimbursements by the advisor
MAY 5, 1993. THE PERFORMANCE OF THE FUND'S FUNDS, IS CURRENTLY OFFERED THROUGH in effect through at least April 30,
SERIES I AND SERIES II SHARE CLASSES WILL INSURANCE COMPANIES ISSUING VARIABLE 2010. See current prospectus for more
DIFFER PRIMARILY DUE TO DIFFERENT CLASS PRODUCTS. YOU CANNOT PURCHASE information.
EXPENSES.
THE PERFORMANCE DATA QUOTED REPRESENT
PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS; CURRENT
PERFORMANCE MAY BE LOWER OR
AIM V.I. DIVERSIFIED INCOME FUND
PORTFOLIO COMPOSITION
By industry, based on Total Investments
as of June 30, 2008
<Table>
- -------------------------------------------------------------------------
Other Diversified Financial Services 17.9%
- -------------------------------------------------------------------------
Diversified Banks 9.9
- -------------------------------------------------------------------------
Property & Casualty Insurance 7.8
- -------------------------------------------------------------------------
U.S. Government Sponsored Mortgage-Backed Securities 6.6
- -------------------------------------------------------------------------
Broadcasting & Cable TV 4.6
- -------------------------------------------------------------------------
Integrated Telecommunication Services 3.9
- -------------------------------------------------------------------------
Regional Banks 3.8
- -------------------------------------------------------------------------
Wireless Telecommunication Services 3.8
- -------------------------------------------------------------------------
U.S. Treasury Notes 3.4
- -------------------------------------------------------------------------
Investment Banking & Brokerage 3.3
- -------------------------------------------------------------------------
Industries each less than 3% of Total Net Assets 42.2
- -------------------------------------------------------------------------
Other Assets Less Liabilities (7.2)
_________________________________________________________________________
=========================================================================
</Table>
SCHEDULE OF INVESTMENTS(a)
June 30, 2008
(Unaudited)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
BONDS & NOTES-79.88%
AEROSPACE & DEFENSE-0.88%
Systems 2001 Asset Trust LLC (United
Kingdom)-Series 2001, Class G, Jr. Sec. Pass
Through Ctfs., (INS-MBIA Insurance Corp.) 6.66%,
09/15/13(b)(c)(d) $ 281,031 $ 288,746
==============================================================================
AIRLINES-0.51%
Southwest Airlines Co.,
Sr. Unsec. Bonds,
7.38%, 03/01/27(c) 190,000 167,806
==============================================================================
ALTERNATIVE CARRIERS-0.17%
Level 3 Financing Inc.,
Sr. Unsec. Gtd. Unsub. Global Notes,
9.25%, 11/01/14(c) 60,000 54,900
==============================================================================
ALUMINUM-0.59%
Novelis Inc. (Canada),
Sr. Unsec. Gtd. Global Notes,
7.25%, 02/15/15(c) 205,000 193,725
==============================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.79%
Bank of New York Institutional Capital Trust-
Series A, Jr. Sub. Trust Pfd. Capital
Securities, 7.78%, 12/01/26(c)(d) 250,000 260,283
==============================================================================
BROADCASTING & CABLE TV-4.48%
Comcast Cable Communications Holdings Inc.,
Sr. Unsec. Gtd. Global Notes,
9.46%, 11/15/22(c) 440,000 535,603
- ------------------------------------------------------------------------------
Comcast Corp.,
Unsec. Gtd. Unsub. Global Notes,
6.40%, 05/15/38(c) 80,000 74,417
- ------------------------------------------------------------------------------
Unsec. Gtd. Unsub. Notes,
5.70%, 05/15/18(c) 120,000 114,481
- ------------------------------------------------------------------------------
Comcast Holdings Corp.,
Sr. Gtd. Sub. Notes,
10.63%, 07/15/12(c) 485,000 563,274
- ------------------------------------------------------------------------------
Cox Enterprises, Inc.,
Sr. Unsec. Notes,
7.88%, 09/15/10(c)(d) 120,000 126,731
- ------------------------------------------------------------------------------
CSC Holdings, Inc.-
Series B, Sr. Unsec. Notes,
7.63%, 04/01/11(c) 55,000 54,175
==============================================================================
1,468,681
==============================================================================
CONSUMER FINANCE-2.87%
American Express Credit Corp., Series C,
Sr. Unsec. Floating Rate Medium-Term Notes,
3.88%, 05/27/10(c)(e) 70,000 70,036
- ------------------------------------------------------------------------------
Sr. Unsec. Medium-Term Notes,
5.88%, 05/02/13(c) 105,000 104,649
- ------------------------------------------------------------------------------
Capital One Capital III,
Jr. Gtd. Sub. Notes,
7.69%, 08/15/36(c) 260,000 216,240
- ------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
CONSUMER FINANCE-(CONTINUED)
Ford Motor Credit Co. LLC,
Sr. Unsec. Notes,
8.00%, 12/15/16(c) $ 230,000 $ 170,057
- ------------------------------------------------------------------------------
SLM Corp.,
Sr. Unsec. Floating Rate Medium-Term Notes,
2.88%, 03/16/09(c)(d)(e) 400,000 380,629
==============================================================================
941,611
==============================================================================
DEPARTMENT STORES-1.19%
Macys Retail Holdings Inc.,
Sr. Unsec. Gtd. Notes,
6.30%, 04/01/09(c) 390,000 390,179
==============================================================================
DISTILLERS & VINTNERS-0.12%
Constellation Brands Inc.,
Sr. Unsec. Gtd. Global Notes,
7.25%, 05/15/17(c) 40,000 37,900
==============================================================================
DIVERSIFIED BANKS-9.92%
Bangkok Bank PCL (Hong Kong),
Unsec. Sub. Notes,
9.03%, 03/15/29(c)(d) 400,000 438,680
- ------------------------------------------------------------------------------
BankAmerica Institutional-Series A,
Jr. Unsec. Gtd. Sub. Trust Pfd. Capital
Securities,
8.07%, 12/31/26(c)(d) 200,000 206,178
- ------------------------------------------------------------------------------
BBVA International Preferred S.A. Unipersonal
(Spain),
Jr. Unsec. Gtd. Sub. Notes,
5.92%(c)(f) 250,000 205,123
- ------------------------------------------------------------------------------
Centura Capital Trust I,
Gtd. Trust Pfd. Capital Securities,
8.85%, 06/01/27(c)(d) 500,000 516,060
- ------------------------------------------------------------------------------
First Empire Capital Trust I,
Jr. Unsec. Gtd. Sub. Trust Pfd. Capital
Securities,
8.23%, 02/01/27(c) 260,000 262,064
- ------------------------------------------------------------------------------
Lloyds TSB Bank PLC (United Kingdom)-
Series 1, Unsec. Sub. Floating Rate Euro Notes,
3.50%(c)(e)(f) 180,000 118,058
- ------------------------------------------------------------------------------
Mizuho Financial Group Cayman Ltd. (Cayman
Islands),
Jr. Unsec. Gtd. Sub. Second Tier Euro Bonds,
8.38%(c)(f) 100,000 100,217
- ------------------------------------------------------------------------------
National Bank of Canada (Canada),
Unsec. Sub. Floating Rate Euro Deb.,
5.56%, 08/29/87 (Acquired 02/24/04; Cost
$171,200)(e)(g) 200,000 129,000
- ------------------------------------------------------------------------------
National Westminster Bank PLC (United Kingdom)-
Series B, Unsec. Sub. Floating Rate Euro Notes,
3.25%(c)(e)(f) 280,000 183,400
- ------------------------------------------------------------------------------
RBD Capital S.A. (Luxembourg),
Euro Notes,
6.50%, 08/11/08(c) 110,000 109,969
- ------------------------------------------------------------------------------
RBS Capital Trust III,
Jr. Unsec. Gtd. Sub. Trust Pfd. Global Notes,
5.51%(c)(f) 120,000 103,074
- ------------------------------------------------------------------------------
Sovereign Bancorp Inc.,
Sr. Unsec. Floating Rate Global Notes,
2.96%, 03/01/09(c)(e) 110,000 105,791
- ------------------------------------------------------------------------------
Sumitomo Mitsui Banking Corp. (Japan),
Sub. Second Tier Euro Notes,
8.15%(c)(f) 280,000 281,809
- ------------------------------------------------------------------------------
U.S. Bank N.A.,
Sr. Unsec. Medium-Term Notes,
5.92%, 05/25/12(c) 219,953 230,341
- ------------------------------------------------------------------------------
Wachovia Capital Trust V,
Jr. Unsec. Gtd. Sub. Trust Pfd. Capital
Securities,
7.97%, 06/01/27(c)(d) 260,000 262,889
==============================================================================
3,252,653
==============================================================================
DIVERSIFIED CAPITAL MARKETS-0.87%
Credit Suisse New York (Switzerland),
Sr. Unsec. Medium Term Notes,
5.00%, 05/15/13(c) 190,000 187,439
- ------------------------------------------------------------------------------
UBS A.G. (Switzerland),
Sr. Unsec. Medium-Term Notes,
5.75%, 04/25/18(c) 100,000 97,773
==============================================================================
285,212
==============================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-1.16%
Erac USA Finance Co.,
Sr. Unsec. Gtd. Notes,
7.00%, 10/15/37(c)(d) 400,000 337,804
- ------------------------------------------------------------------------------
GEO Group, Inc. (The),
Sr. Unsec. Global Notes,
8.25%, 07/15/13(c) 40,000 41,000
==============================================================================
378,804
==============================================================================
DIVERSIFIED METALS & MINING-0.15%
Reynolds Metals Co.,
Sr. Unsec. Unsub. Medium-Term Notes,
7.00%, 05/15/09(c) 47,000 48,138
==============================================================================
ELECTRIC UTILITIES-0.92%
Edison Mission Energy,
Sr. Unsec. Global Notes,
7.00%, 05/15/17(c) 80,000 75,400
- ------------------------------------------------------------------------------
Tenaska Alabama Partners L.P.,
Sr. Sec. Mortgage Notes,
7.00%, 06/30/21(c)(d) 122,340 117,140
- ------------------------------------------------------------------------------
Westar Energy, Inc.,
Sr. Sec. First Mortgage Notes,
7.13%, 08/01/09(c) 105,000 107,874
==============================================================================
300,414
==============================================================================
GENERAL MERCHANDISE STORES-0.17%
Pantry, Inc. (The),
Sr. Gtd. Sub. Global Notes,
7.75%, 02/15/14(c) 75,000 57,000
==============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
HEALTH CARE SERVICES-0.58%
Orlando Lutheran Towers Inc.,
Bonds,
7.75%, 07/01/11(c) $ 70,000 $ 69,843
- ------------------------------------------------------------------------------
8.00%, 07/01/17 (Acquired 06/13/07; Cost
$125,000)(g) 125,000 121,438
==============================================================================
191,281
==============================================================================
HOMEBUILDING-1.20%
D.R. Horton, Inc.,
Sr. Unsec. Gtd. Unsub. Notes,
8.00%, 02/01/09(c) 200,000 200,750
- ------------------------------------------------------------------------------
7.88%, 08/15/11(c) 200,000 193,000
==============================================================================
393,750
==============================================================================
INDUSTRIAL CONGLOMERATES-0.22%
General Electric Capital Corp.,
Sr. Unsec. Medium-Term Global Notes,
5.88%, 01/14/38(c) 80,000 72,719
==============================================================================
INTEGRATED OIL & GAS-1.65%
Husky Oil Ltd. (Canada),
Unsec. Sub. Yankee Capital Securities,
8.90%, 08/15/28(c) 540,000 542,490
==============================================================================
INTEGRATED TELECOMMUNICATION SERVICES-3.89%
AT&T Inc.,
Sr. Unsec. Unsub. Global Notes,
6.40%, 05/15/38(c) 130,000 125,004
- ------------------------------------------------------------------------------
Embarq Corp.,
Sr. Unsec. Unsub. Notes,
7.08%, 06/01/16(c) 150,000 143,278
- ------------------------------------------------------------------------------
Pacific Bell Telephone Co.,
Sr. Unsec. Gtd. Bonds,
7.38%, 07/15/43(c) 380,000 390,925
- ------------------------------------------------------------------------------
Southwestern Bell Telephone L.P.,
Sr. Unsec. Gtd. Unsub. Deb.,
7.20%, 10/15/26(c) 180,000 182,297
- ------------------------------------------------------------------------------
Verizon Florida Inc.-
Series F, Sr. Unsec. Deb.,
6.13%, 01/15/13(c) 150,000 151,531
- ------------------------------------------------------------------------------
Verizon New York Inc.,
Sr. Unsec. Bonds,
7.00%, 12/01/33(c) 180,000 178,483
- ------------------------------------------------------------------------------
Verizon Virginia Inc.-
Series A, Sr. Unsec. Global Bonds,
4.63%, 03/15/13(c) 108,000 105,147
==============================================================================
1,276,665
==============================================================================
INTERNET RETAIL-1.17%
Expedia, Inc.,
Sr. Unsec. Gtd. Putable Global Notes,
7.46%, 08/15/13(c) 400,000 382,000
==============================================================================
INVESTMENT BANKING & BROKERAGE-3.34%
Bear Stearns Cos. Inc., (The),
Floating Rate Notes,
3.22%, 07/19/10(c)(e) 260,000 255,798
- ------------------------------------------------------------------------------
Dryden Investor Trust,
Bonds,
7.16%, 07/23/08(c)(d) 25,680 25,702
- ------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The),
Sr. Unsec. Global Notes,
6.15%, 04/01/18(c) 55,000 53,573
- ------------------------------------------------------------------------------
Unsec. Sub. Global Notes,
6.75%, 10/01/37(c) 140,000 130,133
- ------------------------------------------------------------------------------
Jefferies Group, Inc.,
Sr. Unsec. Notes,
6.45%, 06/08/27(c) 400,000 314,252
- ------------------------------------------------------------------------------
Lehman Brothers Holdings Inc.,
Sr. Floating Rate Medium-Term
Notes,
2.53%, 11/24/08(c)(e) 50,000 49,276
- ------------------------------------------------------------------------------
Merrill Lynch & Co Inc.,
Sr. Unsec. Medium-Term Notes,
6.88%, 04/25/18(c) 155,000 147,606
- ------------------------------------------------------------------------------
Morgan Stanley-
Series F, Sr. Unsec. Medium-Term Global Notes,
5.95%, 12/28/17(c) 130,000 118,971
==============================================================================
1,095,311
==============================================================================
LIFE & HEALTH INSURANCE-1.54%
Americo Life Inc.,
Notes,
7.88%, 05/01/13(c)(d) 95,000 96,655
- ------------------------------------------------------------------------------
Prudential Financial, Inc.,
Jr. Unsec. Sub. Global Notes,
8.88%, 06/15/38(c) 130,000 129,168
- ------------------------------------------------------------------------------
Prudential Holdings, LLC-
Series B, Sr. Sec. Bonds,
(INS-Financial Security Assurance Inc.)
7.25%, 12/18/23(b)(c)(d) 260,000 278,197
==============================================================================
504,020
==============================================================================
MOVIES & ENTERTAINMENT-2.08%
News America Holdings Inc.,
Sr. Unsec. Gtd. Deb.,
7.75%, 12/01/45(c) 380,000 412,103
- ------------------------------------------------------------------------------
Time Warner Cable, Inc.,
Sr. Unsec. Gtd. Global Notes,
6.75%, 07/01/18(c) 55,000 55,386
- ------------------------------------------------------------------------------
Time Warner Inc.,
Sr. Unsec. Gtd. Deb.,
6.50%, 11/15/36(c) 240,000 215,930
==============================================================================
683,419
==============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
MULTI-LINE INSURANCE-0.48%
American International Group, Inc.,
Jr. Sub. Deb.,
8.18%, 05/15/58(c)(d) $ 80,000 $ 78,513
- ------------------------------------------------------------------------------
Liberty Mutual Group,
Jr. Gtd. Sub. Notes,
10.75%, 06/15/58(c)(d) 80,000 78,332
==============================================================================
156,845
==============================================================================
MULTI-SECTOR HOLDINGS-0.92%
Capmark Financial Group, Inc.,
Sr. Unsec. Gtd. Floating Rate Global Notes,
3.37%, 05/10/10(c)(e) 390,000 300,495
==============================================================================
MULTI-UTILITIES-1.26%
Dominion Capital Trust I,
Jr. Unsec. Gtd. Sub. Trust Pfd. Capital
Securities,
7.83%, 12/01/27(c) 400,000 413,316
==============================================================================
OFFICE ELECTRONICS-0.27%
Xerox Corp.,
Sr. Unsec. Notes,
5.65%, 05/15/13(c) 90,000 89,326
==============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-10.37%
Allstate Life Global Funding Trusts,
Medium Term Global Notes,
5.38%, 04/30/13(c) 140,000 139,840
- ------------------------------------------------------------------------------
BankAmerica Capital II-
Series 2, Jr. Unsec. Gtd. Sub. Trust Pfd.
Capital Securities,
8.00%, 12/15/26(c) 130,000 131,877
- ------------------------------------------------------------------------------
BankAmerica Capital III,
Jr. Unsec. Gtd. Sub. Floating Rate Trust Pfd.
Capital Securities,
3.28%, 01/15/27(c)(e) 410,000 325,570
- ------------------------------------------------------------------------------
Citigroup Inc.,
Jr. Sub. Notes,
8.40%(c)(f) 135,000 125,425
- ------------------------------------------------------------------------------
JPMorgan Chase & Co.,
Sr. Unsec. Notes,
4.75%, 05/01/13(c) 115,000 110,834
- ------------------------------------------------------------------------------
6.40%, 05/15/38(c) 270,000 254,626
- ------------------------------------------------------------------------------
Lazard Group,
Sr. Unsec. Global Notes, 6.85%, 06/15/17(c) 210,000 184,525
- ------------------------------------------------------------------------------
Mantis Reef Ltd. (Cayman Islands),
Notes,
4.69%, 11/14/08(c)(d) 320,000 321,216
- ------------------------------------------------------------------------------
NB Capital Trust IV,
Jr. Unsec. Gtd. Sub. Trust Pfd. Capital
Securities,
8.25%, 04/15/27(c) 470,000 473,069
- ------------------------------------------------------------------------------
Pemex Finance Ltd. (Mexico)-
Series 1999-2, Class A1, Global Bonds,
9.69%, 08/15/09(c) 167,500 171,002
- ------------------------------------------------------------------------------
Regional Diversified Funding (Cayman Islands),
Sr. Notes,
9.25%, 03/15/30(c)(d) 453,889 510,194
- ------------------------------------------------------------------------------
Regional Diversified Funding (Cayman Islands)-
Class A-1a, Sr. Sec. Floating Rate Notes,
3.25%, 01/25/36 (Acquired 03/21/05; Cost
$401,447)(c)(d)(e)(g) 401,447 301,737
- ------------------------------------------------------------------------------
Twin Reefs Pass-Through Trust (Bermuda),
Floating Rate Pass Through Ctfs.,
3.45% (Acquired 12/07/04-04/03/06; Cost
$130,332)(c)(d)(e)(f)(g) 130,000 4,778
- ------------------------------------------------------------------------------
Two-Rock Pass-Through Trust (Bermuda),
Floating Rate Pass Through Ctfs.,
3.66% (Acquired 11/10/06; Cost
$220,260)(c)(d)(e)(f)(g) 220,000 8,085
- ------------------------------------------------------------------------------
UFJ Finance Aruba AEC (Japan),
Unsec. Gtd. Sub. Euro Bonds,
8.75%(c)(f) 250,000 250,307
- ------------------------------------------------------------------------------
Windsor Financing LLC,
Sr. Sec. Gtd. Notes,
5.88%, 07/15/17(c)(d) 88,421 85,470
==============================================================================
3,398,555
==============================================================================
PACKAGED FOODS & MEATS-0.80%
Kraft Foods Inc.,
Notes,
6.13%, 08/23/18(c) 135,000 130,820
- ------------------------------------------------------------------------------
Sr. Unsec. Notes,
6.88%, 01/26/39(c) 135,000 132,530
==============================================================================
263,350
==============================================================================
PAPER PRODUCTS-0.63%
International Paper Co.,
Sr. Unsec. Unsub. Notes,
5.13%, 11/15/12(c) 80,000 73,734
- ------------------------------------------------------------------------------
Mercer International Inc.,
Sr. Unsec. Global Notes,
9.25%, 02/15/13(c) 140,000 132,300
==============================================================================
206,034
==============================================================================
PROPERTY & CASUALTY INSURANCE-7.85%
Chubb Corp.,
Sr. Notes,
5.75%, 05/15/18(c) 50,000 48,521
- ------------------------------------------------------------------------------
Series 1, Sr. Notes,
6.50%, 05/15/38(c) 50,000 48,717
- ------------------------------------------------------------------------------
First American Capital Trust I,
Gtd. Trust Pfd. Capital Securities,
8.50%, 04/15/12(c) 790,000 764,388
- ------------------------------------------------------------------------------
North Front Pass-Through Trust,
Sec. Pass Through Ctfs.,
5.81%, 12/15/24(c)(d) 350,000 325,262
- ------------------------------------------------------------------------------
Oil Casualty Insurance Ltd. (Bermuda), Unsec. Gtd.
Bonds,
8.00%, 09/15/34(c)(d) 330,000 289,833
- ------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-(CONTINUED)
Oil Insurance Ltd.,
Notes,
7.56%(c)(d)(f) $ 870,000 $ 755,499
- ------------------------------------------------------------------------------
QBE Capital Funding II L.P. (Australia),
Gtd. Sub. Bonds,
6.80%(c)(d)(f) 400,000 342,060
==============================================================================
2,574,280
==============================================================================
REGIONAL BANKS-3.78%
Cullen/Frost Capital Trust I,
Jr. Unsec. Gtd. Sub. Floating Rate Deb.,
4.23%, 03/01/34(c)(e) 600,000 559,308
- ------------------------------------------------------------------------------
PNC Capital Trust C,
Unsec. Gtd. Sub. Floating Rate Trust Pfd.
Capital Securities,
3.25%, 06/01/28(c)(e) 100,000 83,538
- ------------------------------------------------------------------------------
Silicon Valley Bank,
Unsec. Sub. Notes,
6.05%, 06/01/17(c) 480,000 422,241
- ------------------------------------------------------------------------------
TCF National Bank,
Sub. Notes,
5.00%, 06/15/14(c) 175,000 175,030
==============================================================================
1,240,117
==============================================================================
REINSURANCE-0.27%
Stingray Pass-Through Trust,
Pass Through Ctfs.,
5.90%, 01/12/15 (Acquired 01/07/05-11/03/05;
Cost $493,840)(c)(d)(g) 500,000 87,500
==============================================================================
SEMICONDUCTORS-0.24%
Viasystems Inc.,
Sr. Unsec. Gtd. Sub. Global Notes,
10.50%, 01/15/11(c) 80,000 79,800
==============================================================================
SPECIALIZED REIT'S-1.38%
HCP, Inc.,
Sr. Unsec. Floating Rate Medium-Term Notes,
3.23%, 09/15/08(c)(e) 165,000 164,424
- ------------------------------------------------------------------------------
Sr. Unsec. Medium-Term Notes,
6.70%, 01/30/18(c) 140,000 126,088
- ------------------------------------------------------------------------------
Health Care REIT Inc.,
Sr. Unsec. Notes,
5.88%, 05/15/15(c) 175,000 160,358
==============================================================================
450,870
==============================================================================
SPECIALTY CHEMICALS-0.59%
Valspar Corp.,
Sr. Unsec. Unsub. Notes,
5.63%, 05/01/12(c) 100,000 98,471
- ------------------------------------------------------------------------------
6.05%, 05/01/17(c) 100,000 94,299
==============================================================================
192,770
==============================================================================
STEEL-0.65%
United States Steel Corp.,
Sr. Unsec. Unsub. Notes,
6.05%, 06/01/17(c) 150,000 140,545
- ------------------------------------------------------------------------------
6.65%, 06/01/37(c) 80,000 72,137
==============================================================================
212,682
==============================================================================
THRIFTS & MORTGAGE FINANCE-1.99%
Countrywide Financial Corp.,
Unsec. Gtd. Unsub. Floating Rate Medium-Term
Notes,
2.87%, 01/05/09(c)(e) 260,000 255,125
- ------------------------------------------------------------------------------
Unsec. Gtd. Unsub. Medium-Term Global Notes,
5.80%, 06/07/12(c) 160,000 151,200
- ------------------------------------------------------------------------------
Series B, Sr. Unsec. Gtd. Floating Rate Putable
Global Notes,
0.43%, 05/15/09(c) 260,000 245,388
==============================================================================
651,713
==============================================================================
TOBACCO-0.57%
Philip Morris International Inc.,
Sr. Unsec. Unsub. Global Notes,
5.65%, 05/16/18(c) 190,000 185,457
==============================================================================
TRADING COMPANIES & DISTRIBUTORS-1.52%
United Rentals North America, Inc.,
Sr. Unsec. Gtd. Global Notes,
6.50%, 02/15/12(c) 80,000 72,500
- ------------------------------------------------------------------------------
Western Power Distribution Holdings Ltd.
(United Kingdom),
Sr. Unsec. Unsub. Notes,
7.38%, 12/15/28(c)(d) 375,000 425,888
==============================================================================
498,388
==============================================================================
TRUCKING-2.78%
Roadway Corp.,
Sr. Sec. Gtd. Global Notes,
8.25%, 12/01/08(c) 910,000 912,757
==============================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.07%
Alamosa Delaware Inc.,
Sr. Unsec. Gtd. Global Notes,
8.50%, 01/31/12(c) 190,000 188,795
- ------------------------------------------------------------------------------
Nextel Communications, Inc.-
Series D, Sr. Unsec. Gtd. Notes,
7.38%, 08/01/15(c) 710,000 591,913
- ------------------------------------------------------------------------------
Sprint Nextel Corp.,
Sr. Unsec. Bonds,
9.25%, 04/15/22(c) 235,000 226,157
==============================================================================
1,006,865
==============================================================================
Total Bonds & Notes (Cost $29,031,488) 26,188,827
==============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
U.S. GOVERNMENT SPONSORED MORTGAGE-BACKED SECURITIES-6.60%
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)-1.33%
8.50%, 03/01/10(c) $ 84 $ 87
- ------------------------------------------------------------------------------
6.50%, 05/01/16 to 08/01/32(c) 21,616 22,486
- ------------------------------------------------------------------------------
6.00%, 05/01/17 to 11/01/33(c) 212,032 215,837
- ------------------------------------------------------------------------------
5.50%, 09/01/17(c) 73,798 74,802
- ------------------------------------------------------------------------------
7.00%, 08/01/21(c) 115,969 122,466
==============================================================================
435,678
==============================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-4.66%
Pass Through Ctfs.,
7.00%, 02/01/16 to 09/01/32(c) 42,580 44,938
- ------------------------------------------------------------------------------
6.50%, 05/01/16 to 10/01/35(c)(h) 138,567 144,043
- ------------------------------------------------------------------------------
5.00%, 11/01/18(c) 69,524 69,447
- ------------------------------------------------------------------------------
7.50%, 04/01/29 to 10/01/29(c) 99,556 107,548
- ------------------------------------------------------------------------------
8.00%, 04/01/32(c) 6,177 6,683
- ------------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.50%, 07/01/23(c)(i) 270,000 271,814
- ------------------------------------------------------------------------------
6.00%, 07/01/23(c)(i) 360,000 369,056
- ------------------------------------------------------------------------------
6.50%, 07/01/38(c)(i) 499,000 513,736
==============================================================================
1,527,265
==============================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)-0.61%
Pass Through Ctfs.,
7.50%, 06/15/23(c) 15,444 16,625
- ------------------------------------------------------------------------------
8.50%, 11/15/24(c) 12,625 13,955
- ------------------------------------------------------------------------------
7.00%, 07/15/31 to 08/15/31(c) 4,233 4,508
- ------------------------------------------------------------------------------
6.50%, 11/15/31 to 09/15/32(c) 30,826 32,013
- ------------------------------------------------------------------------------
6.00%, 12/15/31 to 11/15/32(c) 46,967 47,890
- ------------------------------------------------------------------------------
5.50%, 02/15/34(c)(h) 85,996 85,873
==============================================================================
200,864
==============================================================================
Total U.S. Government Sponsored Mortgage-
Backed Securities (Cost $2,160,657) 2,163,807
==============================================================================
<Caption>
SHARES
PREFERRED STOCKS-6.12%
OFFICE SERVICES & SUPPLIES-2.38%
Pitney Bowes International Holdings Inc.-Series D,
4.85% Pfd.(c)(d) 8 781,010
==============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.97%
Auction Pass Through Trust-Series 2007-T2, Class
A, 7.78% Pfd. (Acquired 12/14/07; Cost
$975,000)(d)(g) 13 975,006
==============================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.77%
Telephone & Data Systems, Inc.-Series A
7.60% Pfd.(j) 12,000 250,560
==============================================================================
Total Preferred Stocks (Cost $2,053,774) 2,006,576
==============================================================================
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
ASSET-BACKED SECURITIES-4.89%
COLLATERALIZED MORTGAGE OBLIGATIONS-0.33%
Federal Home Loan Bank-
Series TQ-2015, Class A, Pass Through Ctfs.,
5.07%, 10/20/15(c) $ 106,745 $ 106,966
==============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-4.56%
Citicorp Lease Pass-Through Trust-
Series 1999-1, Class A2, Pass Through Ctfs.,
8.04%, 12/15/19(c)(d) 675,000 701,428
- ------------------------------------------------------------------------------
Patron's Legacy 2004-1-LILACS-1-Series A,
Ctfs.,
6.67%, 05/04/18 (Acquired 04/30/04; Cost
$944,341)(d)(g) 944,341 794,191
==============================================================================
1,495,619
==============================================================================
Total Asset-Backed Securities (Cost
$1,815,236) 1,602,585
==============================================================================
U.S. TREASURY SECURITIES-3.61%
U.S. TREASURY BILLS-0.23%
1.60%, 10/23/08(c)(h) 75,000 74,569
==============================================================================
U.S. TREASURY NOTES-3.38%
4.88%, 10/31/08(c) 1,100,000 1,110,230
==============================================================================
Total U.S. Treasury Securities (Cost
$1,185,074) 1,184,799
==============================================================================
MUNICIPAL OBLIGATIONS-3.47%
Blount (County of), Tennessee
Health & Educational Facilities Board (Asbury
Inc.); Series 2007 B, Ref. Taxable RB,
7.50%, 04/01/09(c) 30,000 29,996
- ------------------------------------------------------------------------------
Denver (City & County of) Colorado;
Series 2000 C, Ref. Airport VRD RB, (INS-MBIA
Insurance Corp.)
10.00%, 11/15/25(b)(k)(l)(m) 300,000 300,000
- ------------------------------------------------------------------------------
Detroit (City of), Michigan;
Series 2005 A-1, Taxable Capital Improvement
Limited Tax GO,
(INS-Ambac Assurance Corp.)
4.96%, 04/01/20(b)(c) 130,000 115,392
- ------------------------------------------------------------------------------
Florida (State of)
Development Finance Corp. (Palm Bay Academy
Inc.); Series 2006 B, Taxable RB,
7.50%, 05/15/17(c) 65,000 63,832
- ------------------------------------------------------------------------------
Industry (City of), California
Urban Development Agency (Project No. 3); Series
2003, Taxable Allocation RB, (INS-MBIA Insurance
Corp.)
6.10%, 05/01/24(b)(c) 650,000 630,077
==============================================================================
Total Municipal Obligations (Cost $1,189,020) 1,139,297
==============================================================================
U.S. GOVERNMENT SPONSORED AGENCY SECURITIES-2.47%
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-0.93%
Sr. Unsec. Floating Rate Global Notes, 5.12%,
02/17/09(c)(e) 300,000 303,648
==============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
STUDENT LOAN MARKETING ASSOCIATION-1.54%
SLM Corp.,
Sr. Unsec. Unsub. Floating Rate Medium Term
Notes,
2.34%, 03/15/10(c)(e) $ 200,000 $ 175,288
- ------------------------------------------------------------------------------
Sr. Unsec. Unsub. Medium Term Notes,
5.05%, 11/14/14(c) 400,000 330,116
==============================================================================
505,404
==============================================================================
Total U.S. Government Sponsored Agency
Securities (Cost $853,745) 809,052
==============================================================================
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-0.14%
BROADCASTING & CABLE TV-0.14%
Adelphia Communications Corp., Sr. Notes 10.88%,
10/01/10(j) 900 $ 7,987
- ------------------------------------------------------------------------------
Adelphia Recovery Trust-Series ACC-1(j) 87,412 4,589
- ------------------------------------------------------------------------------
Time Warner Cable, Inc.-Class A(j) 1,279 33,868
==============================================================================
Total Common Stocks & Other Equity Interests
(Cost $86,128) 46,444
==============================================================================
TOTAL INVESTMENTS-107.18% (Cost $38,375,122) 35,141,387
==============================================================================
OTHER ASSETS LESS LIABILITIES-(7.18)% (2,355,219)
==============================================================================
NET ASSETS-100.00% $32,786,168
______________________________________________________________________________
==============================================================================
</Table>
Investment Abbreviations:
<Table>
Ctfs. - Certificates
Deb. - Debentures
GO - General Obligation Bonds
Gtd. - Guaranteed
INS - Insurer
Jr. - Junior
LILACS - Life Insurance and Life Annuities Based Charitable Securities
Pfd. - Preferred
RB - Revenue Bonds
Ref. - Refunding
REIT - Real Estate Investment Trust
Sec. - Secured
Sr. - Senior
TBA - To Be Announced
Unsec. - Unsecured
Unsub. - Unsubordinated
VRD - Variable Rate Demand
</Table>
Notes to Schedule of Investments:
(a) Industry and/or sector classifications used in this report are generally
according to the Global Industry Classification Standard, which was
developed by and is the exclusive property and a service mark of MSCI Inc.
and Standard & Poor's.
(b) Principal and/or interest payments are secured by the bond insurance
company listed.
(c) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an
independent pricing service. The aggregate value of these securities at
June 30, 2008 was $32,524,748, which represented 99.20% of the Fund's Net
Assets. See Note 1A.
(d) Security purchased or received in a transaction exempt from registration
under the Securities Act of 1933, as amended. The security may be resold
pursuant to an exemption from registration under the 1933 Act, typically
to qualified institutional buyers. The aggregate value of these securities
at June 30, 2008 was $10,201,696, which represented 31.12% of the Fund's
Net Assets. Unless otherwise indicated, these securities are not
considered to be illiquid.
(e) Interest or dividend rate is redetermined periodically. Rate shown is the
rate in effect on June 30, 2008.
(f) Perpetual bond with no specified maturity date.
(g) Security considered to be illiquid. The Fund is limited to investing 15%
of net assets in illiquid securities at the time of purchase. The
aggregate value of these securities considered illiquid at June 30, 2008
was $2,421,735, which represented 7.39% of the Fund's Net Assets.
(h) All or a portion of the value was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1M and Note 8.
(i) Security purchased on forward commitment basis. This security is subject
to dollar roll transactions. See Note 1J.
(j) Non-income producing security acquired as part of the Adelphia
Communications bankruptcy reorganization.
(k) Demand security payable upon demand by the Fund at specified time
intervals no greater than thirteen months. Interest rate is redetermined
periodically. Rate shown is the rate in effect on June 30, 2008.
(l) Security is considered a cash equivalent.
(m) Security subject to the alternative minimum tax.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DIVERSIFIED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, at value (Cost
$38,375,122) $ 35,141,387
- ------------------------------------------------------
Receivables for:
Investments sold 25,000
- ------------------------------------------------------
Dividends and Interest 421,899
- ------------------------------------------------------
Principal paydowns 17,655
- ------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 42,262
- ------------------------------------------------------
Other assets 2,355
======================================================
Total assets 35,650,558
______________________________________________________
======================================================
LIABILITIES:
Payables for:
Investments purchased 1,399,211
- ------------------------------------------------------
Fund shares reacquired 58,959
- ------------------------------------------------------
Amount due custodian 78,392
- ------------------------------------------------------
Accrued fees to affiliates 16,367
- ------------------------------------------------------
Accrued other operating expenses 44,042
- ------------------------------------------------------
Trustee deferred compensation and
retirement plans 49,476
- ------------------------------------------------------
Unrealized depreciation on swap
agreements 1,079,585
- ------------------------------------------------------
Premiums received on swap agreements 138,358
======================================================
Total liabilities 2,864,390
======================================================
Net assets applicable to shares
outstanding $ 32,786,168
______________________________________________________
======================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 51,448,851
- ------------------------------------------------------
Undistributed net investment income 3,751,892
- ------------------------------------------------------
Undistributed net realized gain (loss) (18,208,363)
- ------------------------------------------------------
Unrealized appreciation (depreciation) (4,206,212)
======================================================
$ 32,786,168
______________________________________________________
======================================================
NET ASSETS:
Series I $ 32,288,621
______________________________________________________
======================================================
Series II $ 497,547
______________________________________________________
======================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 4,240,101
______________________________________________________
======================================================
Series II 65,932
______________________________________________________
======================================================
Series I:
Net asset value per share $ 7.62
______________________________________________________
======================================================
Series II:
Net asset value per share $ 7.55
______________________________________________________
======================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $ 1,249,025
- ------------------------------------------------------
Dividends 73,642
- ------------------------------------------------------
Dividends from affiliated money market
funds 2,553
======================================================
Total investment income 1,325,220
======================================================
EXPENSES:
Advisory fees 107,754
- ------------------------------------------------------
Administrative services fees 56,522
- ------------------------------------------------------
Custodian fees 14,829
- ------------------------------------------------------
Distribution fees -- Series II 645
- ------------------------------------------------------
Transfer agent fees 4,255
- ------------------------------------------------------
Trustees' and officer's fees and
benefits 9,010
- ------------------------------------------------------
Professional services fees 23,847
- ------------------------------------------------------
Other 10,239
======================================================
Total expenses 227,101
======================================================
Less: Fees waived and expense offset
arrangement(s) (91,877)
======================================================
Net expenses 135,224
======================================================
Net investment income 1,189,996
______________________________________________________
======================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM:
Net realized gain (loss) from:
Investment securities (includes net
gains from securities sold to
affiliates of $25,683) (315,928)
- ------------------------------------------------------
Foreign currencies 62
- ------------------------------------------------------
Futures contracts 165,404
- ------------------------------------------------------
Swap agreements (56,135)
======================================================
(206,597)
======================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (1,607,713)
- ------------------------------------------------------
Foreign currencies (9)
- ------------------------------------------------------
Futures contracts 89,353
- ------------------------------------------------------
Swap agreements (376,995)
======================================================
(1,895,364)
======================================================
Net realized and unrealized gain (loss) (2,101,961)
======================================================
Net increase (decrease) in net assets
resulting from operations $ (911,965)
______________________________________________________
======================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DIVERSIFIED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- ------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,189,996 $ 2,624,188
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) (206,597) (278,106)
- ------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) (1,895,364) (1,542,510)
======================================================================================================
Net increase (decrease) in net assets resulting from operations (911,965) 803,572
======================================================================================================
Distributions to shareholders from net investment income:
Series I -- (2,880,489)
- ------------------------------------------------------------------------------------------------------
Series II -- (43,745)
======================================================================================================
Total distributions from net investment income -- (2,924,234)
======================================================================================================
Share transactions-net:
Series I (5,148,908) (6,318,959)
- ------------------------------------------------------------------------------------------------------
Series II (95,090) (74,221)
======================================================================================================
Net increase (decrease) in net assets resulting from share
transactions (5,243,998) (6,393,180)
======================================================================================================
Net increase (decrease) in net assets (6,155,963) (8,513,842)
======================================================================================================
NET ASSETS:
Beginning of period 38,942,131 47,455,973
======================================================================================================
End of period (including undistributed net investment income of
$3,751,892 and $2,561,896, respectively) $32,786,168 $38,942,131
______________________________________________________________________________________________________
======================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DIVERSIFIED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Diversified Income Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is to achieve a high level of current income.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
Debt obligations (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing
service. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to specific securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Short-term obligations, including
commercial paper, having 60 days or less to maturity are recorded at
amortized cost which approximates value. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve
some risk of default with respect to interest and/or principal payments.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on
that day. Securities traded in the over-the-counter market are valued
based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service
they may be considered fair valued. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally
traded. Listed options are valued at the mean between the last bid and the
ask prices from the exchange on which they are principally traded. Options
not listed on an exchange are valued by an independent source at the mean
between the last bid and ask prices. For purposes of determining net asset
value per share, futures and option contracts generally are valued 15
minutes after the close of the customary trading session of the New York
Stock Exchange ("NYSE").
Investments in open-end and closed-end registered investment companies
that do not trade on an exchange are valued at the end of day net asset
value per share. Investments in open-end and closed-end registered
investment companies that trade on an exchange are valued at the last
sales price or official closing price as of the close of the customary
trading session on the exchange where the security is principally traded.
Swap agreements are fair valued using an evaluated quote provided by an
independent pricing service. Evaluated quotes provided by the pricing
service are valued based on a model which may include end of day net
present values, spreads, ratings, industry, and company performance.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued
at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price
unreliable, the Fund may fair value the security. If the event is likely
to have affected the closing price of the security, the security will be
valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also
be
based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current value as of the close of the NYSE. Foreign securities
meeting the approved degree of certainty that the price is not reflective
of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, American
Depositary Receipts and domestic and foreign index futures. Foreign
securities may have additional risks including exchange rate changes,
potential for sharply devalued currencies and high inflation, political
and economical upheaval, the relative lack of issuer information,
relatively low market liquidity and the potential lack of strict financial
and accounting controls and standards.
Securities for which market prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers following procedures
approved by the Board of Trustees. Issuer specific events, market trends,
bid/ask quotes of brokers and information providers and other market data
may be reviewed in the course of making a good faith determination of a
security's fair value.
Valuations change in response to many factors including the historical
and prospective earnings of the issuer, the value of the issuer's assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
AIM V.I. DIVERSIFIED INCOME FUND
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification
claims is considered remote.
I. LOWER-RATED SECURITIES -- The Fund may invest in lower-quality debt
securities, i.e., "junk bonds". Investments in lower-rated securities or
unrated securities of comparable quality tend to be more sensitive to
economic conditions than higher rated securities. Junk bonds involve a
greater risk of default by the issuer because such securities are
generally unsecured and are often subordinated to other creditors' claims.
J. DOLLAR ROLL AND FORWARD COMMITMENT TRANSACTIONS -- The Fund may engage in
dollar roll and forward commitment transactions with respect to mortgage-
backed securities issued by GNMA, FNMA and FHLMC. These transactions are
often conducted on a to be announced ("TBA") basis. In a TBA mortgage-
backed transaction, the seller does not specify the particular securities
to be delivered. Rather, a Fund agrees to accept any security that meets
specified terms, such as an agreed upon issuer, coupon rate and terms of
the underlying mortgages. TBA mortgage-backed transactions generally
settle once a month on a specific date.
In a dollar roll transaction, the Fund sells a mortgage-backed security
held in the Fund to a financial institution such as a bank or broker-
dealer, and simultaneously agrees to purchase a substantially similar
security (same type, coupon and maturity) from the institution at an
agreed upon price and future date. The mortgage-backed securities to be
purchased will bear the same coupon as those sold, but generally will be
collateralized by different pools of mortgages with different prepayment
histories. Based on the typical structure of dollar roll transactions by
the Fund, the dollar roll transactions are accounted for as financing
transactions in which the Fund receives compensation as either a "fee" or
a "drop". "Fee" income which is agreed upon amongst the parties at the
commencement of the dollar roll and the "drop" which is the difference
between the selling price and the repurchase price of the mortgage-backed
securities are amortized to income. During the period between the sale and
purchase settlement dates, the Fund will not be entitled to receive
interest and principal payments on securities purchased and not yet
settled. Proceeds of the sale may be invested in short-term instruments,
and the income from these investments, together with any additional fee
income received on the sale, could generate income for the Fund exceeding
the yield on the security sold. Dollar roll transactions are considered
borrowings under the 1940 Act.
AIM V.I. DIVERSIFIED INCOME FUND
Forward commitment transactions involve commitments by the Fund to
acquire or sell TBA mortgage-backed securities from/to a financial
institution, such as a bank or broker-dealer at a specified future date
and amount. The TBA mortgage-backed security is marked to market until
settlement and the unrealized appreciation or depreciation is recorded in
the statement of operations.
At the time the Fund enters into the dollar roll or forward commitment
transaction, mortgage-backed securities or other liquid assets held by the
Fund having a dollar value equal to the purchase price or in an amount
sufficient to honor the forward commitment will be segregated.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the
securities that the Fund has sold but is obligated to purchase under the
agreement. In the event that the buyer of securities in a dollar roll
transaction files for bankruptcy or becomes insolvent, the Fund's use of
the proceeds from the sale of the securities may be restricted pending a
determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to purchase the securities. The return
earned by the Fund with the proceeds of the dollar roll transaction may
not exceed the return on the securities sold.
Forward commitment transactions involve the risk that a counter-party to
the transaction may fail to complete the transaction. If this occurs, the
Fund may lose the opportunity to purchase or sell the security at the
agreed upon price. Settlement dates of forward commitment transactions may
be a month or more after entering into these transactions and as a result
the market values of the securities may vary from the purchase or sale
prices. Therefore, forward commitment transactions may increase the Fund's
overall interest rate exposure.
K. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close
of the NYSE based on quotations posted by banks and major currency
dealers. Portfolio securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i)
sales of foreign currencies, (ii) currency gains or losses realized
between the trade and settlement dates on securities transactions, and
(iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized
foreign currency gains and losses arise from changes in the fair values of
assets and liabilities, other than investments in securities at fiscal
period end, resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to
foreign taxes on income, gains on investments or currency repatriation, a
portion of which may be recoverable.
L. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. Fluctuations in the value of these contracts are recorded as
unrealized appreciation (depreciation) until the contracts are closed.
When these contracts are closed, realized gains (losses) are recorded.
Realized and unrealized gains and losses on these contracts are included
in the Statement of Operations. The Fund could be exposed to risk, which
may be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
M. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts.
Initial margin deposits required upon entering into futures contracts are
satisfied by the segregation of specific securities as collateral for the
account of the broker (the Fund's agent in acquiring the futures
position). During the period the futures contracts are open, changes in
the value of the contracts are recognized as unrealized gains or losses by
recalculating the value of the contracts on a daily basis. Variation
margin payments are received or made depending upon whether unrealized
gains or losses are incurred. When the contracts are closed, the Fund
recognizes a realized gain or loss equal to the difference between the
proceeds from, or cost of, the closing transaction and the Fund's basis in
the contract. If the Fund were unable to liquidate a futures contract
and/or enter into an offsetting closing transaction, the Fund would
continue to be subject to market risk with respect to the value of the
contracts and continue to be required to maintain the margin deposits on
the futures contracts. Risks may exceed amounts recognized in the
Statement of Assets and Liabilities.
N. SWAP AGREEMENTS -- The Fund may enter into various swap transactions,
including interest rate, index, currency exchange rate and credit default
swap contracts ("CDS") for investment purposes or to manage interest rate,
currency or credit risk.
Interest rate, index, and currency exchange rate swap agreements are
two-party contracts entered into primarily to exchange the returns (or
differentials in rates of returns) earned or realized on particular
predetermined investments or instruments. The gross returns to be
exchanged or "swapped" between the parties are calculated with respect to
a notional amount, i.e., the return on or increase in value of a
particular dollar amount invested at a particular interest rate, in a
particular foreign currency, or in a "basket" of securities representing a
particular index.
A CDS is an agreement between two parties ("Counterparties") to exchange
the credit risk of an issuer. A buyer of a CDS is said to buy protection
by paying an upfront payment and/or a fixed payment over the life of the
agreement to the seller of the CDS. If a defined credit event occurs (such
as payment default or bankruptcy), the Fund as a protection buyer would
cease paying its fixed payment, the Fund would deliver the corresponding
bonds, or other similar bonds issued by the same reference entity to the
seller, and the seller would pay the full notional value, or the "par
value", of the referenced obligation to the Fund. A seller of a CDS is
said to sell protection and thus would receive an upfront payment and/or a
fixed payment over the life of the agreement. If a credit event occurs,
the Fund as a protection seller would cease to receive the fixed payment
stream, the Fund would pay the buyer the full notional value of the
referenced obligation, and the Fund would receive the corresponding bonds
or similar bonds issued by the same reference entity. If no credit event
occurs, the Fund receives the fixed payment over the life of the
agreement. As the seller, the Fund would effectively add leverage to its
portfolio because, in addition to its total net assets, the Fund would be
subject to investment exposure on the notional amount of the CDS. Because
the CDS is a bilateral agreement between Counterparties, the transaction
can alternatively be settled by a cash payment in the case of a credit
event.
AIM V.I. DIVERSIFIED INCOME FUND
Changes in the value of swap agreements are recognized as unrealized
gains (losses) in the Statement of Operations by "marking to market" on a
daily basis to reflect the value of the swap agreement at the end of each
trading day. Payments received or paid at the beginning of the agreement
are reflected as such on the Statement of Assets and Liabilities and may
be referred to as upfront payments. The Fund amortizes upfront payments
and/or accrues for the fixed payment stream on swap agreements on a daily
basis with the net amount, recorded as a component of realized gain (loss)
on the Statement of Operations. A liquidation payment received or made at
the termination of a swap agreement is recorded as realized gain (loss) on
the Statement of Operations. The Fund segregates liquid securities having
a value at least equal to the amount of the potential obligation of a Fund
under any swap transaction. Entering into these agreements involves, to
varying degrees, lack of liquidity and elements of credit, market, and
counterparty risk in excess of amounts recognized on the Statement of
Assets and Liabilities.
O. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $250 million 0.60%
- -------------------------------------------------------------------
Over $250 million 0.55%
___________________________________________________________________
===================================================================
</Table>
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
The Advisor has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 0.75% and Series
II shares to 1.00% of average daily net assets, through at least April 30, 2010.
In determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco")
described more fully below, the expense offset arrangements from which the Fund
may benefit are in the form of credits that the Fund receives from banks where
the Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. These credits are used to pay certain expenses incurred by the Fund. To
the extent that the annualized expense ratio does not exceed the expense
limitation, the Advisor will retain its ability to be reimbursed for such fee
waivers or reimbursements prior to the end of each fiscal year.
Further, the Advisor has contractually agreed, through at least April 30,
2010, to waive the advisory fee payable by the Fund in an amount equal to 100%
of the net advisory fees the Advisor receives from the affiliated money market
funds on investments by the Fund of uninvested cash in such affiliated money
market funds.
For the six months ended June 30, 2008, the Advisor waived advisory fees of
$90,680.
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund
administrative services and reimbursed $31,659 for services provided by
insurance companies.
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily net
assets of the Series II shares may be paid to insurance companies who furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. For the six months ended June 30, 2008, expenses
incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1--Quoted prices in an active market for identical assets.
Level 2--Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest
rates, prepayment speeds, credit risk and others.
Level 3--Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for
example, when there is little or no market activity for an investment at the end
of the period), unobservable inputs may be used. Unobservable inputs reflect the
Fund's own assumptions about the factors market participants would use in
determining fair value of the securities or instruments and would be based on
the best available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS IN OTHER
INPUT LEVEL SECURITIES INVESTMENTS*
- -----------------------------------------------------
Level 1 $ 284,428 $ 107,108
- -----------------------------------------------------
Level 2 34,856,959 (1,079,585)
- -----------------------------------------------------
Level 3 -- --
=====================================================
$35,141,387 $ (972,477)
_____________________________________________________
=====================================================
</Table>
* Other investments include futures contracts and swap agreements, which are
included at unrealized appreciation/(depreciation).
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, for the six months ended June 30, 2008, the Fund
engaged in securities sales of $698,150, which resulted in net realized gains of
$25,683.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2008, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $1,197.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan and receive benefits under such plan. "Trustees' and Officer's
Fees and Benefits" include amounts accrued by the Fund to fund such retirement
benefits. Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $1,545
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--CASH BALANCES
The Fund may borrow for leveraging in an amount up to 5% of the Fund's total
assets (excluding the amount borrowed) at the time the borrowing is made. In
doing so, the Fund is permitted to temporarily carry a negative or overdrawn
balance in its account with The State Street Bank and Trust Company ("SSB"), the
custodian bank. To compensate the custodian bank for such overdrafts, the
overdrawn Fund may either (i) leave funds as a compensating balance in the
account so the custodian bank can be compensated by earning the additional
interest; or (ii) compensate by paying the custodian bank at a rate agreed upon
by the custodian bank and Invesco Aim, not to exceed the contractually agreed
upon rate. A Fund may not purchase additional securities when any borrowings
from banks exceeds 5% of the Fund's total assets.
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 8--FUTURES CONTRACTS
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- -------------------------------------------------------------------------------------------------------------------
NUMBER OF MONTH/ VALUE UNREALIZED
CONTRACT CONTRACTS COMMITMENT 06/30/08 APPRECIATION
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury 10 Year Notes 28 Sept-08/Long $3,189,812 $ 54,546
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury 30 Year Bonds 42 Sept-08/Long 4,854,938 52,562
===================================================================================================================
$107,108
___________________________________________________________________________________________________________________
===================================================================================================================
</Table>
NOTE 9--CREDIT DEFAULT SWAP AGREEMENTS
<Table>
<Caption>
OPEN CREDIT DEFAULT SWAP AGREEMENTS AT PERIOD-END
- -----------------------------------------------------------------------------------------------------------------------
NOTIONAL UNREALIZED
BUY/SELL (PAY)/RECEIVE EXPIRATION AMOUNT APPRECIATION
COUNTERPARTY REFERENCE ENTITY PROTECTION FIXED RATE DATE (000) (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------------------------
Lehman Brothers CDX North America Sell 0.75%(a) 06/20/12 $7,000 $(480,724)
Special Financing Investment Grade
Inc. High Volatility
Index
- -----------------------------------------------------------------------------------------------------------------------
Lehman Brothers MBIA Inc. Sell 1.90% 09/20/08 1,200 (81,688)
Special Financing
Inc.
- -----------------------------------------------------------------------------------------------------------------------
Lehman Brothers Residential Capital, Sell 2.75% 09/20/08 125 (5,762)
Special Financing LLC
Inc.
- -----------------------------------------------------------------------------------------------------------------------
Lehman Brothers Residential Capital, Sell 6.80% 09/20/08 200 (7,391)
Special Financing LLC
Inc.
- -----------------------------------------------------------------------------------------------------------------------
Merrill Lynch AMBAC Financial Sell 2.30% 12/20/08 470 (66,748)
International Group, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Merrill Lynch AMBAC Financial Sell 6.75% 12/20/08 230 (28,282)
International Group, Inc
- -----------------------------------------------------------------------------------------------------------------------
Merrill Lynch Assured Guaranty Sell 5.00% 03/20/09 235 (12,027)
International Corp.
- -----------------------------------------------------------------------------------------------------------------------
Merrill Lynch CIT Group Inc. Sell 2.40% 09/20/08 230 (3,954)
International
- -----------------------------------------------------------------------------------------------------------------------
Merrill Lynch CIT Group Inc. Sell 2.50% 09/20/08 100 (1,696)
International
- -----------------------------------------------------------------------------------------------------------------------
Merrill Lynch Lehman Brothers Sell 0.90% 09/20/08 430 (3,492)
International Holdings Inc.
- -----------------------------------------------------------------------------------------------------------------------
Morgan Stanley & Co. CDX North America Sell 1.40%(b) 12/20/12 4,000 (316,247)
International PLC Investment Grade
High Volatility
Index
- -----------------------------------------------------------------------------------------------------------------------
UBS AG AMBAC Financial Sell 5.10% 12/20/08 230 (29,907)
Group, Inc.
- -----------------------------------------------------------------------------------------------------------------------
UBS AG AMBAC Financial Sell 11.00% 12/20/08 410 (42,957)
Group, Inc.
- -----------------------------------------------------------------------------------------------------------------------
UBS AG Pulte Homes, Inc. Sell 4.20% 12/20/08 470 1,290
=======================================================================================================================
Total Credit Default Swap Agreements $15,330 $(1,079,585)
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) Unamortized premium at period-end of $148,214.
(b) Unamortized discount at period-end of $9,856.
NOTE 10--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
AIM V.I. DIVERSIFIED INCOME FUND
The Fund had a capital loss carryforward as of December 31, 2007 which expires
as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------------------------
December 31, 2008 $ 4,437,761
- -----------------------------------------------------------------------------------------------
December 31, 2009 6,105,069
- -----------------------------------------------------------------------------------------------
December 31, 2010 6,879,053
- -----------------------------------------------------------------------------------------------
December 31, 2014 341,884
- -----------------------------------------------------------------------------------------------
December 31, 2015 214,781
===============================================================================================
Total capital loss carryforward $17,978,548
_______________________________________________________________________________________________
===============================================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the six months ended June 30, 2008 was $7,228,485 and
$12,455,313, respectively. During the same period, purchases and sales of U.S.
Treasury obligations were $2,182,255 and $1,060,000. Cost of investments on a
tax basis includes the adjustments for financial reporting purposes as of the
most recently completed Federal income tax reporting period end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 94,346
- ------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,330,800)
================================================================================================
Net unrealized appreciation (depreciation) of investment securities $(3,236,454)
________________________________________________________________________________________________
================================================================================================
Cost of investments for tax purposes is $38,377,841.
</Table>
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2008(a) 2007
------------------------ ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 144,616 $ 1,118,131 731,982 $ 6,147,850
- -----------------------------------------------------------------------------------------------------------------------
Series II 74 563 6,451 53,596
=======================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 370,719 2,880,489
- -----------------------------------------------------------------------------------------------------------------------
Series II -- -- 5,674 43,745
=======================================================================================================================
Reacquired:
Series I (819,606) (6,267,039) (1,834,796) (15,347,298)
- -----------------------------------------------------------------------------------------------------------------------
Series II (12,409) (95,653) (20,652) (171,562)
=======================================================================================================================
(687,325) $(5,243,998) (740,622) $ (6,393,180)
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) There are entities that are record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate own 75% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, Invesco
Aim and/or Invesco Aim affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services to
the Fund, Invesco Aim and or Invesco Aim affiliates including but not
limited to services such as, securities brokerage, third party record
keeping and account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record by
these entities are also owned beneficially.
NOTE 13--NEW ACCOUNTING STANDARD
In March 2008, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 161, Disclosures about Derivative Instruments and Hedging
Activities. The standard is intended to improve financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity's financial
position and financial performance. It is effective for financial statements
issued for fiscal years beginning after November 15, 2008. Management is
currently in the process of determining the impact of the standard on the Fund's
disclosures in the financial statements.
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
----------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------------------------------
2008 2007 2006 2005 2004 2003
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.80 $ 8.28 $ 8.43 $ 8.74 $ 8.82 $ 8.60
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.25 0.51 0.46 0.40 0.36 0.42
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.43) (0.37) (0.08) (0.15) 0.08 0.37
============================================================================================================================
Total from investment operations (0.18) 0.14 0.38 0.25 0.44 0.79
============================================================================================================================
Less dividends from net investment income -- (0.62) (0.53) (0.56) (0.52) (0.57)
============================================================================================================================
Net asset value, end of period $ 7.62 $ 7.80 $ 8.28 $ 8.43 $ 8.74 $ 8.82
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) (2.31)% 1.72% 4.48% 2.90% 5.03% 9.24%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $32,289 $38,336 $46,743 $55,065 $65,069 $71,860
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 0.76%(c) 0.75% 0.75% 0.89% 1.01% 0.95%
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.26%(c) 1.17% 1.10% 1.08% 1.01% 0.95%
============================================================================================================================
Ratio of net investment income to average net
assets 6.62%(c) 6.04% 5.47% 4.54% 4.01% 4.71%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate(d) 25% 67% 78% 92% 113% 153%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of $35,596,538.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
<Table>
<Caption>
SERIES II
-----------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------
2008 2007 2006 2005 2004 2003
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.74 $ 8.21 $ 8.36 $ 8.67 $ 8.78 $ 8.58
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.24 0.48 0.44 0.38 0.33 0.40
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.43) (0.36) (0.09) (0.15) 0.08 0.37
==========================================================================================================================
Total from investment operations (0.19) 0.12 0.35 0.23 0.41 0.77
==========================================================================================================================
Less dividends from net investment income -- (0.59) (0.50) (0.54) (0.52) (0.57)
==========================================================================================================================
Net asset value, end of period $ 7.55 $ 7.74 $ 8.21 $ 8.36 $ 8.67 $ 8.78
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) (2.45)% 1.51% 4.17% 2.67% 4.69% 9.02%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 498 $ 606 $ 713 $ 902 $ 980 $ 762
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.01%(c) 1.00% 1.00% 1.14% 1.26% 1.20%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.51%(c) 1.42% 1.35% 1.33% 1.26% 1.20%
==========================================================================================================================
Ratio of net investment income to average net
assets 6.37%(c) 5.79% 5.22% 4.29% 3.76% 4.46%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate(d) 25% 67% 78% 92% 113% 153%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of $518,696.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to Invesco Aim and IADI (Order No. 05-
1318). The WVASC makes findings of fact that Invesco Aim and IADI entered into
certain arrangements permitting market timing of the AIM Funds and failed to
disclose these arrangements in the prospectuses for such Funds, and conclusions
of law to the effect that Invesco Aim and IADI violated the West Virginia
securities laws. The WVASC orders Invesco Aim and IADI to cease any further
violations and seeks to impose monetary sanctions, including restitution to
affected investors, disgorgement of fees, reimbursement of investigatory,
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute. By agreement with the Commissioner of
Securities, Invesco Aim's time to respond to that Order has been indefinitely
suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid. The case pending in Illinois State Court regarding fair value
pricing was dismissed with prejudice on May 6, 2008.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA
purportedly brought on behalf of participants in the Invesco 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds remain nominal defendants in the Consolidated Amended Fund
Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco
defendants' motion to dismiss the Amended Class Action Complaint for Violations
of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June
16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this
lawsuit back to the MDL Court for further proceedings.
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, Invesco Aim and IADI have advised the Fund that they are providing
full cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, Invesco Aim and/or related entities and individuals in the
future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $976.90 $3.74 $1,021.08 $3.82 0.76%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 975.50 4.96 1,019.84 5.07 1.01
- ---------------------------------------------------------------------------------------------------
</Table>
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5%
before expenses.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
AIM V.I. DIVERSIFIED INCOME FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different
Variable Insurance Funds is required under comparative performance and fee data weight to the various factors. The
the Investment Company Act of 1940 to regarding the AIM Funds prepared by an Trustees recognized that the advisory
approve annually the renewal of the AIM independent company, Lipper, Inc. arrangements and resulting advisory fees
V.I. Diversified Income Fund (the Fund) (Lipper), under the direction and for the Fund and the other AIM Funds are
investment advisory agreement with Invesco supervision of the independent Senior the result of years of review and
Aim Advisors, Inc. (Invesco Aim). During Officer who also prepares a separate negotiation between the Trustees and
contract renewal meetings held on June analysis of this information for the Invesco Aim, that the Trustees may focus
18-19, 2008, the Board as a whole and the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of
disinterested or "independent" Trustees, recommendations to the Investments these arrangements in some years than in
voting separately, approved the Committee regarding the performance, fees others, and that the Trustees'
continuance of the Fund's investment and expenses of their assigned funds. The deliberations and conclusions in a
advisory agreement for another year, Investments Committee considers each particular year may be based in part on
effective July 1, 2008. In doing so, the Sub-Committee's recommendations and makes their deliberations and conclusions of
Board determined that the Fund's its own recommendations regarding the these same arrangements throughout the
investment advisory agreement is in the performance, fees and expenses of the AIM year and in prior years.
best interests of the Fund and its Funds to the full Board. The Investments
shareholders and that the compensation to Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF
Invesco Aim under the Fund's investment Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION
advisory agreement is fair and reasonable. its annual recommendation to the Board The discussion below serves as a summary
The independent Trustees met separately whether to approve the continuance of each of the Senior Officer's independent
during their evaluation of the Fund's AIM Fund's investment advisory agreement written evaluation with respect to the
investment advisory agreement with and sub-advisory agreements for another Fund's investment advisory agreement as
independent legal counsel from whom they year. well as a discussion of the material
received independent legal advice, and the The independent Trustees are assisted factors and related conclusions that
independent Trustees also received in their annual evaluation of the Fund's formed the basis for the Board's approval
assistance during their deliberations from investment advisory agreement by the of the Fund's investment advisory
the independent Senior Officer, a independent Senior Officer. One agreement and sub-advisory agreements.
full-time officer of the AIM Funds who responsibility of the Senior Officer is to Unless otherwise stated, information set
reports directly to the independent manage the process by which the AIM Funds' forth below is as of June 19, 2008 and
Trustees. proposed management fees are negotiated does not reflect any changes that may have
during the annual contract renewal process occurred since that date, including but
THE BOARD'S FUND EVALUATION PROCESS to ensure that they are negotiated in a not limited to changes to the Fund's
The Board's Investments Committee has manner that is at arms' length and performance, advisory fees, expense
established three Sub-Committees that are reasonable. Accordingly, the Senior limitations and/or fee waivers.
responsible for overseeing the management Officer must either supervise a
of a number of the series portfolios of competitive bidding process or prepare an I. Investment Advisory Agreement
the AIM Funds. This Sub-Committee independent written evaluation. The Senior A. Nature, Extent and Quality of
structure permits the Trustees to focus on Officer has recommended that an Services Provided by Invesco Aim
the performance of the AIM Funds that have independent written evaluation be provided The Board reviewed the advisory services
been assigned to them. The Sub-Committees and, at the direction of the Board, has provided to the Fund by Invesco Aim under
meet throughout the year to review the prepared an independent written the Fund's investment advisory agreement,
performance of their assigned funds, and evaluation. the performance of Invesco Aim in
the Sub-Committees review monthly and During the annual contract renewal providing these services, and the
quarterly comparative performance process, the Board considered the factors credentials and experience of the officers
information and periodic asset flow data discussed below under the heading "Factors and employees of Invesco Aim who provide
for their assigned funds. These materials and Conclusions and Summary of Independent these services. The Board's review of the
are prepared under the direction and Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide
supervision of the independent Senior fairness and reasonableness of the Fund's these services included the Board's
Officer. Over the course of each year, the investment advisory agreement and consideration of Invesco Aim's portfolio
Sub-Committees meet with portfolio sub-advisory agreements at the contract and product review process, various back
managers for their assigned funds and renewal meetings and at their meetings office support functions provided by
other members of management and review throughout the year as part of their Invesco Aim and its affiliates, and
with these individuals the performance, ongoing oversight of the Fund. The Fund's Invesco Aim's equity and fixed income
investment objective(s), policies, investment advisory agreement and trading operations. The Board concluded
strategies and limitations of these funds. sub-advisory agreements were considered that the nature, extent and quality of the
In addition to their meetings separately, although the Board also advisory services provided to the Fund by
throughout the year, the Sub-Committees considered the common interests of all of Invesco Aim were appropriate and that
meet at designated contract renewal the AIM Funds in their deliberations. The Invesco Aim currently is providing
meetings each year to conduct an in-depth Board considered all of the information satisfactory advisory services in
review of the performance, fees and provided to them and did not identify any accordance with the terms of the Fund's
expenses of their assigned funds. During particular factor that was controlling. investment advisory agreement. In
the contract Each Trustee may have evaluated the addition, based on their ongoing meetings
information provided differently throughout the year with the Fund's
portfolio manager or
continued
AIM V.I. DIVERSIFIED INCOME FUND
managers, the Board concluded that these Board also concluded that it would be of the Fund. The Board considered the
individuals are competent and able to appropriate for the Board to continue to contractual nature of this fee waiver and
continue to carry out their monitor more closely the performance of noted that it remains in effect until at
responsibilities under the Fund's the Fund. Although the independent written least April 30, 2010. The Board also
investment advisory agreement. evaluation of the Fund's Senior Officer considered the effect this expense
In determining whether to continue the only considered Fund performance through limitation would have on the Fund's
Fund's investment advisory agreement, the the most recent calendar year, the Board estimated total expenses.
Board considered the prior relationship also reviewed more recent Fund performance After taking account of the Fund's
between Invesco Aim and the Fund, as well and this review did not change their contractual advisory fee rate, as well as
as the Board's knowledge of Invesco Aim's conclusions. the comparative advisory fee information
operations, and concluded that it was and the expense limitation discussed
beneficial to maintain the current C. Advisory Fees and Fee Waivers above, the Board concluded that the Fund's
relationship, in part, because of such The Board compared the Fund's contractual advisory fees were fair and reasonable.
knowledge. The Board also considered the advisory fee rate to the contractual
steps that Invesco Aim and its affiliates advisory fee rates of funds in the Fund's D. Economies of Scale and Breakpoints
have taken over the last several years to Lipper expense group that are not managed The Board considered the extent to
improve the quality and efficiency of the by Invesco Aim, at a common asset level which there are economies of scale in
services they provide to the AIM Funds in and as of the end of the past calendar Invesco Aim's provision of advisory
the areas of investment performance, year. The Board noted that the Fund's services to the Fund. The Board also
product line diversification, contractual advisory fee rate was above considered whether the Fund benefits from
distribution, fund operations, shareholder the median contractual advisory fee rate such economies of scale through
services and compliance. The Board of funds in its expense group. The Board contractual breakpoints in the Fund's
concluded that the quality and efficiency also reviewed the methodology used by advisory fee schedule or through advisory
of the services Invesco Aim and its Lipper in determining contractual fee fee waivers or expense limitations. The
affiliates provide to the AIM Funds in rates. Board noted that the Fund's contractual
each of these areas have generally The Board also compared the Fund's advisory fee schedule includes one
improved, and support the Board's approval effective fee rate (the advisory fee after breakpoint but that, due to the Fund's
of the continuance of the Fund's any advisory fee waivers and before any asset level at the end of the past
investment advisory agreement. expense limitations/waivers) to the calendar year and the way in which the
advisory fee rates of other clients of breakpoint has been structured, the Fund
B. Fund Performance Invesco Aim and its affiliates with has yet to benefit from the breakpoint.
The Board compared the Fund's performance investment strategies comparable to those Based on this information, the Board
during the past one, three and five of the Fund, including two mutual funds concluded that the Fund's advisory fees
calendar years to the performance of funds advised by Invesco Aim. The Board noted would reflect economies of scale at higher
in the Fund's performance group that are that the Fund's rate was above the rates asset levels. The Board also noted that
not managed by Invesco Aim, and against for the two mutual funds, one of which is the Fund shares directly in economies of
the performance of all funds in the Lipper used in wrap fee and other similar scale through lower fees charged by third
Variable Annuity Underlying Funds - programs and for which Invesco Aim has party service providers based on the
Corporate Debt BBB-Rated Index. The Board irrevocably waived its advisory fee. combined size of all of the AIM Funds and
also reviewed the criteria used by Invesco Additionally, the Board compared the affiliates.
Aim to identify the funds in the Fund's Fund's effective fee rate to the total
performance group. The Board noted that advisory fees paid by numerous separately E. Profitability and Financial
the Fund's performance was in the fifth managed accounts/wrap accounts advised by Resources of Invesco Aim
quintile of its performance group for the an Invesco Aim affiliate. The Board noted The Board reviewed information from
one, three and five year periods (the that the Fund's rate was generally above Invesco Aim concerning the costs of the
first quintile being the best performing the rates for the separately managed advisory and other services that Invesco
funds and the fifth quintile being the accounts/wrap accounts. The Board Aim and its affiliates provide to the Fund
worst performing funds). The Board noted considered that management of the and the profitability of Invesco Aim and
that the Fund's performance was below the separately managed accounts/wrap accounts its affiliates in providing these
performance of the Index for the one, by the Invesco Aim affiliate involves services. The Board also reviewed
three and five year periods. The Board different levels of services and different information concerning the financial
noted that Invesco Aim acknowledges the operational and regulatory requirements condition of Invesco Aim and its
Fund's underperformance because of shorter than Invesco Aim's management of the Fund. affiliates. The Board also reviewed with
term performance results and continues to The Board concluded that these differences Invesco Aim the methodology used to
monitor the Fund. The Board also are appropriately reflected in the fee prepare the profitability information. The
considered the steps Invesco Aim has taken structure for the Fund. Board considered the overall profitability
over the last several years to improve the The Board noted that Invesco Aim has of Invesco Aim, as well as the
quality and efficiency of the services contractually agreed to waive fees and/or profitability of Invesco Aim in connection
that Invesco Aim provides to the AIM limit expenses of the Fund through at with managing the Fund. The Board noted
Funds. The Board concluded that Invesco least April 30, 2010 in an amount that Invesco Aim continues to operate at a
Aim continues to be responsive to the necessary to limit total annual operating net profit, although increased expenses in
Board's focus on fund performance. expenses to a specified percentage of recent years have reduced the
However, due to the Fund's average daily net assets for each class profitability of Invesco Aim and its
underperformance, the affiliates. The Board concluded that the
Fund's fees were fair and reason-
continued
AIM V.I. DIVERSIFIED INCOME FUND
able, and that the level of profits execution services. The Board noted that services. The Board concluded that the
realized by Invesco Aim and its affiliates soft dollar arrangements shift the payment nature, extent and quality of the services
from providing services to the Fund was obligation for the research and execution to be provided by the Affiliated
not excessive in light of the nature, services from Invesco Aim to the funds and Sub-Advisers were appropriate. The Board
quality and extent of the services therefore may reduce Invesco Aim's noted that the Affiliated Sub-Advisers,
provided. The Board considered whether expenses. The Board also noted that which have offices and personnel that are
Invesco Aim is financially sound and has research obtained through soft dollar geographically dispersed in financial
the resources necessary to perform its arrangements may be used by Invesco Aim in centers around the world, have been formed
obligations under the Fund's investment making investment decisions for the Fund in part for the purpose of researching and
advisory agreement, and concluded that and may therefore benefit Fund compiling information and making
Invesco Aim has the financial resources shareholders. The Board concluded that recommendations on the markets and
necessary to fulfill these obligations. Invesco Aim's soft dollar arrangements economies of various countries and
were appropriate. The Board also concluded securities of companies located in such
F. Independent Written Evaluation of that, based on their review and countries or on various types of
the Fund's Senior Officer representations made by Invesco Aim, these investments and investment techniques, and
The Board noted that, at their direction, arrangements were consistent with providing investment advisory services.
the Senior Officer of the Fund, who is regulatory requirements. The Board concluded that the sub-advisory
independent of Invesco Aim and Invesco The Board considered the fact that the agreements will benefit the Fund and its
Aim's affiliates, had prepared an Fund's uninvested cash and cash collateral shareholders by permitting Invesco Aim to
independent written evaluation to assist from any securities lending arrangements utilize the additional resources and
the Board in determining the may be invested in money market funds talent of the Affiliated Sub-Advisers in
reasonableness of the proposed management advised by Invesco Aim pursuant to managing the Fund.
fees of the AIM Funds, including the Fund. procedures approved by the Board. The
The Board noted that they had relied upon Board noted that Invesco Aim will receive B. Fund Performance
the Senior Officer's written evaluation advisory fees from these affiliated money The Board did not view Fund performance as
instead of a competitive bidding process. market funds attributable to such a relevant factor in considering whether
In determining whether to continue the investments, although Invesco Aim has to approve the sub-advisory agreements for
Fund's investment advisory agreement, the contractually agreed to waive through at the Fund, as no Affiliated Sub-Adviser
Board considered the Senior Officer's least April 30, 2010, the advisory fees served as a sub-adviser to the Fund prior
written evaluation. payable by the Fund in an amount equal to to May 1, 2008.
100% of the net advisory fees Invesco Aim
G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees
and its Affiliates funds with respect to the Fund's The Board considered the services to be
The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers
benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements
affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco
relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment
fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the
affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and
administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to
distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board
Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no
Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its
providing these services and the shareholders. shareholders, as they are paid by Invesco
organizational structure employed by Aim to the Affiliated Sub-Advisers, and
Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements that Invesco Aim and the Affiliated
these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking
that these services are provided to the Services Provided by Affiliated account of the Fund's contractual
Fund pursuant to written contracts which Sub-Advisors sub-advisory fee rate, as well as other
are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that
basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and
that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, reasonable.
providing these services in a satisfactory Invesco Asset Management Limited, Invesco
manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco D. Financial Resources of the
their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers
continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each
Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially
The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to
realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its
portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and
through "soft dollar" arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser
these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to
commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations.
funds advised by Invesco Aim are used to Sub-Advisers who will provide these
pay for research and
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. Diversified Income
Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware
statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held
for the following purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will
serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust that
would permit the Board of Trustees of the Trust to terminate the Trust, the
Fund, and each other series portfolio of the Trust, or a share class without
a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and
each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland,
GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.),
Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and
Invesco Senior Secured Management, Inc.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- -----------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker..................................................... 474,883,590 19,741,622
Frank S. Bayley.................................................. 474,653,109 19,972,103
James T. Bunch................................................... 475,597,417 19,027,795
Bruce L. Crockett................................................ 474,900,579 19,724,633
Albert R. Dowden................................................. 474,749,929 19,875,283
Jack M. Fields................................................... 475,205,840 19,419,372
Martin L. Flanagan............................................... 475,248,336 19,376,876
Carl Frischling.................................................. 474,453,674 20,171,538
Prema Mathai-Davis............................................... 473,569,192 21,056,020
Lewis F. Pennock................................................. 475,072,501 19,552,711
Larry Soll, Ph.D. ............................................... 475,170,544 19,454,668
Raymond Stickel, Jr. ............................................ 475,420,825 19,204,387
Philip A. Taylor................................................. 475,640,570 18,984,642
</Table>
<Table>
<Caption>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
- --------------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of
Trustees of the Trust to terminate the Trust, the
Fund, and each other series portfolio of the Trust, or
a share class without a shareholder vote.............. 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between Invesco
Aim Advisors, Inc. and each of AIM Funds Management,
Inc.; Invesco Asset Management Deutschland, GmbH;
Invesco Asset Management Limited; Invesco Asset
Management (Japan) Limited; Invesco Australia Limited;
Invesco Global Asset Management (N.A.), Inc.; Invesco
Hong Kong Limited; Invesco Institutional (N.A.), Inc.;
and Invesco Senior Secured Management, Inc............ 3,998,424 65,145 194,839
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. DIVERSIFIED INCOME FUND
[INVESCO AIM LOGO] AIM V.I. DYNAMICS FUND
- SERVICE MARK - SEMIANNUAL REPORT TO SHAREHOLDERS - JUNE 30, 2008
AIM Investments [MOUNTAIN GRAPHIC]
became INVESCO AIM
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FUND PERFORMANCE
=======================================================================================
PERFORMANCE SUMMARY
FUND VS. INDEXES
Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer
charges. If variable product issuer charges were included, returns would be
lower.
Series I Shares -11.85%
Series II Shares -11.96
S&P 500 Index(TRIANGLE) (Broad Market Index) -11.90
Russell Midcap Growth Index(TRIANGLE) (Style-Specific Index) -6.81
Lipper VUF Mid-Cap Growth Funds Index(TRIANGLE) (Peer Group Index) -8.98
(TRIANGLE)Lipper Inc.
The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted index
covering all major areas of the U.S. economy. It is not the 500 largest companies, but
rather the most widely held 500 companies chosen with respect to market size,
liquidity, and their industry.
The RUSSELL MIDCAP--REGISTERED TRADEMARK-- GROWTH INDEX measures the performance of
those Russell Midcap companies with higher price-to-book ratios and higher forecasted
growth values. The Russell Midcap Growth Index is a trademark/service mark of the Frank
Russell Company. Russell--REGISTERED TRADEMARK-- is a trademark of the Frank Russell
Company.
The LIPPER VUF MID-CAP GROWTH FUNDS INDEX is an equally weighted representation of
the largest variable insurance underlying funds in the Lipper Mid-Cap Growth Funds
category. These funds have an above-average price-to-earnings ratio, price-to-book
ratio, and three-year sales-per-share growth value, compared to the S&P MidCap 400
Index.
The Fund is not managed to track the performance of any particular index, including
the indexes defined here, and consequently, the performance of the Fund may deviate
significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index
results include reinvested dividends, and they do not reflect sales charges.
Performance of an index of funds reflects fund expenses; performance of a market index
does not.
=======================================================================================
==========================================
AVERAGE ANNUAL TOTAL RETURNS THE PERFORMANCE DATA QUOTED REPRESENT OF THE FUND DIRECTLY. PERFORMANCE FIGURES
As of 6/30/08 PAST PERFORMANCE AND CANNOT GUARANTEE GIVEN REPRESENT THE FUND AND ARE NOT
COMPARABLE FUTURE RESULTS; CURRENT INTENDED TO REFLECT ACTUAL VARIABLE
SERIES I SHARES PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE PRODUCT VALUES. THEY DO NOT REFLECT SALES
Inception (8/22/97) 5.15% CONTACT YOUR VARIABLE PRODUCT ISSUER OR CHARGES, EXPENSES AND FEES ASSESSED IN
10 Years 3.54 FINANCIAL ADVISOR FOR THE MOST RECENT CONNECTION WITH A VARIABLE PRODUCT. SALES
5 Years 11.37 MONTH-END VARIABLE PRODUCT PERFORMANCE. CHARGES, EXPENSES AND FEES, WHICH ARE
1 Year -13.38 PERFORMANCE FIGURES REFLECT FUND EXPENSES, DETERMINED BY THE VARIABLE PRODUCT
REINVESTED DISTRIBUTIONS AND CHANGES IN ISSUERS, WILL VARY AND WILL LOWER THE
SERIES II SHARES NET ASSET VALUE. INVESTMENT RETURN AND TOTAL RETURN.
10 Years 3.28% PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU THE MOST RECENT MONTH-END PERFORMANCE
5 Years 11.08 MAY HAVE A GAIN OR LOSS WHEN YOU SELL DATA AT THE FUND LEVEL, EXCLUDING VARIABLE
1 Year -13.59 SHARES. PRODUCT CHARGES, IS AVAILABLE ON THE
========================================== THE TOTAL ANNUAL FUND OPERATING EXPENSE INVESCO AIM AUTOMATED INFORMATION LINE,
RATIO SET FORTH IN THE MOST RECENT FUND 866 702 4402. AS MENTIONED ABOVE, FOR THE
SERIES II SHARES' INCEPTION DATE IS APRIL PROSPECTUS AS OF THE DATE OF THIS REPORT MOST RECENT MONTH-END PERFORMANCE
30, 2004. RETURNS SINCE THAT DATE ARE FOR SERIES I AND SERIES II SHARES WAS INCLUDING VARIABLE PRODUCT CHARGES, PLEASE
HISTORICAL. ALL OTHER RETURNS ARE THE 1.11% AND 1.36%, RESPECTIVELY. THE EXPENSE CONTACT YOUR VARIABLE PRODUCT ISSUER OR
BLENDED RETURNS OF THE HISTORICAL RATIOS PRESENTED ABOVE MAY VARY FROM THE FINANCIAL ADVISOR.
PERFORMANCE OF SERIES II SHARES SINCE EXPENSE RATIOS PRESENTED IN OTHER SECTIONS
THEIR INCEPTION AND THE RESTATED OF THIS REPORT THAT ARE BASED ON EXPENSES
HISTORICAL PERFORMANCE OF SERIES I SHARES INCURRED DURING THE PERIOD COVERED BY THIS
(FOR PERIODS PRIOR TO INCEPTION OF SERIES REPORT.
II SHARES) ADJUSTED TO REFLECT THE RULE AIM V.I. DYNAMICS FUND, A SERIES
12B-1 FEES APPLICABLE TO SERIES II SHARES. PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS,
THE INCEPTION DATE OF SERIES I SHARES IS IS CURRENTLY OFFERED THROUGH INSURANCE
AUGUST 22, 1997. THE PERFORMANCE OF THE COMPANIES ISSUING VARIABLE PRODUCTS. YOU
FUND'S SERIES I AND SERIES II SHARE CANNOT PURCHASE SHARES
CLASSES WILL DIFFER PRIMARILY DUE TO
DIFFERENT CLASS EXPENSES.
AIM V.I. DYNAMICS FUND
PORTFOLIO COMPOSITION
By sector, based on Net Assets
as of June 30, 2008
<Table>
- -------------------------------------------------------------------------
Industrials 18.8%
- -------------------------------------------------------------------------
Information Technology 17.9
- -------------------------------------------------------------------------
Consumer Discretionary 14.7
- -------------------------------------------------------------------------
Energy 13.6
- -------------------------------------------------------------------------
Health Care 9.3
- -------------------------------------------------------------------------
Financials 8.8
- -------------------------------------------------------------------------
Materials 8.2
- -------------------------------------------------------------------------
Telecommunication Services 2.9
- -------------------------------------------------------------------------
Consumer Staples 2.7
- -------------------------------------------------------------------------
Utilities 1.3
- -------------------------------------------------------------------------
Money Market Funds Plus Other Assets Less Liabilities 1.8
_________________________________________________________________________
=========================================================================
</Table>
SCHEDULE OF INVESTMENTS(a)
June 30, 2008
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.20%
AEROSPACE & DEFENSE-1.38%
Precision Castparts Corp. 12,822 $ 1,235,656
===========================================================================
APPAREL RETAIL-3.45%
Aeropostale, Inc.(b) 53,373 1,672,176
- ---------------------------------------------------------------------------
Guess?, Inc. 24,264 908,687
- ---------------------------------------------------------------------------
Urban Outfitters, Inc.(b) 16,440 512,763
===========================================================================
3,093,626
===========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-3.14%
Coach, Inc.(b) 27,433 792,265
- ---------------------------------------------------------------------------
Hanesbrands, Inc.(b) 61,202 1,661,022
- ---------------------------------------------------------------------------
Under Armour, Inc.-Class A(b) 14,032 359,781
===========================================================================
2,813,068
===========================================================================
APPLICATION SOFTWARE-4.86%
Amdocs Ltd.(b) 30,640 901,429
- ---------------------------------------------------------------------------
ANSYS, Inc.(b) 31,227 1,471,416
- ---------------------------------------------------------------------------
Citrix Systems, Inc.(b) 14,885 437,768
- ---------------------------------------------------------------------------
Solera Holdings Inc.(b) 55,850 1,544,811
===========================================================================
4,355,424
===========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.15%
Affiliated Managers Group, Inc.(b) 15,161 1,365,400
- ---------------------------------------------------------------------------
Riskmetrics Group Inc.(b)(c) 28,813 565,887
===========================================================================
1,931,287
===========================================================================
BIOTECHNOLOGY-1.88%
Genzyme Corp.(b) 13,200 950,664
- ---------------------------------------------------------------------------
United Therapeutics Corp.(b) 7,500 733,125
===========================================================================
1,683,789
===========================================================================
CASINOS & GAMING-0.72%
International Game Technology 25,919 647,457
===========================================================================
COAL & CONSUMABLE FUELS-1.74%
Alpha Natural Resources, Inc.(b) 15,000 1,564,350
===========================================================================
COMMUNICATIONS EQUIPMENT-1.26%
Infinera Corp.(b) 38,638 340,787
- ---------------------------------------------------------------------------
Juniper Networks, Inc.(b) 35,729 792,469
===========================================================================
1,133,256
===========================================================================
COMPUTER & ELECTRONICS RETAIL-0.40%
GameStop Corp.-Class A(b) 8,930 360,772
===========================================================================
COMPUTER STORAGE & PERIPHERALS-1.61%
Logitech International S.A. (Switzerland)(b)(d) 23,673 631,158
- ---------------------------------------------------------------------------
NetApp, Inc.(b) 37,338 808,741
===========================================================================
1,439,899
===========================================================================
CONSTRUCTION & ENGINEERING-4.90%
Foster Wheeler Ltd.(b) 19,672 1,439,007
- ---------------------------------------------------------------------------
Quanta Services, Inc.(b) 36,788 1,223,937
- ---------------------------------------------------------------------------
Shaw Group Inc. (The)(b) 28,055 1,733,518
===========================================================================
4,396,462
===========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DYNAMICS FUND
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-2.13%
Bucyrus International, Inc. 18,488 $ 1,349,994
- ---------------------------------------------------------------------------
Joy Global Inc. 7,394 560,687
===========================================================================
1,910,681
===========================================================================
CONSUMER FINANCE-1.73%
SLM Corp.(b) 80,380 1,555,353
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.02%
Alliance Data Systems Corp.(b) 32,071 1,813,615
===========================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-3.72%
Corrections Corp. of America(b) 55,243 1,517,525
- ---------------------------------------------------------------------------
Equifax Inc. 13,113 440,859
- ---------------------------------------------------------------------------
IHS Inc.-Class A(b) 19,830 1,380,168
===========================================================================
3,338,552
===========================================================================
DRUG RETAIL-1.62%
Shoppers Drug Mart Corp. (Canada) 26,599 1,457,183
===========================================================================
EDUCATION SERVICES-2.27%
Apollo Group Inc.-Class A(b) 20,413 903,479
- ---------------------------------------------------------------------------
ITT Educational Services, Inc.(b) 13,742 1,135,502
===========================================================================
2,038,981
===========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.86%
General Cable Corp.(b) 27,392 1,666,803
===========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.56%
Amphenol Corp.-Class A 31,080 1,394,870
===========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-1.31%
Intrepid Potash, Inc.(b)(c) 7,809 513,676
- ---------------------------------------------------------------------------
Potash Corp. of Saskatchewan Inc. (Canada) 2,882 658,739
===========================================================================
1,172,415
===========================================================================
HEALTH CARE EQUIPMENT-1.12%
Hologic, Inc.(b) 45,919 1,001,034
===========================================================================
HEALTH CARE SERVICES-0.77%
Express Scripts, Inc.(b) 11,000 689,920
===========================================================================
HOUSEWARES & SPECIALTIES-1.21%
Jarden Corp.(b) 59,607 1,087,232
===========================================================================
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS-1.33%
KGEN Power Corp. (Acquired 01/12/07; Cost
$865,032)(b)(e)(f) 61,788 1,189,419
===========================================================================
INDUSTRIAL MACHINERY-1.80%
Flowserve Corp. 11,791 1,611,830
===========================================================================
INVESTMENT BANKING & BROKERAGE-1.19%
TD Ameritrade Holding Corp.(b) 59,097 1,069,065
===========================================================================
IT CONSULTING & OTHER SERVICES-1.16%
Cognizant Technology Solutions Corp.-Class A(b) 31,892 1,036,809
===========================================================================
LIFE SCIENCES TOOLS & SERVICES-2.64%
AMAG Pharmaceuticals, Inc.(b) 12,055 411,076
- ---------------------------------------------------------------------------
Pharmaceutical Product Development, Inc. 22,536 966,794
- ---------------------------------------------------------------------------
Waters Corp.(b) 15,387 992,461
===========================================================================
2,370,331
===========================================================================
MANAGED HEALTH CARE-1.78%
Aveta, Inc. (Acquired 12/21/05-05/22/06; Cost
$1,300,095)(b)(e)(f) 90,000 720,000
- ---------------------------------------------------------------------------
Humana Inc.(b) 21,977 874,025
===========================================================================
1,594,025
===========================================================================
METAL & GLASS CONTAINERS-5.36%
Crown Holdings, Inc.(b) 71,816 1,866,498
- ---------------------------------------------------------------------------
Owens-Illinois, Inc.(b) 36,171 1,507,969
- ---------------------------------------------------------------------------
Pactiv Corp.(b) 67,301 1,428,800
===========================================================================
4,803,267
===========================================================================
MORTGAGE REIT'S-0.99%
Annaly Capital Management Inc. 57,185 886,939
===========================================================================
OIL & GAS DRILLING-5.43%
ENSCO International Inc. 13,503 1,090,232
- ---------------------------------------------------------------------------
Helmerich & Payne, Inc. 12,300 885,846
- ---------------------------------------------------------------------------
Hercules Offshore, Inc.(b) 31,505 1,197,820
- ---------------------------------------------------------------------------
Noble Corp. 26,100 1,695,456
===========================================================================
4,869,354
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.63%
Cameron International Corp.(b) 26,493 1,466,388
===========================================================================
OIL & GAS EXPLORATION & PRODUCTION-3.66%
Carrizo Oil & Gas, Inc.(b) 15,200 1,034,968
- ---------------------------------------------------------------------------
Denbury Resources Inc.(b) 19,900 726,350
- ---------------------------------------------------------------------------
Southwestern Energy Co.(b) 31,897 1,518,616
===========================================================================
3,279,934
===========================================================================
OIL & GAS STORAGE & TRANSPORTATION-1.18%
Williams Cos., Inc. (The) 26,300 1,060,153
===========================================================================
PERSONAL PRODUCTS-1.11%
Estee Lauder Cos. Inc. (The)-Class A 21,354 991,893
===========================================================================
PHARMACEUTICALS-1.09%
Allergan, Inc. 18,784 977,707
===========================================================================
PUBLISHING-1.51%
McGraw-Hill Cos., Inc. (The) 33,772 1,354,933
===========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DYNAMICS FUND
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.19%
Meruelo Maddux Properties, Inc.(b) 78,106 $ 170,271
===========================================================================
RESTAURANTS-0.99%
Burger King Holdings Inc. 33,069 885,918
===========================================================================
SEMICONDUCTOR EQUIPMENT-0.24%
Lam Research Corp.(b) 5,979 216,141
===========================================================================
SEMICONDUCTORS-3.96%
Altera Corp. 44,387 918,811
- ---------------------------------------------------------------------------
Intersil Corp.-Class A 34,462 838,116
- ---------------------------------------------------------------------------
Maxim Integrated Products, Inc. 52,970 1,120,316
- ---------------------------------------------------------------------------
ON Semiconductor Corp.(b) 73,291 672,078
===========================================================================
3,549,321
===========================================================================
SPECIALIZED FINANCE-2.58%
IntercontinentalExchange Inc.(b) 8,108 924,312
- ---------------------------------------------------------------------------
Moody's Corp. 40,384 1,390,825
===========================================================================
2,315,137
===========================================================================
SPECIALTY STORES-1.02%
Dick's Sporting Goods, Inc.(b) 36,508 647,652
- ---------------------------------------------------------------------------
Ulta Salon, Cosmetics & Fragrance, Inc.(b) 23,579 265,028
===========================================================================
912,680
===========================================================================
STEEL-1.50%
Cleveland-Cliffs Inc. 7,455 888,562
- ---------------------------------------------------------------------------
Steel Dynamics, Inc. 11,774 460,010
===========================================================================
1,348,572
===========================================================================
SYSTEMS SOFTWARE-1.19%
McAfee Inc.(b) 31,395 1,068,372
===========================================================================
TRUCKING-3.00%
Con-way Inc. 20,402 964,199
- ---------------------------------------------------------------------------
Hunt (J.B.) Transport Services, Inc. 14,136 470,446
- ---------------------------------------------------------------------------
Landstar System, Inc. 22,728 1,255,040
===========================================================================
2,689,685
===========================================================================
WIRELESS TELECOMMUNICATION SERVICES-2.86%
American Tower Corp.-Class A(b) 11,646 492,044
- ---------------------------------------------------------------------------
Crown Castle International Corp.(b) 24,738 958,103
- ---------------------------------------------------------------------------
SBA Communications Corp.-Class A(b) 30,930 1,113,789
===========================================================================
2,563,936
===========================================================================
Total Common Stocks & Other Equity Interests
(Cost $83,365,026) 88,063,765
===========================================================================
MONEY MARKET FUNDS-1.30%
Liquid Assets Portfolio-Institutional Class(g) 582,182 582,182
- ---------------------------------------------------------------------------
Premier Portfolio-Institutional Class(g) 582,182 582,182
===========================================================================
Total Money Market Funds (Cost $1,164,364) 1,164,364
===========================================================================
TOTAL INVESTMENTS (excluding investments purchased
with cash collateral from securities on
loan)-99.50% (Cost $84,529,390) 89,228,129
===========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES
ON LOAN
MONEY MARKET FUNDS-0.90%
Liquid Assets Portfolio-Institutional Class (Cost
$808,880)(g)(h) 808,880 808,880
===========================================================================
TOTAL INVESTMENTS-100.40% (Cost $85,338,270) 90,037,009
===========================================================================
OTHER ASSETS LESS LIABILITIES-(0.40)% (361,341)
===========================================================================
NET ASSETS-100.00% $89,675,668
___________________________________________________________________________
===========================================================================
</Table>
Investment Abbreviations:
<Table>
REIT - Real Estate Investment Trust
</Table>
Notes to Schedule of Investments:
(a) Industry and/or sector classifications used in this report are generally
according to the Global Industry Classification Standard, which was
developed by and is the exclusive property and a service mark of MSCI Inc.
and Standard & Poor's.
(b) Non-income producing security.
(c) All or a portion of this security was out on loan at June 30, 2008.
(d) In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The value of this security at June 30, 2008 represented 0.70% of the
Fund's Net Assets. See Note 1A.
(e) Security purchased or received in a transaction exempt from registration
under the Securities Act of 1933, as amended. The security may be resold
pursuant to an exemption from registration under the 1933 Act, typically
to qualified institutional buyers. The aggregate value of these securities
at June 30, 2008 was $1,909,419, which represented 2.13% of the Fund's Net
Assets. These securities are considered to be illiquid. The Fund is
limited to investing 15% of net assets in illiquid securities at the time
of purchase.
(f) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate value of these
securities at June 30, 2008 was $1,909,419, which represented 2.13% of the
Fund's Net Assets. See Note 1A.
(g) The money market fund and the Fund are affiliated by having the same
investment advisor.
(h) The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 1I.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DYNAMICS FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, at value (Cost
$83,365,026)* $ 88,063,765
- ------------------------------------------------------
Investments in affiliated money market
funds (Cost $1,973,244) 1,973,244
======================================================
Total investments (Cost
$85,338,270) 90,037,009
======================================================
Foreign currencies, at value (Cost
$333) 339
- ------------------------------------------------------
Receivables for:
Investments sold 859,398
- ------------------------------------------------------
Fund shares sold 16,387
- ------------------------------------------------------
Dividends 69,558
- ------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 18,101
- ------------------------------------------------------
Other assets 2,203
======================================================
Total assets 91,002,995
______________________________________________________
======================================================
LIABILITIES:
Payables for:
Investments purchased 219,344
- ------------------------------------------------------
Fund shares reacquired 172,783
- ------------------------------------------------------
Collateral upon return of securities
loaned 808,880
- ------------------------------------------------------
Accrued fees to affiliates 60,568
- ------------------------------------------------------
Accrued other operating expenses 38,905
- ------------------------------------------------------
Trustee deferred compensation and
retirement plans 26,847
======================================================
Total liabilities 1,327,327
======================================================
Net assets applicable to shares
outstanding $ 89,675,668
______________________________________________________
======================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $148,898,161
- ------------------------------------------------------
Undistributed net investment income
(loss) (268,413)
- ------------------------------------------------------
Undistributed net realized gain (loss) (63,652,778)
- ------------------------------------------------------
Unrealized appreciation 4,698,698
======================================================
$ 89,675,668
______________________________________________________
======================================================
NET ASSETS:
Series I $ 89,667,129
______________________________________________________
======================================================
Series II $ 8,539
______________________________________________________
======================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 5,288,331
______________________________________________________
======================================================
Series II 509
______________________________________________________
======================================================
Series I:
Net asset value per share $ 16.96
______________________________________________________
======================================================
Series II:
Net asset value per share $ 16.78
______________________________________________________
======================================================
</Table>
* At June 30, 2008, securities with an aggregate value of $786,014 were on loan
to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding
taxes of $1,811) $ 264,903
- ------------------------------------------------------
Dividends from affiliated money market
funds (includes securities lending
income of $33,595) 70,679
======================================================
Total investment income 335,582
======================================================
EXPENSES:
Advisory fees 361,169
- ------------------------------------------------------
Administrative services fees 145,568
- ------------------------------------------------------
Custodian fees 15,446
- ------------------------------------------------------
Distribution fees -- Series II 11
- ------------------------------------------------------
Transfer agent fees 8,211
- ------------------------------------------------------
Trustees' and officer's fees and
benefits 10,640
- ------------------------------------------------------
Other 43,260
======================================================
Total expenses 584,305
======================================================
Less: Fees waived (1,446)
======================================================
Net expenses 582,859
======================================================
Net investment income (loss) (247,277)
======================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM:
Net realized gain (loss) from:
Investment securities (includes net
gains (losses) from securities
sold to affiliates of $(49,127)) (8,370,543)
- ------------------------------------------------------
Foreign currencies 21,840
======================================================
(8,348,703)
======================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (5,715,281)
- ------------------------------------------------------
Foreign currencies 13
======================================================
(5,715,268)
======================================================
Net realized and unrealized gain (loss) (14,063,971)
======================================================
Net increase (decrease) in net assets
resulting from operations $(14,311,248)
______________________________________________________
======================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DYNAMICS FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- ------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (247,277) $ (759,274)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) (8,348,703) 17,222,780
- ------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) (5,715,268) (2,752,289)
======================================================================================================
Net increase (decrease) in net assets resulting from operations (14,311,248) 13,711,217
======================================================================================================
Share transactions -- net:
Series I (18,206,853) (12,316,934)
- ------------------------------------------------------------------------------------------------------
Series II -- (6,500)
======================================================================================================
Net increase (decrease) in net assets resulting from share
transactions (18,206,853) (12,323,434)
======================================================================================================
Net increase (decrease) in net assets (32,518,101) 1,387,783
======================================================================================================
NET ASSETS:
Beginning of period 122,193,769 120,805,986
======================================================================================================
End of period (including undistributed net investment income (loss)
of $(268,413) and $(21,136), respectively) $ 89,675,668 $122,193,769
______________________________________________________________________________________________________
======================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. DYNAMICS FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Dynamics Fund (the "Fund") is a series portfolio of AIM Variable
Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is long-term capital growth.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on
that day. Securities traded in the over-the-counter market are valued
based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service
they may be considered fair valued. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally
traded. Listed options are valued at the mean between the last bid and the
ask prices from the exchange on which they are principally traded. Options
not listed on an exchange are valued by an independent source at the mean
between the last bid and ask prices. For purposes of determining net asset
value per share, futures and option contracts generally are valued 15
minutes after the close of the customary trading session of the New York
Stock Exchange ("NYSE").
Investments in open-end and closed-end registered investment companies
that do not trade on an exchange are valued at the end of day net asset
value per share. Investments in open-end and closed-end registered
investment companies that trade on an exchange are valued at the last
sales price or official closing price as of the close of the customary
trading session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing
service. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to specific securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Short-term obligations, including
commercial paper, having 60 days or less to maturity are recorded at
amortized cost which approximates value. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve
some risk of default with respect to interest and/or principal payments.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued
at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price
unreliable, the Fund may fair value the security. If the event is likely
to have affected the closing price of the security, the security will be
valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also
be based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current value as of the close of the NYSE. Foreign securities
meeting the approved degree of certainty that the price is not reflective
of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, American
Depositary Receipts and domestic and foreign index futures. Foreign
securities may have additional risks including exchange rate changes,
potential for sharply devalued currencies and high inflation, political
and economical upheaval, the relative lack of issuer information,
relatively low market liquidity and the potential lack of strict financial
and accounting controls and standards.
Securities for which market prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers following procedures
approved by the Board of Trustees. Issuer specific events, market trends,
bid/ask quotes of brokers and information providers and other market data
may be reviewed in the course of making a good faith determination of a
security's fair value.
Valuations change in response to many factors including the historical
and prospective earnings of the issuer, the value of the issuer's assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
AIM V.I. DYNAMICS FUND
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification
claims is considered remote.
I. SECURITIES LENDING -- The Fund may lend portfolio securities having a
market value up to one-third of the Fund's total assets. Such loans are
secured by collateral equal to no less than the market value of the loaned
securities determined daily by the securities lending provider. Such
collateral will be cash or debt securities issued or guaranteed by the
U.S. Government or any of its sponsored agencies. Cash collateral received
in connection with these loans is invested in short-term money market
instruments or affiliated money market funds and is shown as such on the
Schedule of Investments. It is the Fund's policy to obtain additional
collateral from or return excess collateral to the borrower by the end of
the next business day, following the valuation date of the securities
loaned. Therefore, the value of the collateral held may be temporarily
less than the value of the securities on loan. Lending securities entails
a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase
the collateral accordingly, and the borrower fails to return the
securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any
loss on the collateral invested. Dividends received on cash collateral
investments for securities lending transactions, which are net of
compensation to counterparties, is included in Dividends from affiliates
on the Statement of Operations. The aggregate value of securities out on
loan is shown as a footnote on the Statement of Assets and Liabilities.
J. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close
of the NYSE based on quotations posted by banks and major currency
dealers. Portfolio securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i)
sales of foreign currencies, (ii) currency gains or losses realized
between the trade and settlement dates on securities transactions, and
(iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent
AIM V.I. DYNAMICS FUND
of the amounts actually received or paid. Net unrealized foreign currency
gains and losses arise from changes in the fair values of assets and
liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to
foreign taxes on income, gains on investments or currency repatriation, a
portion of which may be recoverable.
K. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. Fluctuations in the value of these contracts are recorded as
unrealized appreciation (depreciation) until the contracts are closed.
When these contracts are closed, realized gains (losses) are recorded.
Realized and unrealized gains and losses on these contracts are included
in the Statement of Operations. The Fund could be exposed to risk, which
may be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
L. PUT OPTIONS PURCHASED -- The Fund may purchase put options including
options on securities indexes and/or futures contracts. By purchasing a
put option, the Fund obtains the right (but not the obligation) to sell
the option's underlying instrument at a fixed strike price. In return for
this right, the Fund pays an option premium. The option's underlying
instrument may be a security, securities index, or a futures contract. Put
options may be used by the Fund to hedge securities it owns by locking in
a minimum price at which the Fund can sell. If security prices fall, the
put option could be exercised to offset all or a portion of the Fund's
resulting losses. At the same time, because the maximum the Fund has at
risk is the cost of the option, purchasing put options does not eliminate
the potential for the Fund to profit from an increase in the value of the
securities hedged. Realized and unrealized gains and losses on these
contracts are included in the Statement of Operations. A risk in buying an
option is that the Fund pays a premium whether or not the option is
exercised. In addition, there can be no assurance that a liquid secondary
market will exist for any option purchased.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $250 million 0.745%
- -------------------------------------------------------------------
Next $250 million 0.73%
- -------------------------------------------------------------------
Next $500 million 0.715%
- -------------------------------------------------------------------
Next $1.5 billion 0.70%
- -------------------------------------------------------------------
Next $2.5 billion 0.685%
- -------------------------------------------------------------------
Next $2.5 billion 0.67%
- -------------------------------------------------------------------
Next $2.5 billion 0.655%
- -------------------------------------------------------------------
Over $10 billion 0.64%
___________________________________________________________________
===================================================================
</Table>
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd., (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
The Advisor has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.30% and Series
II shares to 1.45% of average daily net assets, through at least April 30, 2010.
In determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco")
described more fully below, the expense offset arrangements from which the Fund
may benefit are in the form of credits that the Fund receives from banks where
the Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. These credits are used to pay certain expenses incurred by the Fund. The
Advisor did not waive fees and/or reimburse expenses during the period under
this expense limitation.
Further, the Advisor has contractually agreed, through at least April 30,
2010, to waive the advisory fee payable by the Fund in an amount equal to 100%
of the net advisory fees the Advisor receives from the affiliated money market
funds on investments by the Fund of uninvested cash (but not cash collateral
from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2008, the Advisor waived advisory fees of
$1,446.
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
AIM V.I. DYNAMICS FUND
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund
administrative services and reimbursed $120,705 for services provided by
insurance companies.
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily net
assets of the Series II shares may be paid to insurance companies who furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. For the six months ended June 30, 2008, expenses
incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1 -- Quoted prices in an active market for identical assets.
Level 2 -- Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing
a security. These may include quoted prices for similar securities, interest
rates, prepayment speeds, credit risk and others.
Level 3 -- Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for
example, when there is little or no market activity for an investment at the
end of the period), unobservable inputs may be used. Unobservable inputs
reflect the Fund's own assumptions about the factors market participants would
use in determining fair value of the securities or instruments and would be
based on the best available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS IN
INPUT LEVEL SECURITIES
- --------------------------------------
Level 1 $87,496,432
- --------------------------------------
Level 2 2,540,577
- --------------------------------------
Level 3 --
======================================
$90,037,009
______________________________________
======================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, for the six months ended June 30, 2008, the Fund
engaged in securities sales of $383,992, which resulted in net realized gains
(losses) of $(49,127), and securities purchases of $334,644.
NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan
AIM V.I. DYNAMICS FUND
and receive benefits under such plan. "Trustees' and Officer's Fees and
Benefits" include amounts accrued by the Fund to fund such retirement benefits.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $1,646
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--CASH BALANCES
The Fund is permitted to temporarily carry a negative or overdrawn balance in
its account with The State Street Bank and Trust Company ("SSB"), the custodian
bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund
may either (i) leave funds as a compensating balance in the account so the
custodian bank can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank at a rate agreed upon by the custodian
bank and Invesco Aim, not to exceed the contractually agreed upon rate.
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund had a capital loss carryforward as of December 31, 2007 which expires
as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ---------------------------------------------------------------------------------
December 31, 2010 $55,194,636
_________________________________________________________________________________
=================================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the six months ended June 30, 2008 was $53,098,739 and
$68,952,560, respectively. Cost of investments on a tax basis includes the
adjustments for financial reporting purposes as of the most recently completed
Federal income tax reporting period end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $12,823,970
- -----------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (8,234,668)
===============================================================================================
Net unrealized appreciation of investment securities $ 4,589,302
_______________________________________________________________________________________________
===============================================================================================
Cost of investments for tax purposes is $85,447,707.
</Table>
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008(a) DECEMBER 31, 2007
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 583,787 $ 10,187,409 2,185,271 $ 41,876,286
- ------------------------------------------------------------------------------------------------------------------------
Reacquired:
Series I (1,647,104) (28,394,262) (2,876,008) (54,193,220)
- ------------------------------------------------------------------------------------------------------------------------
Series II -- -- (329) (6,500)
========================================================================================================================
(1,063,317) $(18,206,853) (691,066) $(12,323,434)
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There are entities that are record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate own 74% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, Invesco
Aim and/or Invesco Aim affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services to
the Fund, Invesco Aim and or Invesco Aim affiliates including but not
limited to services such as, securities brokerage, third party record
keeping and account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record by
these entities are also owned beneficially.
AIM V.I. DYNAMICS FUND
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
---------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------
2008 2007 2006 2005 2004 2003
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.24 $ 17.15 $ 14.77 $ 13.34 $ 11.77 $ 8.54
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05) (0.11)(a) (0.09) (0.04) (0.09) (0.07)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.23) 2.20 2.47 1.47 1.66 3.30
===============================================================================================================================
Total from investment operations (2.28) 2.09 2.38 1.43 1.57 3.23
===============================================================================================================================
Net asset value, end of period $ 16.96 $ 19.24 $ 17.15 $ 14.77 $ 13.34 $ 11.77
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) (11.85)% 12.19% 16.11% 10.72% 13.34% 37.82%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $89,667 $122,184 $120,792 $111,655 $123,609 $169,269
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.20%(c) 1.11% 1.12% 1.16% 1.14% 1.14%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.20%(c) 1.11% 1.13% 1.17% 1.14% 1.15%
===============================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.51)%(c) (0.58)% (0.51)% (0.29)% (0.62)% (0.70)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(d) 55% 115% 142% 110% 64% 129%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of $97,482,241.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
<Table>
<Caption>
SERIES II
-------------------------------------------------------------------------
APRIL 30, 2004
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT DATE)
JUNE 30, ---------------------------- TO DECEMBER 31,
2008 2007 2006 2005 2004
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.06 $17.04 $14.71 $13.32 $11.94
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06) (0.15)(a) (0.12) (0.07) (0.07)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.22) 2.17 2.45 1.46 1.45
========================================================================================================================
Total from investment operations (2.28) 2.02 2.33 1.39 1.38
========================================================================================================================
Net asset value, end of period $ 16.78 $19.06 $17.04 $14.71 $13.32
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) (11.96)% 11.85% 15.84% 10.44% 11.56%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 9 $ 10 $ 14 $ 12 $ 11
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.45%(c) 1.36% 1.37% 1.41% 1.40%(d)
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.45%(c) 1.36% 1.38% 1.42% 1.40%(d)
========================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.76)%(c) (0.83)% (0.76)% (0.54)% (0.88)%(d)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(e) 55% 115% 142% 110% 64%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of $8,670.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. DYNAMICS FUND
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor -- Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to Invesco Aim and IADI (Order No. 05-1318). The WVASC makes
findings of fact that Invesco Aim and IADI entered into certain arrangements
permitting market timing of the AIM Funds and failed to disclose these
arrangements in the prospectuses for such Funds, and conclusions of law to the
effect that Invesco Aim and IADI violated the West Virginia securities laws. The
WVASC orders Invesco Aim and IADI to cease any further violations and seeks to
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute. By agreement with the Commissioner of Securities, Invesco Aim's time to
respond to that Order has been indefinitely suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid. The case pending in Illinois State Court regarding fair value
pricing was dismissed with prejudice on May 6, 2008.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA
purportedly brought on behalf of participants in the Invesco 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds remain nominal defendants in the Consolidated Amended Fund
Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco
defendants' motion to dismiss the Amended Class Action Complaint for Violations
of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June
16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this
lawsuit back to the MDL Court for further proceedings..
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, Invesco Aim and IADI have advised the Fund that they are providing
full cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, Invesco Aim and/or related entities and individuals in the
future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. DYNAMICS FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $881.50 $5.61 $1,018.90 $6.02 1.20%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 880.40 6.78 1,017.65 7.27 1.45
- ---------------------------------------------------------------------------------------------------
</Table>
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5%
before expenses.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
AIM V.I. DYNAMICS FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the Board) of AIM comparative performance and fee data ent weight to the various factors. The
Variable Insurance Funds is required under regarding the AIM Funds prepared by an Trustees recognized that the advisory
the Investment Company Act of 1940 to independent company, Lipper, Inc. arrangements and resulting advisory fees
approve annually the renewal of the AIM (Lipper), under the direction and for the Fund and the other AIM Funds are
V.I. Dynamics Fund (the Fund) investment supervision of the independent Senior the result of years of review and
advisory agreement with Invesco Aim Officer who also prepares a separate negotiation between the Trustees and
Advisors, Inc. (Invesco Aim). During analysis of this information for the Invesco Aim, that the Trustees may focus
contract renewal meetings held on June Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of
18-19, 2008, the Board as a whole and the recommendations to the Investments these arrangements in some years than in
disinterested or "independent" Trustees, Committee regarding the performance, fees others, and that the Trustees'
voting separately, approved the and expenses of their assigned funds. The deliberations and conclusions in a
continuance of the Fund's investment Investments Committee considers each particular year may be based in part on
advisory agreement for another year, Sub-Committee's recommendations and makes their deliberations and conclusions of
effective July 1, 2008. In doing so, the its own recommendations regarding the these same arrangements throughout the
Board determined that the Fund's performance, fees and expenses of the AIM year and in prior years.
investment advisory agreement is in the Funds to the full Board. The Investments
best interests of the Fund and its Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF
shareholders and that the compensation to Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION
Invesco Aim under the Fund's investment its annual recommendation to the Board The discussion below serves as a summary
advisory agreement is fair and reasonable. whether to approve the continuance of each of the Senior Officer's independent
The independent Trustees met separately AIM Fund's investment advisory agreement written evaluation with respect to the
during their evaluation of the Fund's and sub-advisory agreements for another Fund's investment advisory agreement as
investment advisory agreement with year. well as a discussion of the material
independent legal counsel from whom they The independent Trustees are assisted factors and related conclusions that
received independent legal advice, and the in their annual evaluation of the Fund's formed the basis for the Board's approval
independent Trustees also received investment advisory agreement by the of the Fund's investment advisory
assistance during their deliberations from independent Senior Officer. One agreement and sub-advisory agreements.
the independent Senior Officer, a responsibility of the Senior Officer is to Unless otherwise stated, information set
full-time officer of the AIM Funds who manage the process by which the AIM Funds' forth below is as of June 19, 2008 and
reports directly to the independent proposed management fees are negotiated does not reflect any changes that may have
Trustees. during the annual contract renewal process occurred since that date, including but
to ensure that they are negotiated in a not limited to changes to the Fund's
THE BOARD'S FUND EVALUATION PROCESS manner that is at arms' length and performance, advisory fees, expense
The Board's Investments Committee has reasonable. Accordingly, the Senior limitations and/or fee waivers.
established three Sub-Committees that are Officer must either supervise a
responsible for overseeing the management competitive bidding process or prepare an I. Investment Advisory Agreement
of a number of the series portfolios of independent written evaluation. The Senior A. Nature, Extent and Quality of
the AIM Funds. This Sub-Committee Officer has recommended that an Services Provided by Invesco Aim
structure permits the Trustees to focus on independent written evaluation be provided The Board reviewed the advisory services
the performance of the AIM Funds that have and, at the direction of the Board, has provided to the Fund by Invesco Aim under
been assigned to them. The Sub-Committees prepared an independent written the Fund's investment advisory agreement,
meet throughout the year to review the evaluation. the performance of Invesco Aim in
performance of their assigned funds, and During the annual contract renewal providing these services, and the
the Sub-Committees review monthly and process, the Board considered the factors credentials and experience of the officers
quarterly comparative performance discussed below under the heading "Factors and employees of Invesco Aim who provide
information and periodic asset flow data and Conclusions and Summary of Independent these services. The Board's review of the
for their assigned funds. These materials Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide
are prepared under the direction and fairness and reasonableness of the Fund's these services included the Board's
supervision of the independent Senior investment advisory agreement and consideration of Invesco Aim's portfolio
Officer. Over the course of each year, the sub-advisory agreements at the contract and product review process, various back
Sub-Committees meet with portfolio renewal meetings and at their meetings office support functions provided by
managers for their assigned funds and throughout the year as part of their Invesco Aim, and Invesco Aim's equity and
other members of management and review ongoing oversight of the Fund. The Fund's fixed income trading operations. The Board
with these individuals the performance, investment advisory agreement and concluded that the nature, extent and
investment objective(s), policies, sub-advisory agreements were considered quality of the advisory services provided
strategies and limitations of these funds. separately, although the Board also to the Fund by Invesco Aim were
In addition to their meetings considered the common interests of all of appropriate and that Invesco Aim currently
throughout the year, the Sub-Committees the AIM Funds in their deliberations. The is providing satisfactory advisory
meet at designated contract renewal Board considered all of the information services in accordance with the terms of
meetings each year to conduct an in-depth provided to them and did not identify any the Fund's investment advisory agreement.
review of the performance, fees and particular factor that was controlling. In addition, based on their ongoing
expenses of their assigned funds. During Each Trustee may have evaluated the meetings throughout the year with the
the contract renewal process, the Trustees information provided differently from one Fund's portfolio manager or managers, the
receive another and attributed differ- Board concluded that these individu-
continued
AIM V.I. DYNAMICS FUND
als are competent and able to continue to pendent written evaluation of the Fund's sidered the effect this expense limitation
carry out their responsibilities under the Senior Officer only considered Fund would have on the Fund's estimated total
Fund's investment advisory agreement. performance through the most recent expenses. The Board concluded that the
In determining whether to continue the calendar year, the Board also reviewed levels of fee waivers/expense limitations
Fund's investment advisory agreement, the more recent Fund performance and this for the Fund were fair and reasonable.
Board considered the prior relationship review did not change their conclusions. After taking account of the Fund's
between Invesco Aim and the Fund, as well contractual advisory fee rate, as well as
as the Board's knowledge of Invesco Aim's C. Advisory Fees and Fee Waivers the comparative advisory fee information
operations, and concluded that it was The Board compared the Fund's contractual and the expense limitation discussed
beneficial to maintain the current advisory fee rate to the contractual above, the Board concluded that the Fund's
relationship, in part, because of such advisory fee rates of funds in the Fund's advisory fees were fair and reasonable.
knowledge. The Board also considered the expense group that are not managed by
steps that Invesco Aim and its affiliates Invesco Aim, at a common asset level and D. Economies of Scale and Breakpoints
have taken over the last several years to as of the end of the past calendar year. The Board considered the extent to which
improve the quality and efficiency of the The Board noted that the Fund's there are economies of scale in Invesco
services they provide to the AIM Funds in contractual advisory fee rate was below Aim's provision of advisory services to
the areas of investment performance, the median contractual advisory fee rate the Fund. The Board also considered
product line diversification, of funds in its expense group. The Board whether the Fund benefits from such
distribution, fund operations, shareholder also reviewed the methodology used by economies of scale through contractual
services and compliance. The Board Lipper in determining contractual fee breakpoints in the Fund's advisory fee
concluded that the quality and efficiency rates. schedule or through advisory fee waivers
of the services Invesco Aim and its The Board also compared the Fund's or expense limitations. The Board noted
affiliates provide to the AIM Funds in effective fee rate (the advisory fee after that the Fund's contractual advisory fee
each of these areas have generally any advisory fee waivers and before any schedule includes seven breakpoints but
improved, and support the Board's approval expense limitations/waivers) to the that, due to the Fund's asset level at the
of the continuance of the Fund's advisory fee rates of other clients of end of the past calendar year and the way
investment advisory agreement. Invesco Aim and its affiliates with in which the breakpoints have been
investment strategies comparable to those structured, the Fund has yet to benefit
B. Fund Performance of the Fund, including three mutual funds from the breakpoints. Based on this
The Board compared the Fund's performance advised by Invesco Aim and one mutual fund information, the Board concluded that the
during the past one, three and five sub-advised by an Invesco Aim affiliate. Fund's advisory fees would reflect
calendar years to the performance of funds The Board noted that the Fund's rate was: economies of scale at higher asset levels.
in the Fund's performance group that are (i) above the rates for the three mutual The Board also noted that the Fund shares
not managed by Invesco Aim, and against funds; and (ii) above the sub-advisory fee directly in economies of scale through
the performance of all funds in the Lipper rate for the sub-advised mutual fund. lower fees charged by third party service
Variable Annuity Underlying Funds - Additionally, the Board compared the providers based on the combined size of
Mid-Cap Growth Index. The Board also Fund's effective fee rate to the total all of the AIM Funds and affiliates.
reviewed the criteria used by Invesco Aim advisory fees paid by a separately managed
to identify the funds in the Fund's account/wrap account advised by Invesco E. Profitability and Financial
performance group for inclusion in the Aim affiliates. The Board noted that the Resources of Invesco Aim
Lipper reports. The Board noted that the Fund's rate was above the rate for the The Board reviewed information from
Fund's performance was in the fourth separately managed account/wrap account. Invesco Aim concerning the costs of the
quintile of its performance group for the The Board considered that management of advisory and other services that Invesco
one year period and the third quintile for the separately managed account/wrap Aim and its affiliates provide to the Fund
the three and five year periods (the first account by the Invesco Aim affiliate and the profitability of Invesco Aim and
quintile being the best performing funds involves different levels of services and its affiliates in providing these
and the fifth quintile being the worst different operational and regulatory services. The Board also reviewed
performing funds). The Board noted that requirements than Invesco Aim's management information concerning the financial
the Fund's performance was below the of the Fund. The Board concluded that condition of Invesco Aim and its
performance of the Index for the one year these differences are appropriately affiliates. The Board also reviewed with
period and above the performance for the reflected in the fee structure for the Invesco Aim the methodology used to
three and five year periods. The Board Fund. prepare the profitability information. The
noted that Invesco Aim acknowledges the The Board noted that Invesco Aim has Board considered the overall profitability
Fund's underperformance because of shorter contractually agreed to waive fees and/or of Invesco Aim, as well as the
term performance results and continues to limit expenses of the Fund through at profitability of Invesco Aim in connection
monitor the Fund. The Board also least April 30, 2010 in an amount with managing the Fund. The Board noted
considered the steps Invesco Aim has taken necessary to limit total annual operating that Invesco Aim continues to operate at a
over the last several years to improve the expenses to a specified percentage of net profit, although increased expenses in
quality and efficiency of the services average daily net assets for each class of recent years have reduced the
that Invesco Aim provides to the AIM the Fund. The Board considered the profitability of Invesco Aim and its
Funds. The Board concluded that Invesco contractual nature of this fee waiver and affiliates. The Board concluded that the
Aim continues to be responsive to the noted that it remains in effect until at Fund's fees were fair and reasonable, and
Board's focus on fund performance. least April 30, 2010. The Board also that the level of profits realized by
Although the inde- con- Invesco Aim and its affiliates from
continued
AIM V.I. DYNAMICS FUND
providing services to the Fund was not ment obligation for the research and by the Affiliated Sub-Advisers were
excessive in light of the nature, quality execution services from Invesco Aim to the appropriate. The Board noted that the
and extent of the services provided. The funds and therefore may reduce Invesco Affiliated Sub-Advisers, which have
Board considered whether Invesco Aim is Aim's expenses. The Board also noted that offices and personnel that are
financially sound and has the resources research obtained through soft dollar geographically dispersed in financial
necessary to perform its obligations under arrangements may be used by Invesco Aim in centers around the world, have been formed
the Fund's investment advisory agreement, making investment decisions for the Fund in part for the purpose of researching and
and concluded that Invesco Aim has the and may therefore benefit Fund compiling information and making
financial resources necessary to fulfill shareholders. The Board concluded that recommendations on the markets and
these obligations. Invesco Aim's soft dollar arrangements economies of various countries and
were appropriate. The Board also concluded securities of companies located in such
F. Independent Written Evaluation of that, based on their review and countries or on various types of
the Fund's Senior Officer representations made by Invesco Aim, these investments and investment techniques, and
The Board noted that, at their direction, arrangements were consistent with providing investment advisory services.
the Senior Officer of the Fund, who is regulatory requirements. The Board concluded that the sub-advisory
independent of Invesco Aim and Invesco The Board considered the fact that the agreements will benefit the Fund and its
Aim's affiliates, had prepared an Fund's uninvested cash and cash collateral shareholders by permitting Invesco Aim to
independent written evaluation to assist from any securities lending arrangements utilize the additional resources and
the Board in determining the may be invested in money market funds talent of the Affiliated Sub-Advisers in
reasonableness of the proposed management advised by Invesco Aim pursuant to managing the Fund.
fees of the AIM Funds, including the Fund. procedures approved by the Board. The
The Board noted that they had relied upon Board noted that Invesco Aim will receive B. Fund Performance
the Senior Officer's written evaluation advisory fees from these affiliated money The Board did not view Fund performance as
instead of a competitive bidding process. market funds attributable to such a relevant factor in considering whether
In determining whether to continue the investments, although Invesco Aim has to approve the sub-advisory agreements for
Fund's investment advisory agreement, the contractually agreed to waive through at the Fund, as no Affiliated Sub-Adviser
Board considered the Senior Officer's least April 30, 2010, the advisory fees currently manages any portion of the
written evaluation. payable by the Fund in an amount equal to Fund's assets.
100% of the net advisory fees Invesco Aim
G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees
and its Affiliates funds with respect to the Fund's The Board considered the services to be
The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers
benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements
affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco
relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment
fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the
affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and
administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to
distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board
Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no
Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its
providing these services and the shareholders. shareholders, as they are paid by Invesco
organizational structure employed by Aim to the Affiliated Sub-Advisers, and
Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements that Invesco Aim and the Affiliated
these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking
that these services are provided to the Services Provided by Affiliated account of the Fund's contractual
Fund pursuant to written contracts which Sub-Advisers sub-advisory fee rate, as well as other
are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that
basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and
that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, reasonable.
providing these services in a satisfactory Invesco Asset Management Limited, Invesco
manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco D. Financial Resources of the
their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers
continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each
Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially
The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to
realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its
portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and
through "soft dollar" arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser
these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to
commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations.
funds advised by Invesco Aim are used to Sub-Advisers who will provide these
pay for research and execution services. services. The Board concluded that the
The Board noted that soft dollar nature, extent and quality of the services
arrangements shift the pay- to be provided
AIM V.I. DYNAMICS FUND
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. Dynamics Fund, an
investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust
("Trust"), was held on February 29, 2008. The Meeting was held for the following
purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom
will serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust
that would permit the Board of Trustees of the Trust to terminate the
Trust, the Fund, and each other series portfolio of the Trust, or a share
class without a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc.
and each of AIM Funds Management, Inc.; Invesco Asset Management
Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset
Management (Japan) Limited; Invesco Australia Limited; Invesco Global
Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco
Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc.
(4)(a) Approve modification of fundamental restriction on issuer
diversification.
(4)(b) Approve modification of fundamental restrictions on issuing senior
securities and borrowing money.
(4)(c) Approve modification of fundamental restriction on underwriting
securities.
(4)(d) Approve modification of fundamental restriction on industry
concentration.
(4)(e) Approve modification of fundamental restriction on real estate
investments.
(4)(f) Approve modification of fundamental restriction on purchasing or selling
commodities.
(4)(g) Approve modification of fundamental restriction on making loans.
(4)(h) Approve modification of fundamental restriction on investments in
investment companies.
(5) Approve making the investment objective of the fund non-fundamental.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- ------------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker..................................................... 474,883,590 19,741,622
Frank S. Bayley.................................................. 474,653,109 19,972,103
James T. Bunch................................................... 475,597,417 19,027,795
Bruce L. Crockett................................................ 474,900,579 19,724,633
Albert R. Dowden................................................. 474,749,929 19,875,283
Jack M. Fields................................................... 475,205,840 19,419,372
Martin L. Flanagan............................................... 475,248,336 19,376,876
Carl Frischling.................................................. 474,453,674 20,171,538
Prema Mathai-Davis............................................... 473,569,192 21,056,020
Lewis F. Pennock................................................. 475,072,501 19,552,711
Larry Soll, Ph.D. ............................................... 475,170,544 19,454,668
Raymond Stickel, Jr. ............................................ 475,420,825 19,204,387
Philip A. Taylor................................................. 475,640,570 18,984,642
</Table>
<Table>
<Caption>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
- --------------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of
Trustees of the Trust to terminate the Trust, the Fund,
and each other series portfolio of the Trust, or a share
class without a shareholder vote......................... 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between Invesco Aim
Advisors, Inc. and each of AIM Funds Management, Inc.;
Invesco Asset Management Deutschland, GmbH; Invesco Asset
Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset
Management (N.A.), Inc.; Invesco Hong Kong Limited;
Invesco Institutional (N.A.), Inc.; and Invesco Senior
Secured Management, Inc. ................................ 5,513,198 347,716 347,162
(4)(a) Approve modification of fundamental restriction on issuer
diversification.......................................... 5,675,180 249,697 283,199
(4)(b) Approve modification of fundamental restrictions on
issuing senior securities and borrowing money............ 5,668,655 256,010 283,411
(4)(c) Approve modification of fundamental restriction on
underwriting securities.................................. 5,673,338 251,327 283,411
(4)(d) Approve modification of fundamental restriction on
industry concentration................................... 5,671,810 252,856 283,410
(4)(e) Approve modification of fundamental restriction on real
estate investments....................................... 5,673,231 251,435 283,410
(4)(f) Approve modification of fundamental restriction on
purchasing or selling commodities........................ 5,673,521 251,144 283,411
(4)(g) Approve modification of fundamental restriction on making
loans.................................................... 5,669,983 254,683 283,410
(4)(h) Approve modification of fundamental restriction on
investments in investment companies...................... 5,644,095 280,571 283,410
(5) Approve making the investment objective of the fund non-
fundamental.............................................. 5,378,969 400,348 428,759
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. DYNAMICS FUND
[INVESCO AIM LOGO] AIM V.I. FINANCIAL SERVICES FUND
- SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008
AIM Investments [MOUNTAIN GRAPHIC]
became INVESCO AIM
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FUND PERFORMANCE
=======================================================================================
PERFORMANCE SUMMARY
FUND VS. INDEXES
Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer
charges. If variable product issuer charges were included, returns would be lower.
Series I Shares -31.65%
Series II Shares -31.72
S&P 500 Index(TRIANGLE) (Broad Market Index) -11.90
S&P 500 Financials Index(TRIANGLE) (Style-Specific Index) -29.73
Lipper VUF Financial Services Funds Category Average(TRIANGLE) (Peer Group) -24.49
(TRIANGLE)Lipper Inc.
The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted index
covering all major areas of the U.S. economy. It is not the 500 largest companies, but
rather the most widely held 500 companies chosen with respect to market size,
liquidity, and their industry.
The S&P 500 FINANCIALS INDEX is a market capitalization-weighted index of companies
involved in activities such as banking, consumer finance, investment banking and
brokerage, asset management, insurance and investment, and real estate, including
REITs.
The LIPPER VUF FINANCIAL SERVICES FUNDS CATEGORY AVERAGE represents an average of
all of the variable insurance underlying funds in the Lipper Financial Services Funds
category. These funds invest at least 65% of their portfolios in equity securities of
companies engaged in providing financial services.
The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the Fund may
deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index
results include reinvested dividends, and they do not reflect sales charges.
Performance of an index of funds reflects fund expenses; performance of a market index
does not.
=======================================================================================
==========================================
AVERAGE ANNUAL TOTAL RETURNS GUARANTEE COMPARABLE FUTURE RESULTS; ANCE FIGURES GIVEN REPRESENT THE FUND AND
As of 6/30/08 CURRENT PERFORMANCE MAY BE LOWER OR ARE NOT INTENDED TO REFLECT ACTUAL
HIGHER. PLEASE CONTACT YOUR VARIABLE VARIABLE PRODUCT VALUES. THEY DO NOT
SERIES I SHARES PRODUCT ISSUER OR FINANCIAL ADVISOR FOR REFLECT SALES CHARGES, EXPENSES AND FEES
Inception (9/20/99) -0.22% THE MOST RECENT MONTH-END VARIABLE PRODUCT ASSESSED IN CONNECTION WITH A VARIABLE
5 Years -3.64 PERFORMANCE. PERFORMANCE FIGURES REFLECT PRODUCT. SALES CHARGES, EXPENSES AND FEES,
1 Year -46.98 FUND EXPENSES, REINVESTED DISTRIBUTIONS WHICH ARE DETERMINED BY THE VARIABLE
AND CHANGES IN NET ASSET VALUE. INVESTMENT PRODUCT ISSUERS, WILL VARY AND WILL LOWER
SERIES II SHARES RETURN AND PRINCIPAL VALUE WILL FLUCTUATE THE TOTAL RETURN.
Inception -0.46% SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN THE MOST RECENT MONTH-END PERFORMANCE
5 Years -3.86 YOU SELL SHARES. DATA AT THE FUND LEVEL, EXCLUDING VARIABLE
1 Year -47.07 THE TOTAL ANNUAL FUND OPERATING EXPENSE PRODUCT CHARGES, IS AVAILABLE ON THE
RATIO SET FORTH IN THE MOST RECENT FUND INVESCO AIM AUTOMATED INFORMATION LINE,
SERIES II SHARES' INCEPTION DATE IS APRIL PROSPECTUS AS OF THE DATE OF THIS REPORT 866 702 4402. AS MENTIONED ABOVE, FOR THE
30, 2004. RETURNS SINCE THAT DATE ARE FOR SERIES I AND SERIES II SHARES WAS MOST RECENT MONTH-END PERFORMANCE
HISTORICAL. ALL OTHER RETURNS ARE THE 1.11% AND 1.36%, RESPECTIVELY. THE EXPENSE INCLUDING VARIABLE PRODUCT CHARGES, PLEASE
BLENDED RETURNS OF THE HISTORICAL RATIOS PRESENTED ABOVE MAY VARY FROM THE CONTACT YOUR VARIABLE PRODUCT ISSUER OR
PERFORMANCE OF SERIES II SHARES SINCE EXPENSE RATIOS PRESENTED IN OTHER SECTIONS FINANCIAL ADVISOR.
THEIR INCEPTION AND THE RESTATED OF THIS REPORT THAT ARE BASED ON EXPENSES
HISTORICAL PERFORMANCE OF SERIES I SHARES INCURRED DURING THE PERIOD COVERED BY THIS
(FOR PERIODS PRIOR TO INCEPTION OF SERIES REPORT.
II SHARES) ADJUSTED TO REFLECT THE RULE AIM V.I. FINANCIAL SERVICES FUND, A
12B-1 FEES APPLICABLE TO SERIES II SHARES. SERIES PORTFOLIO OF AIM VARIABLE INSURANCE
THE INCEPTION DATE OF SERIES I SHARES IS FUNDS, IS CURRENTLY OFFERED THROUGH
SEPTEMBER 20, 1999. THE PERFORMANCE OF THE INSURANCE COMPANIES ISSUING VARIABLE
FUND'S SERIES I AND SERIES II SHARE PRODUCTS. YOU CANNOT PURCHASE SHARES OF
CLASSES WILL DIFFER PRIMARILY DUE TO THE FUND DIRECTLY. PERFORM-
DIFFERENT CLASS EXPENSES.
THE PERFORMANCE DATA QUOTED REPRESENT
PAST PERFORMANCE AND CANNOT
AIM V.I. FINANCIAL SERVICES FUND
PORTFOLIO COMPOSITION
By industry, based on Net Assets
As of June 30, 2008
<Table>
- -------------------------------------------------------------------------
Other Diversified Financial Services 15.8
- -------------------------------------------------------------------------
Regional Banks 10.3
- -------------------------------------------------------------------------
Insurance Brokers 9.9
- -------------------------------------------------------------------------
Investment Banking & Brokerage 9.9
- -------------------------------------------------------------------------
Consumer Finance 8.8
- -------------------------------------------------------------------------
Thrifts & Mortgage Finance 8.6
- -------------------------------------------------------------------------
Asset Management & Custody Banks 6.4
- -------------------------------------------------------------------------
Specialized Finance 6.4
- -------------------------------------------------------------------------
Multi-Line Insurance 4.9
- -------------------------------------------------------------------------
Diversified Banks 4.2
- -------------------------------------------------------------------------
Life & Health Insurance 3.3
- -------------------------------------------------------------------------
Industries each with less than 3% of Total Net Assets 8.1
- -------------------------------------------------------------------------
Money Market Funds Plus Other Assets Less Liabilities 3.4
_________________________________________________________________________
=========================================================================
</Table>
SCHEDULE OF INVESTMENTS(a)
June 30, 2008
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.64%
ASSET MANAGEMENT & CUSTODY BANKS-6.37%
Blackstone Group L.P. (The)(b) 33,065 $ 602,113
- -------------------------------------------------------------------------------
Federated Investors, Inc.-Class B(b) 61,447 2,115,006
- -------------------------------------------------------------------------------
State Street Corp. 21,480 1,374,505
===============================================================================
4,091,624
===============================================================================
CONSUMER FINANCE-8.75%
AmeriCredit Corp.(b)(c) 69,800 601,676
- -------------------------------------------------------------------------------
Capital One Financial Corp.(b) 103,570 3,936,696
- -------------------------------------------------------------------------------
SLM Corp.(b)(c) 55,878 1,081,239
===============================================================================
5,619,611
===============================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.90%
Automatic Data Processing, Inc. 29,084 1,218,620
===============================================================================
DIVERSIFIED BANKS-4.19%
U.S. Bancorp(b) 37,627 1,049,417
- -------------------------------------------------------------------------------
Wachovia Corp.(b) 105,755 1,642,375
===============================================================================
2,691,792
===============================================================================
DIVERSIFIED CAPITAL MARKETS-1.85%
UBS AG-(Switzerland)(b)(c) 57,357 1,184,996
===============================================================================
INSURANCE BROKERS-9.89%
Aon Corp.(b) 8,040 369,357
- -------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc. 187,485 4,977,727
- -------------------------------------------------------------------------------
National Financial Partners Corp.(b) 50,444 999,800
===============================================================================
6,346,884
===============================================================================
INVESTMENT BANKING & BROKERAGE-9.92%
FBR Capital Markets Corp.(b)(c) 237,678 1,195,520
- -------------------------------------------------------------------------------
Merrill Lynch & Co., Inc.(b) 70,514 2,235,999
- -------------------------------------------------------------------------------
Morgan Stanley 81,510 2,940,066
===============================================================================
6,371,585
===============================================================================
LIFE & HEALTH INSURANCE-3.27%
Prudential Financial, Inc.(b) 5,853 349,658
- -------------------------------------------------------------------------------
StanCorp Financial Group, Inc.(b) 37,189 1,746,396
===============================================================================
2,096,054
===============================================================================
MULTI-LINE INSURANCE-4.92%
American International Group, Inc.(b) 31,554 834,919
- -------------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 36,029 2,326,392
===============================================================================
3,161,311
===============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-15.82%
Bank of America Corp. 83,376 1,990,185
- -------------------------------------------------------------------------------
Citigroup Inc. 245,689 4,117,748
- -------------------------------------------------------------------------------
JPMorgan Chase & Co. 118,072 4,051,050
===============================================================================
10,158,983
===============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. FINANCIAL SERVICES FUND
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-2.22%
Security Capital Assurance Ltd.(b)(c)(d) 91,487 $ 26,531
- -------------------------------------------------------------------------------
XL Capital Ltd.-Class A(b) 68,173 1,401,637
===============================================================================
1,428,168
===============================================================================
REGIONAL BANKS-10.30%
Fifth Third Bancorp(b) 176,995 1,801,809
- -------------------------------------------------------------------------------
Popular, Inc.(b) 182,766 1,204,428
- -------------------------------------------------------------------------------
SunTrust Banks, Inc.(b) 47,081 1,705,274
- -------------------------------------------------------------------------------
Zions Bancorp.(b) 60,469 1,904,169
===============================================================================
6,615,680
===============================================================================
SPECIALIZED CONSUMER SERVICES-2.23%
H&R Block, Inc.(b) 66,804 1,429,606
===============================================================================
SPECIALIZED FINANCE-6.42%
CIT Group, Inc.(b) 186,528 1,270,255
- -------------------------------------------------------------------------------
Moody's Corp.(b) 82,713 2,848,636
===============================================================================
4,118,891
===============================================================================
THRIFTS & MORTGAGE FINANCE-8.59%
Fannie Mae(b) 149,513 2,916,999
- -------------------------------------------------------------------------------
Freddie Mac 56,500 926,600
- -------------------------------------------------------------------------------
Hudson City Bancorp, Inc.(b) 22,737 379,253
- -------------------------------------------------------------------------------
Washington Mutual, Inc.(b) 261,642 1,289,895
===============================================================================
5,512,747
===============================================================================
Total Common Stocks & Other Equity Interests
(Cost $99,985,677) 62,046,552
===============================================================================
MONEY MARKET FUNDS-2.78%
Liquid Assets Portfolio-Institutional Class(e) 891,240 891,240
- -------------------------------------------------------------------------------
Premier Portfolio-Institutional Class(e) 891,240 891,240
===============================================================================
Total Money Market Funds (Cost $1,782,480) 1,782,480
===============================================================================
TOTAL INVESTMENTS (excluding investments purchased
with cash collateral from securities on
loan)-99.42% (Cost $101,768,157) 63,829,032
===============================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON
LOAN
MONEY MARKET FUNDS-27.29%
Liquid Assets Portfolio-Institutional Class (Cost
$17,517,701)(e)(f) 17,517,701 17,517,701
===============================================================================
TOTAL INVESTMENTS-126.71% (Cost $119,285,858) 81,346,733
===============================================================================
OTHER ASSETS LESS LIABILITIES-(26.71)% (17,145,060)
===============================================================================
NET ASSETS-100.00% $ 64,201,673
_______________________________________________________________________________
===============================================================================
</Table>
Notes to Schedule of Investments:
(a) Industry and/or sector classifications used in this report are generally
according to the Global Industry Classification Standard, which was
developed by and is the exclusive property and a service mark of MSCI Inc.
and Standard & Poor's.
(b) All or a portion of this security was out on loan at June 30, 2008.
(c) Non-income producing security.
(d) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The value of this security at June
30, 2008 represented 0.04% of the Fund's Net Assets. See Note 1A.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor.
(f) The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 1J.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. FINANCIAL SERVICES FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, at value (Cost
$99,985,677)* $ 62,046,552
- ------------------------------------------------------
Investments in affiliated money market
funds (Cost $19,300,181) 19,300,181
======================================================
Total investments (Cost
$119,285,858) 81,346,733
======================================================
Cash 33,943
- ------------------------------------------------------
Receivables for:
Fund shares sold 411,794
- ------------------------------------------------------
Dividends 132,799
- ------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 18,985
- ------------------------------------------------------
Other assets 2,390
======================================================
Total assets 81,946,644
______________________________________________________
======================================================
LIABILITIES:
Payables for:
Investments purchased 33,944
- ------------------------------------------------------
Fund shares reacquired 69,067
- ------------------------------------------------------
Collateral upon return of securities
loaned 17,517,701
- ------------------------------------------------------
Accrued fees to affiliates 56,489
- ------------------------------------------------------
Accrued other operating expenses 37,795
- ------------------------------------------------------
Trustee deferred compensation and
retirement plans 29,975
======================================================
Total liabilities 17,744,971
======================================================
Net assets applicable to shares
outstanding $ 64,201,673
______________________________________________________
======================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 90,494,634
- ------------------------------------------------------
Undistributed net investment income 2,925,070
- ------------------------------------------------------
Undistributed net realized gain 8,721,094
- ------------------------------------------------------
Unrealized appreciation (depreciation) (37,939,125)
======================================================
$ 64,201,673
______________________________________________________
======================================================
NET ASSETS:
Series I $ 59,985,189
______________________________________________________
======================================================
Series II $ 4,216,484
______________________________________________________
======================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 7,156,337
______________________________________________________
======================================================
Series II 507,547
______________________________________________________
======================================================
Series I:
Net asset value per share $ 8.38
======================================================
Series II:
Net asset value per share $ 8.31
______________________________________________________
======================================================
</Table>
* At June 30, 2008, securities with an aggregate value of $16,520,811 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding
taxes of $1,972) $ 1,315,441
- ------------------------------------------------------
Dividends from affiliated money market
funds (includes securities lending
income of $48,213) 114,391
======================================================
Total investment income 1,429,832
______________________________________________________
======================================================
EXPENSES:
Advisory fees 299,319
- ------------------------------------------------------
Administrative services fees 124,527
- ------------------------------------------------------
Custodian fees 5,027
- ------------------------------------------------------
Distribution fees -- Series II 5,403
- ------------------------------------------------------
Transfer agent fees 10,141
- ------------------------------------------------------
Trustees' and officer's fees and
benefits 9,195
- ------------------------------------------------------
Other 39,546
======================================================
Total expenses 493,158
======================================================
Less: Fees waived, expenses reimbursed
and expense offset arrangement(s) (4,928)
======================================================
Net expenses 488,230
======================================================
Net investment income 941,602
======================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM:
Net realized gain from investment
securities 4,118,510
======================================================
Change in net unrealized appreciation
(depreciation) of investment
securities (34,555,794)
======================================================
Net realized and unrealized gain (loss) (30,437,284)
======================================================
Net increase (decrease) in net assets
resulting from operations $(29,495,682)
______________________________________________________
======================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. FINANCIAL SERVICES FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- --------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 941,602 $ 1,980,686
- --------------------------------------------------------------------------------------------------------
Net realized gain 4,118,510 5,642,587
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) (34,555,794) (34,537,586)
========================================================================================================
Net increase (decrease) in net assets resulting from operations (29,495,682) (26,914,313)
========================================================================================================
Distributions to shareholders from net investment income:
Series I -- (1,843,313)
- --------------------------------------------------------------------------------------------------------
Series II -- (73,636)
========================================================================================================
Total distributions from net investment income -- (1,916,949)
========================================================================================================
Distributions to shareholders from net realized gains:
Series I -- (6,958,807)
- --------------------------------------------------------------------------------------------------------
Series II -- (281,396)
========================================================================================================
Total distributions from net realized gains -- (7,240,203)
========================================================================================================
Share transactions-net:
Series I 2,622,605 (26,100,103)
- --------------------------------------------------------------------------------------------------------
Series II 2,242,543 3,247,596
========================================================================================================
Net increase (decrease) in net assets resulting from share
transactions 4,865,148 (22,852,507)
========================================================================================================
Net increase (decrease) in net assets (24,630,534) (58,923,972)
________________________________________________________________________________________________________
========================================================================================================
NET ASSETS:
Beginning of period 88,832,207 147,756,179
========================================================================================================
End of period (including undistributed net investment income of
$2,925,070 and $1,983,468, respectively) $ 64,201,673 $ 88,832,207
________________________________________________________________________________________________________
========================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. FINANCIAL SERVICES FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Financial Services Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is capital growth.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on
that day. Securities traded in the over-the-counter market are valued
based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service
they may be considered fair valued. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally
traded. Listed options are valued at the mean between the last bid and the
ask prices from the exchange on which they are principally traded. Options
not listed on an exchange are valued by an independent source at the mean
between the last bid and ask prices. For purposes of determining net asset
value per share, futures and option contracts generally are valued 15
minutes after the close of the customary trading session of the New York
Stock Exchange ("NYSE").
Investments in open-end and closed-end registered investment companies
that do not trade on an exchange are valued at the end of day net asset
value per share. Investments in open-end and closed-end registered
investment companies that trade on an exchange are valued at the last
sales price or official closing price as of the close of the customary
trading session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing
service. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to specific securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Short-term obligations, including
commercial paper, having 60 days or less to maturity are recorded at
amortized cost which approximates value. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve
some risk of default with respect to interest and/or principal payments.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued
at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price
unreliable, the Fund may fair value the security. If the event is likely
to have affected the closing price of the security, the security will be
valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also
be based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current value as of the close of the NYSE. Foreign securities
meeting the approved degree of certainty that the price is not reflective
of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, American
Depositary Receipts and domestic and foreign index futures. Foreign
securities may have
additional risks including exchange rate changes, potential for sharply
devalued currencies and high inflation, political and economical upheaval,
the relative lack of issuer information, relatively low market liquidity
and the potential lack of strict financial and accounting controls and
standards.
Securities for which market prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers following procedures
approved by the Board of Trustees. Issuer specific events, market trends,
bid/ask quotes of brokers and information providers and other market data
may be reviewed in the course of making a good faith determination of a
security's fair value.
Valuations change in response to many factors including the historical
and prospective earnings of the issuer, the value of the issuer's assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
AIM V.I. FINANCIAL SERVICES FUND
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification
claims is considered remote.
I. OTHER RISKS -- The Fund's investments are concentrated in a comparatively
narrow segment of the economy. Consequently, the Fund may tend to be more
volatile than other mutual funds, and the value of the Fund's investments
may tend to rise and fall more rapidly.
The financial services sector is subject to extensive government
regulation, which may change frequently. The profitability of businesses
in this sector depends heavily on the availability and cost of money and
may fluctuate significantly in response to changes to interest rates and
general economic conditions.
J. SECURITIES LENDING -- The Fund may lend portfolio securities having a
market value up to one-third of the Fund's total assets. Such loans are
secured by collateral equal to no less than the market value of the loaned
securities determined daily by the securities lending provider. Such
collateral will be cash or debt securities issued or guaranteed by the
U.S. Government or any of its sponsored agencies. Cash collateral received
in connection with these loans is invested in short-term money market
instruments or affiliated money market funds and is shown as such on the
Schedule of Investments. It is the Fund's policy to obtain additional
collateral from or return excess collateral to the borrower by the end of
the next business day, following the valuation date of the securities
loaned. Therefore, the value of the collateral held may be temporarily
less than the value of the securities on loan. Lending securities entails
a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase
the collateral accordingly, and the borrower fails to return the
securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any
loss on the collateral invested. Dividends received on cash collateral
investments for securities lending transactions, which are net of
compensation to counterparties, is included in Dividends from affiliates
on the Statement of Operations. The aggregate value of securities out on
loan is shown as a footnote on the Statement of Assets and Liabilities.
AIM V.I. FINANCIAL SERVICES FUND
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $250 million 0.75%
- -------------------------------------------------------------------
Next $250 million 0.74%
- -------------------------------------------------------------------
Next $500 million 0.73%
- -------------------------------------------------------------------
Next $1.5 billion 0.72%
- -------------------------------------------------------------------
Next $2.5 billion 0.71%
- -------------------------------------------------------------------
Next $2.5 billion 0.70%
- -------------------------------------------------------------------
Next $2.5 billion 0.69%
- -------------------------------------------------------------------
Over $10 billion 0.68%
___________________________________________________________________
===================================================================
</Table>
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
The Advisor has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.30% and Series
II shares to 1.45% of average daily net assets, through at least April 30, 2010.
In determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco")
described more fully below, the expense offset arrangements from which the Fund
may benefit are in the form of credits that the Fund receives from banks where
the Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. These credits are used to pay certain expenses incurred by the Fund. To
the extent that the annualized expense ratio does not exceed the expense
limitation, the Advisor will retain its ability to be reimbursed for such fee
waivers or reimbursements prior to the end of each fiscal year.
Further, the Advisor has contractually agreed, through at least April 30,
2010, to waive the advisory fee payable by the Fund in an amount equal to 100%
of the net advisory fees the Advisor receives from the affiliated money market
funds on investments by the Fund of uninvested cash (but not cash collateral
from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2008, the Advisor waived advisory fees of
$2,727 and reimbursed class level expenses of $381 of Series II shares.
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund
administrative services and reimbursed $99,663 for services provided by
insurance companies.
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily net
assets of the Series II shares may be paid to insurance companies who furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. For the six months ended June 30, 2008, expenses
incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
AIM V.I. FINANCIAL SERVICES FUND
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1 -- Quoted prices in an active market for identical assets.
Level 2 -- Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest
rates, prepayment speeds, credit risk and others.
Level 3 -- Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for
example, when there is little or no market activity for an investment at the end
of the period), unobservable inputs may be used. Unobservable inputs reflect the
Fund's own assumptions about the factors market participants would use in
determining fair value of the securities or instruments and would be based on
the best available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS IN
INPUT LEVEL SECURITIES
- ------------------------------------
Level 1 $81,346,733
- ------------------------------------
Level 2 --
- ------------------------------------
Level 3 --
- ------------------------------------
$81,346,733
____________________________________
====================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, for the six months ended June 30, 2008, the Fund
engaged in securities purchases of $264,974.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2008, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $1,820.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan and receive benefits under such plan. "Trustees' and Officer's
Fees and Benefits" include amounts accrued by the Fund to fund such retirement
benefits. Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $1,616
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--CASH BALANCES
The Fund is permitted to temporarily carry a negative or overdrawn balance in
its account with The State Street Bank and Trust Company ("SSB"), the custodian
bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund
may either (i) leave funds as a compensating balance in the account so the
custodian bank can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank at a rate agreed upon by the custodian
bank and Invesco Aim, not to exceed the contractually agreed upon rate.
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
The Fund did not have a capital loss carryforward as of December 31, 2007.
AIM V.I. FINANCIAL SERVICES FUND
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the six months ended June 30, 2008 was $23,840,459 and
$17,057,810, respectively. Cost of investments on a tax basis includes the
adjustments for financial reporting purposes as of the most recently completed
Federal income tax reporting period end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 2,197,925
- ------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (41,004,775)
================================================================================================
Net unrealized appreciation (depreciation) of investment securities $(38,806,850)
________________________________________________________________________________________________
================================================================================================
Cost of investments for tax purposes is $120,153,583.
</Table>
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008(a) DECEMBER 31, 2007
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,776,672 $ 19,594,515 1,170,982 $ 19,006,293
- ------------------------------------------------------------------------------------------------------------------------
Series II 260,329 2,842,303 251,992 4,101,308
- ------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Series I -- -- 666,827 8,802,120
- ------------------------------------------------------------------------------------------------------------------------
Series II -- -- 27,101 355,032
- ------------------------------------------------------------------------------------------------------------------------
Reacquired:
Series I (1,563,423) (16,971,910) (3,284,263) (53,908,516)
- ------------------------------------------------------------------------------------------------------------------------
Series II (55,894) (599,760) (72,050) (1,208,744)
========================================================================================================================
417,684 $ 4,865,148 (1,239,411) $(22,852,507)
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There are entities that are record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate own 79% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, Invesco
Aim and/or Invesco Aim affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services to
the Fund, Invesco Aim and or Invesco Aim affiliates including but not
limited to services such as, securities brokerage, third party record
keeping and account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record by
these entities are also owned beneficially.
AIM V.I. FINANCIAL SERVICES FUND
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED JUNE 30, -----------------------------------------------------------
2008 2007 2006 2005 2004 2003
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.26 $ 17.41 $ 15.26 $ 14.61 $ 13.54 $ 10.50
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.13(a) 0.27(a) 0.23(a) 0.19(a) 0.15 0.08
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (4.01) (4.04) 2.28 0.66 1.02 3.02
==============================================================================================================================
Total from investment operations (3.88) (3.77) 2.51 0.85 1.17 3.10
==============================================================================================================================
Less distributions:
Dividends from net investment income -- (0.29) (0.26) (0.20) (0.10) (0.06)
- ------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (1.09) (0.10) -- -- --
==============================================================================================================================
Total distributions -- (1.38) (0.36) (0.20) (0.10) (0.06)
==============================================================================================================================
Net asset value, end of period $ 8.38 $ 12.26 $ 17.41 $ 15.26 $ 14.61 $ 13.54
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) (31.65)% (22.22)% 16.52% 5.84% 8.68% 29.58%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $59,985 $85,144 $146,092 $141,241 $203,879 $210,352
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets 1.21%(c)(d) 1.11% 1.12% 1.12% 1.12% 1.09%
==============================================================================================================================
Ratio of net investment income to average net
assets 2.37%(c) 1.61% 1.44% 1.30% 0.89% 0.87%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate(e) 23% 9% 14% 22% 67% 65%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of $75,911,027.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.22% (annualized) for the six months ended June 30, 2008.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. FINANCIAL SERVICES FUND
NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
------------------------------------------------------------------------
APRIL 20, 2004
SIX MONTHS YEAR ENDED DECEMBER 31, (COMMENCEMENT DATE)
ENDED JUNE 30, ----------------------------- TO DECEMBER 31,
2008 2007 2006 2005 2004
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.17 $ 17.33 $15.23 $14.59 $13.50
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.11(a) 0.22(a) 0.20(a) 0.15(a) 0.12
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (3.97) (4.00) 2.26 0.67 1.07
========================================================================================================================
Total from investment operations (3.86) (3.78) 2.46 0.82 1.19
========================================================================================================================
Less distributions:
Dividends from net investment income -- (0.29) (0.26) (0.18) (0.10)
- ------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (1.09) (0.10) -- --
========================================================================================================================
Total distributions -- (1.38) (0.36) (0.18) (0.10)
========================================================================================================================
Net asset value, end of period $ 8.31 $ 12.17 $17.33 $15.23 $14.59
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) (31.72)% (22.39)% 16.22% 5.61% 8.85%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 4,216 $ 3,688 $1,664 $ 11 $ 11
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets 1.44%(c)(d) 1.36% 1.37% 1.37% 1.38%(e)
========================================================================================================================
Ratio of net investment income to average net
assets 2.14%(c) 1.36% 1.19% 1.05% 0.63%(e)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(f) 23% 9% 14% 22% 67%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of $4,345,996.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.47% (annualized) for the six months ended June 30, 2008.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. FINANCIAL SERVICES FUND
NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)--(CONTINUED)
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to Invesco Aim and IADI (Order No. 05-
1318). The WVASC makes findings of fact that Invesco Aim and IADI entered into
certain arrangements permitting market timing of the AIM Funds and failed to
disclose these arrangements in the prospectuses for such Funds, and conclusions
of law to the effect that Invesco Aim and IADI violated the West Virginia
securities laws. The WVASC orders Invesco Aim and IADI to cease any further
violations and seeks to impose monetary sanctions, including restitution to
affected investors, disgorgement of fees, reimbursement of investigatory,
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute. By agreement with the Commissioner of
Securities, Invesco Aim's time to respond to that Order has been indefinitely
suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid. The case pending in Illinois State Court regarding fair value
pricing was dismissed with prejudice on May 6, 2008.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA
purportedly brought on behalf of participants in the Invesco 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds remain nominal defendants in the Consolidated Amended Fund
Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco
defendants' motion to dismiss the Amended Class Action Complaint for Violations
of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June
16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this
lawsuit back to the MDL Court for further proceedings.
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, Invesco Aim and IADI have advised the Fund that they are providing
full cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, Invesco Aim and/or related entities and individuals in the
future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. FINANCIAL SERVICES FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $683.50 $5.06 $1,018.85 $6.07 1.21%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 682.80 6.02 1,017.70 7.22 1.44
- ---------------------------------------------------------------------------------------------------
</Table>
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5%
before expenses.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
AIM V.I. FINANCIAL SERVICES FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different
Variable Insurance Funds is required under comparative performance and fee data weight to the various factors. The
the Investment Company Act of 1940 to regarding the AIM Funds prepared by an Trustees recognized that the advisory
approve annually the renewal of the AIM independent company, Lipper, Inc. arrangements and resulting advisory fees
V.I. Financial Services Fund (the Fund) (Lipper), under the direction and for the Fund and the other AIM Funds are
investment advisory agreement with Invesco supervision of the independent Senior the result of years of review and
Aim Advisors, Inc. (Invesco Aim). During Officer who also prepares a separate negotiation between the Trustees and
contract renewal meetings held on June analysis of this information for the Invesco Aim, that the Trustees may focus
18-19, 2008, the Board as a whole and the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of
disinterested or "independent" Trustees, recommendations to the Investments these arrangements in some years than in
voting separately, approved the Committee regarding the performance, fees others, and that the Trustees'
continuance of the Fund's investment and expenses of their assigned funds. The deliberations and conclusions in a
advisory agreement for another year, Investments Committee considers each particular year may be based in part on
effective July 1, 2008. In doing so, the Sub-Committee's recommendations and makes their deliberations and conclusions of
Board determined that the Fund's its own recommendations regarding the these same arrangements throughout the
investment advisory agreement is in the performance, fees and expenses of the AIM year and in prior years.
best interests of the Fund and its Funds to the full Board. The Investments
shareholders and that the compensation to Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF
Invesco Aim under the Fund's investment Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION
advisory agreement is fair and reasonable. its annual recommendation to the Board The discussion below serves as a summary
The independent Trustees met separately whether to approve the continuance of each of the Senior Officer's independent
during their evaluation of the Fund's AIM Fund's investment advisory agreement written evaluation with respect to the
investment advisory agreement with and sub-advisory agreements for another Fund's investment advisory agreement as
independent legal counsel from whom they year. well as a discussion of the material
received independent legal advice, and the The independent Trustees are assisted factors and related conclusions that
independent Trustees also received in their annual evaluation of the Fund's formed the basis for the Board's approval
assistance during their deliberations from investment advisory agreement by the of the Fund's investment advisory
the independent Senior Officer, a independent Senior Officer. One agreement and sub-advisory agreements.
full-time officer of the AIM Funds who responsibility of the Senior Officer is to Unless otherwise stated, information set
reports directly to the independent manage the process by which the AIM Funds' forth below is as of June 19, 2008 and
Trustees. proposed management fees are negotiated does not reflect any changes that may have
during the annual contract renewal process occurred since that date, including but
THE BOARD'S FUND EVALUATION PROCESS to ensure that they are negotiated in a not limited to changes to the Fund's
The Board's Investments Committee has manner that is at arms' length and performance, advisory fees, expense
established three Sub-Committees that are reasonable. Accordingly, the Senior limitations and/or fee waivers.
responsible for overseeing the management Officer must either supervise a
of a number of the series portfolios of competitive bidding process or prepare an I. Investment Advisory Agreement
the AIM Funds. This Sub-Committee independent written evaluation. The Senior A. Nature, Extent and Quality of
structure permits the Trustees to focus on Officer has recommended that an Services Provided by Invesco Aim
the performance of the AIM Funds that have independent written evaluation be provided The Board reviewed the advisory services
been assigned to them. The Sub-Committees and, at the direction of the Board, has provided to the Fund by Invesco Aim under
meet throughout the year to review the prepared an independent written the Fund's investment advisory agreement,
performance of their assigned funds, and evaluation. the performance of Invesco Aim in
the Sub-Committees review monthly and During the annual contract renewal providing these services, and the
quarterly comparative performance process, the Board considered the factors credentials and experience of the officers
information and periodic asset flow data discussed below under the heading "Factors and employees of Invesco Aim who provide
for their assigned funds. These materials and Conclusions and Summary of Independent these services. The Board's review of the
are prepared under the direction and Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide
supervision of the independent Senior fairness and reasonableness of the Fund's these services included the Board's
Officer. Over the course of each year, the investment advisory agreement and consideration of Invesco Aim's portfolio
Sub-Committees meet with portfolio sub-advisory agreements at the contract and product review process, various back
managers for their assigned funds and renewal meetings and at their meetings office support functions provided by
other members of management and review throughout the year as part of their Invesco Aim and its affiliates, and
with these individuals the performance, ongoing oversight of the Fund. The Fund's Invesco Aim's equity and fixed income
investment objective(s), policies, investment advisory agreement and trading operations. The Board concluded
strategies and limitations of these funds. sub-advisory agreements were considered that the nature, extent and quality of the
In addition to their meetings separately, although the Board also advisory services provided to the Fund by
throughout the year, the Sub-Committees considered the common interests of all of Invesco Aim were appropriate and that
meet at designated contract renewal the AIM Funds in their deliberations. The Invesco Aim currently is providing
meetings each year to conduct an in-depth Board considered all of the information satisfactory advisory services in
review of the performance, fees and provided to them and did not identify any accordance with the terms of the Fund's
expenses of their assigned funds. During particular factor that was controlling. investment advisory agreement. In
the contract Each Trustee may have evaluated the addition, based on their ongoing meetings
information provided differently throughout the year with the Fund's
portfolio manager or
continued
AIM V.I. FINANCIAL SERVICES FUND
managers, the Board concluded that these Board also concluded that it would be breakpoints in the Fund's advisory fee
individuals are competent and able to appropriate for the Board to continue to schedule or through advisory fee waivers
continue to carry out their monitor more closely the performance of or expense limitations. The Board noted
responsibilities under the Fund's the Fund. Although the independent written that the Fund's contractual advisory fee
investment advisory agreement. evaluation of the Fund's Senior Officer schedule includes seven breakpoints, but
In determining whether to continue the only considered Fund performance through that due to the Fund's asset level at the
Fund's investment advisory agreement, the the most recent calendar year, the Board end of the past calendar year, the Fund is
Board considered the prior relationship also reviewed more recent Fund performance not currently benefiting from the
between Invesco Aim and the Fund, as well and this review did not change their breakpoints. Based on this information,
as the Board's knowledge of Invesco Aim's conclusions. the Board concluded that the Fund's
operations, and concluded that it was advisory fees would reflect economies of
beneficial to maintain the current C. Advisory Fees and Fee Waivers scale at higher asset levels. The Board
relationship, in part, because of such The Board compared the Fund's contractual also noted that the Fund shares directly
knowledge. The Board also considered the advisory fee rate to the contractual in economies of scale through lower fees
steps that Invesco Aim and its affiliates advisory fee rates of funds in the Fund's charged by third party service providers
have taken over the last several years to Lipper expense group that are not managed based on the combined size of all of the
improve the quality and efficiency of the by Invesco Aim, at a common asset level AIM Funds and affiliates.
services they provide to the AIM Funds in and as of the end of the past calendar
the areas of investment performance, year. The Board noted that the Fund's E. Profitability and Financial
product line diversification, contractual advisory fee rate was below Resources of Invesco Aim
distribution, fund operations, shareholder the median contractual advisory fee rate The Board reviewed information from
services and compliance. The Board of funds in its expense group. The Board Invesco Aim concerning the costs of the
concluded that the quality and efficiency also reviewed the methodology used by advisory and other services that Invesco
of the services Invesco Aim and its Lipper in determining contractual fee Aim and its affiliates provide to the Fund
affiliates provide to the AIM Funds in rates. and the profitability of Invesco Aim and
each of these areas have generally The Board also compared the Fund's its affiliates in providing these
improved, and support the Board's approval effective fee rate (the advisory fee after services. The Board also reviewed
of the continuance of the Fund's any advisory fee waivers and before any information concerning the financial
investment advisory agreement. expense limitations/waivers) to the condition of Invesco Aim and its
advisory fee rates of other clients of affiliates. The Board also reviewed with
B. Fund Performance Invesco Aim and its affiliates with Invesco Aim the methodology used to
The Board compared the Fund's performance investment strategies comparable to those prepare the profitability information. The
during the past one, three and five of the Fund, including one mutual fund Board considered the overall profitability
calendar years to the performance of funds advised by Invesco Aim. The Board noted of Invesco Aim, as well as the
in the Fund's performance group that are that the Fund's rate was above the rate profitability of Invesco Aim in connection
not managed by Invesco Aim, and against for the mutual fund. with managing the Fund. The Board noted
the performance of all funds in the S&P The Board noted that Invesco Aim has that Invesco Aim continues to operate at a
500 Financials Index. The Board also contractually agreed to waive fees and/or net profit, although increased expenses in
reviewed the criteria used by Invesco Aim limit expenses of the Fund through at recent years have reduced the
to identify the funds in the Fund's least April 30, 2010 in an amount profitability of Invesco Aim and its
performance group for inclusion in the necessary to limit total annual operating affiliates. The Board concluded that the
Lipper reports. The Board noted that the expenses to a specified percentage of Fund's fees were fair and reasonable, and
Fund's performance was in the fifth average daily net assets for each class of that the level of profits realized by
quintile of its performance group for the the Fund. The Board considered the Invesco Aim and its affiliates from
one, three and five year periods (the contractual nature of this fee waiver and providing services to the Fund was not
first quintile being the best performing noted that it remains in effect until at excessive in light of the nature, quality
funds and the fifth quintile being the least April 30, 2010. The Board also and extent of the services provided. The
worst performing funds). The Board noted considered the effect this fee waiver Board considered whether Invesco Aim is
that the Fund's performance was below the would have on the Fund's total estimated financially sound and has the resources
performance of the Index for the one, expenses. necessary to perform its obligations under
three and five year periods. The Board After taking account of the Fund's the Fund's investment advisory agreement,
also noted that Invesco Aim acknowledges contractual advisory fee rate, as well as and concluded that Invesco Aim has the
the Fund's underperformance and is focused the comparative advisory fee information financial resources necessary to fulfill
on the longer term and business issues and the expense limitation discussed these obligations.
that affect the Fund's performance. The above, the Board concluded that the Fund's
Board also considered the steps Invesco advisory fees were fair and reasonable. F. Independent Written Evaluation of
Aim has taken over the last several years the Fund's Senior Officer
to improve the quality and efficiency of D. Economies of Scale and Breakpoints The Board noted that, at their direction,
the services that Invesco Aim provides to The Board considered the extent to which the Senior Officer of the Fund, who is
the AIM Funds. The Board concluded that there are economies of scale in Invesco independent of Invesco Aim and Invesco
Invesco Aim continues to be responsive to Aim's provision of advisory services to Aim's affiliates, had prepared an
the Board's focus on fund performance. the Fund. The Board also considered independent written evaluation to assist
However, due to the Fund's whether the Fund benefits from such the Board in determining the
underperformance, the economies of scale through contractual reasonableness of the proposed management
fees of the AIM Funds, including the Fund.
The
continued
AIM V.I. FINANCIAL SERVICES FUND
Board noted that they had relied upon the The Board noted that Invesco Aim will B. Fund Performance
Senior Officer's written evaluation receive advisory fees from these The Board did not view Fund performance as
instead of a competitive bidding process. affiliated money market funds attributable a relevant factor in considering whether
In determining whether to continue the to such investments, although Invesco Aim to approve the sub-advisory agreements for
Fund's investment advisory agreement, the has contractually agreed to waive through the Fund, as no Affiliated Sub-Adviser
Board considered the Senior Officer's at least April 30, 2010, the advisory fees currently manages any portion of the
written evaluation. payable by the Fund in an amount equal to Fund's assets.
100% of the net advisory fees Invesco Aim
G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees
and its Affiliates funds with respect to the Fund's The Board considered the services to be
The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers
benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements
affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco
relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment
fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the
affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and
administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to
distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board
Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no
Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its
providing these services and the shareholders. shareholders, as they are paid by Invesco
organizational structure employed by Aim to the Affiliated Sub-Advisers, and
Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements that Invesco Aim and the Affiliated
these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking
that these services are provided to the Services Provided by Affiliated account of the Fund's contractual
Fund pursuant to written contracts which Sub-Advisers sub-advisory fee rate, as well as other
are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that
basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and
that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, reasonable.
providing these services in a satisfactory Invesco Asset Management Limited, Invesco
manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco D. Financial Resources of the
their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers
continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each
Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially
The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to
realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its
portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and
through "soft dollar" arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser
these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to
commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations.
funds advised by Invesco Aim are used to Sub-Advisers who will provide these
pay for research and execution services. services. The Board concluded that the
The Board noted that soft dollar nature, extent and quality of the services
arrangements shift the payment obligation to be provided by the Affiliated
for the research and execution services Sub-Advisers were appropriate. The Board
from Invesco Aim to the funds and noted that the Affiliated Sub-Advisers,
therefore may reduce Invesco Aim's which have offices and personnel that are
expenses. The Board also noted that geographically dispersed in financial
research obtained through soft dollar centers around the world, have been formed
arrangements may be used by Invesco Aim in in part for the purpose of researching and
making investment decisions for the Fund compiling information and making
and may therefore benefit Fund recommendations on the markets and
shareholders. The Board concluded that economies of various countries and
Invesco Aim's soft dollar arrangements securities of companies located in such
were appropriate. The Board also concluded countries or on various types of
that, based on their review and investments and investment techniques, and
representations made by Invesco Aim, these providing investment advisory services.
arrangements were consistent with The Board concluded that the sub-advisory
regulatory requirements. agreements will benefit the Fund and its
The Board considered the fact that the shareholders by permitting Invesco Aim to
Fund's uninvested cash and cash collateral utilize the additional resources and
from any securities lending arrangements talent of the Affiliated Sub-Advisers in
may be invested in money market funds managing the Fund.
advised by Invesco Aim pursuant to
procedures approved by the Board.
AIM V.I. FINANCIAL SERVICES FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. Financial Services
Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware
statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held
for the following purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will
serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust that
would permit the Board of Trustees of the Trust to terminate the Trust, the
Fund, and each other series portfolio of the Trust, or a share class without
a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and
each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland,
GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.),
Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and
Invesco Senior Secured Management, Inc.
(4)(a) Approve modification of fundamental restrictions on issuing senior
securities and borrowing money.
(4)(b) Approve modification of fundamental restriction on underwriting
securities.
(4)(c) Approve modification of fundamental restriction on industry
concentration.
(4)(d) Approve modification of fundamental restriction on real estate
investments.
(4)(e) Approve modification of fundamental restriction on purchasing or selling
commodities.
(4)(f) Approve modification of fundamental restriction on making loans.
(4)(g) Approve modification of fundamental restriction on investment in
investment companies.
(5) Approve changing the fund's sub-classification from "diversified" to "non-
diversified" and approve the elimination of a related fundamental investment
restriction.
(6) Approve making the investment objective of the fund non-fundamental.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- ------------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker..................................................... 474,883,590 19,741,622
Frank S. Bayley.................................................. 474,653,109 19,972,103
James T. Bunch................................................... 475,597,417 19,027,795
Bruce L. Crockett................................................ 474,900,579 19,724,633
Albert R. Dowden................................................. 474,749,929 19,875,283
Jack M. Fields................................................... 475,205,840 19,419,372
Martin L. Flanagan............................................... 475,248,336 19,376,876
Carl Frischling.................................................. 474,453,674 20,171,538
Prema Mathai-Davis............................................... 473,569,192 21,056,020
Lewis F. Pennock................................................. 475,072,501 19,552,711
Larry Soll, Ph.D. ............................................... 475,170,544 19,454,668
Raymond Stickel, Jr. ............................................ 475,420,825 19,204,387
Philip A. Taylor................................................. 475,640,570 18,984,642
</Table>
<Table>
<Caption>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
- --------------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of
Trustees of the Trust to terminate the Trust, the Fund,
and each other series portfolio of the Trust, or a share
class without a shareholder vote......................... 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between Invesco Aim
Advisors, Inc. and each of AIM Funds Management, Inc.;
Invesco Asset Management Deutschland, GmbH; Invesco Asset
Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset
Management (N.A.), Inc.; Invesco Hong Kong Limited;
Invesco Institutional (N.A.), Inc.; and Invesco Senior
Secured Management, Inc.................................. 5,737,690 268,671 302,907
(4)(a) Approve modification of fundamental restrictions on
issuing senior securities and borrowing money............ 5,793,510 271,118 244,640
(4)(b) Approve modification of fundamental restriction on
underwriting securities.................................. 5,769,486 294,338 245,444
(4)(c) Approve modification of fundamental restriction on
industry concentration................................... 5,811,362 253,266 244,640
(4)(d) Approve modification of fundamental restriction on real
estate investments....................................... 5,786,064 277,760 245,444
(4)(e) Approve modification of fundamental restriction on
purchasing or selling commodities........................ 5,803,177 262,014 244,077
(4)(f) Approve modification of fundamental restriction on making
loans.................................................... 5,767,229 294,890 247,149
(4)(g) Approve modification of fundamental restriction on
investment in investment companies....................... 5,813,626 248,346 247,296
(5) Approve changing the fund's sub-classification from
"diversified" to "non-diversified" and approve the
elimination of a related fundamental investment
restriction.............................................. 5,628,786 304,230 376,252
(6) Approve making the investment objective of the fund non-
fundamental.............................................. 5,619,704 313,726 375,838
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. FINANCIAL SERVICES FUND
[INVESCO AIM LOGO] AIM V.I. GLOBAL HEALTH CARE FUND
- SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008
AIM Investments [MOUNTAIN GRAPHIC]
became INVESCO AIM
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FUND PERFORMANCE
=======================================================================================
PERFORMANCE SUMMARY
FUND VS. INDEXES
Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer
charges. If variable product issuer charges were included, returns would be lower.
Series I Shares -9.39%
Series II Shares -9.53
MSCI World Index(TRIANGLE) (Broad Market Index) -10.57
MSCI World Health Care Index(TRIANGLE) (Style-Specific Index) -9.36
Lipper VUF Health/Biotechnology Funds Category Average(TRIANGLE) (Peer Group) -9.17
(TRIANGLE)Lipper Inc.
The MSCI WORLD INDEX--SERVICE MARK-- is a free float-adjusted market capitalization
index that is designed to measure global developed market equity performance.
The MSCI WORLD HEALTH CARE INDEX is a free float-adjusted market capitalization
index that represents the health care segment in global developed market equity
performance.
The LIPPER VUF HEALTH/BIOTECHNOLOGY FUNDS CATEGORY AVERAGE represents an average
of all of the variable insurance underlying funds in the Lipper Health/Biotechnology
Funds category. These funds invest at least 65% of their portfolios in equity
securities of companies engaged in healthcare, medicine, and biotechnology.
The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the Fund may
deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index
results include reinvested dividends, and they do not reflect sales charges.
Performance of an index of funds reflects fund expenses; performance of a market index
does not.
=======================================================================================
==========================================
AVERAGE ANNUAL TOTAL RETURNS CURRENT PERFORMANCE MAY BE LOWER OR VARIABLE PRODUCTS. YOU CANNOT PURCHASE
As of 6/30/08 HIGHER. PLEASE CONTACT YOUR VARIABLE SHARES OF THE FUND DIRECTLY. PERFORMANCE
PRODUCT ISSUER OR FINANCIAL ADVISOR FOR FIGURES GIVEN REPRESENT THE FUND AND ARE
SERIES I SHARES THE MOST RECENT MONTH-END VARIABLE PRODUCT NOT INTENDED TO REFLECT ACTUAL VARIABLE
Inception (5/21/97) 7.62% PERFORMANCE. PERFORMANCE FIGURES REFLECT PRODUCT VALUES. THEY DO NOT REFLECT SALES
10 Years 5.19 FUND EXPENSES, REINVESTED DISTRIBUTIONS CHARGES, EXPENSES AND FEES ASSESSED IN
5 Years 6.45 AND CHANGES IN NET ASSET VALUE. INVESTMENT CONNECTION WITH A VARIABLE PRODUCT. SALES
1 Year -4.43 RETURN AND PRINCIPAL VALUE WILL FLUCTUATE CHARGES, EXPENSES AND FEES, WHICH ARE
SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN DETERMINED BY THE VARIABLE PRODUCT
SERIES II SHARES YOU SELL SHARES. ISSUERS, WILL VARY AND WILL LOWER THE
10 Years 4.91% TOTAL RETURN.
5 Years 6.16 THE NET ANNUAL FUND OPERATING EXPENSE
1 Year -4.77 RATIO SET FORTH IN THE MOST RECENT FUND THE MOST RECENT MONTH-END PERFORMANCE
========================================== PROSPECTUS AS OF THE DATE OF THIS REPORT DATA AT THE FUND LEVEL, EXCLUDING VARIABLE
FOR SERIES I AND SERIES II SHARES WAS PRODUCT CHARGES, IS AVAILABLE ON THE
SERIES II SHARES' INCEPTION DATE IS APRIL 1.07% AND 1.32%, RESPECTIVELY.(1) THE INVESCO AIM AUTOMATED INFORMATION LINE,
30, 2004. RETURNS SINCE THAT DATE ARE TOTAL ANNUAL FUND OPERATING EXPENSE RATIO 866 702 4402. AS MENTIONED ABOVE, FOR THE
HISTORICAL. ALL OTHER RETURNS ARE THE SET FORTH IN THE MOST RECENT FUND MOST RECENT MONTH-END PERFORMANCE
BLENDED RETURNS OF THE HISTORICAL PROSPECTUS AS OF THE DATE OF THIS REPORT INCLUDING VARIABLE PRODUCT CHARGES, PLEASE
PERFORMANCE OF SERIES II SHARES SINCE FOR SERIES I AND SERIES II SHARES WAS CONTACT YOUR VARIABLE PRODUCT ISSUER OR
THEIR INCEPTION AND THE RESTATED 1.08% AND 1.33%, RESPECTIVELY. THE EXPENSE FINANCIAL ADVISOR.
HISTORICAL PERFORMANCE OF SERIES I SHARES RATIOS PRESENTED ABOVE MAY VARY FROM THE
(FOR PERIODS PRIOR TO INCEPTION OF SERIES EXPENSE RATIOS PRESENTED IN OTHER SECTIONS (1) Total annual operating expenses less
II SHARES) ADJUSTED TO REFLECT THE RULE OF THIS REPORT THAT ARE BASED ON EXPENSES any contractual fee waivers and/or
12B-1 FEES APPLICABLE TO SERIES II SHARES. INCURRED DURING THE PERIOD COVERED BY THIS expense reimbursements by the advisor
THE INCEPTION DATE OF SERIES I SHARES IS REPORT. in effect through at least April 30,
MAY 21, 1997. THE PERFORMANCE OF THE 2010. See current prospectus for more
FUND'S SERIES I AND SERIES II SHARE AIM V.I. GLOBAL HEALTH CARE FUND, A information.
CLASSES WILL DIFFER PRIMARILY DUE TO SERIES PORTFOLIO OF AIM VARIABLE INSURANCE
DIFFERENT CLASS EXPENSES. FUNDS, IS CURRENTLY OFFERED THROUGH
INSURANCE COMPANIES ISSUING
THE PERFORMANCE DATA QUOTED REPRESENT
PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS;
AIM V.I. GLOBAL HEALTH CARE FUND
PORTFOLIO COMPOSITION
By country, based on Net Assets
as of June 30, 2008
<Table>
- -------------------------------------------------------------------------
United States 76.7%
- -------------------------------------------------------------------------
Switzerland 5.4
- -------------------------------------------------------------------------
Germany 4.8
- -------------------------------------------------------------------------
United Kingdom 2.4
- -------------------------------------------------------------------------
Countries each less than 2.0% of portfolio 7.6
- -------------------------------------------------------------------------
Money Market Funds Plus Other Assets Less Liabilities 3.1
_________________________________________________________________________
=========================================================================
</Table>
SCHEDULE OF INVESTMENTS(a)
June 30, 2008
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.87%
BIOTECHNOLOGY-21.64%
Acadia Pharmaceuticals Inc.(b)(c) 62,593 $ 230,968
- -------------------------------------------------------------------------------
Altus Pharmaceuticals Inc.(b)(c) 42,106 187,372
- -------------------------------------------------------------------------------
Amgen Inc.(b)(c) 93,797 4,423,467
- -------------------------------------------------------------------------------
Amylin Pharmaceuticals, Inc.(b)(c) 33,107 840,587
- -------------------------------------------------------------------------------
Array BioPharma Inc.(b)(c) 74,312 349,266
- -------------------------------------------------------------------------------
Avigen, Inc.(c) 130,833 378,107
- -------------------------------------------------------------------------------
BioMarin Pharmaceutical Inc.(b)(c) 85,018 2,463,822
- -------------------------------------------------------------------------------
Celgene Corp.(c) 99,308 6,342,802
- -------------------------------------------------------------------------------
Genentech, Inc.(c) 32,606 2,474,795
- -------------------------------------------------------------------------------
Gentium Spa-ADR (Italy)(b)(c) 42,600 145,266
- -------------------------------------------------------------------------------
Genzyme Corp.(c) 91,317 6,576,650
- -------------------------------------------------------------------------------
Gilead Sciences, Inc.(b)(c) 141,870 7,512,016
- -------------------------------------------------------------------------------
ImClone Systems Inc.(c) 34,726 1,405,014
- -------------------------------------------------------------------------------
Incyte Corp.(b)(c) 55,215 420,186
- -------------------------------------------------------------------------------
Medarex, Inc.(b)(c) 133,052 879,474
- -------------------------------------------------------------------------------
Onyx Pharmaceuticals, Inc.(b)(c) 45,761 1,629,092
- -------------------------------------------------------------------------------
OSI Pharmaceuticals, Inc.(b)(c) 35,493 1,466,571
- -------------------------------------------------------------------------------
Rigel Pharmaceuticals, Inc.(b)(c) 44,542 1,009,322
- -------------------------------------------------------------------------------
United Therapeutics Corp.(b)(c) 37,292 3,645,293
- -------------------------------------------------------------------------------
Vertex Pharmaceuticals Inc.(b)(c) 31,917 1,068,262
- -------------------------------------------------------------------------------
ZymoGenetics, Inc.(b)(c) 41,593 350,213
===============================================================================
43,798,545
===============================================================================
DIVERSIFIED CHEMICALS-1.01%
Bayer A.G. (Germany)(d) 24,444 2,053,141
===============================================================================
DRUG RETAIL-2.26%
CVS Caremark Corp. 61,083 2,417,054
- -------------------------------------------------------------------------------
Drogasil S.A. (Brazil) 146,520 1,361,192
- -------------------------------------------------------------------------------
Rite Aid Corp(b)(c) 497,794 791,493
===============================================================================
4,569,739
===============================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.97%
Agilent Technologies, Inc.(b)(c) 55,173 1,960,848
===============================================================================
HEALTH CARE DISTRIBUTORS-2.08%
Animal Health International, Inc.(b)(c) 117,933 734,723
- -------------------------------------------------------------------------------
Celesio A.G. (Germany)(b) 35,117 1,270,563
- -------------------------------------------------------------------------------
McKesson Corp.(b) 39,608 2,214,483
===============================================================================
4,219,769
===============================================================================
HEALTH CARE EQUIPMENT-12.45%
American Medical Systems Holdings, Inc.(b)(c) 153,765 2,298,787
- -------------------------------------------------------------------------------
Covidien Ltd.(b) 43,465 2,081,539
- -------------------------------------------------------------------------------
Dexcom Inc.(b)(c) 132,631 801,091
- -------------------------------------------------------------------------------
Hologic, Inc.(b)(c) 117,731 2,566,536
- -------------------------------------------------------------------------------
Hospira, Inc.(c) 48,872 1,960,256
- -------------------------------------------------------------------------------
Medtronic, Inc. 138,142 7,148,848
- -------------------------------------------------------------------------------
Nobel Biocare Holding A.G. (Switzerland)(d) 27,576 896,347
- -------------------------------------------------------------------------------
ResMed Inc.(b)(c) 38,978 1,393,074
- -------------------------------------------------------------------------------
Smith & Nephew PLC (United Kingdom)(d) 206,527 2,268,317
- -------------------------------------------------------------------------------
Wright Medical Group, Inc.(b)(c) 51,680 1,468,229
- -------------------------------------------------------------------------------
Zimmer Holdings, Inc.(c) 34,184 2,326,221
===============================================================================
25,209,245
===============================================================================
HEALTH CARE FACILITIES-3.10%
Assisted Living Concepts Inc.-Class A(b)(c) 162,302 892,661
- -------------------------------------------------------------------------------
Rhoen-Klinikum A.G. (Germany)(b)(d) 131,333 4,166,439
- -------------------------------------------------------------------------------
Tenet Healthcare Corp.(b)(c) 220,174 1,224,167
===============================================================================
6,283,267
===============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GLOBAL HEALTH CARE FUND
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------------
HEALTH CARE SERVICES-5.81%
DaVita, Inc.(b)(c) 42,428 $ 2,254,200
- -------------------------------------------------------------------------------
Express Scripts, Inc.(c) 29,922 1,876,708
- -------------------------------------------------------------------------------
HMS Holdings Corp.(b)(c) 35,590 764,117
- -------------------------------------------------------------------------------
Laboratory Corp. of America Holdings(b)(c) 21,215 1,477,200
- -------------------------------------------------------------------------------
Medco Health Solutions, Inc.(b)(c) 47,948 2,263,146
- -------------------------------------------------------------------------------
Pediatrix Medical Group, Inc.(b)(c) 18,877 929,315
- -------------------------------------------------------------------------------
Quest Diagnostics Inc.(b) 45,387 2,199,908
===============================================================================
11,764,594
===============================================================================
HEALTH CARE SUPPLIES-1.23%
Align Technology, Inc.(b)(c) 88,436 927,694
- -------------------------------------------------------------------------------
DENTSPLY International Inc.(b) 42,565 1,566,392
===============================================================================
2,494,086
===============================================================================
HEALTH CARE TECHNOLOGY-0.58%
Allscripts Healthcare Solutions, Inc.(b)(c) 93,901 1,165,311
===============================================================================
INDUSTRIAL CONGLOMERATES-0.53%
Teleflex Inc.(b) 19,120 1,062,881
===============================================================================
LIFE & HEALTH INSURANCE-1.04%
Amil Participacoes S.A. (Brazil)(e) 230,700 2,100,084
===============================================================================
LIFE SCIENCES TOOLS & SERVICES-10.27%
Affymetrix, Inc.(b)(c) 64,620 664,940
- -------------------------------------------------------------------------------
AMAG Pharmaceuticals, Inc.(b)(c) 28,528 972,805
- -------------------------------------------------------------------------------
Applera Corp.-Applied Biosystems Group 50,708 1,697,704
- -------------------------------------------------------------------------------
Charles River Laboratories International, Inc.(c) 35,374 2,261,106
- -------------------------------------------------------------------------------
Invitrogen Corp.(b)(c) 38,366 1,506,249
- -------------------------------------------------------------------------------
MDS Inc. (Canada)(b)(c) 79,996 1,297,720
- -------------------------------------------------------------------------------
Pharmaceutical Product Development, Inc. 86,229 3,699,224
- -------------------------------------------------------------------------------
Pharmanet Development Group, Inc.(b)(c) 64,064 1,010,289
- -------------------------------------------------------------------------------
QIAGEN N.V. (Netherlands)(b)(c) 71,801 1,445,354
- -------------------------------------------------------------------------------
Sequenom Inc.(c) 42,024 670,703
- -------------------------------------------------------------------------------
Thermo Fisher Scientific, Inc.(b)(c) 48,238 2,688,304
- -------------------------------------------------------------------------------
Varian Inc.(c) 32,559 1,662,462
- -------------------------------------------------------------------------------
Waters Corp.(c) 18,806 1,212,987
===============================================================================
20,789,847
===============================================================================
MANAGED HEALTH CARE-4.95%
Aetna Inc.(b) 38,451 1,558,419
- -------------------------------------------------------------------------------
Aveta, Inc. (Acquired 12/21/05; Cost
$1,655,802)(c)(e)(f)(g) 122,652 981,216
- -------------------------------------------------------------------------------
CIGNA Corp. 38,875 1,375,786
- -------------------------------------------------------------------------------
Health Net Inc.(c) 54,949 1,322,073
- -------------------------------------------------------------------------------
UnitedHealth Group Inc. 132,298 3,472,823
- -------------------------------------------------------------------------------
WellPoint Inc.(b)(c) 27,696 1,319,991
===============================================================================
10,030,308
===============================================================================
PERSONAL PRODUCTS-0.43%
Herbalife Ltd.(b)(c) 22,384 867,380
===============================================================================
PHARMACEUTICALS-28.52%
Allergan, Inc.(b) 28,998 1,509,346
- -------------------------------------------------------------------------------
ARYx Therapeutics, Inc.(b)(c) 84,692 667,373
- -------------------------------------------------------------------------------
Biodel Inc.(b)(c) 27,316 355,108
- -------------------------------------------------------------------------------
Cadence Pharmaceuticals, Inc.(b)(c) 145,015 883,141
- -------------------------------------------------------------------------------
EastPharma Ltd.-GDR (Turkey)(f) 9,193 70,859
- -------------------------------------------------------------------------------
EastPharma Ltd.-GDR (Turkey)(e)(f) 104,939 808,864
- -------------------------------------------------------------------------------
Forest Laboratories, Inc.(c) 57,946 2,013,044
- -------------------------------------------------------------------------------
Hikma Pharmaceuticals PLC (United Kingdom)(d) 125,990 1,262,806
- -------------------------------------------------------------------------------
Inspire Pharmaceuticals, Inc.(b)(c) 74,372 318,312
- -------------------------------------------------------------------------------
Ipsen S.A. (France)(d) 35,041 1,787,796
- -------------------------------------------------------------------------------
Johnson & Johnson 71,193 4,580,558
- -------------------------------------------------------------------------------
Laboratorios Almirall S.A. (Spain) (Acquired
06/19/07; Cost $1,869,932)(d)(e) 99,610 2,156,451
- -------------------------------------------------------------------------------
Laboratorios Almirall S.A. (Spain)(d) 1,116 24,160
- -------------------------------------------------------------------------------
MAP Pharmaceuticals Inc.(b)(c) 42,310 437,062
- -------------------------------------------------------------------------------
Medicines Co. (The)(b)(c) 27,469 544,436
- -------------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(b) 44,943 933,915
- -------------------------------------------------------------------------------
Merck & Co. Inc. 186,601 7,032,992
- -------------------------------------------------------------------------------
Merck KGaA (Germany)(d) 15,438 2,192,115
- -------------------------------------------------------------------------------
Novartis A.G.-ADR (Switzerland) 56,971 3,135,684
- -------------------------------------------------------------------------------
Pfizer Inc. 106,314 1,857,306
- -------------------------------------------------------------------------------
Pharmstandard-GDR (Russia)(e)(f) 23,450 646,047
- -------------------------------------------------------------------------------
Roche Holding A.G. (Switzerland)(d) 38,974 6,994,828
- -------------------------------------------------------------------------------
Schering-Plough Corp.(b) 201,190 3,961,431
- -------------------------------------------------------------------------------
Shire Ltd.-ADR (United Kingdom)(b) 26,435 1,298,752
- -------------------------------------------------------------------------------
Takeda Pharmaceutical Co. Ltd. (Japan)(d) 38,600 1,957,789
- -------------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR (Israel) 34,000 1,557,200
- -------------------------------------------------------------------------------
Wyeth 182,519 8,753,611
===============================================================================
57,740,986
===============================================================================
Total Common Stocks & Other Equity Interests
(Cost $206,757,734) 196,110,031
===============================================================================
MONEY MARKET FUNDS-3.77%
Liquid Assets Portfolio-Institutional Class(h) 3,816,654 3,816,654
- -------------------------------------------------------------------------------
Premier Portfolio-Institutional Class(h) 3,816,653 3,816,653
===============================================================================
Total Money Market Funds (Cost $7,633,307) 7,633,307
===============================================================================
TOTAL INVESTMENTS (excluding investments purchased
with cash collateral from securities on
loan)-100.64% (Cost $214,391,041) 203,743,338
===============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GLOBAL HEALTH CARE FUND
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES ON LOAN
MONEY MARKET FUNDS-14.22%
Liquid Assets Portfolio-Institutional Class (Cost
$28,780,417)(h)(i) 28,780,417 $ 28,780,417
===============================================================================
TOTAL INVESTMENTS-114.86% (Cost $243,171,458) 232,523,755
===============================================================================
OTHER ASSETS LESS LIABILITIES-(14.86)% (30,088,919)
===============================================================================
NET ASSETS-100.00% $202,434,836
_______________________________________________________________________________
===============================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
GDR - Global Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Industry and/or sector classifications used in this report are generally
according to the Global Industry Classification Standard, which was
developed by and is the exclusive property and a service mark of MSCI Inc.
and Standard & Poor's.
(b) All or a portion of this security was out on loan at June 30, 2008.
(c) Non-income producing security.
(d) In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate value of these securities at June 30, 2008 was $25,760,189,
which represented 12.73% of the Fund's Net Assets. See Note 1A.
(e) Security purchased or received in a transaction exempt from registration
under the Securities Act of 1933, as amended. The security may be resold
pursuant to an exemption from registration under the 1933 Act, typically
to qualified institutional buyers. The aggregate value of these securities
at June 30, 2008 was $6,692,662, which represented 3.31% of the Fund's Net
Assets. Unless otherwise indicated, these securities are not considered to
be illiquid.
(f) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate value of these
securities at June 30, 2008 was $2,506,986, which represented 1.24% of the
Fund's Net Assets. See Note 1A.
(g) Security considered to be illiquid. The Fund is limited to investing 15%
of net assets in illiquid securities at the time of purchase. The value of
this security considered illiquid at June 30, 2008 represented 0.48% of
the Fund's Net Assets.
(h) The money market fund and the Fund are affiliated by having the same
investment advisor.
(i) The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 1J.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GLOBAL HEALTH CARE FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, at value (Cost
$206,757,734)* $196,110,031
- ------------------------------------------------------
Investments in affiliated money market
funds (Cost $36,413,724) 36,413,724
======================================================
Total investments (Cost
$243,171,458) 232,523,755
======================================================
Foreign currencies, at value (Cost
$171,372) 173,995
- ------------------------------------------------------
Receivables for:
Fund shares sold 33,397
- ------------------------------------------------------
Dividends 121,973
- ------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 25,211
- ------------------------------------------------------
Other assets 5,181
======================================================
Total assets 232,883,512
______________________________________________________
======================================================
LIABILITIES:
Payables for:
Investments purchased 650,673
- ------------------------------------------------------
Fund shares reacquired 488,134
- ------------------------------------------------------
Foreign currency contracts
outstanding 296,065
- ------------------------------------------------------
Collateral upon return of securities
loaned 28,780,417
- ------------------------------------------------------
Accrued fees to affiliates 145,376
- ------------------------------------------------------
Accrued other operating expenses 41,226
- ------------------------------------------------------
Trustee deferred compensation and
retirement plans 46,785
======================================================
Total liabilities 30,448,676
======================================================
Net assets applicable to shares
outstanding $202,434,836
______________________________________________________
======================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $171,473,654
- ------------------------------------------------------
Undistributed net investment income 155,605
- ------------------------------------------------------
Undistributed net realized gain 41,746,021
- ------------------------------------------------------
Unrealized appreciation (depreciation) (10,940,444)
======================================================
$202,434,836
______________________________________________________
======================================================
NET ASSETS:
Series I $180,240,814
______________________________________________________
======================================================
Series II $ 22,194,022
______________________________________________________
======================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 8,268,998
______________________________________________________
======================================================
Series II 1,029,593
______________________________________________________
======================================================
Series I:
Net asset value per share $ 21.80
______________________________________________________
======================================================
Series II:
Net asset value per share $ 21.56
______________________________________________________
======================================================
</Table>
* At June 30, 2008, securities with an aggregate value of $27,671,635 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding
taxes of $102,910) $ 1,177,390
- ------------------------------------------------------
Dividends from affiliated money market
funds (includes securities lending
income of $111,903) 259,620
======================================================
Total investment income 1,437,010
======================================================
EXPENSES:
Advisory fees 812,974
- ------------------------------------------------------
Administrative services fees 300,258
- ------------------------------------------------------
Custodian fees 22,284
- ------------------------------------------------------
Distribution fees -- Series II 28,385
- ------------------------------------------------------
Transfer agent fees 16,454
- ------------------------------------------------------
Trustees' and officer's fees and
benefits 11,191
- ------------------------------------------------------
Other 47,873
======================================================
Total expenses 1,239,419
======================================================
Less: Fees waived (6,363)
======================================================
Net expenses 1,233,056
======================================================
Net investment income 203,954
======================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM:
Net realized gain (loss) from:
Investment securities (includes net
gains from securities sold to
affiliates of $4,604) 4,127,443
- ------------------------------------------------------
Foreign currencies (74,275)
- ------------------------------------------------------
Foreign currency contracts (1,123,696)
======================================================
2,929,472
======================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (25,531,495)
- ------------------------------------------------------
Foreign currencies 2,218
- ------------------------------------------------------
Foreign currency contracts (456,005)
======================================================
(25,985,282)
======================================================
Net realized and unrealized gain (loss) (23,055,810)
======================================================
Net increase (decrease) in net assets
resulting from operations $(22,851,856)
______________________________________________________
======================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GLOBAL HEALTH CARE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- -------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 203,954 $ (387,523)
- -------------------------------------------------------------------------------------------------------
Net realized gain 2,929,472 50,032,609
- -------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) (25,985,282) (15,481,212)
=======================================================================================================
Net increase (decrease) in net assets resulting from operations (22,851,856) 34,163,874
=======================================================================================================
Share transactions-net:
Series I (22,567,268) (37,376,785)
- -------------------------------------------------------------------------------------------------------
Series II 3,589,311 (85,677,899)
=======================================================================================================
Net increase (decrease) in net assets resulting from share
transactions (18,977,957) (123,054,684)
=======================================================================================================
Net increase (decrease) in net assets (41,829,813) (88,890,810)
=======================================================================================================
NET ASSETS:
Beginning of period 244,264,649 333,155,459
=======================================================================================================
End of period (including undistributed net investment income (loss)
of $155,605 and $(48,349), respectively) $202,434,836 $ 244,264,649
_______________________________________________________________________________________________________
=======================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GLOBAL HEALTH CARE FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Global Health Care Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund. The Fund's investment objective is capital growth.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on
that day. Securities traded in the over-the-counter market are valued
based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service
they may be considered fair valued. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally
traded. Listed options are valued at the mean between the last bid and the
ask prices from the exchange on which they are principally traded. Options
not listed on an exchange are valued by an independent source at the mean
between the last bid and ask prices. For purposes of determining net asset
value per share, futures and option contracts generally are valued 15
minutes after the close of the customary trading session of the New York
Stock Exchange ("NYSE").
Investments in open-end and closed-end registered investment companies
that do not trade on an exchange are valued at the end of day net asset
value per share. Investments in open-end and closed-end registered
investment companies that trade on an exchange are valued at the last
sales price or official closing price as of the close of the customary
trading session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing
service. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to specific securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Short-term obligations, including
commercial paper, having 60 days or less to maturity are recorded at
amortized cost which approximates value. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve
some risk of default with respect to interest and/or principal payments.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued
at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price
unreliable, the Fund may fair value the security. If the event is likely
to have affected the closing price of the security, the security will be
valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also
be based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current value as of the close of the NYSE. Foreign securities
meeting the approved degree of certainty that the price is not reflective
of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, American
Depositary Receipts and domestic and foreign index futures. Foreign
securities may have additional risks including exchange rate changes,
potential for sharply devalued currencies and high inflation, political
and economical upheaval, the relative lack of issuer information,
relatively low market liquidity and the potential lack of strict financial
and accounting controls and standards.
Securities for which market prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers following procedures
approved by the Board of Trustees. Issuer specific events, market trends,
bid/ask quotes of brokers and information providers and other market data
may be reviewed in the course of making a good faith determination of a
security's fair value.
Valuations change in response to many factors including the historical
and prospective earnings of the issuer, the value of the issuer's assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
AIM V.I. GLOBAL HEALTH CARE FUND
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification
claims is considered remote.
I. OTHER RISKS -- The Fund's investments are concentrated in a comparatively
narrow segment of the economy. Consequently, the Fund may tend to be more
volatile than other mutual funds, and the value of the Fund's investments
may tend to rise and fall more rapidly.
J. SECURITIES LENDING -- The Fund may lend portfolio securities having a
market value up to one-third of the Fund's total assets. Such loans are
secured by collateral equal to no less than the market value of the loaned
securities determined daily by the securities lending provider. Such
collateral will be cash or debt securities issued or guaranteed by the
U.S. Government or any of its sponsored agencies. Cash collateral received
in connection with these loans is invested in short-term money market
instruments or affiliated money market funds and is shown as such on the
Schedule of Investments. It is the Fund's policy to obtain additional
collateral from or return excess collateral to the borrower by the end of
the next business day, following the valuation date of the securities
loaned. Therefore, the value of the collateral held may be temporarily
less than the value of the securities on loan. Lending securities entails
a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase
the collateral accordingly, and the borrower fails to return the
securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any
loss on the collateral invested. Dividends received on cash collateral
investments for securities lending transactions, which are net of
compensation to counterparties, is included in Dividends from affiliates
on the Statement of Operations. The aggregate value of securities out on
loan is shown as a footnote on the Statement of Assets and Liabilities.
K. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close
of the NYSE based on quotations posted by banks and major currency
dealers. Portfolio securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i)
sales of foreign currencies, (ii) currency gains or losses realized
between the trade and settlement dates on securities transactions, and
(iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized
foreign currency gains and losses arise from changes in the fair values of
assets and liabilities, other than investments in securities at fiscal
period end, resulting from changes in exchange rates.
AIM V.I. GLOBAL HEALTH CARE FUND
The Fund may invest in foreign securities which may be subject to
foreign taxes on income, gains on investments or currency repatriation, a
portion of which may be recoverable.
L. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. Fluctuations in the value of these contracts are recorded as
unrealized appreciation (depreciation) until the contracts are closed.
When these contracts are closed, realized gains (losses) are recorded.
Realized and unrealized gains and losses on these contracts are included
in the Statement of Operations. The Fund could be exposed to risk, which
may be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
M. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $250 million 0.75%
- -------------------------------------------------------------------
Next $250 million 0.74%
- -------------------------------------------------------------------
Next $500 million 0.73%
- -------------------------------------------------------------------
Next $1.5 billion 0.72%
- -------------------------------------------------------------------
Next $2.5 billion 0.71%
- -------------------------------------------------------------------
Next $2.5 billion 0.70%
- -------------------------------------------------------------------
Next $2.5 billion 0.69%
- -------------------------------------------------------------------
Over $10 billion 0.68%
___________________________________________________________________
===================================================================
</Table>
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd., (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
The Advisor has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.30% and Series
II shares to 1.45% of average daily net assets, through at least April 30, 2010.
In determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco")
described more fully below, the expense offset arrangements from which the Fund
may benefit are in the form of credits that the Fund receives from banks where
the Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. These credits are used to pay certain expenses incurred by the Fund. To
the extent that the annualized expense ratio does not exceed the expense
limitation, the Advisor will retain its ability to be reimbursed for such fee
waivers or reimbursements prior to the end of each fiscal year. The Advisor did
not waive fees and/or reimburse expenses during the period under this expense
limitation.
Further, the Advisor has contractually agreed, through at least April 30,
2010, to waive the advisory fee payable by the Fund in an amount equal to 100%
of the net advisory fees the Advisor receives from the affiliated money market
funds on investments by the Fund of uninvested cash (but not cash collateral
from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2008, the Advisor waived advisory fees of
$6,363.
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $29,904 for accounting and fund
administrative services and reimbursed $270,354 for services provided by
insurance companies.
AIM V.I. GLOBAL HEALTH CARE FUND
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily net
assets of the Series II shares may be paid to insurance companies who furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. For the six months ended June 30, 2008, expenses
incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1 -- Quoted prices in an active market for identical assets.
Level 2 -- Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing
a security. These may include quoted prices for similar securities, interest
rates, prepayment speeds, credit risk and others.
Level 3 -- Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for
example, when there is little or no market activity for an investment at the
end of the period), unobservable inputs may be used. Unobservable inputs
reflect the Fund's own assumptions about the factors market participants would
use in determining fair value of the securities or instruments and would be
based on the best available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS IN OTHER
INPUT LEVEL SECURITIES INVESTMENTS*
- -------------------------------------------------------
Level 1 $204,902,627 $(296,065)
- -------------------------------------------------------
Level 2 27,621,128 --
- -------------------------------------------------------
Level 3 -- --
=======================================================
$232,523,755 $(296,065)
_______________________________________________________
=======================================================
</Table>
* Other investments include foreign currency contracts, which are included at
unrealized appreciation/(depreciation).
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, for the six months ended June 30, 2008, the Fund
engaged in securities sales of $18,721, which resulted in net realized gains of
$4,604, and securities purchases of $677,870.
NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan and receive benefits under such plan. "Trustees' and Officer's
Fees and Benefits" include amounts accrued by the Fund to fund such retirement
benefits. Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $1,783
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
AIM V.I. GLOBAL HEALTH CARE FUND
NOTE 6--CASH BALANCES
The Fund is permitted to temporarily carry a negative or overdrawn balance in
its account with The State Street Bank and Trust Company ("SSB"), the custodian
bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund
may either (i) leave funds as a compensating balance in the account so the
custodian bank can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank at a rate agreed upon by the custodian
bank and Invesco Aim, not to exceed the contractually agreed upon rate.
NOTE 7--FOREIGN CURRENCY CONTRACTS
<Table>
<Caption>
OPEN FOREIGN CURRENCY CONTRACTS AT PERIOD END
- ---------------------------------------------------------------------------------------------------------------------------
CONTRACT TO UNREALIZED
SETTLEMENT ----------------------------------- VALUE APPRECIATION
DATE DELIVER RECEIVE 06/30/08 (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------------
08/08/08 CHF 5,400,000 USD 5,163,264 $5,289,556 $(126,292)
- ---------------------------------------------------------------------------------------------------------------------------
08/08/08 EUR 5,900,000 USD 9,130,840 9,270,157 (139,317)
- ---------------------------------------------------------------------------------------------------------------------------
08/08/08 GBP 1,250,000 USD 2,451,625 2,482,081 (30,456)
===========================================================================================================================
Total open foreign currency contracts $(296,065)
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
Currency Abbreviations:
<Table>
CHF - Swiss Franc
EUR - Euro
GBP - British Pound Sterling
USD - U.S. Dollar
</Table>
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
The Fund did not have a capital loss carryforward as of December 31, 2007:
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the six months ended June 30, 2008 was $75,438,009 and
$86,604,066, respectively. Cost of investments on a tax basis includes the
adjustments for financial reporting purposes as of the most recently completed
Federal income tax reporting period end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 15,286,869
- ------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (26,076,628)
================================================================================================
Net unrealized appreciation (depreciation) of investment securities $(10,789,759)
________________________________________________________________________________________________
================================================================================================
Cost of investments for tax purposes is $243,313,514.
</Table>
AIM V.I. GLOBAL HEALTH CARE FUND
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008(a) DECEMBER 31, 2007
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 717,931 $ 16,339,563 1,565,542 $ 36,237,613
- -------------------------------------------------------------------------------------------------------------------------
Series II 233,158 5,293,779 2,076,812 46,171,584
=========================================================================================================================
Reacquired:
Series I (1,737,778) (38,906,831) (3,226,676) (73,614,398)
- -------------------------------------------------------------------------------------------------------------------------
Series II (77,581) (1,704,468) (5,774,963) (131,849,483)
=========================================================================================================================
(864,270) $(18,977,957) (5,359,285) $(123,054,684)
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) There are entities that are record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate own 70% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, Invesco
Aim and/or Invesco Aim affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services to
the Fund, Invesco Aim and or Invesco Aim affiliates including but not
limited to services such as, securities brokerage, third party record
keeping and account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record by
these entities are also owned beneficially.
NOTE 11--NEW ACCOUNTING STANDARD
In March 2008, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 161, Disclosures about Derivative Instruments and Hedging
Activities. The standard is intended to improve financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity's financial
position and financial performance. It is effective for financial statements
issued for fiscal years beginning after November 15, 2008. Management is
currently in the process of determining the impact of the standard on the Fund's
disclosures in the financial statements.
AIM V.I. GLOBAL HEALTH CARE FUND
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
---------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------
2008 2007 2006 2005 2004 2003
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 24.06 $ 21.51 $ 20.44 $ 18.90 $ 17.57 $ 13.75
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02 (0.01)(a) (0.04)(a) (0.06) (0.03) (0.03)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.28) 2.56 1.11 1.60 1.36 3.85
===============================================================================================================================
Total from investment operations (2.26) 2.55 1.07 1.54 1.33 3.82
===============================================================================================================================
Net asset value, end of period $ 21.80 $ 24.06 $ 21.51 $ 20.44 $ 18.90 $ 17.57
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) (9.39)% 11.85% 5.24% 8.15% 7.57% 27.78%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $180,241 $223,448 $235,509 $257,736 $354,889 $340,711
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.11%(c) 1.06% 1.10% 1.08% 1.11% 1.07%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.12%(c) 1.07% 1.10% 1.09% 1.11% 1.07%
===============================================================================================================================
Ratio of net investment income (loss) to
average net assets 0.21%(c) (0.06)% (0.19)% (0.24)% (0.17)% (0.20)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(d) 36% 66% 79% 82% 175% 114%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$195,151,539.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
<Table>
<Caption>
SERIES II
------------------------------------------------------------------------------
APRIL 30, 2004,
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT DATE) TO
JUNE 30, ------------------------------ DECEMBER 31,
2008 2007 2006 2005 2004
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.82 $ 21.36 $ 20.34 $18.86 $18.19
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00) (0.07)(a) (0.09)(a) (0.09) (0.05)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.26) 2.53 1.11 1.57 0.72
==========================================================================================================================
Total from investment operations (2.26) 2.46 1.02 1.48 0.67
==========================================================================================================================
Net asset value, end of period $ 21.56 $ 23.82 $ 21.36 $20.34 $18.86
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) (9.49)% 11.52% 5.01% 7.85% 3.68%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $22,194 $20,817 $97,646 $ 11 $ 10
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.36%(c) 1.31% 1.35% 1.33% 1.36%(d)
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.37%(c) 1.32% 1.35% 1.34% 1.36%(d)
==========================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.04)%(c) (0.31)% (0.44)% (0.49)% (0.42)%(d)
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate(e) 36% 66% 79% 82% 175%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of $22,832,779.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. GLOBAL HEALTH CARE FUND
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to Invesco Aim and IADI (Order No. 05-
1318). The WVASC makes findings of fact that Invesco Aim and IADI entered into
certain arrangements permitting market timing of the AIM Funds and failed to
disclose these arrangements in the prospectuses for such Funds, and conclusions
of law to the effect that Invesco Aim and IADI violated the West Virginia
securities laws. The WVASC orders Invesco Aim and IADI to cease any further
violations and seeks to impose monetary sanctions, including restitution to
affected investors, disgorgement of fees, reimbursement of investigatory,
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute. By agreement with the Commissioner of
Securities, Invesco Aim's time to respond to that Order has been indefinitely
suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid. The case pending in Illinois State Court regarding fair value
pricing was dismissed with prejudice on May 6, 2008.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA
purportedly brought on behalf of participants in the Invesco 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds remain nominal defendants in the Consolidated Amended Fund
Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco
defendants' motion to dismiss the Amended Class Action Complaint for Violations
of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June
16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this
lawsuit back to the MDL Court for further proceedings..
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, Invesco Aim and IADI have advised the Fund that they are providing
full cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, Invesco Aim and/or related entities and individuals in the
future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. GLOBAL HEALTH CARE FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $906.10 $5.26 $1,019.34 $5.57 1.11%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 904.70 6.44 1,018.10 6.82 1.36
- ---------------------------------------------------------------------------------------------------
</Table>
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5%
before expenses.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
AIM V.I. GLOBAL HEALTH CARE FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different
Variable Insurance Funds is required under comparative performance and fee data weight to the various factors. The
the Investment Company Act of 1940 to regarding the AIM Funds prepared by an Trustees recognized that the advisory
approve annually the renewal of the AIM independent company, Lipper, Inc. arrangements and resulting advisory fees
V.I. Global Health Care Fund (the Fund) (Lipper), under the direction and for the Fund and the other AIM Funds are
investment advisory agreement with Invesco supervision of the independent Senior the result of years of review and
Aim Advisors, Inc. (Invesco Aim). During Officer who also prepares a separate negotiation between the Trustees and
contract renewal meetings held on June analysis of this information for the Invesco Aim, that the Trustees may focus
18-19, 2008, the Board as a whole and the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of
disinterested or "independent" Trustees, recommendations to the Investments these arrangements in some years than in
voting separately, approved the Committee regarding the performance, fees others, and that the Trustees'
continuance of the Fund's investment and expenses of their assigned funds. The deliberations and conclusions in a
advisory agreement for another year, Investments Committee considers each particular year may be based in part on
effective July 1, 2008. In doing so, the Sub-Committee's recommendations and makes their deliberations and conclusions of
Board determined that the Fund's its own recommendations regarding the these same arrangements throughout the
investment advisory agreement is in the performance, fees and expenses of the AIM year and in prior years.
best interests of the Fund and its Funds to the full Board. The Investments
shareholders and that the compensation to Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF
Invesco Aim under the Fund's investment Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION
advisory agreement is fair and reasonable. its annual recommendation to the Board
whether to approve the continuance of each The discussion below serves as a summary
The independent Trustees met separately Invesco Aim Fund's investment advisory of the Senior Officer's independent
during their evaluation of the Fund's agreement and sub-advisory agreements for written evaluation with respect to the
investment advisory agreement with another year. Fund's investment advisory agreement as
independent legal counsel from whom they well as a discussion of the material
received independent legal advice, and the The independent Trustees are assisted factors and related conclusions that
independent Trustees also received in their annual evaluation of the Fund's formed the basis for the Board's approval
assistance during their deliberations from investment advisory agreement by the of the Fund's investment advisory
the independent Senior Officer, a independent Senior Officer. One agreement and sub-advisory agreements.
full-time officer of the AIM Funds who responsibility of the Senior Officer is to Unless otherwise stated, information set
reports directly to the independent manage the process by which the AIM Funds' forth below is as of June 19, 2008 and
Trustees. proposed management fees are negotiated does not reflect any changes that may have
during the annual contract renewal process occurred since that date, including but
THE BOARD'S FUND EVALUATION PROCESS to ensure that they are negotiated in a not limited to changes to the Fund's
manner that is at arms' length and performance, advisory fees, expense
The Board's Investments Committee has reasonable. Accordingly, the Senior limitations and/or fee waivers.
established three Sub-Committees that are Officer must either supervise a
responsible for overseeing the management competitive bidding process or prepare an I. Investment Advisory Agreement
of a number of the series portfolios of independent written evaluation. The Senior
the AIM Funds. This Sub-Committee Officer has recommended that an A. Nature, Extent and Quality of
structure permits the Trustees to focus on independent written evaluation be provided Services Provided by Invesco Aim
the performance of the AIM Funds that have and, at the direction of the Board, has
been assigned to them. The Sub-Committees prepared an independent written The Board reviewed the advisory services
meet throughout the year to review the evaluation. provided to the Fund by Invesco Aim under
performance of their assigned funds, and the Fund's investment advisory agreement,
the Sub-Committees review monthly and During the annual contract renewal the performance of Invesco Aim in
quarterly comparative performance process, the Board considered the factors providing these services, and the
information and periodic asset flow data discussed below under the heading "Factors credentials and experience of the officers
for their assigned funds. These materials and Conclusions and Summary of Independent and employees of Invesco Aim who provide
are prepared under the direction and Written Fee Evaluation" in evaluating the these services. The Board's review of the
supervision of the independent Senior fairness and reasonableness of the Fund's qualifications of Invesco Aim to provide
Officer. Over the course of each year, the investment advisory agreement and these services included the Board's
Sub-Committees meet with portfolio sub-advisory agreements at the contract consideration of Invesco Aim's portfolio
managers for their assigned funds and renewal meetings and at their meetings and product review process, various back
other members of management and review throughout the year as part of their office support functions provided by
with these individuals the performance, ongoing oversight of the Fund. The Fund's Invesco Aim and its affiliates, and
investment objective(s), policies, investment advisory agreement and Invesco Aim's equity and fixed income
strategies and limitations of these funds. sub-advisory agreements were considered trading operations. The Board concluded
separately, although the Board also that the nature, extent and quality of the
In addition to their meetings considered the common interests of all of advisory services provided to the Fund by
throughout the year, the Sub-Committees the AIM Funds in their deliberations. The Invesco Aim were appropriate and that
meet at designated contract renewal Board considered all of the information Invesco Aim currently is providing
meetings each year to conduct an in-depth provided to them and did not identify any satisfactory advisory services in
review of the performance, fees and particular factor that was controlling. accordance with the terms of the Fund's
expenses of their assigned funds. During Each Trustee may have evaluated the investment advisory agreement. In
the contract information provided differently addition, based on their ongoing meetings
throughout the year with the Fund's
portfolio manager or
continued
AIM V.I. GLOBAL HEALTH CARE FUND
managers, the Board concluded that these to be responsive to the Board's focus on economies of scale through contractual
individuals are competent and able to fund performance. Although the independent breakpoints in the Fund's advisory fee
continue to carry out their written evaluation of the Fund's Senior schedule or through advisory fee waivers
responsibilities under the Fund's Officer only considered Fund performance or expense limitations. The Board noted
investment advisory agreement. through the most recent calendar year, the that the Fund's contractual advisory fee
Board also reviewed more recent Fund schedule currently includes seven
In determining whether to continue the performance and this review did not change breakpoints and that the level of the
Fund's investment advisory agreement, the their conclusions. Fund's advisory fees, as a percentage of
Board considered the prior relationship the Fund's net assets, has decreased as
between Invesco Aim and the Fund, as well C. Advisory Fees and Fee Waivers net assets increased because of the
as the Board's knowledge of Invesco Aim's breakpoints. Based on this information,
operations, and concluded that it was The Board compared the Fund's contractual the Board concluded that the Fund's
beneficial to maintain the current advisory fee rate to the contractual advisory fees appropriately reflect
relationship, in part, because of such advisory fee rates of funds in the Fund's economies of scale at current asset
knowledge. The Board also considered the Lipper expense group that are not managed levels. The Board also noted that the Fund
steps that Invesco Aim and its affiliates by Invesco Aim, at a common asset level shares directly in economies of scale
have taken over the last several years to and as of the end of the past calendar through lower fees charged by third party
improve the quality and efficiency of the year. The Board noted that the Fund's service providers based on the combined
services they provide to the AIM Funds in contractual advisory fee rate was below size of all of the AIM Funds and
the areas of investment performance, the median contractual advisory fee rate affiliates.
product line diversification, of funds in its expense group. The Board
distribution, fund operations, shareholder also reviewed the methodology used by E. Profitability and Financial
services and compliance. The Board Lipper in determining contractual fee Resources of Invesco Aim
concluded that the quality and efficiency rates.
of the services Invesco Aim and its The Board reviewed information from
affiliates provide to the AIM Funds in The Board also compared the Fund's Invesco Aim concerning the costs of the
each of these areas generally have effective fee rate (the advisory fee after advisory and other services that Invesco
improved, and support the Board's approval any advisory fee waivers and before any Aim and its affiliates provide to the Fund
of the continuance of the Fund's expense limitations/waivers) to the and the profitability of Invesco Aim and
investment advisory agreement. advisory fee rates of other clients of its affiliates in providing these
Invesco Aim and its affiliates with services. The Board also reviewed
B. Fund Performance investment strategies comparable to those information concerning the financial
of the Fund, including one mutual fund condition of Invesco Aim and its
The Board compared the Fund's performance advised by Invesco Aim and one mutual affiliates. The Board also reviewed with
during the past one, three and five funds sub-advised by an Invesco Aim Invesco Aim the methodology used to
calendar years to the performance of funds affiliate. The Board noted that the Fund's prepare the profitability information. The
in the Fund's performance group that are rate was: (i) above the rate for the Board considered the overall profitability
not managed by Invesco Aim, and against mutual fund; and (ii) above the of Invesco Aim, as well as the
the performance of all funds in the Lipper sub-advisory fee rate for the sub-advised profitability of Invesco Aim in connection
Variable Annuity Underlying Funds -- mutual fund. with managing the Fund. The Board noted
Health/Biotechnology Index. The Board also that Invesco Aim continues to operate at a
reviewed the criteria used by Invesco Aim The Board noted that Invesco Aim has net profit, although increased expenses in
to identify the funds in the Fund's contractually agreed to waive fees and/or recent years have reduced the
performance group for inclusion in the limit expenses of the Fund through at profitability of Invesco Aim and its
Lipper reports. The Board noted that the least April 30, 2010 in an amount affiliates. The Board concluded that the
Fund's performance was in the third necessary to limit total annual operating Fund's fees were fair and reasonable, and
quintile of its performance group for the expenses to a specified percentage of that the level of profits realized by
one year period, and the fifth quintile average daily net assets for each class of Invesco Aim and its affiliates from
for the three and five year periods (the the Fund. The Board considered the providing services to the Fund was not
first quintile being the best performing contractual nature of this fee waiver and excessive in light of the nature, quality
funds and the fifth quintile being the noted that it remains in effect until at and extent of the services provided. The
worst performing funds). The Board noted least April 30, 2010. The Board also Board considered whether Invesco Aim is
that the Fund's performance was below the considered the effect this expense financially sound and has the resources
performance of the Index for the one, limitation would have on the Fund's necessary to perform its obligations under
three, and five year periods. The Board estimated total expenses. the Fund's investment advisory agreement,
noted that Invesco Aim made changes to the and concluded that Invesco Aim has the
Fund's portfolio management team in 2005 After taking account of the Fund's financial resources necessary to fulfill
and 2006, which appear to be producing contractual advisory fee rate, as well as these obligations.
encouraging results, but Invesco Aim will the comparative advisory fee information
continue to monitor the Fund. The Board and the expense limitation discussed F. Independent Written Evaluation of
also considered the steps Invesco Aim has above, the Board concluded that the Fund's the Fund's Senior Officer
taken over the last several years to advisory fees were fair and reasonable.
improve the quality and efficiency of the The Board noted that, at their direction,
services that Invesco Aim provides to the D. Economies of Scale and Breakpoints the Senior Officer of the Fund, who is
AIM Funds. The Board concluded that independent of Invesco Aim and Invesco
Invesco Aim continues The Board considered the extent to which Aim's affiliates, had prepared an
there are economies of scale in Invesco independent written evaluation to assist
Aim's provision of advisory services to the Board in determining the
the Fund. The Board also considered reasonableness
whether the Fund benefits from such
continued
AIM V.I. GLOBAL HEALTH CARE FUND
of the proposed management fees of the AIM funds advised by Invesco Aim pursuant to B. Fund Performance
Funds, including the Fund. The Board noted procedures approved by the Board. The
that they had relied upon the Senior Board noted that Invesco Aim will receive The Board did not view Fund performance as
Officer's written evaluation instead of a advisory fees from these affiliated money a relevant factor in considering whether
competitive bidding process. In market funds attributable to such to approve the sub-advisory agreements for
determining whether to continue the Fund's investments, although Invesco Aim has the Fund, as no Affiliated Sub-Adviser
investment advisory agreement, the Board contractually agreed to waive through at currently manages any portion of the
considered the Senior Officer's written least April 30, 2010, the advisory fees Fund's assets.
evaluation. payable by the Fund in an amount equal to
100% of the net advisory fees Invesco Aim C. Sub-Advisory Fees
G. Collateral Benefits to Invesco Aim receives from the affiliated money market
and its Affiliates funds with respect to the Fund's The Board considered the services to be
investment of uninvested cash, but not provided by the Affiliated Sub-Advisers
The Board considered various other cash collateral. The Board considered the pursuant to the sub-advisory agreements
benefits received by Invesco Aim and its contractual nature of this fee waiver and and the services to be provided by Invesco
affiliates resulting from Invesco Aim's noted that it remains in effect until at Aim pursuant to the Fund's investment
relationship with the Fund, including the least April 30, 2010. The Board concluded advisory agreement, as well as the
fees received by Invesco Aim and its that the Fund's investment of uninvested allocation of fees between Invesco Aim and
affiliates for their provision of cash and cash collateral from any the Affiliated Sub-Advisers pursuant to
administrative, transfer agency and securities lending arrangements in the the sub-advisory agreements. The Board
distribution services to the Fund. The affiliated money market funds is in the noted that the sub-advisory fees have no
Board considered the performance of best interests of the Fund and its direct effect on the Fund or its
Invesco Aim and its affiliates in shareholders. shareholders, as they are paid by Invesco
providing these services and the Aim to the Affiliated Sub-Advisers, and
organizational structure employed by II. Sub-Advisory Agreements that Invesco Aim and the Affiliated
Invesco Aim and its affiliates to provide Sub-Advisers are affiliates. After taking
these services. The Board also considered A. Nature, Extent and Quality of account of the Fund's contractual
that these services are provided to the Services Provided by Affiliated sub-advisory fee rate, as well as other
Fund pursuant to written contracts which Sub-Advisers relevant factors, the Board concluded that
are reviewed and approved on an annual the Fund's sub-advisory fees were fair and
basis by the Board. The Board concluded The Board reviewed the services to be reasonable.
that Invesco Aim and its affiliates were provided by Invesco Trimark Ltd., Invesco
providing these services in a satisfactory Asset Management Deutschland, GmbH, D. Financial Resources of the
manner and in accordance with the terms of Invesco Asset Management Limited, Invesco Affiliated Sub-Advisers
their contracts, and were qualified to Asset Management (Japan) Limited, Invesco
continue to provide these services to the Australia Limited, Invesco Global Asset The Board considered whether each
Fund. Management (N.A.), Inc., Invesco Hong Kong Affiliated Sub-Adviser is financially
Limited, Invesco Institutional (N.A.), sound and has the resources necessary to
The Board considered the benefits Inc. and Invesco Senior Secured perform its obligations under its
realized by Invesco Aim as a result of Management, Inc. (collectively, the respective sub-advisory agreement, and
portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the concluded that each Affiliated Sub-Adviser
through "soft dollar" arrangements. Under sub-advisory agreements and the has the financial resources necessary to
these arrangements, portfolio brokerage credentials and experience of the officers fulfill these obligations.
commissions paid by the Fund and/or other and employees of the Affiliated
funds advised by Invesco Aim are used to Sub-Advisers who will provide these
pay for research and execution services. services. The Board concluded that the
The Board noted that soft dollar nature, extent and quality of the services
arrangements shift the payment obligation to be provided by the Affiliated
for the research and execution services Sub-Advisers were appropriate. The Board
from Invesco Aim to the funds and noted that the Affiliated Sub-Advisers,
therefore may reduce Invesco Aim's which have offices and personnel that are
expenses. The Board also noted that geographically dispersed in financial
research obtained through soft dollar centers around the world, have been formed
arrangements may be used by Invesco Aim in in part for the purpose of researching and
making investment decisions for the Fund compiling information and making
and may therefore benefit Fund recommendations on the markets and
shareholders. The Board concluded that economies of various countries and
Invesco Aim's soft dollar arrangements securities of companies located in such
were appropriate. The Board also concluded countries or on various types of
that, based on their review and investments and investment techniques, and
representations made by Invesco Aim, these providing investment advisory services.
arrangements were consistent with The Board concluded that the sub-advisory
regulatory requirements. agreements will benefit the Fund and its
shareholders by permitting Invesco Aim to
The Board considered the fact that the utilize the additional resources and
Fund's uninvested cash and cash collateral talent of the Affiliated Sub-Advisers in
from any securities lending arrangements managing the Fund.
may be invested in money market
AIM V.I. GLOBAL HEALTH CARE FUND
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. Global Health Care
Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware
statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held
for the following purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom
will serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust
that would permit the Board of Trustees of the Trust to terminate the
Trust, the Fund, and each other series portfolio of the Trust, or a share
class without a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc.
and each of AIM Funds Management, Inc.; Invesco Asset Management
Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset
Management (Japan) Limited; Invesco Australia Limited; Invesco Global
Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco
Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc.
(4)(a) Approve modification of fundamental restriction on issuer
diversification.
(4)(b) Approve modification of fundamental restrictions on issuing senior
securities and borrowing money.
(4)(c) Approve modification of fundamental restrictions on underwriting
securities.
(4)(d) Approve modification of fundamental restrictions on industry
concentration.
(4)(e) Approve modification of fundamental restrictions on real estate
investments.
(4)(f) Approve modification of fundamental restrictions on purchasing or selling
commodities.
(4)(g) Approve modification of fundamental restrictions on making loans.
(4)(h) Approve modification of fundamental restrictions on investment in
investment companies.
(5) Approve making the investment objective of the fund non-fundamental.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- ------------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker.................................................... 474,883,590 19,741,622
Frank S. Bayley................................................. 474,653,109 19,972,103
James T. Bunch.................................................. 475,597,417 19,027,795
Bruce L. Crockett............................................... 474,900,579 19,724,633
Albert R. Dowden................................................ 474,749,929 19,875,283
Jack M. Fields.................................................. 475,205,840 19,419,372
Martin L. Flanagan.............................................. 475,248,336 19,376,876
Carl Frischling................................................. 474,453,674 20,171,538
Prema Mathai-Davis.............................................. 473,569,192 21,056,020
Lewis F. Pennock................................................ 475,072,501 19,552,711
Larry Soll, Ph.D................................................ 475,170,544 19,454,668
Raymond Stickel, Jr............................................. 475,420,825 19,204,387
Philip A. Taylor ............................................... 475,640,570 18,984,642
</Table>
<Table>
<Caption>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
- --------------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of
Trustees of the Trust to terminate the Trust, the Fund,
and each other series portfolio of the Trust, or a share
class without a shareholder vote........................ 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between Invesco Aim
Advisors, Inc. and each of AIM Funds Management, Inc.;
Invesco Asset Management Deutschland, GmbH; Invesco
Asset Management Limited; Invesco Asset Management
(Japan) Limited; Invesco Australia Limited; Invesco
Global Asset Management (N.A.), Inc.; Invesco Hong Kong
Limited; Invesco Institutional (N.A.), Inc.; and Invesco
Senior Secured Management, Inc.......................... 8,360,968 260,347 474,554
(4)(a) Approve modification of fundamental restriction on
issuer diversification.................................. 8,416,124 292,765 386,980
(4)(b) Approve modification of fundamental restrictions on
issuing senior securities and borrowing money........... 8,346,334 362,695 386,840
(4)(c) Approve modification of fundamental restriction on
underwriting securities................................. 8,326,407 382,482 386,980
(4)(d) Approve modification of fundamental restriction on
industry concentration.................................. 8,405,530 302,410 387,929
(4)(e) Approve modification of fundamental restriction on real
estate investments...................................... 8,414,449 297,665 383,755
(4)(f) Approve modification of fundamental restriction on
purchasing or selling commodities....................... 8,360,483 348,546 386,840
(4)(g) Approve modification of fundamental restriction on
making loans............................................ 8,379,001 326,380 390,488
(4)(h) Approve modification of fundamental restriction on
investment in investment companies...................... 8,410,057 295,324 390,488
(5) Approve making the investment objective of the fund non-
fundamental............................................. 8,158,276 402,148 535,445
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. GLOBAL HEALTH CARE FUND
[INVESCO AIM LOGO] AIM V.I. GLOBAL REAL ESTATE FUND
- SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008
AIM Investments [MOUNTAIN GRAPHIC]
became INVESCO AIM
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FUND PERFORMANCE
=======================================================================================
PERFORMANCE SUMMARY
FUND VS. INDEXES
Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares -14.31%
Series II Shares -14.40
MSCI World Index(TRIANGLE) (Broad Market Index) -10.57
FTSE EPRA/NAREIT Global Real Estate Index(BOX) (Style-Specific Index) -13.71
Lipper VUF Real Estate Funds Category Average(TRIANGLE) (Peer Group) -6.27
(TRIANGLE)Lipper Inc.; (BOX)Invesco Aim, Bloomberg L.P.
The MSCI WORLD INDEX--SERVICE MARK-- is a free float-adjusted market capitalization
index that is designed to measure global developed market equity performance.
The FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDEX is designed to track the
performance of listed real estate companies and REITs worldwide. It is compiled
by FTSE Group (an independent company, originally a joint venture of the
Financial Times and the London Stock Exchange, whose sole business is the
creation and management of indexes and associated data services); NAREIT and
EPRA.
THE LIPPER VUF REAL ESTATE FUNDS CATEGORY AVERAGE represents an average of
all of the variable insurance underlying funds in the Lipper Real Estate Funds
category. These funds invest at least 65% of their portfolio in equity
securities of domestic and foreign companies engaged in the real estate
industry. Compared to the S&P/Citigroup World ex-U.S. BMI.
The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
=======================================================================================
==========================================
AVERAGE ANNUAL TOTAL RETURNS THE PERFORMANCE DATA QUOTED REPRESENT THROUGH INSURANCE COMPANIES ISSUING
As of 6/30/08 PAST PERFORMANCE AND CANNOT GUARANTEE VARIABLE PRODUCTS. YOU CANNOT PURCHASE
COMPARABLE FUTURE RESULTS; CURRENT SHARES OF THE FUND DIRECTLY. PERFORMANCE
SERIES I SHARES PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE FIGURES GIVEN REPRESENT THE FUND AND ARE
Inception (3/31/98) 10.82% CONTACT YOUR VARIABLE PRODUCT ISSUER OR NOT INTENDED TO REFLECT ACTUAL VARIABLE
10 Years 11.67 FINANCIAL ADVISOR FOR THE MOST RECENT PRODUCT VALUES. THEY DO NOT REFLECT SALES
5 Years 16.73 MONTH-END VARIABLE PRODUCT PERFORMANCE. CHARGES, EXPENSES AND FEES ASSESSED IN
1 Year -18.26 PERFORMANCE FIGURES REFLECT FUND EXPENSES, CONNECTION WITH A VARIABLE PRODUCT. SALES
REINVESTED DISTRIBUTIONS AND CHANGES IN CHARGES, EXPENSES AND FEES, WHICH ARE
SERIES II SHARES NET ASSET VALUE. INVESTMENT RETURN AND DETERMINED BY THE VARIABLE PRODUCT
10 Years 11.41% PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU ISSUERS, WILL VARY AND WILL LOWER THE
5 Years 16.46 MAY HAVE A GAIN OR LOSS WHEN YOU SELL TOTAL RETURN.
1 Year -18.42 SHARES. THE MOST RECENT MONTH-END PERFORMANCE
========================================== THE TOTAL ANNUAL FUND OPERATING EXPENSE DATA AT THE FUND LEVEL, EXCLUDING VARIABLE
RATIO SET FORTH IN THE MOST RECENT FUND PRODUCT CHARGES, IS AVAILABLE ON THE
SERIES II SHARES' INCEPTION DATE IS APRIL PROSPECTUS AS OF THE DATE OF THIS REPORT INVESCO AIM AUTOMATED INFORMATION LINE,
30, 2004. RETURNS SINCE THAT DATE ARE FOR SERIES I AND SERIES II SHARES WAS 866 702 4402. AS MENTIONED ABOVE, FOR THE
HISTORICAL. ALL OTHER RETURNS ARE THE 1.13% AND 1.38%, RESPECTIVELY. THE EXPENSE MOST RECENT MONTH-END PERFORMANCE
BLENDED RETURNS OF THE HISTORICAL RATIOS PRESENTED ABOVE MAY VARY FROM THE INCLUDING VARIABLE PRODUCT CHARGES, PLEASE
PERFORMANCE OF SERIES II SHARES SINCE EXPENSE RATIOS PRESENTED IN OTHER SECTIONS CONTACT YOUR VARIABLE PRODUCT ISSUER OR
THEIR INCEPTION AND THE RESTATED OF THIS REPORT THAT ARE BASED ON EXPENSES FINANCIAL ADVISOR.
HISTORICAL PERFORMANCE OF SERIES I SHARES INCURRED DURING THE PERIOD COVERED BY THIS HAD THE ADVISOR NOT WAIVED FEES AND/OR
(FOR PERIODS PRIOR TO INCEPTION OF SERIES REPORT. REIMBURSED EXPENSES IN THE PAST,
II SHARES) ADJUSTED TO REFLECT THE RULE AIM V.I. GLOBAL REAL ESTATE FUND, A PERFORMANCE WOULD HAVE BEEN LOWER.
12B-1 FEES APPLICABLE TO SERIES II SHARES. SERIES PORTFOLIO OF AIM VARIABLE INSURANCE
THE INCEPTION DATE OF SERIES I SHARES IS FUNDS, IS CURRENTLY OFFERED
MARCH 31, 1998.
THE PERFORMANCE OF THE FUND'S SERIES I
AND SERIES II SHARE CLASSES WILL DIFFER
PRIMARILY DUE TO DIFFERENT CLASS EXPENSES.
AIM V.I. GLOBAL REAL ESTATE FUND
PORTFOLIO COMPOSITION
By property type, based on Net Assets,
as of June 30, 2008
<Table>
- -------------------------------------------------------------------------
Diversified 36.0%
- -------------------------------------------------------------------------
Retail 24.0
- -------------------------------------------------------------------------
Office 13.5
- -------------------------------------------------------------------------
Residential 8.9
- -------------------------------------------------------------------------
Healthcare 5.1
- -------------------------------------------------------------------------
Industrial 4.5
- -------------------------------------------------------------------------
Lodging-Resorts 1.8
- -------------------------------------------------------------------------
Self Storage 1.8
- -------------------------------------------------------------------------
Specialty 1.5
- -------------------------------------------------------------------------
Money Market Funds Plus Other Assets Less Liabilities 2.9
_________________________________________________________________________
=========================================================================
</Table>
SCHEDULE OF INVESTMENTS(a)
June 30, 2008
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------------
FOREIGN COMMON STOCKS & OTHER EQUITY INTERESTS-97.13%
AUSTRALIA-10.52%
CFS Retail Property Trust(a) 606,800 $ 1,075,797
- -------------------------------------------------------------------------------
GPT Group(a) 1,006,400 2,141,097
- -------------------------------------------------------------------------------
Mirvac Group(a) 487,100 1,381,728
- -------------------------------------------------------------------------------
Stockland(a) 707,400 3,653,984
- -------------------------------------------------------------------------------
Westfield Group(a)(b) 412,600 6,426,158
===============================================================================
14,678,764
===============================================================================
AUSTRIA-0.31%
Conwert Immobilien Invest S.E.(c) 24,900 428,106
===============================================================================
CANADA-3.77%
Boardwalk Real Estate Investment Trust 30,600 1,138,277
- -------------------------------------------------------------------------------
Cominar Real Estate Investment Trust 15,500 329,386
- -------------------------------------------------------------------------------
H&R Real Estate Investment Trust 51,400 904,362
- -------------------------------------------------------------------------------
Primaris Retail Real Estate Investment Trust 40,500 726,872
- -------------------------------------------------------------------------------
RioCan Real Estate Investment Trust 110,900 2,157,778
===============================================================================
5,256,675
===============================================================================
CHINA-0.21%
Guangzhou R&F Properties Co. Ltd.-Class H 72,000 134,262
- -------------------------------------------------------------------------------
Shimao Property Holdings Ltd. 138,000 158,401
===============================================================================
292,663
===============================================================================
FINLAND-0.72%
Citycon Oyj 197,913 1,000,249
===============================================================================
FRANCE-6.13%
Gecina S.A.(b) 7,400 893,639
- -------------------------------------------------------------------------------
Klepierre(b) 20,100 1,006,845
- -------------------------------------------------------------------------------
Orco Property Group(a) 5,200 303,661
- -------------------------------------------------------------------------------
Societe Immobiliere de Location pour I'Industrie
et le Commerce(b) 3,900 488,169
- -------------------------------------------------------------------------------
Unibail-Rodamco(b) 25,400 5,864,025
===============================================================================
8,556,339
===============================================================================
HONG KONG-12.61%
China Overseas Land & Investment Ltd. 952,000 1,504,192
- -------------------------------------------------------------------------------
China Overseas Land & Investment Ltd.-Wts.,
expiring 08/27/08(c) 57,833 8,159
- -------------------------------------------------------------------------------
China Resources Land Ltd. 159,800 221,338
- -------------------------------------------------------------------------------
Hang Lung Properties Ltd. 898,000 2,879,202
- -------------------------------------------------------------------------------
Hongkong Land Holdings Ltd. 352,000 1,492,480
- -------------------------------------------------------------------------------
Kerry Properties Ltd. 235,400 1,236,278
- -------------------------------------------------------------------------------
Link REIT (The) 885,000 2,015,775
- -------------------------------------------------------------------------------
New World Development Co., Ltd.(b) 1,042,400 2,117,430
- -------------------------------------------------------------------------------
Sino Land Co. Ltd.(b) 526,000 1,043,163
- -------------------------------------------------------------------------------
Sino-Ocean Land Holdings Ltd. 332,500 187,629
- -------------------------------------------------------------------------------
Sun Hung Kai Properties Ltd.(b) 361,000 4,887,306
===============================================================================
17,592,952
===============================================================================
ITALY-0.38%
Beni Stabili S.p.A.(a) 534,700 530,371
===============================================================================
JAPAN-12.56%
AEON Mall Co., Ltd.(a)(b) 16,800 495,350
- -------------------------------------------------------------------------------
Japan Real Estate Investment Corp.(b) 158 1,670,339
- -------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GLOBAL REAL ESTATE FUND
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------------
JAPAN-(CONTINUED)
Mitsubishi Estate Co. Ltd.(a)(b)
271,000
$6,188,166
- -------------------------------------------------------------------------------
Mitsui Fudosan Co., Ltd.(b) 246,000 5,244,814
- -------------------------------------------------------------------------------
Nippon Building Fund Inc.(b) 194 2,277,988
- -------------------------------------------------------------------------------
Nomura Real Estate Office Fund, Inc.(b) 75 562,557
- -------------------------------------------------------------------------------
NTT Urban Development Corp. 533 697,815
- -------------------------------------------------------------------------------
TOKYU REIT, Inc.(b) 47 381,146
===============================================================================
17,518,175
===============================================================================
LUXEMBOURG-0.49%
ProLogis European Properties(b) 47,900 681,981
===============================================================================
NETHERLANDS-2.14%
Corio N.V.(b) 26,500 2,058,032
- -------------------------------------------------------------------------------
Plaza Centers N.V. 110,200 351,212
- -------------------------------------------------------------------------------
Wereldhave N.V.(b) 5,400 568,572
===============================================================================
2,977,816
===============================================================================
NEW ZEALAND-0.27%
Goodman Property Trust(a)(b) 413,300 379,586
===============================================================================
NORWAY-0.00%
Norwegian Property A.S.A.(c) 21,513 338
===============================================================================
SINGAPORE-2.98%
Ascendas Real Estate Investment Trust 410,000 666,005
- -------------------------------------------------------------------------------
Capitaland Ltd.(b) 319,000 1,339,900
- -------------------------------------------------------------------------------
CapitaMall Trust 979,000 2,151,569
===============================================================================
4,157,474
===============================================================================
SWEDEN-0.84%
Fabege A.B.(b) 76,400 507,525
- -------------------------------------------------------------------------------
Hufvudstaden A.B.(a)(b) 69,700 668,887
===============================================================================
1,176,412
===============================================================================
UNITED KINGDOM-6.83%
British Land Co. PLC(b) 149,200 2,091,587
- -------------------------------------------------------------------------------
Capital & Regional PLC 28,800 108,997
- -------------------------------------------------------------------------------
Derwent London PLC(b) 78,800 1,579,527
- -------------------------------------------------------------------------------
Land Securities Group PLC(b) 116,000 2,828,787
- -------------------------------------------------------------------------------
Quintain Estates & Development PLC 63,700 238,859
- -------------------------------------------------------------------------------
Segro PLC(b) 130,700 1,017,239
- -------------------------------------------------------------------------------
Shaftesbury PLC 97,600 757,711
- -------------------------------------------------------------------------------
Unite Group PLC(b) 155,200 718,169
- -------------------------------------------------------------------------------
Workspace Group PLC(b) 63,300 182,128
===============================================================================
9,523,004
===============================================================================
UNITED STATES-36.37%
Alexandria Real Estate Equities, Inc.(a) 14,500 1,411,430
- -------------------------------------------------------------------------------
AMB Property Corp.(a) 21,300 1,073,094
- -------------------------------------------------------------------------------
Boston Properties, Inc.(a) 14,000 1,263,080
- -------------------------------------------------------------------------------
BRE Properties, Inc.(a) 30,500 1,320,040
- -------------------------------------------------------------------------------
Camden Property Trust(a) 30,700 1,358,782
- -------------------------------------------------------------------------------
CBL & Associates Properties, Inc.(a) 29,700 678,348
- -------------------------------------------------------------------------------
DCT Industrial Trust Inc.(a) 62,000 513,360
- -------------------------------------------------------------------------------
Developers Diversified Realty Corp.(a) 45,800 1,589,718
- -------------------------------------------------------------------------------
Digital Realty Trust, Inc.(a) 34,000 1,390,940
- -------------------------------------------------------------------------------
Douglas Emmett, Inc.(a) 37,300 819,481
- -------------------------------------------------------------------------------
Equity Residential(a) 80,900 3,096,043
- -------------------------------------------------------------------------------
Essex Property Trust, Inc.(a) 18,700 1,991,550
- -------------------------------------------------------------------------------
Federal Realty Investment Trust(a) 28,200 1,945,800
- -------------------------------------------------------------------------------
General Growth Properties, Inc.(a) 77,800 2,725,334
- -------------------------------------------------------------------------------
HCP, Inc.(a) 46,700 1,485,527
- -------------------------------------------------------------------------------
Health Care REIT, Inc.(a) 40,000 1,780,000
- -------------------------------------------------------------------------------
Host Hotels & Resorts Inc.(a) 165,189 2,254,830
- -------------------------------------------------------------------------------
Kimco Realty Corp.(a) 56,900 1,964,188
- -------------------------------------------------------------------------------
Macerich Co. (The)(a) 13,900 863,607
- -------------------------------------------------------------------------------
Mack-Cali Realty Corp. 18,500 632,145
- -------------------------------------------------------------------------------
Mid-America Apartment Communities, Inc.(a) 15,700 801,328
- -------------------------------------------------------------------------------
Nationwide Health Properties, Inc.(a) 36,600 1,152,534
- -------------------------------------------------------------------------------
ProLogis(a) 54,714 2,973,706
- -------------------------------------------------------------------------------
Public Storage(a) 31,400 2,536,806
- -------------------------------------------------------------------------------
Senior Housing Properties Trust(a) 29,700 580,041
- -------------------------------------------------------------------------------
Simon Property Group, Inc.(a) 46,300 4,161,907
- -------------------------------------------------------------------------------
SL Green Realty Corp.(a) 34,600 2,862,112
- -------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.(a) 6,600 264,462
- -------------------------------------------------------------------------------
Ventas, Inc.(a) 50,000 2,128,500
- -------------------------------------------------------------------------------
Vornado Realty Trust(a) 23,100 2,032,800
- -------------------------------------------------------------------------------
Washington Real Estate Investment Trust(a) 35,800 1,075,790
===============================================================================
50,727,283
===============================================================================
Total Foreign Common Stocks & Other Equity
Interests (Cost $136,323,557) 135,478,188
===============================================================================
MONEY MARKET FUNDS-3.26%
Liquid Assets Portfolio-Institutional Class(e) 2,276,598 2,276,598
- -------------------------------------------------------------------------------
Premier Portfolio-Institutional Class(e) 2,276,598 2,276,598
===============================================================================
Total Money Market Funds (Cost $4,553,196) 4,553,196
===============================================================================
TOTAL INVESTMENTS (excluding investments purchased
with cash collateral from securities on
loan)-100.39% (Cost $140,876,753) 140,031,384
===============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GLOBAL REAL ESTATE FUND
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON
LOAN
MONEY MARKET FUNDS-28.27%
Liquid Assets Portfolio-Institutional Class (Cost
$39,440,121)(e)(f) 39,440,121 $ 39,440,121
===============================================================================
TOTAL INVESTMENTS-128.66% (Cost $180,316,874) 179,471,505
===============================================================================
OTHER ASSETS LESS LIABILITIES-(28.66)% (39,982,933)
===============================================================================
NET ASSETS-100.00% 139,488,572
_______________________________________________________________________________
===============================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
REIT - Real Estate Investment Trust
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) All or a portion of this security was out on loan at June 30, 2008.
(b) In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate value of these securities at June 30, 2008 was $54,169,015,
which represented 38.83% of the Fund's Net Assets. See Note 1A.
(c) Non-income producing security.
(d) Non-income producing security acquired as part of a unit with or in
exchange for other securities.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor.
(f) The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 1J.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GLOBAL REAL ESTATE FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, at value (Cost
$136,323,557)* $135,478,188
- ------------------------------------------------------
Investments in affiliated money market
funds (Cost $43,993,317) 43,993,317
======================================================
Total investments (Cost
$180,316,874) 179,471,505
======================================================
Foreign currencies, at value (Cost
$710,384) 468,973
- ------------------------------------------------------
Receivables for:
Investments sold 86,958
- ------------------------------------------------------
Fund shares sold 73,104
- ------------------------------------------------------
Dividends 865,716
- ------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 13,948
- ------------------------------------------------------
Other assets 2,474
======================================================
Total assets 180,982,678
______________________________________________________
======================================================
LIABILITIES:
Payables for:
Investments purchased 1,733,706
- ------------------------------------------------------
Fund shares reacquired 143,857
- ------------------------------------------------------
Collateral upon return of securities
loaned 39,440,121
- ------------------------------------------------------
Accrued fees to affiliates 83,697
- ------------------------------------------------------
Accrued other operating expenses 71,685
- ------------------------------------------------------
Trustee deferred compensation and
retirement plans 21,040
======================================================
Total liabilities 41,494,106
======================================================
Net assets applicable to shares
outstanding $139,488,572
______________________________________________________
======================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $132,246,572
- ------------------------------------------------------
Undistributed net investment income 1,513,285
- ------------------------------------------------------
Undistributed net realized gain 6,565,113
- ------------------------------------------------------
Unrealized appreciation (depreciation) (836,398)
======================================================
$139,488,572
______________________________________________________
======================================================
NET ASSETS:
Series I $136,262,918
______________________________________________________
======================================================
Series II $ 3,225,654
______________________________________________________
======================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 7,266,808
______________________________________________________
======================================================
Series II 173,952
______________________________________________________
======================================================
Series I:
Net asset value per share $ 18.75
______________________________________________________
======================================================
Series II:
Net asset value per share $ 18.54
______________________________________________________
======================================================
</Table>
* At June 30, 2008, securities with an aggregate value of $38,256,789 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding
taxes of $187,200) $ 2,400,929
- ------------------------------------------------------
Dividends from affiliated money market
funds (includes securities lending
income of $93,977) 139,560
======================================================
Total investment income 2,540,489
======================================================
EXPENSES:
Advisory fees 496,918
- ------------------------------------------------------
Administrative services fees 178,205
- ------------------------------------------------------
Custodian fees 37,737
- ------------------------------------------------------
Distribution fees -- Series II 3,683
- ------------------------------------------------------
Transfer agent fees 11,146
- ------------------------------------------------------
Trustees' and officer's fees and
benefits 9,917
- ------------------------------------------------------
Other 46,102
======================================================
Total expenses 783,708
======================================================
Less: Fees waived and expense offset
arrangement(s) (1,947)
======================================================
Net expenses 781,761
======================================================
Net investment income 1,758,728
======================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM:
Net realized gain (loss) from:
Investment securities (4,134,636)
- ------------------------------------------------------
Foreign currencies (69,190)
======================================================
(4,203,826)
======================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (19,029,183)
- ------------------------------------------------------
Foreign currencies 5,993
======================================================
(19,023,190)
======================================================
Net realized and unrealized gain (loss) (23,227,016)
======================================================
Net increase (decrease) in net assets
resulting from operations $(21,468,288)
______________________________________________________
======================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GLOBAL REAL ESTATE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- -------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,758,728 $ 2,427,957
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) (4,203,826) 15,127,356
- -------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) (19,023,190) (26,948,462)
=======================================================================================================
Net increase (decrease) in net assets resulting from operations (21,468,288) (9,393,149)
=======================================================================================================
Distributions to shareholders from net investment income:
Series I -- (9,098,630)
- -------------------------------------------------------------------------------------------------------
Series II -- (158,255)
=======================================================================================================
Total distributions from net investment income -- (9,256,885)
=======================================================================================================
Distributions to shareholders from net realized gains:
Series I -- (21,716,323)
- -------------------------------------------------------------------------------------------------------
Series II -- (378,839)
=======================================================================================================
Total distributions from net realized gains -- (22,095,162)
=======================================================================================================
Share transactions-net:
Series I 13,473,014 (8,779,766)
- -------------------------------------------------------------------------------------------------------
Series II 1,064,732 3,015,866
=======================================================================================================
Net increase (decrease) in net assets resulting from share
transactions 14,537,746 (5,763,900)
=======================================================================================================
Net increase (decrease) in net assets (6,930,542) (46,509,096)
_______________________________________________________________________________________________________
=======================================================================================================
NET ASSETS:
Beginning of period 146,419,114 192,928,210
=======================================================================================================
End of period (including undistributed net investment income of
$1,513,285 and $(245,443), respectively) 139,488,572 146,419,114
_______________________________________________________________________________________________________
=======================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GLOBAL REAL ESTATE FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Global Real Estate Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is high total return through growth of capital
and current income.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on
that day. Securities traded in the over-the-counter market are valued
based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service
they may be considered fair valued. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally
traded. Listed options are valued at the mean between the last bid and the
ask prices from the exchange on which they are principally traded. Options
not listed on an exchange are valued by an independent source at the mean
between the last bid and ask prices. For purposes of determining net asset
value per share, futures and option contracts generally are valued 15
minutes after the close of the customary trading session of the New York
Stock Exchange ("NYSE").
Investments in open-end and closed-end registered investment companies
that do not trade on an exchange are valued at the end of day net asset
value per share. Investments in open-end and closed-end registered
investment companies that trade on an exchange are valued at the last
sales price or official closing price as of the close of the customary
trading session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing
service. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to specific securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Short-term obligations, including
commercial paper, having 60 days or less to maturity are recorded at
amortized cost which approximates value. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve
some risk of default with respect to interest and/or principal payments.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued
at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price
unreliable, the Fund may fair value the security. If the event is likely
to have affected the closing price of the security, the security will be
valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also
be based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current value as of the close of the NYSE. Foreign securities
meeting the approved degree of certainty that the price is not reflective
of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, American
Depositary Receipts and domestic and foreign index futures. Foreign
securities may have additional risks including exchange rate changes,
potential for sharply devalued currencies and high inflation, political
and economical upheaval, the relative lack of issuer information,
relatively low market liquidity and the potential lack of strict financial
and accounting controls and standards.
Securities for which market prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers following procedures
approved by the Board of Trustees. Issuer specific events, market trends,
bid/ask quotes of brokers and information providers and other market data
may be reviewed in the course of making a good faith determination of a
security's fair value.
Valuations change in response to many factors including the historical
and prospective earnings of the issuer, the value of the issuer's assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
AIM V.I. GLOBAL REAL ESTATE FUND
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
The Fund recharacterizes distributions received from REIT investments
based on information provided by the REIT into the following categories:
ordinary income, long-term and short-term capital gains, and return of
capital. If information is not available on a timely basis from the REIT,
the recharacterization will be based on available information which may
include the previous year's allocation. If new or additional information
becomes available from the REIT at a later date, a recharacterization will
be made in the following year. The Fund records as dividend income the
amount recharacterized as ordinary income and as realized gain the amount
recharacterized as capital gain in the Statement of Operations, and the
amount recharacterized as return of capital as a reduction to the cost of
investments in the Statement of Assets and Liabilities. These
recharacterizations are reflected in the accompanying financial
statements.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification
claims is considered remote.
I. OTHER RISKS -- The Fund's investments are concentrated in a comparatively
narrow segment of the economy. Consequently, the Fund may tend to be more
volatile than other mutual funds, and the value of the Fund's investments
may tend to rise and fall more rapidly.
The Fund concentrates its assets in the real estate industry, an
investment in the fund will be closely linked to the performance of the
real estate markets. Property values may fall due to increasing vacancies
or declining rents resulting from economic, legal, cultural or
technological developments.
J. SECURITIES LENDING -- The Fund may lend portfolio securities having a
market value up to one-third of the Fund's total assets. Such loans are
secured by collateral equal to no less than the market value of the loaned
securities determined daily by the securities lending provider. Such
collateral will be cash or debt securities issued or guaranteed by the
U.S. Government or any of its sponsored agencies. Cash collateral received
in connection with these loans is invested in short-term money market
instruments or affiliated money market funds and is shown as such on the
Schedule of Investments. It is the Fund's policy to obtain additional
collateral from or return excess collateral to the borrower by the end of
the next business day, following the valuation date of the securities
loaned. Therefore, the value of the collateral held may be temporarily
less than the value of the securities on loan. Lending securities entails
a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase
the collateral accordingly, and the borrower fails to return the
securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any
loss on the collateral invested. Dividends received on cash collateral
investments for securities lending transactions, which are net of
compensation to counterparties, is included in
AIM V.I. GLOBAL REAL ESTATE FUND
Dividends from affiliates on the Statement of Operations. The aggregate
value of securities out on loan is shown as a footnote on the Statement of
Assets and Liabilities.
K. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close
of the NYSE based on quotations posted by banks and major currency
dealers. Portfolio securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i)
sales of foreign currencies, (ii) currency gains or losses realized
between the trade and settlement dates on securities transactions, and
(iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized
foreign currency gains and losses arise from changes in the fair values of
assets and liabilities, other than investments in securities at fiscal
period end, resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to
foreign taxes on income, gains on investments or currency repatriation, a
portion of which may be recoverable.
L. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. Fluctuations in the value of these contracts are recorded as
unrealized appreciation (depreciation) until the contracts are closed.
When these contracts are closed, realized gains (losses) are recorded.
Realized and unrealized gains and losses on these contracts are included
in the Statement of Operations. The Fund could be exposed to risk, which
may be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $250 million 0.75%
- -------------------------------------------------------------------
Next $250 million 0.74%
- -------------------------------------------------------------------
Next $500 million 0.73%
- -------------------------------------------------------------------
Next $1.5 billion 0.72%
- -------------------------------------------------------------------
Next $2.5 billion 0.71%
- -------------------------------------------------------------------
Next $2.5 billion 0.70%
- -------------------------------------------------------------------
Next $2.5 billion 0.69%
- -------------------------------------------------------------------
Over $10 billion 0.68%
___________________________________________________________________
===================================================================
</Table>
Under the terms of a master sub-advisory agreement between Invesco Aim and
Invesco Institutional (N.A.), Inc. ("Invesco Real Estate"), Invesco Aim pays
Invesco Real Estate 40% of the amount of Invesco Aim's compensation on the sub
advised assets.
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
The Advisor has also contractually agreed to waive advisory fees and/or
reimburse expenses to the extent necessary to limit total annual operating
expenses (excluding certain items discussed below) of Series I shares to 1.30%
and Series II shares to 1.45% of average daily net assets, through at least
April 30, 2010. In determining the advisor's obligation to waive advisory fees
and/or reimburse expenses, the following expenses are not taken into account,
and could cause the net annual operating expenses to exceed the numbers
reflected above: (i) interest; (ii) taxes; (iii) dividend expense on short
sales; (iv) extraordinary items; (v) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, in addition to the expense reimbursement arrangement
with Invesco Ltd. ("Invesco") described more fully below, the only expense
offset arrangements from which the Fund may benefit are in the form of credits
that the Fund receives from banks where the Fund or its transfer agent has
deposit accounts in which it holds uninvested cash. These credits are used to
pay certain expenses incurred by the Fund. The Advisor did not waive fees and/or
reimburse expenses during the period under this expense limitation.
Further, the Advisor has contractually agreed, through at least April 30,
2010, to waive the advisory fee payable by the Fund in an amount equal to 100%
of the net advisory fees the Advisor receives from the affiliated money market
funds on investments by the Fund of uninvested cash (but not cash collateral
from securities lending) in such affiliated money market funds.
AIM V.I. GLOBAL REAL ESTATE FUND
For the six months ended June 30, 2008, the Advisor waived advisory fees of
$1,720.
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund
administrative services and reimbursed $153,342 for services provided by
insurance companies.
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily net
assets of the Series II shares may be paid to insurance companies who furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. For the six months ended June 30, 2008, expenses
incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1 -- Quoted prices in an active market for identical assets.
Level 2 -- Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest
rates, prepayment speeds, credit risk and others.
Level 3 -- Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for
example, when there is little or no market activity for an investment at the end
of the period), unobservable inputs may be used. Unobservable inputs reflect the
Fund's own assumptions about the factors market participants would use in
determining fair value of the securities or instruments and would be based on
the best available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS IN
INPUT LEVEL SECURITIES
- --------------------------------------
Level 1 $125,302,489
- --------------------------------------
Level 2 54,169,016
- --------------------------------------
Level 3 --
======================================
$179,471,505
______________________________________
======================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2008, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $227.
NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan
AIM V.I. GLOBAL REAL ESTATE FUND
and receive benefits under such plan. "Trustees' and Officer's Fees and
Benefits" include amounts accrued by the Fund to fund such retirement benefits.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $1,681
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--CASH BALANCES
The Fund is permitted to temporarily carry a negative or overdrawn balance in
its account with The State Street Bank and Trust Company ("SSB"), the custodian
bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund
may either (i) leave funds as a compensating balance in the account so the
custodian bank can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank at a rate agreed upon by the custodian
bank and Invesco Aim, not to exceed the contractually agreed upon rate.
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
The Fund did not have a capital loss carryforward as of December 31, 2007.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the six months ended June 30, 2008 was $48,982,596 and
$34,787,003, respectively. Cost of investments on a tax basis includes the
adjustments for financial reporting purposes as of the most recently completed
Federal income tax reporting period end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 11,729,103
- ------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (21,465,948)
================================================================================================
Net unrealized appreciation (depreciation) of investment securities $ (9,736,845)
________________________________________________________________________________________________
================================================================================================
Cost of investments for tax purposes is $189,208,350.
</Table>
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008(a) DECEMBER 31, 2007
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,887,527 $ 38,007,030 2,348,323 $ 69,998,283
- -------------------------------------------------------------------------------------------------------------------------
Series II 75,371 1,548,136 99,437 2,780,132
=========================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 1,296,380 30,814,953
- -------------------------------------------------------------------------------------------------------------------------
Series II -- -- 22,826 537,094
=========================================================================================================================
Reacquired:
Series I (1,192,588) (24,534,016) (3,775,973) (109,593,002)
- -------------------------------------------------------------------------------------------------------------------------
Series II (23,613) (483,404) (10,949) (301,360)
=========================================================================================================================
746,697 $ 14,537,746 (19,956) $ (5,763,900)
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) There are entities that are record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate own 69% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, Invesco
Aim and/or Invesco Aim affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services to
the Fund, Invesco Aim and or Invesco Aim affiliates including but not
limited to services such as, securities brokerage, third party record
keeping and account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record by
these entities are also owned beneficially.
AIM V.I. GLOBAL REAL ESTATE FUND
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------
2008 2007 2006 2005 2004 2003
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.88 $ 28.74 $ 21.06 $ 19.13 $ 14.34 $ 10.49
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.24 0.38(a) 0.33(a) 0.38(a) 0.32(a) 0.20
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (3.37) (1.52) 8.61 2.34 4.92 3.87
=============================================================================================================================
Total from investment operations (3.13) (1.14) 8.94 2.72 5.24 4.07
=============================================================================================================================
Less distributions:
Dividends from net investment income -- (1.69) (0.28) (0.22) (0.14) (0.22)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (4.03) (0.98) (0.57) (0.31) --
=============================================================================================================================
Total distributions -- (5.72) (1.26) (0.79) (0.45) (0.22)
=============================================================================================================================
Net asset value, end of period $ 18.75 $ 21.88 $ 28.74 $ 21.06 $ 19.13 $ 14.34
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) (14.31)% (5.54)% 42.60% 14.24% 36.58% 38.82%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $136,263 $143,773 $192,617 $99,977 $79,391 $26,087
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.17%(c) 1.13% 1.15% 1.21% 1.31% 1.35%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.17%(c) 1.22% 1.30% 1.36% 1.42% 1.62%
=============================================================================================================================
Ratio of net investment income to average
net assets 2.66%(c) 1.31% 1.32% 1.91% 1.96% 3.02%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate(d) 26% 57% 84% 51% 34% 126%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$130,277,406.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. GLOBAL REAL ESTATE FUND
NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-------------------------------------------------------------------------
APRIL 30, 2004
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT DATE)
JUNE 30, ---------------------------- TO DECEMBER 31,
2008 2007 2006 2005 2004
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.66 $28.57 $20.98 $19.12 $13.96
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.21 0.29(a) 0.27(a) 0.34(a) 0.20(a)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (3.33) (1.49) 8.58 2.31 5.41
========================================================================================================================
Total from investment operations (3.12) (1.20) 8.85 2.65 5.61
========================================================================================================================
Less distributions:
Dividends from net investment income -- (1.68) (0.28) (0.22) (0.14)
- ------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (4.03) (0.98) (0.57) (0.31)
========================================================================================================================
Total distributions -- (5.71) (1.26) (0.79) (0.45)
========================================================================================================================
Net asset value, end of period $ 18.54 $21.66 $28.57 $20.98 $19.12
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) (14.40)% (5.76)% 42.30% 13.85% 40.23%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 3,226 $2,646 $ 311 $ 62 $ 14
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.42%(c) 1.38% 1.40% 1.45% 1.45%(d)
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.42%(c) 1.47% 1.55% 1.61% 1.66%(d)
========================================================================================================================
Ratio of net investment income to average
net assets 2.41%(c) 1.06% 1.07% 1.67% 1.82%(d)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(e) 26% 57% 84% 51% 34%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of $2,962,277.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to Invesco Aim and IADI (Order No. 05-
1318). The WVASC makes findings of fact that Invesco Aim and IADI entered into
certain arrangements permitting market timing of the AIM Funds and failed to
disclose these arrangements in the prospectuses for such Funds, and conclusions
of law to the effect that Invesco Aim and IADI violated the West Virginia
securities laws. The WVASC orders Invesco Aim and IADI to cease any further
violations and seeks to impose monetary sanctions, including restitution to
affected investors, disgorgement of fees, reimbursement of investigatory,
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute. By agreement with the Commissioner of
Securities, Invesco Aim's time to respond to that Order has been indefinitely
suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing. The case
pending in Illinois State Court was dismissed with prejudice on May 6, 2008.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA
purportedly brought on behalf of participants in the Invesco 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds
AIM V.I. GLOBAL REAL ESTATE FUND
NOTE 11--LEGAL PROCEEDINGS--(CONTINUED)
remain nominal defendants in the Consolidated Amended Fund Derivative Complaint.
On September 15, 2006, the MDL Court granted the Invesco defendants' motion to
dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed
such Complaint. The plaintiff has commenced an appeal from that decision.
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more Invesco Aim
Funds: market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
security holders. IFG, Invesco Aim and IADI have advised the Fund that they are
providing full cooperation with respect to these inquiries. Regulatory actions
and/or additional civil lawsuits related to these or other issues may be filed
against the AIM Funds, IFG, Invesco Aim and/or related entities and individuals
in the future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. GLOBAL REAL ESTATE FUND
NOTE 11--LEGAL PROCEEDINGS--(CONTINUED)
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $856.90 $5.40 $1,019.05 $5.87 1.17%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 856.00 6.55 1,017.80 7.12 1.42
- ---------------------------------------------------------------------------------------------------
</Table>
((1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5% before
expenses.
((2) Expenses are equal to the Fund's annualized expense ratio as indicated
above multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
AIM V.I. GLOBAL REAL ESTATE FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the Board) of AIM an independent company, Lipper, Inc. the result of years of review and
Variable Insurance Funds is required under (Lipper), under the direction and negotiation between the Trustees and
the Investment Company Act of 1940 to supervision of the independent Senior Invesco Aim, that the Trustees may focus
approve annually the renewal of the AIM Officer who also prepares a separate to a greater extent on certain aspects of
V.I. Global Real Estate Funds (the Fund) analysis of this information for the these arrangements in some years than in
investment advisory agreement with Invesco Trustees. Each Sub-Committee then makes others, and that the Trustees'
Aim Advisors, Inc. (Invesco Aim). During recommendations to the Investments deliberations and conclusions in a
contract renewal meetings held on June Committee regarding the performance, fees particular year may be based in part on
18-19, 2008, the Board as a whole and the and expenses of their assigned funds. The their deliberations and conclusions of
disinterested or "independent" Trustees, Investments Committee considers each these same arrangements throughout the
voting separately, approved the Sub-Committee's recommendations and makes year and in prior years.
continuance of the Fund's investment its own recommendations regarding the
advisory agreement for another year, performance, fees and expenses of the AIM FACTORS AND CONCLUSIONS AND SUMMARY OF
effective July 1, 2008. In doing so, the Funds to the full Board. The Investments INDEPENDENT WRITTEN FEE EVALUATION
Board determined that the Fund's Committee also considers each The discussion below serves as a summary
investment advisory agreement is in the Sub-Committee's recommendations in making of the Senior Officer's independent
best interests of the Fund and its its annual recommendation to the Board written evaluation with respect to the
shareholders and that the compensation to whether to approve the continuance of each Fund's investment advisory agreement as
Invesco Aim under the Fund's investment AIM Fund's investment advisory agreement well as a discussion of the material
advisory agreement is fair and reasonable. and sub-advisory agreements for another factors and related conclusions that
The independent Trustees met separately year. formed the basis for the Board's approval
during their evaluation of the Fund's The independent Trustees are assisted of the Fund's investment advisory
investment advisory agreement with in their annual evaluation of the Fund's agreement and sub-advisory agreements.
independent legal counsel from whom they investment advisory agreement by the Unless otherwise stated, information set
received independent legal advice, and the independent Senior Officer. One forth below is as of June 19, 2008 and
independent Trustees also received responsibility of the Senior Officer is to does not reflect any changes that may have
assistance during their deliberations from manage the process by which the AIM Funds' occurred since that date, including but
the independent Senior Officer, a proposed management fees are negotiated not limited to changes to the Fund's
full-time officer of the AIM Funds who during the annual contract renewal process performance, advisory fees, expense
reports directly to the independent to ensure that they are negotiated in a limitations and/or fee waivers.
Trustees. manner that is at arms' length and
reasonable. Accordingly, the Senior I. Investment Advisory Agreement
THE BOARD'S FUND EVALUATION PROCESS Officer must either supervise a A. Nature, Extent and Quality of
The Board's Investments Committee has competitive bidding process or prepare an Services Provided by Invesco Aim
established three Sub-Committees that are independent written evaluation. The Senior The Board reviewed the advisory services
responsible for overseeing the management Officer has recommended that an provided to the Fund by Invesco Aim under
of a number of the series portfolios of independent written evaluation be provided the Fund's investment advisory agreement,
the AIM Funds. This Sub-Committee and, at the direction of the Board, has the performance of Invesco Aim in
structure permits the Trustees to focus on prepared an independent written providing these services, and the
the performance of the AIM Funds that have evaluation. credentials and experience of the officers
been assigned to them. The Sub-Committees During the annual contract renewal and employees of Invesco Aim who provide
meet throughout the year to review the process, the Board considered the factors these services. The Board's review of the
performance of their assigned funds, and discussed below under the heading "Factors qualifications of Invesco Aim to provide
the Sub-Committees review monthly and and Conclusions and Summary of Independent these services included the Board's
quarterly comparative performance Written Fee Evaluation" in evaluating the consideration of Invesco Aim's portfolio
information and periodic asset flow data fairness and reasonableness of the Fund's and product review process, various back
for their assigned funds. These materials investment advisory agreement and office support functions provided by
are prepared under the direction and sub-advisory agreements at the contract Invesco Aim and its affiliates, and
supervision of the independent Senior renewal meetings and at their meetings Invesco Aim's equity and fixed income
Officer. Over the course of each year, the throughout the year as part of their trading operations. The Board concluded
Sub-Committees meet with portfolio ongoing oversight of the Fund. The Fund's that the nature, extent and quality of the
managers for their assigned funds and investment advisory agreement and advisory services provided to the Fund by
other members of management and review sub-advisory agreements were considered Invesco Aim were appropriate and that
with these individuals the performance, separately, although the Board also Invesco Aim currently is providing
investment objective(s), policies, considered the common interests of all of satisfactory advisory services in
strategies and limitations of these funds. the AIM Funds in their deliberations. The accordance with the terms of the Fund's
In addition to their meetings Board considered all of the information investment advisory agreement. In
throughout the year, the Sub-Committees provided to them and did not identify any addition, based on their ongoing meetings
meet at designated contract renewal particular factor that was controlling. throughout the year with the Fund's
meetings each year to conduct an in-depth Each Trustee may have evaluated the portfolio manager or managers, the Board
review of the performance, fees and information provided differently from one concluded that these individuals are
expenses of their assigned funds. During another and attributed different weight to competent and able to continue to carry
the contract renewal process, the Trustees the various factors. The Trustees out their responsibilities under the
receive comparative performance and fee recognized that the advisory arrangements Fund's investment advisory agreement.
data regarding the AIM Funds prepared by and resulting advisory fees for the Fund In determining whether to continue the
and the other AIM Funds are Fund's investment advisory agreement, the
Board considered the prior relationship
between Invesco Aim and the Fund, as well
as the Board's knowledge
continued
AIM V.I. GLOBAL REAL ESTATE FUND
of Invesco Aim's operations, and concluded effective fee rate (the advisory fee after economies of scale through contractual
that it was beneficial to maintain the any advisory fee waivers and before any breakpoints in the Fund's advisory fee
current relationship, in part, because of expense limitations/waivers) to the schedule or through advisory fee waivers
such knowledge. The Board also considered advisory fee rates of other clients of or expense limitations. The Board noted
the steps that Invesco Aim and its Invesco Aim and its affiliates with that the Fund's contractual advisory fee
affiliates have taken over the last investment strategies comparable to those schedule includes seven breakpoints, but
several years to improve the quality and of the Fund, including three mutual funds that due to the Fund's asset level at the
efficiency of the services they provide to advised by Invesco Aim and four mutual end of the past calendar year, the Fund is
the AIM Funds in the areas of investment funds advised or sub-advised by an Invesco not currently benefiting from the
performance, product line diversification, Aim affiliate. The Board noted that the breakpoints. Based on this information,
distribution, fund operations, shareholder Fund's rate was: (i) above the rates for the Board concluded that the Fund's
services and compliance. The Board two of the mutual funds advised by Invesco advisory fees would reflect economies of
concluded that the quality and efficiency Aim and at the same rate for the third scale at higher asset levels. The Board
of the services Invesco Aim and its mutual fund advised by Invesco Aim; and also noted that the Fund shares directly
affiliates provide to the AIM Funds in (ii) above the advisory or sub-advisory in economies of scale through lower fees
each of these areas have generally fee rates for the mutual funds advised or charged by third party service providers
improved, and support the Board's approval subadvised by Invesco Aim affiliates. None based on the combined size of all of the
of the continuance of the Fund's of the funds advised or sub-advised by AIM Funds and affiliates.
investment advisory agreement. Invesco Aim affiliates are in the Fund's
Lipper expense group and the Board E. Profitability and Financial
B. Fund Performance determined that comparing contractual fees Resources of Invesco Aim
The Board compared the Fund's performance to funds in the Lipper expense group was The Board reviewed information from
during the past one, three and five appropriate. Invesco Aim concerning the costs of the
calendar years to the performance of funds Additionally, the Board compared the advisory and other services that Invesco
in the Fund's performance group that are Fund's effective fee rate to the total Aim and its affiliates provide to the Fund
not managed by Invesco Aim, and against advisory fees paid by numerous separately and the profitability of Invesco Aim and
the performance of all funds in the Lipper managed accounts/wrap accounts advised by its affiliates in providing these
Variable Annuity Underlying Funds -- Real Invesco Aim affiliates. The Board noted services. The Board also reviewed
Estate Index. The Board noted that the that the Fund's rate was above the rates information concerning the financial
Fund's performance was in the first for the separately managed accounts/wrap condition of Invesco Aim and its
quintile of its performance group for the accounts. The Board considered that affiliates. The Board also reviewed with
one, three and five year periods (the management of the separately managed Invesco Aim the methodology used to
first quintile being the best performing accounts/wrap accounts by the Invesco Aim prepare the profitability information. The
funds and the fifth quintile being the affiliates involves different levels of Board considered the overall profitability
worst performing funds). The Board noted services and different operational and of Invesco Aim, as well as the
that the Fund's performance was above the regulatory requirements than Invesco Aim's profitability of Invesco Aim in connection
performance of the Index for the one, management of the Fund. The Board with managing the Fund. The Board noted
three and five year periods. The Board concluded that these differences are that Invesco Aim continues to operate at a
also considered the steps Invesco Aim has appropriately reflected in the fee net profit, although increased expenses in
taken over the last several years to structure for the Fund. recent years have reduced the
improve the quality and efficiency of the The Board noted that Invesco Aim has profitability of Invesco Aim and its
services that Invesco Aim provides to the contractually agreed to waive fees and/or affiliates. The Board concluded that the
AIM Funds. The Board concluded that limit expenses of the Fund through at Fund's fees were fair and reasonable, and
Invesco Aim continues to be responsive to least April 30, 2010 in an amount that the level of profits realized by
the Board's focus on fund performance. necessary to limit total annual operating Invesco Aim and its affiliates from
Although the independent written expenses to a specified percentage of providing services to the Fund was not
evaluation of the Fund's Senior Officer average daily net assets for each class of excessive in light of the nature, quality
only considered Fund performance through the Fund. The Board considered the and extent of the services provided. The
the most recent calendar year, the Board contractual nature of this fee waiver and Board considered whether Invesco Aim is
also reviewed more recent Fund performance noted that it remains in effect until at financially sound and has the resources
and this review did not change their least April 30, 2010. The Board also necessary to perform its obligations under
conclusions. considered the effect this fee waiver the Fund's investment advisory agreement,
would have on the Fund's total estimated and concluded that Invesco Aim has the
C. Advisory Fees and Fee Waivers expenses. financial resources necessary to fulfill
The Board compared the Fund's contractual After taking account of the Fund's these obligations.
advisory fee rate to the contractual contractual advisory fee rate, as well as
advisory fee rates of funds in the Fund's the comparative advisory fee information F. Independent Written Evaluation of
Lipper expense group that are not managed and the expense limitation discussed the Fund's Senior Officer
by Invesco Aim, at a common asset level above, the Board concluded that the Fund's The Board noted that, at their direction,
and as of the end of the past calendar advisory fees were fair and reasonable. the Senior Officer of the Fund, who is
year. The Board noted that the Fund's independent of Invesco Aim and Invesco
contractual advisory fee rate was below D. Economies of Scale and Breakpoints Aim's affiliates, had prepared an
the median contractual advisory fee rate The Board considered the extent to which independent written evaluation to assist
of funds in its expense group. The Board there are economies of scale in Invesco the Board in determining the
also reviewed the methodology used by Aim's provision of advisory services to reasonableness of the proposed management
Lipper in determining contractual fee the Fund. The Board also considered fees of the AIM Funds, including the Fund.
rates. whether the Fund benefits from such The Board noted that they had relied upon
The Board also compared the Fund's the Senior Officer's written evaluation
continued
AIM V.I. GLOBAL REAL ESTATE FUND
instead of a competitive bidding process. tually agreed to waive through at least commenced managing a portion of the Fund's
In determining whether to continue the April 30, 2010, the advisory fees payable assets. The Board compared the Fund's
Fund's investment advisory agreement, the by the Fund in an amount equal to 100% of performance during the past one, three and
Board considered the Senior Officer's the net advisory fees Invesco Aim receives five calendar years to the performance of
written evaluation. from the affiliated money market funds funds in the Fund's performance group that
with respect to the Fund's investment of are not managed by Invesco Aim, and
G. Collateral Benefits to Invesco Aim uninvested cash, but not cash collateral. against the performance of all funds in
and its Affiliates The Board considered the contractual the Lipper Variable Annuity Underlying
The Board considered various other nature of this fee waiver and noted that Funds -- Real Estate Index. The Board also
benefits received by Invesco Aim and its it remains in effect until at least April reviewed the criteria used by Invesco Aim
affiliates resulting from Invesco Aim's 30, 2010. The Board concluded that the to identify the funds in the Fund's
relationship with the Fund, including the Fund's investment of uninvested cash and performance group for inclusion in the
fees received by Invesco Aim and its cash collateral from any securities Lipper reports. The Board noted that the
affiliates for their provision of lending arrangements in the affiliated Fund's performance was in the first
administrative, transfer agency and money market funds is in the best quintile of its performance group for the
distribution services to the Fund. The interests of the Fund and its one, three and five year periods (the
Board considered the performance of shareholders. first quintile being the best performing
Invesco Aim and its affiliates in funds and the fifth quintile being the
providing these services and the II. Sub-Advisory Agreements worst performing funds). The Board noted
organizational structure employed by A. Nature, Extent and Quality of that the Fund's performance was above the
Invesco Aim and its affiliates to provide Services Provided by Affiliated performance of the Index for the one,
these services. The Board also considered Sub-Advisers three and five year periods. The Board
that these services are provided to the The Board reviewed the services to be also considered the steps Invesco Aim has
Fund pursuant to written contracts which provided by Invesco Trimark Ltd., Invesco taken over the last several years to
are reviewed and approved on an annual Asset Management Deutschland, GmbH, improve the quality and efficiency of the
basis by the Board. The Board concluded Invesco Asset Management Limited, Invesco services that Invesco Aim provides to the
that Invesco Aim and its affiliates were Asset Management (Japan) Limited, Invesco AIM Funds. The Board concluded that
providing these services in a satisfactory Australia Limited, Invesco Global Asset Invesco Aim continues to be responsive to
manner and in accordance with the terms of Management (N.A.), Inc., Invesco Hong Kong the Board's focus on fund performance. The
their contracts, and were qualified to Limited, Invesco Institutional (N.A.), Board also reviewed more recent Fund
continue to provide these services to the Inc. and Invesco Senior Secured performance and this review did not change
Fund. Management, Inc. (collectively, the their conclusions.
The Board considered the benefits "Affiliated Sub-Advisers") under the
realized by Invesco Aim as a result of sub-advisory agreements and the C. Sub-Advisory Fees
portfolio brokerage transactions executed credentials and experience of the officers The Board considered the services to be
through "soft dollar" arrangements. Under and employees of the Affiliated provided by the Affiliated Sub-Advisers
these arrangements, portfolio brokerage Sub-Advisers who will provide these pursuant to the sub-advisory agreements
commissions paid by the Fund and/or other services. The Board concluded that the and the services to be provided by Invesco
funds advised by Invesco Aim are used to nature, extent and quality of the services Aim pursuant to the Fund's investment
pay for research and execution services. to be provided by the Affiliated advisory agreement, as well as the
The Board noted that soft dollar Sub-Advisers were appropriate. The Board allocation of fees between Invesco Aim and
arrangements shift the payment obligation noted that the Affiliated Sub-Advisers, the Affiliated Sub-Advisers pursuant to
for the research and execution services which have offices and personnel that are the sub-advisory agreements. The Board
from Invesco Aim to the funds and geographically dispersed in financial noted that the sub-advisory fees have no
therefore may reduce Invesco Aim's centers around the world, have been formed direct effect on the Fund or its
expenses. The Board also noted that in part for the purpose of researching and shareholders, as they are paid by Invesco
research obtained through soft dollar compiling information and making Aim to the Affiliated Sub-Advisers, and
arrangements may be used by Invesco Aim in recommendations on the markets and that Invesco Aim and the Affiliated
making investment decisions for the Fund economies of various countries and Sub-Advisers are affiliates. After taking
and may therefore benefit Fund securities of companies located in such account of the Fund's contractual
shareholders. The Board concluded that countries or on various types of sub-advisory fee rate, as well as other
Invesco Aim's soft dollar arrangements investments and investment techniques, and relevant factors, the Board concluded that
were appropriate. The Board also concluded providing investment advisory services. the Fund's sub-advisory fees were fair and
that, based on their review and The Board concluded that the sub-advisory reasonable.
representations made by Invesco Aim, these agreements will benefit the Fund and its
arrangements were consistent with shareholders by permitting Invesco Aim to D. Financial Resources of the
regulatory requirements. utilize the additional resources and Affiliated Sub-Advisers
The Board considered the fact that the talent of the Affiliated Sub-Advisers in The Board considered whether each
Fund's uninvested cash and cash collateral managing the Fund. Affiliated Sub-Adviser is financially
from any securities lending arrangements sound and has the resources necessary to
may be invested in money market funds B. Fund Performance perform its obligations under its
advised by Invesco Aim pursuant to The Board did view Fund performance as a respective sub-advisory agreement, and
procedures approved by the Board. The relevant factor in considering whether to concluded that each Affiliated Sub-Adviser
Board noted that Invesco Aim will receive approve the sub-advisory agreements for has the financial resources necessary to
advisory fees from these affiliated money the Fund, as one of the Affiliated fulfill these obligations.
market funds attributable to such Sub-Advisers managed all of the Fund's
investments, although Invesco Aim has assets from inception through May 1, 2008,
contrac- when an additional Affiliated Sub-Adviser
AIM V.I. GLOBAL REAL ESTATE FUND
NOTE 11--LEGAL PROCEEDINGS--(CONTINUED)
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. Global Real Estate
Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware
statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held
for the following purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will
serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust that
would permit the Board of Trustees of the Trust to terminate the Trust, the
Fund, and each other series portfolio of the Trust, or a share class without
a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and
each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland,
GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.),
Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and
Invesco Senior Secured Management, Inc.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- -----------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker...................................................... 474,883,590 19,741,622
Frank S. Bayley................................................... 474,653,109 19,972,103
James T. Bunch.................................................... 475,597,417 19,027,795
Bruce L. Crockett................................................. 474,900,579 19,724,633
Albert R. Dowden.................................................. 474,749,929 19,875,283
Jack M. Fields.................................................... 475,205,840 19,419,372
Martin L. Flanagan................................................ 475,248,336 19,376,876
Carl Frischling................................................... 474,453,674 20,171,538
Prema Mathai-Davis................................................ 473,569,192 21,056,020
Lewis F. Pennock.................................................. 475,072,501 19,552,711
Larry Soll, Ph.D. ................................................ 475,170,544 19,454,668
Raymond Stickel, Jr. ............................................. 475,420,825 19,204,387
Philip A. Taylor.................................................. 475,640,570 18,984,642
</Table>
<Table>
<Caption>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
- -------------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of
Trustees of the Trust to terminate the Trust, the Fund,
and each other series portfolio of the Trust, or a share
class without a shareholder vote.......................... 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between Invesco Aim
Advisors, Inc. and each of AIM Funds Management, Inc.;
Invesco Asset Management Deutschland, GmbH; Invesco Asset
Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset
Management (N.A.), Inc.; Invesco Hong Kong Limited;
Invesco Institutional (N.A.), Inc.; and Invesco Senior
Secured Management, Inc. ................................. 4,729,132 173,898 242,160
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. GLOBAL REAL ESTATE FUND
[INVESCO AIM LOGO] AIM V.I. GOVERNMENT SECURITIES FUND
- SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008
AIM Investments [MOUNTAIN GRAPHIC]
became INVESCO AIM
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FUND PERFORMANCE
=======================================================================================
PERFORMANCE SUMMARY
FUND VS. INDEXES
Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer
charges. If variable product issuer charges were included, returns would be lower.
Series I Shares 3.07%
Series II Shares 2.92
Lehman Brothers U.S. Aggregate Bond Index(TRIANGLE) (Broad Market Index) 1.13
Lehman Brothers U.S. Government Index(TRIANGLE) (Style-Specific Index) 2.06
Lipper VUF General U.S. Government Funds Index(TRIANGLE) (Peer Group Index) 1.56
(TRIANGLE)Lipper Inc.
The LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX covers U.S. investment-grade fixed-rate
bonds with components for government and corporate securities, mortgage pass-throughs,
and asset-backed securities.
The unmanaged LEHMAN BROTHERS U.S. GOVERNMENT INDEX consists of securities issued by
the U.S. Government including public obligations of the U.S. Treasury with a remaining
maturity of one year or more or publicly issued debt of U.S. Government agencies,
quasi-federal corporations and corporate or foreign debt guaranteed by the U.S.
Government.
The LIPPER VUF GENERAL U.S. GOVERNMENT FUNDS INDEX is an equally weighted
representation of the largest variable insurance underlying funds in the Lipper General
U.S. Government Funds category. These funds invest at least 65% of their assets in U.S.
Government and agency issues.
The Fund is not managed to track the performance of any particular index, including
the indexes defined here, and consequently, the performance of the Fund may deviate
significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index
results include reinvested dividends, and they do not reflect sales charges.
Performance of an index of funds reflects fund expenses; performance of a market index
does not.
=======================================================================================
==========================================
AVERAGE ANNUAL TOTAL RETURNS GUARANTEE COMPARABLE FUTURE RESULTS; INSURANCE FUNDS, IS CURRENTLY OFFERED
As of 6/30/08 CURRENT PERFORMANCE MAY BE LOWER OR THROUGH INSURANCE COMPANIES ISSUING
HIGHER. PLEASE CONTACT YOUR VARIABLE VARIABLE PRODUCTS. YOU CANNOT PURCHASE
SERIES I SHARES PRODUCT ISSUER OR FINANCIAL ADVISOR FOR SHARES OF THE FUND DIRECTLY. PERFORMANCE
Inception (5/5/93) 4.96% THE MOST RECENT MONTH-END VARIABLE PRODUCT FIGURES GIVEN REPRESENT THE FUND AND ARE
10 Years 4.65 PERFORMANCE. PERFORMANCE FIGURES REFLECT NOT INTENDED TO REFLECT ACTUAL VARIABLE
5 Years 3.31 FUND EXPENSES, REINVESTED DISTRIBUTIONS PRODUCT VALUES. THEY DO NOT REFLECT SALES
1 Year 8.32 AND CHANGES IN NET ASSET VALUE. INVESTMENT CHARGES, EXPENSES AND FEES ASSESSED IN
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE CONNECTION WITH A VARIABLE PRODUCT. SALES
SERIES II SHARES SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN CHARGES, EXPENSES AND FEES, WHICH ARE
10 Years 4.39% YOU SELL SHARES. DETERMINED BY THE VARIABLE PRODUCT
5 Years 3.06 THE NET ANNUAL FUND OPERATING EXPENSE ISSUERS, WILL VARY AND WILL LOWER THE
1 Year 8.01 RATIO SET FORTH IN THE MOST RECENT FUND TOTAL RETURN.
========================================== PROSPECTUS AS OF THE DATE OF THIS REPORT THE MOST RECENT MONTH-END PERFORMANCE
FOR SERIES I AND SERIES II SHARES WAS DATA AT THE FUND LEVEL, EXCLUDING VARIABLE
SERIES II SHARES' INCEPTION DATE IS 0.73% AND 0.98%, RESPECTIVELY.(1) THE PRODUCT CHARGES, IS AVAILABLE ON THE
SEPTEMBER 19, 2001. RETURNS SINCE THAT TOTAL ANNUAL FUND OPERATING EXPENSE RATIO INVESCO AIM AUTOMATED INFORMATION LINE,
DATE ARE HISTORICAL. ALL OTHER RETURNS ARE SET FORTH IN THE MOST RECENT FUND 866 702 4402. AS MENTIONED ABOVE, FOR THE
THE BLENDED RETURNS OF THE HISTORICAL PROSPECTUS AS OF THE DATE OF THIS REPORT MOST RECENT MONTH-END PERFORMANCE
PERFORMANCE OF SERIES II SHARES SINCE FOR SERIES I AND SERIES II SHARES WAS INCLUDING VARIABLE PRODUCT CHARGES, PLEASE
THEIR INCEPTION AND THE RESTATED 0.76% AND 1.01%, RESPECTIVELY. THE EXPENSE CONTACT YOUR VARIABLE PRODUCT ISSUER OR
HISTORICAL PERFORMANCE OF SERIES I SHARES RATIOS PRESENTED ABOVE MAY VARY FROM THE FINANCIAL ADVISOR.
(FOR PERIODS PRIOR TO INCEPTION OF SERIES EXPENSE RATIOS PRESENTED IN OTHER SECTIONS
II SHARES) ADJUSTED TO REFLECT THE RULE OF THIS REPORT THAT ARE BASED ON EXPENSES (1) Total annual operating expenses less
12B-1 FEES APPLICABLE TO SERIES II SHARES. INCURRED DURING THE PERIOD COVERED BY THIS any contractual fee waivers and/or
THE INCEPTION DATE OF SERIES I SHARES IS REPORT. expense reimbursements by the advisor
MAY 5, 1993. THE PERFORMANCE OF THE FUND'S AIM V.I. GOVERNMENT SECURITIES FUND, A in effect through at least April 30,
SERIES I AND SERIES II SHARE CLASSES WILL SERIES PORTFOLIO OF AIM VARIABLE 2010. See current prospectus for more
DIFFER PRIMARILY DUE TO DIFFERENT CLASS information.
EXPENSES.
THE PERFORMANCE DATA QUOTED REPRESENT
PAST PERFORMANCE AND CANNOT
AIM V.I. GOVERNMENT SECURITIES FUND
PORTFOLIO COMPOSITION
By security type, based on Net Assets
as of June 30, 2008
<Table>
- -------------------------------------------------------------------------
U.S. Sponsored Mortgage-Backed Securities 74.0%
- -------------------------------------------------------------------------
U.S. Sponsored Agency Securities 13.3
- -------------------------------------------------------------------------
U.S. Treasury Securities 0.8
- -------------------------------------------------------------------------
Foreign Sovereign Debt 0.3
- -------------------------------------------------------------------------
Money Market Funds Plus Other Assets Less Liabilities 11.6
_________________________________________________________________________
=========================================================================
</Table>
SCHEDULE OF INVESTMENTS
June 30, 2008
(Unaudited)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------
U.S. GOVERNMENT SPONSORED MORTGAGE-BACKED SECURITIES-74.04%(a)
COLLATERALIZED MORTGAGE OBLIGATIONS-52.15%
Fannie Mae REMICS,
3.50%, 04/25/13 to 09/25/16 $ 558,741 $ 558,117
- -----------------------------------------------------------------------------------
4.50%,() 05/25/15 33,777,000 33,937,789
- -----------------------------------------------------------------------------------
5.00%, 12/25/15 to 04/25/24 14,784,766 14,925,445
- -----------------------------------------------------------------------------------
4.00%,() 03/25/16 527,286 527,214
- -----------------------------------------------------------------------------------
6.50%,() 06/25/20 253,152 255,577
- -----------------------------------------------------------------------------------
6.00%, 02/25/21 to 10/25/30 56,829,064 57,884,593
- -----------------------------------------------------------------------------------
5.50%, 02/25/24 to 03/01/38 59,842,642 60,549,667
- -----------------------------------------------------------------------------------
Fannie Mae Whole Loans,
5.50%, 07/25/34 3,571,938 3,530,264
- -----------------------------------------------------------------------------------
Federal Home Loan Banks (FHLB), 4.75%, 10/25/10 18,558,491 18,655,367
- -----------------------------------------------------------------------------------
Freddie Mac REMICS,
5.50%, 07/15/10 to 05/15/31 152,053,108 154,644,724
- -----------------------------------------------------------------------------------
6.75%,() 06/15/11 912,227 932,335
- -----------------------------------------------------------------------------------
5.25%,() 08/15/11 8,171,461 8,290,277
- -----------------------------------------------------------------------------------
5.38%, 08/15/11 to 09/15/11 10,121,324 10,292,248
- -----------------------------------------------------------------------------------
4.50%, 03/15/14 to 08/15/27 5,328,751 5,350,583
- -----------------------------------------------------------------------------------
5.00%, 06/15/14 to 10/15/25 88,462,512 89,381,154
- -----------------------------------------------------------------------------------
4.00%,() 09/15/14 162,878 162,909
- -----------------------------------------------------------------------------------
5.13%,() 10/15/15 1,743,823 1,751,857
- -----------------------------------------------------------------------------------
7.50%,() 01/15/16 3,019,232 3,147,387
- -----------------------------------------------------------------------------------
6.00%, 09/15/16 to 06/15/31 160,015,330 163,833,912
- -----------------------------------------------------------------------------------
5.75%,() 12/15/18 35,834,559 36,574,087
- -----------------------------------------------------------------------------------
3.50%,() 12/15/21 494,120 493,611
- -----------------------------------------------------------------------------------
Government National Mortgage Association (GNMA)
REMICS,
4.25%, 01/20/27 52,899 52,882
- -----------------------------------------------------------------------------------
4.75%, 10/16/29 to 12/20/29 25,688,003 25,898,770
===================================================================================
691,630,769
===================================================================================
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)-5.07%
Pass Through Ctfs.,
6.00%, 11/01/08 to 02/01/34 7,221,547 7,399,461
- -----------------------------------------------------------------------------------
6.50%, 12/01/08 to 12/01/35 11,992,883 12,506,726
- -----------------------------------------------------------------------------------
8.00%, 02/01/09 to 09/01/36 20,208,521 22,058,898
- -----------------------------------------------------------------------------------
7.00%, 11/01/10 to 12/01/37 12,026,038 12,693,564
- -----------------------------------------------------------------------------------
7.50%, 03/01/16 to 08/01/36 8,559,167 9,121,078
- -----------------------------------------------------------------------------------
10.50%,() 08/01/19 8,073 9,082
- -----------------------------------------------------------------------------------
8.50%, 09/01/20 to 08/01/31 1,572,905 1,737,143
- -----------------------------------------------------------------------------------
10.00%,() 03/01/21 133,929 151,919
- -----------------------------------------------------------------------------------
9.00%, 06/01/21 to 06/01/22 1,043,218 1,144,728
- -----------------------------------------------------------------------------------
7.05%,() 05/20/27(a) 415,909 438,848
===================================================================================
67,261,447
===================================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-10.77%
Pass Through Ctfs.,
6.00%, 05/01/09 to 03/01/37 7,605,580 7,765,435
- -----------------------------------------------------------------------------------
6.50%, 10/01/10 to 11/01/37 14,648,753 15,235,315
- -----------------------------------------------------------------------------------
7.00%, 12/01/10 to 06/01/36 41,408,123 43,518,998
- -----------------------------------------------------------------------------------
7.50%, 08/01/11 to 07/01/37 26,657,035 28,600,505
- -----------------------------------------------------------------------------------
8.50%, 06/01/12 to 08/01/37 10,461,511 11,423,012
- -----------------------------------------------------------------------------------
8.00%, 06/01/12 to 11/01/37 29,952,547 32,172,454
- -----------------------------------------------------------------------------------
10.00%, 09/01/13 to 03/01/16 68,948 74,041
- -----------------------------------------------------------------------------------
5.00%, 11/01/17 to 12/01/33 2,050,850 2,038,687
- -----------------------------------------------------------------------------------
5.50%,() 03/01/21 999 1,008
- -----------------------------------------------------------------------------------
6.75%,() 07/01/24 1,640,215 1,729,649
- -----------------------------------------------------------------------------------
6.95%, 10/01/25 to 09/01/26 234,663 249,197
===================================================================================
142,808,301
===================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GOVERNMENT SECURITIES FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)-6.05%
Pass Through Ctfs.,
9.00%, 09/15/08 to 12/20/16 $ 170,700 $ 185,433
- -----------------------------------------------------------------------------------
7.50%, 09/15/08 to 05/15/37 13,890,776 14,871,110
- -----------------------------------------------------------------------------------
6.50%, 09/20/08 to 01/15/37 33,706,550 35,121,842
- -----------------------------------------------------------------------------------
9.38%, 06/15/09 to 12/15/09 191,568 197,375
- -----------------------------------------------------------------------------------
8.00%, 07/15/12 to 01/15/37 7,000,668 7,637,877
- -----------------------------------------------------------------------------------
6.75%,() 08/15/13 112,264 117,023
- -----------------------------------------------------------------------------------
11.00%,() 10/15/15 2,513 2,847
- -----------------------------------------------------------------------------------
9.50%,() 09/15/16 3,550 3,910
- -----------------------------------------------------------------------------------
7.00%, 04/15/17 to 03/15/37 11,589,997 12,307,471
- -----------------------------------------------------------------------------------
10.50%, 09/15/17 to 11/15/19 4,559 5,150
- -----------------------------------------------------------------------------------
8.50%, 12/15/17 to 01/15/37 1,710,378 1,863,384
- -----------------------------------------------------------------------------------
10.00%,() 06/15/19 55,474 62,054
- -----------------------------------------------------------------------------------
6.00%, 06/20/20 to 08/15/33 4,884,222 5,004,796
- -----------------------------------------------------------------------------------
6.95%, 08/20/25 to 08/20/27 1,521,290 1,618,467
- -----------------------------------------------------------------------------------
6.25%,() 06/15/27 195,885 201,849
- -----------------------------------------------------------------------------------
6.38%, 10/20/27 to 09/20/28 1,086,614 1,122,345
===================================================================================
80,322,933
===================================================================================
Total U.S. Government Sponsored Mortgage-
Backed Securities (Cost $980,148,300) 982,023,450
===================================================================================
U.S. GOVERNMENT SPONSORED AGENCY SECURITIES-13.25%
FEDERAL AGRICULTURAL MORTGAGE CORP.-0.84%
Medium-Term Notes,
5.60%, 01/09/17(a) 11,000,000 11,199,540
===================================================================================
FEDERAL FARM CREDIT BANK (FFCB)-5.69%
Bonds,
5.75%, 01/18/11(a) 2,000,000 2,106,800
- -----------------------------------------------------------------------------------
5.59%, 10/04/21(a) 10,075,000 10,271,866
- -----------------------------------------------------------------------------------
5.75%, 01/18/22(a) 2,775,000 2,822,813
- -----------------------------------------------------------------------------------
Disc. Notes,
2.05%, 07/08/08(b) 57,000,000 56,977,279
- -----------------------------------------------------------------------------------
Medium-Term Notes,
5.75%, 12/07/28(a) 3,100,000 3,277,444
===================================================================================
75,456,202
===================================================================================
FEDERAL HOME LOAN BANK (FHLB)-5.29%
Unsec. Bonds,
5.60%, 06/09/20(a) 2,150,000 2,153,246
- -----------------------------------------------------------------------------------
Unsec. Disc. Notes,
2.05%, 07/07/08(b) 68,000,000 67,976,767
===================================================================================
70,130,013
===================================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-0.50%(A)
Sr. Unsec. Global Bonds,
6.63%,() 11/15/30(c) 700,000 830,963
- -----------------------------------------------------------------------------------
Sr. Unsec. Notes,
6.50%,() 11/25/25 4,762,000 4,773,429
- -----------------------------------------------------------------------------------
Unsec. Sub. Disc. Deb.,
6.74%, 10/09/19(b) 1,000,000 549,630
- -----------------------------------------------------------------------------------
7.37%, 10/09/19(b) 800,000 439,704
===================================================================================
6,593,726
===================================================================================
PRIVATE EXPORT FUNDING CORP.-0.52%(A)
Series G, Sec. Gtd. Notes,
6.67%, 9/15/09 6,601,000 6,875,734
===================================================================================
TENNESSEE VALLEY AUTHORITY-0.41%(A)
Series A, Bonds,
6.79%, 05/23/12 5,000,000 5,505,350
===================================================================================
Total U.S. Government Sponsored Agency
Securities (Cost $174,412,655) 175,760,565
===================================================================================
U.S. TREASURY SECURITIES-0.79%(A)
U.S. TREASURY BILLS-0.19%
1.60%, 10/23/08(b)(c) 2,000,000 1,988,500
- -----------------------------------------------------------------------------------
2.20%, 12/11/08(b)(c) 546,000 540,862
===================================================================================
2,529,362
===================================================================================
U.S. TREASURY BONDS-0.39%
7.50%, 11/15/24(c) 2,815,000 3,786,625
- -----------------------------------------------------------------------------------
7.63%, 02/15/25(c) 550,000 748,946
- -----------------------------------------------------------------------------------
6.88%, 08/15/25(c) 500,000 637,265
===================================================================================
5,172,836
===================================================================================
U.S. TREASURY STRIPS-0.21%
4.78%, 11/15/18(b)(c) 1,400,000 886,816
- -----------------------------------------------------------------------------------
4.94%, 11/15/18(b)(c) 2,100,000 1,330,224
- -----------------------------------------------------------------------------------
6.37%, 11/15/18(b)(c) 405,000 256,543
- -----------------------------------------------------------------------------------
6.79%, 11/15/18(b)(c) 250,000 158,360
- -----------------------------------------------------------------------------------
6.85%, 11/15/18(b)(c) 250,000 158,360
===================================================================================
2,790,303
===================================================================================
Total U.S. Treasury Securities (Cost
$9,658,982) 10,492,501
===================================================================================
FOREIGN SOVEREIGN BONDS-0.30%
SOVEREIGN DEBT-0.30%(A)
Israel Government Agency for International
Development (AID) Bond (Israel), Gtd. Global
Bonds, 5.13%, 11/01/24 (Cost $3,833,463) 3,800,000 3,948,618
===================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GOVERNMENT SECURITIES FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------------------
MONEY MARKET FUNDS-11.19%
Government & Agency Portfolio-Institutional Class
(Cost $148,357,119)(d) 148,357,119 $ 148,357,119
===================================================================================
TOTAL INVESTMENTS-99.57% (Cost $1,316,410,519) 1,320,582,253
===================================================================================
OTHER ASSETS LESS LIABILITIES-0.43% 5,688,780
===================================================================================
NET ASSETS-100.00% $1,326,271,033
___________________________________________________________________________________
===================================================================================
</Table>
Investment Abbreviations:
<Table>
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
REMICS - Real Estate Mortgage Investment Conduits
Sec. - Secured
Sr. - Senior
STRIPS - Separately Traded Registered Interest and Principal Security
Sub. - Subordinated
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an
independent pricing service. The aggregate value of these securities at
June 30, 2008 was $1,047,271,089, which represented 78.96% of the Fund's
Net Assets. See Note 1A.
(b) Security traded on a discount basis. The interest rate shown represents
the discount rate at the time of purchase by the Fund.
(c) All or a portion of the value was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1N and Note 8.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GOVERNMENT SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, at value (Cost
$1,168,053,400) $1,172,225,134
- -------------------------------------------------------
Investments in affiliated money market
funds (Cost $148,357,119) 148,357,119
=======================================================
Total investments (Cost
$1,316,410,519) 1,320,582,253
=======================================================
Receivables for:
Forward commitments -- Sales 18,470,156
- -------------------------------------------------------
Variation margin 209,899
- -------------------------------------------------------
Fund shares sold 932,044
- -------------------------------------------------------
Dividends and Interest 5,711,897
- -------------------------------------------------------
Fund expenses absorbed 33,733
- -------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 50,596
- -------------------------------------------------------
Other assets 382
=======================================================
Total assets 1,345,990,960
_______________________________________________________
=======================================================
LIABILITIES:
Payables for:
Forward commitments, at value 18,593,442
- -------------------------------------------------------
Fund shares reacquired 93,837
- -------------------------------------------------------
Accrued fees to affiliates 823,979
- -------------------------------------------------------
Accrued other operating expenses 97,717
- -------------------------------------------------------
Trustee deferred compensation and
retirement plans 110,952
=======================================================
Total liabilities 19,719,927
=======================================================
Net assets applicable to shares
outstanding $1,326,271,033
_______________________________________________________
=======================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,282,070,564
- -------------------------------------------------------
Undistributed net investment income 85,206,279
- -------------------------------------------------------
Undistributed net realized gain (loss) (50,019,904)
- -------------------------------------------------------
Unrealized appreciation 9,014,094
=======================================================
$1,326,271,033
_______________________________________________________
=======================================================
NET ASSETS:
Series I $1,308,375,428
_______________________________________________________
=======================================================
Series II $ 17,895,605
_______________________________________________________
=======================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 105,380,807
_______________________________________________________
=======================================================
Series II 1,450,797
_______________________________________________________
=======================================================
Series I:
Net asset value per share $ 12.42
_______________________________________________________
=======================================================
Series II:
Net asset value per share $ 12.34
_______________________________________________________
=======================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $32,869,522
- ------------------------------------------------------
Dividends from affiliated money market
funds 408,769
======================================================
Total investment income 33,278,291
======================================================
EXPENSES:
Advisory fees 2,987,259
- ------------------------------------------------------
Administrative services fees 1,760,167
- ------------------------------------------------------
Custodian fees 110,843
- ------------------------------------------------------
Distribution fees -- Series II 24,013
- ------------------------------------------------------
Transfer agent fees 8,306
- ------------------------------------------------------
Trustees' and officer's fees and
benefits 24,484
- ------------------------------------------------------
Other 65,420
======================================================
Total expenses 4,980,492
======================================================
Less: Fees waived and expense offset
arrangement(s) (215,034)
- ------------------------------------------------------
Net expenses 4,765,458
======================================================
Net investment income 28,512,833
======================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM:
Net realized gain from:
Investment securities 178,930
- ------------------------------------------------------
Futures contracts 4,474,035
======================================================
4,652,965
======================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (1,650,066)
- ------------------------------------------------------
Futures contracts 4,786,789
======================================================
3,136,723
======================================================
Net realized and unrealized gain 7,789,688
======================================================
Net increase in net assets resulting
from operations $36,302,521
______________________________________________________
======================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GOVERNMENT SECURITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- ----------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 28,512,833 $ 52,094,836
- ----------------------------------------------------------------------------------------------------------
Net realized gain 4,652,965 4,286,420
- ----------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 3,136,723 11,480,413
==========================================================================================================
Net increase in net assets resulting from operations 36,302,521 67,861,669
==========================================================================================================
Distributions to shareholders from net investment income:
Series I -- (45,822,129)
- ----------------------------------------------------------------------------------------------------------
Series II -- (650,568)
==========================================================================================================
Total distributions from net investment income -- (46,472,697)
==========================================================================================================
Share transactions-net:
Series I 102,643,399 241,536,480
- ----------------------------------------------------------------------------------------------------------
Series II (1,429,766) 2,208,083
==========================================================================================================
Net increase in net assets resulting from share transactions 101,213,633 243,744,563
==========================================================================================================
Net increase in net assets 137,516,154 265,133,535
__________________________________________________________________________________________________________
==========================================================================================================
NET ASSETS:
Beginning of period 1,188,754,879 923,621,344
==========================================================================================================
End of period (including undistributed net investment income of
$85,206,279 and $56,693,446, respectively) $1,326,271,033 $1,188,754,879
__________________________________________________________________________________________________________
==========================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. GOVERNMENT SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Government Securities Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is a high level of current income consistent
with reasonable concern for safety of principal.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
Debt obligations (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing
service. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to specific securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Short-term obligations, including
commercial paper, having 60 days or less to maturity are recorded at
amortized cost which approximates value. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve
some risk of default with respect to interest and/or principal payments.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on
that day. Securities traded in the over-the-counter market are valued
based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service
they may be considered fair valued. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally
traded. Listed options are valued at the mean between the last bid and the
ask prices from the exchange on which they are principally traded. Options
not listed on an exchange are valued by an independent source at the mean
between the last bid and ask prices. For purposes of determining net asset
value per share, futures and option contracts generally are valued 15
minutes after the close of the customary trading session of the New York
Stock Exchange ("NYSE").
Investments in open-end and closed-end registered investment companies
that do not trade on an exchange are valued at the end of day net asset
value per share. Investments in open-end and closed-end registered
investment companies that trade on an exchange are valued at the last
sales price or official closing price as of the close of the customary
trading session on the exchange where the security is principally traded.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued
at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price
unreliable, the Fund may fair value the security. If the event is likely
to have affected the closing price of the security, the security will be
valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also
be based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current value as of the close of the NYSE. Foreign securities
meeting the approved degree of certainty that the price is not reflective
of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, American
Depositary Receipts and domestic and foreign index futures. Foreign
securities may have additional risks including exchange rate changes,
potential for sharply devalued currencies and high inflation, political
and economical upheaval, the relative lack of issuer information,
relatively low market liquidity and the potential lack of strict financial
and accounting controls and standards.
Securities for which market prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers following procedures
approved by the Board of Trustees. Issuer specific events, market trends,
bid/ask quotes of brokers and information providers and other market data
may be reviewed in the course of making a good faith determination of a
security's fair value.
Valuations change in response to many factors including the historical
and prospective earnings of the issuer, the value of the issuer's assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
AIM V.I. GOVERNMENT SECURITIES FUND
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification
claims is considered remote.
I. OTHER RISKS -- The Funds may invest in obligations issued by agencies and
instrumentalities of the U.S. government that may vary in the level of
support they receive from the government. The government may choose not to
provide financial support to government sponsored agencies or
instrumentalities if it is not legally obligated to do so. In this case,
if the issuer defaulted, the underlying fund holding securities of such
issuer might not be able to recover its investment from the U.S.
Government. Many securities purchased by the Fund are not guaranteed by
the U.S. Government.
J. DOLLAR ROLL AND FORWARD COMMITMENT TRANSACTIONS -- The Fund may engage in
dollar roll and forward commitment transactions with respect to mortgage-
backed securities issued by GNMA, FNMA and FHLMC. These transactions are
often conducted on a to be announced ("TBA") basis. In a TBA mortgage-
backed transaction, the seller does not specify the particular securities
to be delivered. Rather, a Fund agrees to accept any security that meets
specified terms, such as an agreed upon issuer, coupon rate and terms of
the underlying mortgages. TBA mortgage-backed transactions generally
settle once a month on a specific date.
In a dollar roll transaction, the Fund sells a mortgage-backed security
held in the Fund to a financial institution such as a bank or broker-
dealer, and simultaneously agrees to purchase a substantially similar
security (same type, coupon and maturity) from the institution at an
agreed upon price and future date. The mortgage-backed securities to be
purchased will bear the same coupon as those sold, but generally will be
collateralized by different pools of mortgages with different prepayment
histories. Based on the typical structure of dollar roll transactions by
the Fund, the dollar roll transactions are accounted for as financing
transactions in which the Fund receives compensation as either a "fee" or
a "drop". "Fee" income which is agreed upon amongst the parties at the
commencement of the dollar roll and the "drop" which is the difference
between the selling price and the repurchase price of the mortgage-backed
securities are amortized to income. During the period between the sale and
purchase settlement dates, the Fund will not be entitled to receive
interest and principal payments on securities purchased and not yet
settled. Proceeds of the sale may be invested in short-term instruments,
and the income from these investments, together with any additional fee
income received on the sale, could generate income for the Fund exceeding
the yield on the security sold. Dollar roll transactions are considered
borrowings under the 1940 Act.
Forward commitment transactions involve commitments by the Fund to
acquire or sell TBA mortgage-backed securities from/to a financial
institution, such as a bank or broker-dealer at a specified future date
and amount. The TBA mortgage-backed security is marked to market until
settlement and the unrealized appreciation or depreciation is recorded in
the statement of operations.
AIM V.I. GOVERNMENT SECURITIES FUND
At the time the Fund enters into the dollar roll or forward commitment
transaction, mortgage-backed securities or other liquid assets held by the
Fund having a dollar value equal to the purchase price or in an amount
sufficient to honor the forward commitment will be segregated.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the
securities that the Fund has sold but is obligated to purchase under the
agreement. In the event that the buyer of securities in a dollar roll
transaction files for bankruptcy or becomes insolvent, the Fund's use of
the proceeds from the sale of the securities may be restricted pending a
determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to purchase the securities. The return
earned by the Fund with the proceeds of the dollar roll transaction may
not exceed the return on the securities sold.
Forward commitment transactions involve the risk that a counter-party to
the transaction may fail to complete the transaction. If this occurs, the
Fund may lose the opportunity to purchase or sell the security at the
agreed upon price. Settlement dates of forward commitment transactions may
be a month or more after entering into these transactions and as a result
the market values of the securities may vary from the purchase or sale
prices. Therefore, forward commitment transactions may increase the Fund's
overall interest rate exposure.
K. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements.
Collateral on repurchase agreements, including the Fund's pro-rata
interest in joint repurchase agreements, is taken into possession by the
Fund upon entering into the repurchase agreement. Eligible securities for
collateral are securities consistent with the Fund's investment objectives
and may consist of U.S. Government Securities, U.S. Government Agency
Securities and/or, Investment Grade Debt Securities. Collateral consisting
of U.S. Government Securities and U.S. Government Agency Securities is
marked to market daily to ensure its market value is at least 102% of the
sales price of the repurchase agreement. Collateral consisting of
Investment Grade Debt Securities is marked to market daily to ensure its
market value is at least 105% of the sales price of the repurchase
agreement. The investments in some repurchase agreements, pursuant to
procedures approved by the Board of Trustees, are through participation
with other mutual funds, private accounts and certain non-registered
investment companies managed by the investment advisor or its affiliates
("Joint repurchase agreements"). The principal amount of the repurchase
agreement is equal to the value at period-end. If the seller of a
repurchase agreement fails to repurchase the security in accordance with
the terms of the agreement, the Fund might incur expenses in enforcing its
rights, and could experience losses, including a decline in the value of
the collateral and loss of income.
L. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close
of the NYSE based on quotations posted by banks and major currency
dealers. Portfolio securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i)
sales of foreign currencies, (ii) currency gains or losses realized
between the trade and settlement dates on securities transactions, and
(iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized
foreign currency gains and losses arise from changes in the fair values of
assets and liabilities, other than investments in securities at fiscal
period end, resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to
foreign taxes on income, gains on investments or currency repatriation, a
portion of which may be recoverable.
M. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. Fluctuations in the value of these contracts are recorded as
unrealized appreciation (depreciation) until the contracts are closed.
When these contracts are closed, realized gains (losses) are recorded.
Realized and unrealized gains and losses on these contracts are included
in the Statement of Operations. The Fund could be exposed to risk, which
may be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
N. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts.
Initial margin deposits required upon entering into futures contracts are
satisfied by the segregation of specific securities as collateral for the
account of the broker (the Fund's agent in acquiring the futures
position). During the period the futures contracts are open, changes in
the value of the contracts are recognized as unrealized gains or losses by
recalculating the value of the contracts on a daily basis. Variation
margin payments are received or made depending upon whether unrealized
gains or losses are incurred. When the contracts are closed, the Fund
recognizes a realized gain or loss equal to the difference between the
proceeds from, or cost of, the closing transaction and the Fund's basis in
the contract. If the Fund were unable to liquidate a futures contract
and/or enter into an offsetting closing transaction, the Fund would
continue to be subject to market risk with respect to the value of the
contracts and continue to be required to maintain the margin deposits on
the futures contracts. Risks may exceed amounts recognized in the
Statement of Assets and Liabilities.
O. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $250 million 0.50%
- -------------------------------------------------------------------
Over $250 million 0.45%
___________________________________________________________________
===================================================================
</Table>
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
The Advisor has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 0.73% and Series
II shares to 0.98% of average daily net assets, through at least April 30, 2010.
In determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco")
described more fully below, the only expense offset arrangements from which the
Fund may benefit are in the form of credits that the Fund receives from banks
where the Fund or its transfer agent has deposit accounts in which it holds
uninvested cash. These credits are used to pay certain expenses incurred by the
Fund. To the extent that the annualized expense ratio does not exceed the
expense limitation, AIM will retain its ability to be reimbursed for such fee
waivers or reimbursements prior to the end of each fiscal year.
Further, the Advisor has contractually agreed, through at least April 30,
2010, to waive the advisory fee payable by the Fund in an amount equal to 100%
of the net advisory fees the Advisor receives from the affiliated money market
funds on investments by the Fund of uninvested cash in such affiliated money
market funds.
For the six months ended June 30, 2008, the Advisor waived advisory fees of
$210,781.
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $154,478 for accounting and fund
administrative services and reimbursed $1,605,689 for services provided by
insurance companies.
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily net
assets of the Series II shares may be paid to insurance companies who furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. For the six months ended June 30, 2008, expenses
incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1--Quoted prices in an active market for identical assets.
Level 2--Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest
rates, prepayment speeds, credit risk and others.
AIM V.I. GOVERNMENT SECURITIES FUND
Level 3--Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for
example, when there is little or no market activity for an investment at the end
of the period), unobservable inputs may be used. Unobservable inputs reflect the
Fund's own assumptions about the factors market participants would use in
determining fair value of the securities or instruments and would be based on
the best available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS OTHER
INPUT LEVEL IN SECURITIES INVESTMENTS*
- --------------------------------------------------------------------------------------------------------
Level 1 $ 148,357,119 $4,965,646
- --------------------------------------------------------------------------------------------------------
Level 2 1,172,225,134 (123,286)
- --------------------------------------------------------------------------------------------------------
Level 3 -- --
========================================================================================================
$1,320,582,253 $4,842,360
________________________________________________________________________________________________________
========================================================================================================
</Table>
* Other investments include open futures contracts and unsettled forward
commitments, which are included at unrealized appreciation/(depreciation).
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2008, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $4,253.
NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan and receive benefits under such plan. "Trustees' and Officer's
Fees and Benefits" include amounts accrued by the Fund to fund such retirement
benefits. Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $2,898
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--CASH BALANCES
The Fund is permitted to temporarily carry a negative or overdrawn balance in
its account with The State Street Bank and Trust Company ("SSB"), the custodian
bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund
may either (i) leave funds as a compensating balance in the account so the
custodian bank can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank at a rate agreed upon by the custodian
bank and Invesco Aim, not to exceed the contractually agreed upon rate.
NOTE 7--OPEN FORWARD COMMITMENTS -- SALES
<Table>
<Caption>
COMMITMENT PRINCIPAL VALUE
CONTRACT DATE AMOUNT 06/30/08
- -------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)
Pass Through Ctfs., TBA
6.50%, 07/01/38 08/20/08 $18,000,000 $18,593,442
_____________________________________________________________________________________________________________
=============================================================================================================
</Table>
NOTE 8--FUTURES CONTRACTS
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD-END
- ---------------------------------------------------------------------------------------------------------------------------
UNREALIZED
NUMBER OF MONTH/ VALUE APPRECIATION
CONTRACT CONTRACTS COMMITMENT 06/30/08 (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 2 Year Notes 55 September-2008/Long $ 11,616,172 $ 10,189
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 5 Year Notes 1,063 September-2008/Long 117,519,634 (60,524)
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 10 Year Notes 2,022 September-2008/Long 230,350,031 3,385,888
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Long Bonds 1,764 September-2008/Long 203,907,375 1,630,093
===========================================================================================================================
$563,393,212 $4,965,646
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 9--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund had a capital loss carryforward as of December 31, 2007 which expires
as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------------------------
December 31, 2011 $11,708,442
- -----------------------------------------------------------------------------------------------
December 31, 2012 7,926,972
- -----------------------------------------------------------------------------------------------
December 31, 2013 12,902,211
- -----------------------------------------------------------------------------------------------
December 31, 2014 17,860,899
- -----------------------------------------------------------------------------------------------
December 31, 2015 4,095,457
===============================================================================================
Total capital loss carryforward $54,493,981
_______________________________________________________________________________________________
===============================================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the six months ended June 30, 2008 was $1,302,073,654 and
$1,095,775,005, respectively. During the same period, purchases and sales of
U.S. Treasury obligations were $20,449,161 and $20,674,912. Cost of investments
on a tax basis includes the adjustments for financial reporting purposes as of
the most recently completed Federal income tax reporting period end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 6,698,373
- ------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,649,956)
================================================================================================
Net unrealized appreciation of investment securities $ 4,048,417
________________________________________________________________________________________________
================================================================================================
Cost of investments for tax purposes is $1,297,940,394.
</Table>
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008(a) DECEMBER 31, 2007
----------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 18,389,283 $ 225,998,422 23,152,709 $278,908,747
- -------------------------------------------------------------------------------------------------------------------------
Series II 362,973 4,439,909 442,120 5,311,096
=========================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 3,834,488 45,822,129
- -------------------------------------------------------------------------------------------------------------------------
Series II -- -- 54,716 650,568
=========================================================================================================================
Reacquired:
Series I (10,045,566) (123,355,023) (6,854,490) (83,194,396)
- -------------------------------------------------------------------------------------------------------------------------
Series II (477,069) (5,869,675) (313,409) (3,753,581)
=========================================================================================================================
8,229,621 $ 101,213,633 20,316,134 $243,744,563
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) There are entities that are record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 93% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities, which
are considered to be related to the Fund, for providing services to the
Fund, AIM and or AIM affiliates including but not limited to services such
as, securities brokerage, third party record keeping and account servicing
and administrative services. The Trust has no knowledge as to whether all
or any portion of the shares owned of record by these entities are also
owned beneficially.
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 12--NEW ACCOUNTING STANDARD
In March 2008, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 161, Disclosures about Derivative Instruments and Hedging
Activities. The standard is intended to improve financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity's financial
position and financial performance. It is effective for financial statements
issued for fiscal years beginning after November 15, 2008. Management is
currently in the process of determining the impact of the standard on the Fund's
disclosures in the financial statements.
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-----------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------------
2008 2007 2006 2005 2004 2003
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.06 $ 11.80 $ 11.87 $ 12.07 $ 12.23 $ 12.40
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.27 0.59 0.55 0.45 0.40 0.36
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.09 0.16 (0.13) (0.25) (0.09) (0.23)
================================================================================================================================
Total from investment operations 0.36 0.75 0.42 0.20 0.31 0.13
================================================================================================================================
Less distributions:
Dividends from net investment income -- (0.49) (0.49) (0.40) (0.47) (0.30)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.00)
================================================================================================================================
Total distributions -- (0.49) (0.49) (0.40) (0.47) (0.30)
================================================================================================================================
Net asset value, end of period $ 12.42 $ 12.06 $ 11.80 $ 11.87 $ 12.07 $ 12.23
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(b) 2.99% 6.43% 3.55% 1.66% 2.56% 1.07%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,308,375 $1,169,985 $907,403 $812,824 $652,226 $526,482
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 0.73%(c) 0.73% 0.71% 0.85% 0.87% 0.76%
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 0.76%(c) 0.76% 0.77% 0.88% 0.87% 0.76%
================================================================================================================================
Ratio of net investment income to average
net assets 4.39%(c) 4.93% 4.62% 3.68% 3.20% 2.93%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(d) 95% 106% 89% 174% 95% 265%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$1,287,871,269.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
----------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------------------------------
2008 2007 2006 2005 2004 2003
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.99 $ 11.74 $ 11.81 $ 12.01 $ 12.17 $ 12.35
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.25 0.56 0.52 0.41 0.36 0.33
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.10 0.15 (0.13) (0.24) (0.08) (0.22)
============================================================================================================================
Total from investment operations 0.35 0.71 0.39 0.17 0.28 0.11
============================================================================================================================
Less distributions:
Dividends from net investment income -- (0.46) (0.46) (0.37) (0.44) (0.29)
- ----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.00)
============================================================================================================================
Total distributions -- (0.46) (0.46) (0.37) (0.44) (0.29)
============================================================================================================================
Net asset value, end of period $ 12.34 $ 11.99 $ 11.74 $ 11.81 $ 12.01 $ 12.17
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) 2.92% 6.11% 3.28% 1.41% 2.27% 0.93%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $17,896 $18,770 $16,218 $18,863 $17,728 $22,325
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 0.98%(c) 0.98% 0.96% 1.10% 1.12% 1.01%
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.01%(c) 1.01% 1.02% 1.13% 1.12% 1.01%
============================================================================================================================
Ratio of net investment income to average net
assets 4.14%(c) 4.68% 4.37% 3.43% 2.95% 2.68%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate(d) 95% 106% 89% 174% 95% 265%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of $19,316,330.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor -- Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to Invesco Aim and IADI (Order No. 05-1318). The WVASC makes
findings of fact that Invesco Aim and IADI entered into certain arrangements
permitting market timing of the AIM Funds and failed to disclose these
arrangements in the prospectuses for such Funds, and conclusions of law to the
effect that Invesco Aim and IADI violated the West Virginia securities laws. The
WVASC orders Invesco Aim and IADI to cease any further violations and seeks to
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute. By agreement with the Commissioner of Securities, Invesco Aim's time to
respond to that Order has been indefinitely suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid. The case pending in Illinois State Court regarding fair value
pricing was dismissed with prejudice on May 6, 2008.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA
purportedly brought on behalf of participants in the Invesco 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
remain nominal defendants in the Consolidated Amended Fund Derivative Complaint.
On September 15, 2006, the MDL Court granted the Invesco defendants' motion to
dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed
such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth
Court of Appeals reversed the dismissal and remanded this lawsuit back to the
MDL Court for further proceedings.
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, Invesco Aim and IADI have advised the Fund that they are providing
full cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, Invesco Aim and/or related entities and individuals in the
future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. GOVERNMENT SECURITIES FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $1,030.70 $3.69 $1,021.23 $3.67 0.73%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 1,029.20 4.94 1,019.99 4.92 0.98
- ---------------------------------------------------------------------------------------------------
</Table>
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5%
before expenses.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
AIM V.I. GOVERNMENT SECURITIES FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the Board) of AIM their assigned funds. During the contract ated the information provided differently
Variable Insurance Funds is required under renewal process, the Trustees receive from one another and attributed different
the Investment Company Act of 1940 to comparative performance and fee data weight to the various factors. The
approve annually the renewal of the AIM regarding the AIM Funds prepared by an Trustees recognized that the advisory
V.I. Government Securities Fund (the Fund) independent company, Lipper, Inc. arrangements and resulting advisory fees
investment advisory agreement with Invesco (Lipper), under the direction and for the Fund and the other AIM Funds are
Aim Advisors, Inc. (Invesco Aim). During supervision of the independent Senior the result of years of review and
contract renewal meetings held on June Officer who also prepares a separate negotiation between the Trustees and
18-19, 2008, the Board as a whole and the analysis of this information for the Invesco Aim, that the Trustees may focus
disinterested or "independent" Trustees, Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of
voting separately, approved the recommendations to the Investments these arrangements in some years than in
continuance of the Fund's investment Committee regarding the performance, fees others, and that the Trustees'
advisory agreement for another year, and expenses of their assigned funds. The deliberations and conclusions in a
effective July 1, 2008. In doing so, the Investments Committee considers each particular year may be based in part on
Board determined that the Fund's Sub-Committee's recommendations and makes their deliberations and conclusions of
investment advisory agreement is in the its own recommendations regarding the these same arrangements throughout the
best interests of the Fund and its performance, fees and expenses of the AIM year and in prior years.
shareholders and that the compensation to Funds to the full Board. The Investments
Invesco Aim under the Fund's investment Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF
advisory agreement is fair and reasonable. Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION
The independent Trustees met separately its annual recommendation to the Board The discussion below serves as a summary
during their evaluation of the Fund's whether to approve the continuance of each of the Senior Officer's independent
investment advisory agreement with AIM Fund's investment advisory agreement written evaluation with respect to the
independent legal counsel from whom they and sub-advisory agreements for another Fund's investment advisory agreement as
received independent legal advice, and the year. well as a discussion of the material
independent Trustees also received The independent Trustees are assisted factors and related conclusions that
assistance during their deliberations from in their annual evaluation of the Fund's formed the basis for the Board's approval
the independent Senior Officer, a investment advisory agreement by the of the Fund's investment advisory
full-time officer of the AIM Funds who independent Senior Officer. One agreement and sub-advisory agreements.
reports directly to the independent responsibility of the Senior Officer is to Unless otherwise stated, information set
Trustees. manage the process by which the AIM Funds' forth below is as of June 19, 2008 and
proposed management fees are negotiated does not reflect any changes that may have
THE BOARD'S FUND EVALUATION PROCESS during the annual contract renewal process occurred since that date, including but
The Board's Investments Committee has to ensure that they are negotiated in a not limited to changes to the Fund's
established three Sub-Committees that are manner that is at arms' length and performance, advisory fees, expense
responsible for overseeing the management reasonable. Accordingly, the Senior limitations and/or fee waivers.
of a number of the series portfolios of Officer must either supervise a
the AIM Funds. This Sub-Committee competitive bidding process or prepare an I. Investment Advisory Agreement
structure permits the Trustees to focus on independent written evaluation. The Senior A. Nature, Extent and Quality of
the performance of the AIM Funds that have Officer has recommended that an Services Provided by Invesco Aim
been assigned to them. The Sub-Committees independent written evaluation be provided The Board reviewed the advisory services
meet throughout the year to review the and, at the direction of the Board, has provided to the Fund by Invesco Aim under
performance of their assigned funds, and prepared an independent written the Fund's investment advisory agreement,
the Sub-Committees review monthly and evaluation. the performance of Invesco Aim in
quarterly comparative performance During the annual contract renewal providing these services, and the
information and periodic asset flow data process, the Board considered the factors credentials and experience of the officers
for their assigned funds. These materials discussed below under the heading "Factors and employees of Invesco Aim who provide
are prepared under the direction and and Conclusions and Summary of Independent these services. The Board's review of the
supervision of the independent Senior Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide
Officer. Over the course of each year, the fairness and reasonableness of the Fund's these services included the Board's
Sub-Committees meet with portfolio investment advisory agreement and consideration of Invesco Aim's portfolio
managers for their assigned funds and sub-advisory agreements at the contract and product review process, various back
other members of management and review renewal meetings and at their meetings office support functions provided by
with these individuals the performance, throughout the year as part of their Invesco Aim and its affiliates, and
investment objective(s), policies, ongoing oversight of the Fund. The Fund's Invesco Aim's equity and fixed income
strategies and limitations of these funds. investment advisory agreement and trading operations. The Board concluded
In addition to their meetings sub-advisory agreements were considered that the nature, extent and quality of the
throughout the year, the Sub-Committees separately, although the Board also advisory services provided to the Fund by
meet at designated contract renewal considered the common interests of all of Invesco Aim were appropriate and that
meetings each year to conduct an in-depth the AIM Funds in their deliberations. The Invesco Aim currently is providing
review of the performance, fees and Board considered all of the information satisfactory advisory services in
expenses of provided to them and did not identify any accordance with the terms of the Fund's
particular factor that was controlling. investment advisory agreement. In
Each Trustee may have evalu- addition, based on their ongoing meetings
throughout the year
continued
AIM V.I. GOVERNMENT SECURITIES FUND
with the Fund's portfolio manager or improve the quality and efficiency of the that the level of the Fund's advisory
managers, the Board concluded that these services that Invesco Aim provides to the fees, as a percentage of the Fund's net
individuals are competent and able to AIM Funds. The Board concluded that assets, has decreased as net assets
continue to carry out their Invesco Aim continues to be responsive to increased because of the breakpoint. Based
responsibilities under the Fund's the Board's focus on fund performance. on this information, the Board concluded
investment advisory agreement. Although the independent written that the Fund's advisory fees
In determining whether to continue the evaluation of the Fund's Senior Officer appropriately reflect economies of scale
Fund's investment advisory agreement, the only considered Fund performance through at current asset levels. The Board also
Board considered the prior relationship the most recent calendar year, the Board noted that the Fund shares directly in
between Invesco Aim and the Fund, as well also reviewed more recent Fund performance economies of scale through lower fees
as the Board's knowledge of Invesco Aim's and this review did not change their charged by third party service providers
operations, and concluded that it was conclusions. based on the combined size of all of the
beneficial to maintain the current AIM Funds and affiliates.
relationship, in part, because of such C. Advisory Fees and Fee Waivers
knowledge. The Board also considered the The Board compared the Fund's contractual E. Profitability and Financial
steps that Invesco Aim and its affiliates advisory fee rate to the contractual Resources of Invesco Aim
have taken over the last several years to advisory fee rates of funds in the Fund's The Board reviewed information from
improve the quality and efficiency of the Lipper expense group that are not managed Invesco Aim concerning the costs of the
services they provide to the AIM Funds in by Invesco Aim, at a common asset level advisory and other services that Invesco
the areas of investment performance, and as of the end of the past calendar Aim and its affiliates provide to the Fund
product line diversification, year. The Board noted that the Fund's and the profitability of Invesco Aim and
distribution, fund operations, shareholder contractual advisory fee rate was below its affiliates in providing these
services and compliance. The Board the median contractual advisory fee rate services. The Board also reviewed
concluded that the quality and efficiency of funds in its expense group. The Board information concerning the financial
of the services Invesco Aim and its also reviewed the methodology used by condition of Invesco Aim and its
affiliates provide to the AIM Funds in Lipper in determining contractual fee affiliates. The Board also reviewed with
each of these areas have generally rates. The Board noted that Invesco Aim Invesco Aim the methodology used to
improved, and support the Board's approval does not serve as an advisor to other prepare the profitability information. The
of the continuance of the Fund's mutual funds or other clients with Board considered the overall profitability
investment advisory agreement. investment strategies comparable to those of Invesco Aim, as well as the
of the Fund. profitability of Invesco Aim in connection
B. Fund Performance The Board noted that Invesco Aim has with managing the Fund. The Board noted
The Board compared the Fund's performance contractually agreed to waive fees and/or that Invesco Aim continues to operate at a
during the past one, three and five limit expenses of the Fund through at net profit, although increased expenses in
calendar years to the performance of funds least April 30, 2010 in an amount recent years have reduced the
in the Fund's performance group that are necessary to limit total annual operating profitability of Invesco Aim and its
not managed by Invesco Aim, and against expenses to a specified percentage of affiliates. The Board concluded that the
the performance of all funds in the Lipper average daily net assets for each class of Fund's fees were fair and reasonable, and
Variable Annuity Underlying Funds -- the Fund. The Board considered the that the level of profits realized by
General U.S. Government Index. The Board contractual nature of this fee waiver and Invesco Aim and its affiliates from
also reviewed the criteria used by Invesco noted that it remains in effect until at providing services to the Fund was not
Aim to identify the funds in the Fund's least April 30, 2010. The Board also excessive in light of the nature, quality
performance group for inclusion in the considered the effect this expense and extent of the services provided. The
Lipper reports. The Board noted that the limitation would have on the Fund's Board considered whether Invesco Aim is
Fund's performance was in the third estimated total expenses. financially sound and has the resources
quintile of its performance group for the After taking account of the Fund's necessary to perform its obligations under
one year period, and the fourth quintile contractual advisory fee rate, as well as the Fund's investment advisory agreement,
for the three and five year periods (the the comparative advisory fee information and concluded that Invesco Aim has the
first quintile being the best performing and the expense limitation discussed financial resources necessary to fulfill
funds and the fifth quintile being the above, the Board concluded that the Fund's these obligations.
worst performing funds). The Board noted advisory fees were fair and reasonable.
that the Fund's performance was below the F. Independent Written Evaluation of
performance of the Index for the one, D. Economies of Scale and Breakpoints the Fund's Senior Officer
three and five year periods. The Board The Board considered the extent to which The Board noted that, at their direction,
noted that Invesco Aim made changes to the there are economies of scale in Invesco the Senior Officer of the Fund, who is
Fund's portfolio management team in 2007 Aim's provision of advisory services to independent of Invesco Aim and Invesco
and in 2008, which need more time to be the Fund. The Board also considered Aim's affiliates, had prepared an
evaluated before a conclusion can be whether the Fund benefits from such independent written evaluation to assist
reached that the changes have adequately economies of scale through contractual the Board in determining the
addressed the Fund's underperformance. The breakpoints in the Fund's advisory fee reasonableness of the proposed management
Board also considered the steps Invesco schedule or through advisory fee waivers fees of the AIM Funds, including the Fund.
Aim has taken over the last several years or expense limitations. The Board noted The Board noted that they had relied upon
to that the Fund's contractual advisory fee the Senior Officer's written evaluation
schedule includes one breakpoint and instead of a competitive bidding process.
In determining whether to continue the
continued
AIM V.I. GOVERNMENT SECURITIES FUND
Fund's investment advisory agreement, the investments, although Invesco Aim has whether to approve the sub-advisory
Board considered the Senior Officer's contractually agreed to waive through at agreements for the Fund, as no Affiliated
written evaluation. least April 30, 2010, the advisory fees Sub-Adviser served as a sub-adviser to the
payable by the Fund in an amount equal to Fund prior to May 1, 2008.
G. Collateral Benefits to Invesco Aim 100% of the net advisory fees Invesco Aim
and its Affiliates receives from the affiliated money market C. Sub-Advisory Fees
The Board considered various other funds with respect to the Fund's The Board considered the services to be
benefits received by Invesco Aim and its investment of uninvested cash, but not provided by the Affiliated Sub-Advisers
affiliates resulting from Invesco Aim's cash collateral. The Board considered the pursuant to the sub-advisory agreements
relationship with the Fund, including the contractual nature of this fee waiver and and the services to be provided by Invesco
fees received by Invesco Aim and its noted that it remains in effect until at Aim pursuant to the Fund's investment
affiliates for their provision of least April 30, 2010. The Board concluded advisory agreement, as well as the
administrative, transfer agency and that the Fund's investment of uninvested allocation of fees between Invesco Aim and
distribution services to the Fund. The cash and cash collateral from any the Affiliated Sub-Advisers pursuant to
Board considered the performance of securities lending arrangements in the the sub-advisory agreements. The Board
Invesco Aim and its affiliates in affiliated money market funds is in the noted that the sub-advisory fees have no
providing these services and the best interests of the Fund and its direct effect on the Fund or its
organizational structure employed by shareholders. shareholders, as they are paid by Invesco
Invesco Aim and its affiliates to provide Aim to the Affiliated Sub-Advisers, and
these services. The Board also considered II. Sub-Advisory Agreements that Invesco Aim and the Affiliated
that these services are provided to the A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking
Fund pursuant to written contracts which Services Provided by Affiliated account of the Fund's contractual
are reviewed and approved on an annual Sub-Advisors sub-advisory fee rate, as well as other
basis by the Board. The Board concluded The Board reviewed the services to be relevant factors, the Board concluded that
that Invesco Aim and its affiliates were provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and
providing these services in a satisfactory Asset Management Deutschland, GmbH, reasonable.
manner and in accordance with the terms of Invesco Asset Management Limited, Invesco
their contracts, and were qualified to Asset Management (Japan) Limited, Invesco D. Financial Resources of the
continue to provide these services to the Australia Limited, Invesco Global Asset Affiliated Sub-Advisers
Fund. Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each
The Board considered the benefits Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially
realized by Invesco Aim as a result of Inc. and Invesco Senior Secured sound and has the resources necessary to
portfolio brokerage transactions executed Management, Inc. (collectively, the perform its obligations under its
through "soft dollar" arrangements. Under "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and
these arrangements, portfolio brokerage sub-advisory agreements and the concluded that each Affiliated Sub-Adviser
commissions paid by the Fund and/or other credentials and experience of the officers has the financial resources necessary to
funds advised by Invesco Aim are used to and employees of the Affiliated fulfill these obligations.
pay for research and execution services. Sub-Advisers who will provide these
The Board noted that soft dollar services. The Board concluded that the
arrangements shift the payment obligation nature, extent and quality of the services
for the research and execution services to be provided by the Affiliated
from Invesco Aim to the funds and Sub-Advisers were appropriate. The Board
therefore may reduce Invesco Aim's noted that the Affiliated Sub-Advisers,
expenses. The Board also noted that which have offices and personnel that are
research obtained through soft dollar geographically dispersed in financial
arrangements may be used by Invesco Aim in centers around the world, have been formed
making investment decisions for the Fund in part for the purpose of researching and
and may therefore benefit Fund compiling information and making
shareholders. The Board concluded that recommendations on the markets and
Invesco Aim's soft dollar arrangements economies of various countries and
were appropriate. The Board also concluded securities of companies located in such
that, based on their review and countries or on various types of
representations made by Invesco Aim, these investments and investment techniques, and
arrangements were consistent with providing investment advisory services.
regulatory requirements. The Board concluded that the sub-advisory
The Board considered the fact that the agreements will benefit the Fund and its
Fund's uninvested cash and cash collateral shareholders by permitting Invesco Aim to
from any securities lending arrangements utilize the additional resources and
may be invested in money market funds talent of the Affiliated Sub-Advisers in
advised by Invesco Aim pursuant to managing the Fund.
procedures approved by the Board. The
Board noted that Invesco Aim will receive B. Fund Performance
advisory fees from these affiliated money The Board did not view Fund performance as
market funds attributable to such a relevant factor in considering
AIM V.I. GOVERNMENT SECURITIES FUND
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. Government Securities
Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware
statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held
for the following purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will
serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust that
would permit the Board of Trustees of the Trust to terminate the Trust, the
Fund, and each other series portfolio of the Trust, or a share class without
a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and
each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland,
GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.),
Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and
Invesco Senior Secured Management, Inc.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- -----------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker...................................................... 474,883,590 19,741,622
Frank S. Bayley................................................... 474,653,109 19,972,103
James T. Bunch.................................................... 475,597,417 19,027,795
Bruce L. Crockett................................................. 474,900,579 19,724,633
Albert R. Dowden.................................................. 474,749,929 19,875,283
Jack M. Fields.................................................... 475,205,840 19,419,372
Martin L. Flanagan................................................ 475,248,336 19,376,876
Carl Frischling................................................... 474,453,674 20,171,538
Prema Mathai-Davis................................................ 473,569,192 21,056,020
Lewis F. Pennock.................................................. 475,072,501 19,552,711
Larry Soll, Ph.D. ................................................ 475,170,544 19,454,668
Raymond Stickel, Jr. ............................................. 475,420,825 19,204,387
Philip A. Taylor.................................................. 475,640,570 18,984,642
</Table>
<Table>
<Caption>
WITHHELD/
VOTES FOR VOTES AGAINST ABSTENTIONS
- -------------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of
Trustees of the Trust to terminate the Trust, the Fund,
and each other series portfolio of the Trust, or a
share class without a shareholder vote................. 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between Invesco
Aim Advisors, Inc. and each of AIM Funds Management,
Inc.; Invesco Asset Management Deutschland, GmbH;
Invesco Asset Management Limited; Invesco Asset
Management (Japan) Limited; Invesco Australia Limited;
Invesco Global Asset Management (N.A.), Inc.; Invesco
Hong Kong Limited; Invesco Institutional (N.A.), Inc.;
and Invesco Senior Secured Management, Inc. ........... 87,369,701 2,504,964 3,960,971
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. GOVERNMENT SECURITIES FUND
[INVESCO AIM LOGO] AIM V.I. HIGH YIELD FUND
- SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008
AIM Investments [MOUNTAIN GRAPHIC]
became INVESCO AIM
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FUND PERFORMANCE
=======================================================================================
PERFORMANCE SUMMARY
FUND VS. INDEXES
Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer
charges. If variable product issuer charges were included, returns would be lower.
Series I Shares -0.52%
Series II Shares -0.52
Lehman Brothers U.S. Aggregate Bond Index(TRIANGLE) (Broad Market Index) 1.13
Lehman Brothers U.S. Corporate High Yield Index(TRIANGLE) (Style-Specific
Index) -1.31
Lipper VUF High Current Yield Bond Funds Category Average(TRIANGLE) (Peer
Group) -1.51
(TRIANGLE)Lipper Inc.
The LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX covers U.S. investment-grade fixed-rate
bonds with components for government and corporate securities, mortgage pass-throughs,
and asset-backed securities.
The LEHMAN BROTHERS U.S. CORPORATE HIGH YIELD INDEX covers the universe of fixed
rate, non-investment grade debt. Pay-in-kind bonds, Eurobonds, and debt issues from
countries designated as emerging markets are excluded, but Canadian and global bonds
(SEC registered) of issuers in non-emerging countries are included.
The LIPPER VUF HIGH CURRENT YIELD BOND FUNDS CATEGORY AVERAGE represents an average
of all of the variable insurance underlying funds in the Lipper High Current Yield Bond
Funds category. These funds have no credit rating restriction, but tend to invest in
fixed-income securities with lower credit ratings.
The Fund is not managed to track the performance of any particular index, including
the indexes defined here, and consequently, the performance of the Fund may deviate
significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index
results include reinvested dividends, and they do not reflect sales charges.
Performance of an index of funds reflects fund expenses; performance of a market index
does not.
=======================================================================================
==========================================
AVERAGE ANNUAL TOTAL RETURNS RESENT PAST PERFORMANCE AND CANNOT AIM V.I. HIGH YIELD FUND, A SERIES
As of 6/30/08 GUARANTEE COMPARABLE FUTURE RESULTS; PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS,
CURRENT PERFORMANCE MAY BE LOWER OR IS CURRENTLY OFFERED THROUGH INSURANCE
SERIES I SHARES HIGHER. PLEASE CONTACT YOUR VARIABLE COMPANIES ISSUING VARIABLE PRODUCTS. YOU
Inception (5/1/98) 1.87% PRODUCT ISSUER OR FINANCIAL ADVISOR FOR CANNOT PURCHASE SHARES OF THE FUND
10 Years 1.85 THE MOST RECENT MONTH-END VARIABLE PRODUCT DIRECTLY. PERFORMANCE FIGURES GIVEN
5 Years 7.06 PERFORMANCE. PERFORMANCE FIGURES REFLECT REPRESENT THE FUND AND ARE NOT INTENDED TO
1 Year -2.47 FUND EXPENSES, REINVESTED DISTRIBUTIONS REFLECT ACTUAL VARIABLE PRODUCT VALUES.
AND CHANGES IN NET ASSET VALUE. INVESTMENT THEY DO NOT REFLECT SALES CHARGES,
SERIES II SHARES RETURN AND PRINCIPAL VALUE WILL FLUCTUATE EXPENSES AND FEES ASSESSED IN CONNECTION
SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN WITH A VARIABLE PRODUCT. SALES CHARGES,
10 Years 1.63% YOU SELL SHARES. EXPENSES AND FEES, WHICH ARE DETERMINED BY
5 Years 6.84 THE NET ANNUAL FUND OPERATING EXPENSE THE VARIABLE PRODUCT ISSUERS, WILL VARY
1 Year -2.56 RATIO SET FORTH IN THE MOST RECENT FUND AND WILL LOWER THE TOTAL RETURN.
========================================== PROSPECTUS AS OF THE DATE OF THIS REPORT THE MOST RECENT MONTH-END PERFORMANCE
FOR SERIES I AND SERIES II SHARES WAS DATA AT THE FUND LEVEL, EXCLUDING VARIABLE
SERIES II SHARES' INCEPTION DATE IS MARCH 0.97% AND 1.22%, RESPECTIVELY.(1) THE PRODUCT CHARGES, IS AVAILABLE ON THE
26, 2002. RETURNS SINCE THAT DATE ARE TOTAL ANNUAL FUND OPERATING EXPENSE RATIO INVESCO AIM AUTOMATED INFORMATION LINE,
HISTORICAL. ALL OTHER RETURNS ARE THE SET FORTH IN THE MOST RECENT FUND 866 702 4402. AS MENTIONED ABOVE, FOR THE
BLENDED RETURNS OF THE HISTORICAL PROSPECTUS AS OF THE DATE OF THIS REPORT MOST RECENT MONTH-END PERFORMANCE
PERFORMANCE OF SERIES II SHARES SINCE FOR SERIES I AND SERIES II SHARES WAS INCLUDING VARIABLE PRODUCT CHARGES, PLEASE
THEIR INCEPTION AND THE RESTATED 1.16% AND 1.41%, RESPECTIVELY. THE EXPENSE CONTACT YOUR VARIABLE PRODUCT ISSUER OR
HISTORICAL PERFORMANCE OF SERIES I SHARES RATIOS PRESENTED ABOVE MAY VARY FROM THE FINANCIAL ADVISOR.
(FOR PERIODS PRIOR TO INCEPTION OF SERIES EXPENSE RATIOS PRESENTED IN OTHER SECTIONS
II SHARES) ADJUSTED TO REFLECT THE RULE OF THIS REPORT THAT ARE BASED ON EXPENSES (1) Total annual operating expenses less
12B-1 FEES APPLICABLE TO SERIES II SHARES. INCURRED DURING THE PERIOD COVERED BY THIS any contractual fee waivers and/or
THE INCEPTION DATE OF SERIES I SHARES IS REPORT. expense reimbursements by the advisor
MAY 1, 1998. THE PERFORMANCE OF THE FUND'S in effect through at least April 30,
SERIES I AND SERIES II SHARE CLASSES WILL 2010. See current prospectus for more
DIFFER PRIMARILY DUE TO DIFFERENT CLASS information.
EXPENSES.
THE PERFORMANCE DATA QUOTED REP-
AIM V.I. HIGH YIELD FUND
PORTFOLIO COMPOSITION
By credit quality, based on Net Assets,
as of June 30, 2008
<Table>
- -------------------------------------------------------------------------
BBB 0.6%
- -------------------------------------------------------------------------
BB 32.1
- -------------------------------------------------------------------------
B 52.5
- -------------------------------------------------------------------------
CCC 12.1
- -------------------------------------------------------------------------
D 0.3
- -------------------------------------------------------------------------
NR 1.8
- -------------------------------------------------------------------------
Equity 0.9
- -------------------------------------------------------------------------
Cash Equivalent (0.3)
_________________________________________________________________________
=========================================================================
</Table>
SCHEDULE OF INVESTMENTS(a)
June 30, 2008
(Unaudited)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
BONDS & NOTES-96.04%
ADVERTISING-0.24%
Lamar Media Corp.
-Series C, Sr. Unsec. Gtd. Sub. Global Notes,
6.63%, 08/15/15(b) $ 130,000 $ 118,950
==============================================================================
AEROSPACE & DEFENSE-1.64%
Bombardier Inc. (Canada),
Sr. Unsec. Unsub. Notes,
6.30%, 05/01/14(b)(c) 180,000 172,350
- ------------------------------------------------------------------------------
DRS Technologies, Inc.,
Sr. Unsec. Gtd. Notes,
6.63%, 02/01/16(b) 220,000 224,400
- ------------------------------------------------------------------------------
Esterline Technologies Corp.,
Sr. Unsec. Gtd. Global Notes,
6.63%, 03/01/17(b) 245,000 243,775
- ------------------------------------------------------------------------------
L-3 Communications Corp.
-Series B, Sr. Unsec. Gtd. Sub. Global Notes,
6.38%, 10/15/15(b) 160,000 150,200
- ------------------------------------------------------------------------------
Moog Inc.,
Sr. Sub. Notes,
7.25%, 06/15/18(b)(c) 35,000 34,650
==============================================================================
825,375
==============================================================================
AIRLINES-1.45%
Continental Airlines Inc.,
Unsec. Unsub. Notes,
8.75%, 12/01/11(b) 185,000 126,725
- ------------------------------------------------------------------------------
Series 2000-1, Class C-1, Jr. Pass Through
Ctfs.,
8.50%, 05/01/11(b) 105,570 97,652
- ------------------------------------------------------------------------------
Delta Air Lines Inc.,
Series 2002-1, Class C, Pass Through Ctfs.,
7.78%, 01/02/12(b) 342,763 298,204
- ------------------------------------------------------------------------------
Series 2007-1, Class C, Sec.
Global Pass Through Ctfs.,
8.95%, 08/10/14(b) 127,605 102,722
- ------------------------------------------------------------------------------
United Air Lines, Inc.
-Series 2007-1, Class B, Sr. Sec. Gtd. Global
Pass Through Ctfs.,
7.34%, 07/02/19(b)(c) 133,656 100,910
==============================================================================
726,213
ALTERNATIVE CARRIERS-0.37%
Level 3 Financing Inc.,
Sr. Unsec. Gtd. Unsub. Global Notes,
9.25%, 11/01/14(b) 205,000 187,575
==============================================================================
ALUMINUM-2.10%
Aleris International Inc.,
Sr. Unsec. Gtd. PIK Global Notes,
9.00%, 12/15/14(b) 390,000 306,150
- ------------------------------------------------------------------------------
Century Aluminum Co.,
Sr. Unsec. Gtd. Sub. Global Notes,
7.50%, 08/15/14(b) 228,000 226,860
- ------------------------------------------------------------------------------
Novelis Inc. (Canada),
Sr. Unsec. Gtd. Global Notes,
7.25%, 02/15/15(b) 554,000 523,530
==============================================================================
1,056,540
==============================================================================
APPAREL RETAIL-0.85%
Collective Brands, Inc.,
Sr. Unsec. Gtd. Sub. Global Notes,
8.25%, 08/01/13(b) 485,000 426,800
==============================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-2.14%
American Achievement Corp.,
Sr. Unsec. Gtd. Sub. Global Notes,
8.25%, 04/01/12(b) 205,000 208,075
- ------------------------------------------------------------------------------
Broder Brothers Co.
-Series B, Sr. Unsec. Gtd. Global Notes,
11.25%, 10/15/10(b)(d) 196,000 134,750
- ------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
APPAREL, ACCESSORIES & LUXURY GOODS-(CONTINUED)
Hanesbrands, Inc.
-Series B, Sr. Unsec. Gtd. Floating Rate Global Notes,
6.51%, 12/15/14(b)(e)
$280,000 $ 261,800
- ------------------------------------------------------------------------------
Levi Strauss & Co.,
Sr. Unsec. Unsub. Global Notes,
8.88%, 04/01/16(b)(d) 255,000 249,262
- ------------------------------------------------------------------------------
Perry Ellis International, Inc.
-Series B, Sr. Unsec. Gtd. Sub. Global Notes,
8.88%, 09/15/13(b) 235,000 222,663
==============================================================================
1,076,550
==============================================================================
AUTO PARTS & EQUIPMENT-0.91%
Lear Corp.
-Series B, Sr. Unsec. Gtd. Global Notes,
8.50%, 12/01/13(b) 255,000 212,925
- ------------------------------------------------------------------------------
Tenneco Inc.,
Sr. Unsec. Gtd. Sub. Global Notes,
8.63%, 11/15/14(b)(d) 160,000 142,400
- ------------------------------------------------------------------------------
Visteon Corp.,
Sr. Unsec. Notes,
7.00%, 03/10/14(b) 180,000 99,900
==============================================================================
455,225
==============================================================================
AUTOMOBILE MANUFACTURERS-1.53%
Ford Motor Co.,
Sr. Unsec. Unsub. Global Notes,
7.45%, 07/16/31(b) 350,000 203,000
- ------------------------------------------------------------------------------
General Motors Corp.,
Sr. Unsec. Unsub. Global Notes,
7.20%, 01/15/11(b)(d) 325,000 251,875
- ------------------------------------------------------------------------------
Sr. Unsec. Unsub. Notes,
8.38%, 07/15/33(b)(d) 525,000 312,375
==============================================================================
767,250
==============================================================================
BIOTECHNOLOGY-0.03%
RBS Global Inc./Rexnord LLC,
Sr. Unsec. Gtd. Global Notes,
9.50%, 08/01/14(b) 15,000 14,625
==============================================================================
BROADCASTING & CABLE TV-3.96%
Charter Communications Holdings II LLC/Charter
Communications Holdings II Capital Corp.,
Sr. Unsec. Gtd. Notes,
10.25%, 09/15/10(b) 465,000 453,375
- ------------------------------------------------------------------------------
CSC Holdings, Inc.
-Series B, Sr. Unsec. Notes,
7.63%, 04/01/11(b) 272,000 267,920
- ------------------------------------------------------------------------------
Echostar DBS Corp.,
Sr. Unsec. Gtd. Global Notes,
6.63%, 10/01/14(b) 260,000 241,150
- ------------------------------------------------------------------------------
Hughes Network Systems LLC/HNS Finance Corp.,
Sr. Unsec. Gtd. Global Notes,
9.50%, 04/15/14(b) 250,000 254,687
- ------------------------------------------------------------------------------
Rainbow National Services LLC,
Sr. Unsec. Gtd. Unsub. Notes,
8.75%, 09/01/12(b)(c) 538,000 547,415
- ------------------------------------------------------------------------------
Virgin Media Finance PLC,
Sr. Unsec. Gtd. Global Notes,
8.75%, 04/15/14(b) 240,000 226,800
==============================================================================
1,991,347
BUILDING PRODUCTS-1.64%
Associated Materials Inc.,
Sr. Unsec. Global Notes,
11.25%, 03/01/14(b)(d) 655,000 444,581
- ------------------------------------------------------------------------------
Building Materials Corp. of America,
Sec. Gtd. Second Lien Global Notes,
7.75%, 08/01/14(b) 260,000 217,100
- ------------------------------------------------------------------------------
Ply Gem Industries, Inc.,
Sr. Sec. Gtd. First & Second Lien Notes,
11.75%, 06/15/13(b)(c) 175,000 161,000
==============================================================================
822,681
==============================================================================
CASINOS & GAMING-1.91%
Great Canadian Gaming Corp. (Canada),
Sr. Unsec. Gtd. Sub. Notes,
7.25%, 02/15/15(b)(c) 190,000 185,250
- ------------------------------------------------------------------------------
MGM Mirage,
Sr. Unsec. Gtd. Global Notes,
6.63%, 07/15/15(b) 273,000 221,812
- ------------------------------------------------------------------------------
Sr. Unsec. Gtd. Unsub. Notes,
7.50%, 06/01/16(b) 190,000 157,938
- ------------------------------------------------------------------------------
Pinnacle Entertainment, Inc.,
Sr. Unsec. Gtd. Sub. Notes,
8.75%, 10/01/13(b) 340,000 341,700
- ------------------------------------------------------------------------------
Wynn Las Vegas Capital LLC/Corp.,
Sr. Sec. Gtd. Global First Mortgage Notes,
6.63%, 12/01/14(b) 60,000 54,987
==============================================================================
961,687
==============================================================================
COAL & CONSUMABLE FUELS-0.62%
Massey Energy Co.,
Sr. Unsec. Gtd. Global Notes,
6.88%, 12/15/13(b)(d) 245,000 239,794
- ------------------------------------------------------------------------------
Peabody Energy Corp.,
Sr. Unsec. Gtd. Global Notes,
7.38%, 11/01/16(b) 70,000 70,350
==============================================================================
310,144
==============================================================================
COMMERCIAL PRINTING-0.12%
Quebecor World Inc. (Canada),
Sr. Notes,
9.75%, 01/15/15(b)(c)(f) 105,000 58,144
==============================================================================
COMMODITY CHEMICALS-0.56%
Koppers Holdings Inc.,
Sr. Unsec. Sub. Disc. Global Notes,
9.88%, 11/15/14(b)(g) 310,000 279,000
==============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.72%
MasTec, Inc.,
Sr. Unsec. Gtd. Global Notes,
7.63%, 02/01/17(b) $ 350,000 $ 299,250
- ------------------------------------------------------------------------------
Superior Essex Communications LLC/Essex Group
Inc.,
Sr. Global Notes,
9.00%, 04/15/12(b) 60,000 61,650
==============================================================================
360,900
==============================================================================
CONSTRUCTION & ENGINEERING-0.62%
Great Lakes Dredge & Dock Corp.,
Sr. Unsec. Gtd. Sub. Global Notes,
7.75%, 12/15/13(b) 331,000 313,623
==============================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-1.53%
Esco Corp.,
Sr. Unsec. Gtd. Notes,
8.63%, 12/15/13(b)(c) 55,000 55,550
- ------------------------------------------------------------------------------
Terex Corp.,
Sr. Unsec. Gtd. Sub. Global Notes,
7.38%, 01/15/14(b) 470,000 462,950
- ------------------------------------------------------------------------------
Titan International, Inc.,
Sr. Unsec. Gtd. Global Notes,
8.00%, 01/15/12(b) 255,000 251,175
==============================================================================
769,675
==============================================================================
CONSTRUCTION MATERIALS-1.47%
Graham Packaging Co. Inc.,
Sr. Unsec. Gtd. Sub. Global Notes,
9.88%, 10/15/14(b) 290,000 257,375
- ------------------------------------------------------------------------------
Texas Industries, Inc.,
Sr. Unsec. Global Notes,
7.25%, 07/15/13(b) 65,000 65,000
- ------------------------------------------------------------------------------
U.S. Concrete, Inc.,
Sr. Unsec. Gtd. Sub. Global Notes,
8.38%, 04/01/14(b) 460,000 415,150
==============================================================================
737,525
==============================================================================
CONSUMER ELECTRONICS-0.62%
NXP BV/NXP Funding LLC (Netherlands),
Sr. Sec. Gtd. Global Notes,
7.88%, 10/15/14(b) 195,000 180,375
- ------------------------------------------------------------------------------
Sr. Unsec. Gtd. Unsub. Global Notes,
9.50%, 10/15/15(b) 150,000 130,500
==============================================================================
310,875
==============================================================================
CONSUMER FINANCE-2.90%
Ford Motor Credit Co. LLC,
Sr. Unsec. Unsub. Global Notes,
7.00%, 10/01/13(b) 400,000 296,052
- ------------------------------------------------------------------------------
Sr. Unsec. Unsub. Notes,
8.63%, 11/01/10(b) 240,000 205,390
- ------------------------------------------------------------------------------
9.88%, 08/10/11(b) 120,000 101,411
- ------------------------------------------------------------------------------
General Motors Acceptance Corp. LLC,
Sr. Unsec. Unsub. Global Notes,
8.00%, 11/01/31(b) 575,000 375,187
- ------------------------------------------------------------------------------
Sr. Unsec. Unsub. Notes,
6.75%, 12/01/14(b) 480,000 320,222
- ------------------------------------------------------------------------------
KAR Holdings Inc.,
Sr. Unsec. Gtd. Unsub. Global Notes,
8.75%, 05/01/14(b) 180,000 158,400
==============================================================================
1,456,662
==============================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.49%
Iron Mountain Inc.,
Sr. Unsec. Gtd. Sub. Notes,
8.00%, 06/15/20(b) 150,000 148,312
- ------------------------------------------------------------------------------
Lender Processing Services, Inc.,
Sr. Unsec. Notes,
8.13%, 07/01/16(b)(c) 95,000 95,713
==============================================================================
244,025
==============================================================================
DISTILLERS & VINTNERS-0.54%
Constellation Brands Inc.,
Sr. Unsec. Gtd. Global Notes,
7.25%, 05/15/17(b) 285,000 270,038
==============================================================================
DIVERSIFIED CHEMICALS-0.30%
Innophos Inc.,
Sr. Unsec. Gtd. Sub. Global Notes,
8.88%, 08/15/14(b) 150,000 153,000
==============================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-2.13%
GEO Group, Inc. (The),
Sr. Unsec. Global Notes,
8.25%, 07/15/13(b) 408,000 418,200
- ------------------------------------------------------------------------------
Mobile Services Group Inc./Mobile Storage Group
Inc.,
Sr. Unsec. Gtd. Global Notes,
9.75%, 08/01/14(b) 60,000 57,900
- ------------------------------------------------------------------------------
Travelport LLC,
Sr. Unsec. Gtd. Sub. Global Notes,
11.88%, 09/01/16(b) 190,000 157,463
- ------------------------------------------------------------------------------
Sr. Unsec. Gtd. Unsub. Global Notes,
9.88%, 09/01/14(b) 485,000 436,500
==============================================================================
1,070,063
==============================================================================
DIVERSIFIED METALS & MINING-0.91%
FMG Finance Pty. Ltd. (Australia),
Sr. Sec. Notes,
10.63%, 09/01/16(b)(c) 180,000 210,825
- ------------------------------------------------------------------------------
Freeport-McMoRan Copper & Gold Inc.,
Sr. Unsec. Notes,
8.25%, 04/01/15(b) 240,000 248,148
==============================================================================
458,973
==============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
DRUG RETAIL-0.06%
Rite Aid Corp.,
Sr. Sec. Gtd. Global Notes,
8.13%, 05/01/10(b) $ 30,000 $ 30,600
==============================================================================
ELECTRIC UTILITIES-2.37%
Edison Mission Energy,
Sr. Unsec. Global Notes,
7.00%, 05/15/17(b) 320,000 301,600
- ------------------------------------------------------------------------------
Sr. Unsec. Notes,
7.75%, 06/15/16(b) 155,000 156,162
- ------------------------------------------------------------------------------
Elwood Energy LLC,
Sr. Sec. Global Notes,
8.16%, 07/05/26(b) 147,684 142,515
- ------------------------------------------------------------------------------
LSP Energy L.P./LSP Batesville Funding Corp.
-Series C, Sr. Sec. Bonds,
7.16%, 01/15/14(b) 145,410 146,313
- ------------------------------------------------------------------------------
Mirant North America, LLC,
Sr. Unsec. Gtd. Global Notes,
7.38%, 12/31/13(b) 85,000 85,000
- ------------------------------------------------------------------------------
Tenaska Alabama Partners L.P.,
Sr. Sec. Mortgage Notes,
7.00%, 06/30/21(b)(c) 376,081 360,098
==============================================================================
1,191,688
==============================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.42%
Baldor Electric Co.,
Sr. Unsec. Gtd. Notes,
8.63%, 02/15/17(b) 210,000 211,575
==============================================================================
ELECTRONIC MANUFACTURING SERVICES-0.56%
Sanmina-SCI Corp.,
Sr. Unsec. Gtd. Sub. Global Notes,
6.75%, 03/01/13(b) 310,000 282,100
==============================================================================
FOREST PRODUCTS-0.26%
Millar Western Forest Products Ltd. (Canada),
Sr. Unsec. Global Notes,
7.75%, 11/15/13(b) 195,000 128,700
==============================================================================
GENERAL MERCHANDISE STORES-0.74%
Dollar General Corp.,
Sr. Unsec. Gtd. Global Notes,
10.63%, 07/15/15(b) 95,000 94,050
- ------------------------------------------------------------------------------
Pantry, Inc. (The),
Sr. Gtd. Sub. Global Notes,
7.75%, 02/15/14(b) 365,000 277,400
==============================================================================
371,450
==============================================================================
HEALTH CARE EQUIPMENT-0.65%
ReAble Therapeutics Finance LLC/ReAble
Therapeutics Finance Corp.,
Sr. Unsec. Notes,
10.88%, 11/15/14(b)(c) 185,000 185,925
- ------------------------------------------------------------------------------
Viant Holdings Inc.,
Sr. Unsec. Gtd. Sub. Notes,
10.13%, 07/15/17 (Acquired 06/25/07-05/06/08;
Cost $155,033)(b)(c)(h) 167,000 142,785
==============================================================================
328,710
==============================================================================
HEALTH CARE FACILITIES-3.56%
Community Health Systems Inc.,
Sr. Unsec. Gtd. Global Notes,
8.88%, 07/15/15(b) 130,000 131,950
- ------------------------------------------------------------------------------
HCA, Inc.,
Sr. Sec. Gtd. Global Notes,
9.13%, 11/15/14(b) 140,000 144,200
- ------------------------------------------------------------------------------
9.25%, 11/15/16(b) 600,000 622,500
- ------------------------------------------------------------------------------
Sr. Unsec. Bonds,
7.50%, 11/06/33(b) 165,000 127,875
- ------------------------------------------------------------------------------
Sr. Unsec. Global Notes,
6.38%, 01/15/15(b) 55,000 45,925
- ------------------------------------------------------------------------------
Healthsouth Corp.,
Sr. Unsec. Gtd. Floating Rate Global Notes,
9.13%, 06/15/14(b)(e) 105,000 107,494
- ------------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes,
10.75%, 06/15/16(b)(d) 355,000 383,843
- ------------------------------------------------------------------------------
Tenet Healthcare Corp.,
Sr. Unsec. Unsub. Notes,
6.38%, 12/01/11(b) 229,000 222,130
==============================================================================
1,785,917
==============================================================================
HEALTH CARE SERVICES-1.82%
FMC Finance III SA,
Sr. Unsec. Gtd. Global Notes,
6.88%, 07/15/17(b) 175,000 172,926
- ------------------------------------------------------------------------------
Omnicare Inc.,
Sr. Unsec. Gtd. Sub. Notes,
6.75%, 12/15/13(b) 110,000 103,125
- ------------------------------------------------------------------------------
6.88%, 12/15/15(b) 110,000 102,300
- ------------------------------------------------------------------------------
Rural/Metro Corp.,
Sr. Gtd. Sub. Global Notes,
9.88%, 03/15/15(b) 56,000 51,660
- ------------------------------------------------------------------------------
Universal Hospital Services Inc.,
Sr. Sec. PIK Global Notes,
8.50%, 06/01/15(b) 190,000 190,950
- ------------------------------------------------------------------------------
US Oncology Inc.,
Sr. Unsec. Gtd. Global Notes,
9.00%, 08/15/12(b) 295,000 293,525
==============================================================================
914,486
==============================================================================
HEALTH CARE SUPPLIES-0.64%
Bausch & Lomb Inc.,
Sr. Unsec. Notes,
9.88%, 11/01/15(b)(c) 315,000 321,300
==============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
HOMEBUILDING-0.49%
K. Hovnanian Enterprises Inc.,
Sr. Sec. Gtd. Notes,
11.50%, 05/01/13(b)(c) $ 115,000 $ 119,025
- ------------------------------------------------------------------------------
TOUSA, Inc.,
Sr. Unsec. Gtd. Global Notes,
9.00%, 07/01/10(b)(f) 60,000 34,200
- ------------------------------------------------------------------------------
9.00%, 07/01/10(b)(f) 163,000 92,910
==============================================================================
246,135
==============================================================================
HOTELS, RESORTS & CRUISE LINES-0.39%
NCL Corp. Ltd.,
Sr. Unsec. Unsub. Global Notes,
10.63%, 07/15/14(b) 195,000 195,000
==============================================================================
HOUSEWARES & SPECIALTIES-0.50%
Yankee Acquisition Corp.
-Series B, Sr. Gtd. Sub. Global Notes,
8.50%, 02/15/15(b)(d) 320,000 249,600
==============================================================================
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS-3.37%
AES Corp. (The),
Sr. Notes,
8.00%, 06/01/20(b)(c) 260,000 253,825
- ------------------------------------------------------------------------------
AES Red Oak LLC
-Series A, Sr. Sec. Bonds, 8.54%, 11/30/19(b) 334,242 349,283
- ------------------------------------------------------------------------------
Dynegy Holdings Inc.,
Sr. Unsec. Global Notes,
7.75%, 06/01/19(b) 185,000 170,200
- ------------------------------------------------------------------------------
Energy Future Holdings Corp.,
Sr. Unsec. Gtd. Notes,
10.88%, 11/01/17(b)(c) 210,000 212,625
- ------------------------------------------------------------------------------
Series P, Sr. Unsec. Unsub. Global Notes,
5.55%, 11/15/14(b) 4,000 3,220
- ------------------------------------------------------------------------------
Mirant Americas Generation LLC,
Sr. Unsec. Notes,
8.50%, 10/01/21(b) 185,000 174,825
- ------------------------------------------------------------------------------
NRG Energy, Inc.,
Sr. Unsec. Gtd. Unsub. Notes,
7.38%, 02/01/16(b) 145,000 137,750
- ------------------------------------------------------------------------------
7.38%, 01/15/17(b) 255,000 242,250
- ------------------------------------------------------------------------------
Texas Competitive Electric Holdings Co. LLC
-Series A, Sr. Unsec. Gtd. Notes,
10.25%, 11/01/15(b)(c) 150,000 146,813
==============================================================================
1,690,791
==============================================================================
INDUSTRIAL CONGLOMERATES-0.28%
Indalex Holding Corp.
-Series B, Sr. Sec. Gtd. Global Notes,
11.50%, 02/01/14(b) 230,000 139,150
==============================================================================
INDUSTRIAL MACHINERY-0.78%
Columbus McKinnon Corp.,
Sr. Gtd. Sub. Global Notes,
8.88%, 11/01/13(b) 158,000 166,295
- ------------------------------------------------------------------------------
Stewart & Stevenson LLC,
Sr. Unsec. Gtd. Global Notes,
10.00%, 07/15/14(b) 225,000 227,813
==============================================================================
394,108
==============================================================================
INTEGRATED TELECOMMUNICATION SERVICES-3.23%
Citizens Communications Co.,
Sr. Unsec. Global Notes,
7.88%, 01/15/27(b) 325,000 292,094
- ------------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes,
9.00%, 08/15/31(b) 335,000 304,012
- ------------------------------------------------------------------------------
Hawaiian Telcom Communications Inc.
-Series B, Sr. Unsec. Gtd. Global Notes,
9.75%, 05/01/13(b)(d) 250,000 109,688
- ------------------------------------------------------------------------------
Qwest Communications International Inc.,
Sr. Unsec. Gtd. Global Notes,
7.25%, 02/15/11(b) 625,000 609,375
- ------------------------------------------------------------------------------
Windstream Corp.,
Sr. Unsec. Gtd. Unsub. Global Notes,
8.13%, 08/01/13(b) 130,000 129,025
- ------------------------------------------------------------------------------
8.63%, 08/01/16(b) 180,000 180,450
==============================================================================
1,624,644
==============================================================================
INVESTMENT BANKING & BROKERAGE-0.54%
E*Trade Financial Corp.,
Sr. Unsec. Global Notes,
8.00%, 06/15/11(b) 195,000 180,375
- ------------------------------------------------------------------------------
Sr. Unsec. Notes,
7.88%, 12/01/15(b)(d) 105,000 90,300
==============================================================================
270,675
==============================================================================
METAL & GLASS CONTAINERS-0.13%
Greif Inc.,
Sr. Unsec. Gtd. Global Notes,
6.75%, 02/01/17(b) 70,000 67,900
==============================================================================
MOVIES & ENTERTAINMENT-0.67%
AMC Entertainment Inc.,
Sr. Unsec. Sub. Global Notes,
8.00%, 03/01/14(b) 180,000 160,650
- ------------------------------------------------------------------------------
Marquee Holdings Inc.,
Sr. Unsec. Global Notes,
12.00%, 08/15/14(b) 220,000 174,900
==============================================================================
335,550
==============================================================================
MULTI-SECTOR HOLDINGS-0.55%
Leucadia National Corp.,
Sr. Unsec. Notes,
8.13%, 09/15/15(b) 80,000 80,791
- ------------------------------------------------------------------------------
Stena A.B. (Sweden),
Sr. Unsec. Global Notes,
7.50%, 11/01/13(b) 195,000 195,975
==============================================================================
276,766
==============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
OFFICE SERVICES & SUPPLIES-0.24%
ACCO Brands Corp.,
Sr. Unsec. Gtd. Sub. Global Notes,
7.63%, 08/15/15(b) $ 130,000 $ 119,600
==============================================================================
OIL & GAS EQUIPMENT & SERVICES-2.48%
Allis-Chalmers Energy Inc.,
Sr. Unsec. Gtd. Global Notes,
9.00%, 01/15/14(b) 255,000 248,625
- ------------------------------------------------------------------------------
Basic Energy Services Inc.,
Sr. Unsec. Gtd. Global Notes,
7.13%, 04/15/16(b) 220,000 213,950
- ------------------------------------------------------------------------------
Bristow Group, Inc.,
Sr. Unsec. Gtd. Global Notes,
7.50%, 09/15/17(b) 95,000 95,950
- ------------------------------------------------------------------------------
Calfrac Holdings L.P.,
Sr. Notes,
7.75%, 02/15/15(b)(c) 245,000 239,487
- ------------------------------------------------------------------------------
CHC Helicopter Corp. (Canada),
Sr. Unsec. Gtd. Sub. Global Notes,
7.38%, 05/01/14(b) 195,000 202,800
- ------------------------------------------------------------------------------
Compagnie Generale de Geophysique-Veritas
(France),
Sr. Unsec. Gtd. Global Notes,
7.75%, 05/15/17(b) 245,000 246,225
==============================================================================
1,247,037
==============================================================================
OIL & GAS EXPLORATION & PRODUCTION-7.95%
Chaparral Energy Inc.,
Sr. Unsec. Gtd. Global Notes,
8.50%, 12/01/15(b) 140,000 122,150
- ------------------------------------------------------------------------------
8.88%, 02/01/17(b) 305,000 266,112
- ------------------------------------------------------------------------------
Cimarex Energy Co.,
Sr. Unsec. Gtd. Notes,
7.13%, 05/01/17(b) 315,000 308,700
- ------------------------------------------------------------------------------
Delta Petroleum Corp.,
Sr. Unsec. Gtd. Global Notes,
7.00%, 04/01/15(b) 445,000 382,700
- ------------------------------------------------------------------------------
Encore Acquisition Co.,
Sr. Unsec. Gtd. Sub. Global Notes,
6.00%, 07/15/15(b) 145,000 137,025
- ------------------------------------------------------------------------------
Forest Oil Corp.,
Sr. Notes,
7.25%, 06/15/19(b)(c) 115,000 111,119
- ------------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes,
7.25%, 06/15/19(b) 250,000 241,562
- ------------------------------------------------------------------------------
Intergen N.V. (Netherlands),
Sr. Sec. Gtd. Bonds, 9.00%, 06/30/17(b)(c) 140,000 147,000
- ------------------------------------------------------------------------------
Mariner Energy Inc.,
Sr. Unsec. Gtd. Notes,
8.00%, 05/15/17(b) 65,000 63,131
- ------------------------------------------------------------------------------
Newfield Exploration Co.,
Sr. Unsec. Sub. Global Notes,
7.13%, 05/15/18(b) 215,000 205,325
- ------------------------------------------------------------------------------
Pioneer Natural Resources Co.,
Sr. Unsec. Notes,
6.65%, 03/15/17(b) 270,000 255,841
- ------------------------------------------------------------------------------
Plains Exploration & Production Co.,
Sr. Unsec. Gtd. Notes,
7.75%, 06/15/15(b) 125,000 125,938
- ------------------------------------------------------------------------------
7.63%, 06/01/18(b) 185,000 185,463
- ------------------------------------------------------------------------------
Quicksilver Resources Inc.,
Sr. Unsec. Gtd. Notes,
7.75%, 08/01/15(b) 85,000 84,788
- ------------------------------------------------------------------------------
Range Resources Corp.,
Sr. Gtd. Sub. Notes,
7.25%, 05/01/18(b) 110,000 109,450
- ------------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Notes,
7.50%, 05/15/16(b) 135,000 135,000
- ------------------------------------------------------------------------------
SandRidge Energy, Inc.,
Sr. Notes,
8.00%, 06/01/18(b)(c) 430,000 432,687
- ------------------------------------------------------------------------------
Southwestern Energy Co.,
Sr. Unsec. Unsub. Notes,
7.50%, 02/01/18(b)(c) 245,000 252,350
- ------------------------------------------------------------------------------
Swift Energy Co.,
Sr. Unsec. Gtd. Notes,
7.13%, 06/01/17(b) 285,000 264,337
- ------------------------------------------------------------------------------
Whiting Petroleum Corp.,
Sr. Unsec. Gtd. Sub. Global Notes,
7.00%, 02/01/14(b) 165,000 162,938
==============================================================================
3,993,616
==============================================================================
OIL & GAS REFINING & MARKETING-0.28%
United Refining Co.
-Series 2, Sr. Unsec. Gtd. Global Notes,
10.50%, 08/15/12(b) 145,000 141,013
==============================================================================
OIL & GAS STORAGE & TRANSPORTATION-2.11%
Copano Energy LLC,
Sr. Unsec. Gtd. Global Notes,
8.13%, 03/01/16(b) 330,000 334,125
- ------------------------------------------------------------------------------
El Paso Corp.,
Sr. Unsec. Global Notes,
6.88%, 06/15/14(b) 330,000 330,825
- ------------------------------------------------------------------------------
Inergy L.P./Inergy Finance Corp.,
Sr. Unsec. Gtd. Notes,
8.25%, 03/01/16(b)(c) 135,000 135,000
- ------------------------------------------------------------------------------
MarkWest Energy Partners L.P./MarkWest Energy
Finance Corp.,
Sr. Notes,
8.75%, 04/15/18(b)(c) 195,000 200,119
- ------------------------------------------------------------------------------
Williams Partners L.P./Williams Partners Finance
Corp.,
Sr. Unsec. Global Notes,
7.25%, 02/01/17(b) 60,000 60,108
==============================================================================
1,060,177
==============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.82%
NSG Holdings LLC/NSG Holdings Inc.,
Sr. Sec. Notes,
7.75%, 12/15/25(b)(c) 60,000 59,400
- ------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
Residential Capital LLC, Jr. Sec. Gtd. Notes,
9.63%, 05/15/15(b)(c)
$224,000 $ 108,640
- ------------------------------------------------------------------------------
Snoqualmie Entertainment Authority,
Sr. Sec. Notes,
9.13%, 02/01/15(b)(c) 325,000 242,125
==============================================================================
410,165
==============================================================================
PACKAGED FOODS & MEATS-0.13%
Dole Food Co. Inc.,
Sr. Unsec. Gtd. Global Notes,
7.25%, 06/15/10(b) 72,000 65,340
==============================================================================
PAPER PACKAGING-1.53%
Caraustar Industries, Inc.,
Sr. Unsec. Unsub. Notes,
7.38%, 06/01/09(b) 665,000 585,200
- ------------------------------------------------------------------------------
Jefferson Smurfit Corp.,
Sr. Unsec. Unsub. Global Notes,
7.50%, 06/01/13(b) 219,000 181,770
==============================================================================
766,970
==============================================================================
PAPER PRODUCTS-4.80%
Abitibi-Consolidated Co. of Canada (Canada),
Sr. Sec. Gtd. Notes,
13.75%, 04/01/11(b)(c) 140,000 149,100
- ------------------------------------------------------------------------------
Bowater Canada Finance Corp. (Canada),
Sr. Gtd. Global Notes,
7.95%, 11/15/11(b) 155,000 109,275
- ------------------------------------------------------------------------------
Cellu Tissue Holdings, Inc., Sec. Gtd. Global
Notes,
9.75%, 03/15/10(b) 182,000 172,445
- ------------------------------------------------------------------------------
Domtar Corp.,
Sr. Unsec. Gtd. Global Notes,
5.38%, 12/01/13(b) 280,000 252,000
- ------------------------------------------------------------------------------
7.13%, 08/15/15(b) 140,000 136,150
- ------------------------------------------------------------------------------
Exopack Holding Corp.,
Sr. Unsec. Gtd. Global Notes,
11.25%, 02/01/14(b) 145,000 135,938
- ------------------------------------------------------------------------------
Georgia-Pacific LLC,
Sr. Unsec. Gtd. Unsub. Notes,
7.00%, 01/15/15(b)(c) 125,000 118,750
- ------------------------------------------------------------------------------
7.13%, 01/15/17(b)(c) 140,000 132,650
- ------------------------------------------------------------------------------
Mercer International Inc.,
Sr. Unsec. Global Notes,
9.25%, 02/15/13(b) 577,000 545,265
- ------------------------------------------------------------------------------
Neenah Paper, Inc.,
Sr. Unsec. Gtd. Global Notes,
7.38%, 11/15/14(b) 179,000 158,862
- ------------------------------------------------------------------------------
Rock-Tenn Co.,
Sr. Unsec. Gtd. Notes,
9.25%, 03/15/16(b)(c) 245,000 260,619
- ------------------------------------------------------------------------------
Verso Paper Holdings LLC/Verso Paper Inc.
-Series B, Sr. Unsec. Gtd. Sub. Global Notes,
11.38%, 08/01/16(b) 250,000 238,750
==============================================================================
2,409,804
==============================================================================
PERSONAL PRODUCTS-0.65%
NBTY, Inc.,
Sr. Unsec. Gtd. Sub. Global Notes,
7.13%, 10/01/15(b) 344,000 328,520
==============================================================================
PHARMACEUTICALS-0.89%
Elan Finance PLC/Elan Finance Corp. (Ireland),
Sr. Unsec. Gtd. Global Notes,
7.75%, 11/15/11(b) 166,000 163,925
- ------------------------------------------------------------------------------
8.88%, 12/01/13(b) 280,000 282,800
==============================================================================
446,725
==============================================================================
PROPERTY & CASUALTY INSURANCE-0.47%
Crum & Forster Holdings Corp.,
Sr. Unsec. Unsub. Global Notes,
7.75%, 05/01/17(b) 255,000 238,425
==============================================================================
PUBLISHING-1.93%
Dex Media Inc.,
Sr. Unsec. Disc. Global Notes,
9.00%, 11/15/13(b)(g) 538,000 400,810
- ------------------------------------------------------------------------------
MediMedia USA Inc.,
Sr. Sub. Notes,
11.38%, 11/15/14(b)(c) 30,000 30,150
- ------------------------------------------------------------------------------
Nielsen Finance LLC/Nielsen Finance Co.,
Sr. Unsec. Gtd. Sub. Disc. Global Notes,
12.50%, 08/01/16(b)(g) 490,000 340,550
- ------------------------------------------------------------------------------
Reader's Digest Association Inc. (The),
Sr. Unsec. Sub. Notes,
9.00%, 02/15/17(b)(c) 260,000 197,600
==============================================================================
969,110
==============================================================================
RAILROADS-0.47%
Kansas City Southern Railway,
Sr. Unsec. Gtd. Unsub. Notes,
8.00%, 06/01/15(b) 235,000 238,525
==============================================================================
SEMICONDUCTOR EQUIPMENT-0.39%
Amkor Technology Inc.,
Sr. Unsec. Global Notes,
7.13%, 03/15/11(b) 205,000 197,569
==============================================================================
SEMICONDUCTORS-4.91%
Avago Technologies Finance Pte./Avago
Technologies U.S./Avago Technologies Wireless
(Singapore),
Sr. Unsec. Gtd. Global Notes,
10.13%, 12/01/13(b) 535,000 575,794
- ------------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Global Notes,
11.88%, 12/01/15(b) 120,000 131,550
- ------------------------------------------------------------------------------
Freescale Semiconductor Inc.,
Sr. Unsec. Gtd. Notes,
8.88%, 12/15/14(b) 435,000 355,612
- ------------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Notes,
10.13%, 12/15/16(b)(d) 365,000 280,138
- ------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
SEMICONDUCTORS-(CONTINUED)
MagnaChip Semiconductor S.A./MagnaChip Semiconductor Finance Co. (South
Korea),
Sr. Sec. Gtd. Global Notes,
6.88%, 12/15/11(b)(d)
$360,000 $ 252,000
- ------------------------------------------------------------------------------
Spansion Inc.,
Sr. Sec. Floating Rate Notes,
5.81%, 06/01/13(b)(c)(e) 440,000 328,900
- ------------------------------------------------------------------------------
Viasystems Inc.,
Sr. Unsec. Gtd. Sub. Global Notes,
10.50%, 01/15/11(b) 545,000 543,637
==============================================================================
2,467,631
==============================================================================
SPECIALTY CHEMICALS-1.67%
JohnsonDiversey Holdings Inc.
-Series B, Sr. Unsec. Sub. Global Notes,
10.67%, 05/15/13(b) 190,000 190,000
- ------------------------------------------------------------------------------
NewMarket Corp.,
Sr. Unsec. Gtd. Unsub. Global Notes,
7.13%, 12/15/16(b) 150,000 148,875
- ------------------------------------------------------------------------------
PolyOne Corp.,
Sr. Notes,
8.88%, 05/01/12(b)(c) 175,000 176,313
- ------------------------------------------------------------------------------
Sr. Unsec. Notes,
8.88%, 05/01/12(b) 120,000 120,300
- ------------------------------------------------------------------------------
Polypore Inc.,
Sr. Unsec. Gtd. Sub. Global Notes,
8.75%, 05/15/12(b) 205,000 205,000
==============================================================================
840,488
==============================================================================
SPECIALTY STORES-0.90%
Michaels Stores, Inc.,
Sr. Unsec. Gtd. Global Notes,
10.00%, 11/01/14(b)(d) 520,000 451,100
==============================================================================
STEEL-0.90%
Metals USA, Inc.,
Sr. Sec. Gtd. Global Notes,
11.13%, 12/01/15(b) 185,000 191,475
- ------------------------------------------------------------------------------
Steel Dynamics Inc.,
Sr. Notes,
7.75%, 04/15/16(b)(c) 260,000 260,650
==============================================================================
452,125
==============================================================================
THRIFTS & MORTGAGE FINANCE-0.59%
Countrywide Financial Corp.
-Series B, Sr. Unsec. Gtd. Floating Rate Putable
Global Notes,
0.43%, 05/15/09(b)(e)(i) 315,000 297,297
==============================================================================
TIRES & RUBBER-1.73%
Cooper Tire & Rubber Co.,
Sr. Unsec. Notes,
8.00%, 12/15/19(b) 320,000 273,600
- ------------------------------------------------------------------------------
Sr. Unsec. Unsub. Notes,
7.63%, 03/15/27(b) 260,000 213,200
- ------------------------------------------------------------------------------
Goodyear Tire & Rubber Co. (The),
Sr. Unsec. Global Notes,
9.00%, 07/01/15(b) 380,000 380,000
==============================================================================
866,800
==============================================================================
TRADING COMPANIES & DISTRIBUTORS-2.28%
Ashtead Capital Inc.,
Sr. Sec. Gtd. Notes,
9.00%, 08/15/16(b)(c) 150,000 132,750
- ------------------------------------------------------------------------------
United Rentals North America, Inc.,
Sr. Unsec. Gtd. Global Notes,
6.50%, 02/15/12(b) 637,000 577,281
- ------------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Global Notes,
7.75%, 11/15/13(b) 125,000 100,156
- ------------------------------------------------------------------------------
Wesco Distribution Inc.,
Sr. Unsec. Gtd. Sub. Global Notes,
7.50%, 10/15/17(b) 360,000 333,000
==============================================================================
1,143,187
==============================================================================
TRUCKING-0.52%
Hertz Corp. (The),
Sr. Unsec. Gtd. Global Notes,
8.88%, 01/01/14(b) 285,000 262,556
==============================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.09%
Centennial Cellular Operating Co./Centennial
Communications Corp.,
Sr. Unsec. Gtd. Global Notes,
10.13%, 06/15/13(b) 348,000 359,310
- ------------------------------------------------------------------------------
Cricket Communications Inc.,
Sr. Gtd. Notes,
10.00%, 07/15/15(b)(c) 210,000 207,375
- ------------------------------------------------------------------------------
Digicel Group Ltd. (Bermuda),
Sr. Unsec. Notes,
8.88%, 01/15/15(b)(c) 615,000 586,556
- ------------------------------------------------------------------------------
iPCS Inc.,
Sr. Sec. Gtd. Floating Rate First Lien Global
Notes,
5.00%, 05/01/13(b)(e) 90,000 82,350
- ------------------------------------------------------------------------------
Sprint Capital Corp.,
Sr. Unsec. Gtd. Global Notes,
8.38%, 03/15/12(b) 315,000 315,536
==============================================================================
1,551,127
==============================================================================
Total Bonds & Notes (Cost $51,468,698) 48,245,217
==============================================================================
<Caption>
SHARES
COMMON STOCKS & OTHER EQUITY INTERESTS-0.83%
BROADCASTING & CABLE TV-0.62%
Adelphia Communications Corp.,
Sr. Notes,
10.88%, 10/01/10(j) -- 29,110
- ------------------------------------------------------------------------------
Adelphia Recovery Trust
-Series ACC-1(j) 318,570 16,725
- ------------------------------------------------------------------------------
Adelphia Recovery Trust
-Series ARAHOVA(j) 109,170 45,306
- ------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
Time Warner Cable, Inc.
-Class A
6,227 $ 164,891
- ------------------------------------------------------------------------------
Virgin Media Inc. 4,129 56,196
- ------------------------------------------------------------------------------
XM Satellite Radio Holdings Inc.
-Wts., expiring 03/15/10(k) 182 136
==============================================================================
312,364
==============================================================================
CONSTRUCTION MATERIALS-0.00%
Dayton Superior Corp.
-Wts., expiring 06/15/09 (Acquired 08/07/00;
Cost $0)(c)(h)(k)(l) 175 0
==============================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.00%
XO Holdings Inc.(m) 33 14
- ------------------------------------------------------------------------------
XO Holdings Inc.
-Class A-Wts., expiring 01/16/10(k) 1,533 46
- ------------------------------------------------------------------------------
XO Holdings Inc.
-Class B-Wts., expiring 01/16/10(k) 1,148 11
- ------------------------------------------------------------------------------
XO Holdings Inc.
-Class C-Wts., expiring 01/16/10(k) 1,148 11
==============================================================================
82
==============================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.21%
iPCS, Inc.(m) 3,489 103,379
==============================================================================
Total Common Stocks & Other Equity Interests
(Cost $501,449) 415,825
==============================================================================
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------
ASSET-BACKED SECURITIES-0.28%
ELECTRIC UTILITIES-0.28%
Reliant Energy Mid-Atlantic Power Holdings, LLC
-Series B, Sr. Unsec. Pass Through Ctfs.,
9.24%, 07/02/17 (Cost $132,960)(b) $ 132,444 $ 142,377
==============================================================================
SENIOR SECURED FLOATING RATE INTEREST LOANS-0.17%
AIRLINES-0.17%
Evergreen International Aviation, Inc.
First Lien Term Loan
9.00%, 10/31/11 (Cost $96,761)(b)(e) 96,761 85,875
==============================================================================
TOTAL INVESTMENTS (excluding investments purchased
with cash collateral from securities on
loan)-97.32% (Cost $52,199,868) 48,889,294
==============================================================================
<Caption>
SHARES
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON
LOAN
MONEY MARKET FUNDS-5.08%
Liquid Assets Portfolio-Institutional Class
(Investments Purchased with Cash Collateral from
Securities on Loan) (Cost $2,551,268)(n)(o) 2,551,268 2,551,268
==============================================================================
TOTAL INVESTMENTS-102.40% (Cost $54,751,136) 51,440,562
==============================================================================
OTHER ASSETS LESS LIABILITIES-(2.40)% (1,207,463)
==============================================================================
NET ASSETS-100.00% $50,233,099
______________________________________________________________________________
==============================================================================
</Table>
Investment Abbreviations:
<Table>
Ctfs. - Certificates
Disc. - Discounted
Gtd. - Guaranteed
Jr. - Junior
PIK - Payment in Kind
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) Industry and/or sector classifications used in this report are generally
according to the Global Industry Classification Standard, which was
developed by and is the exclusive property and a service mark of MSCI Inc.
and Standard & Poor's.
(b) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an
independent pricing service. The aggregate value of these securities at
June 30, 2008 was $48,473,469, which represented 96.50% of the Fund's Net
Assets. See Note 1A.
(c) Security purchased or received in a transaction exempt from registration
under the Securities Act of 1933, as amended. The security may be resold
pursuant to an exemption from registration under the 1933 Act, typically
to qualified institutional buyers. The aggregate value of these securities
at June 30, 2008 was $7,873,543, which represented 15.67% of the Fund's
Net Assets. Unless otherwise indicated, these securities are not
considered to be illiquid.
(d) All or a portion of this security was out on loan at June 30, 2008.
(e) Interest or dividend rate is redetermined periodically. Rate shown is the
rate in effect on June 30, 2008.
(f) Defaulted security. Currently, the issuer is partially or fully in default
with respect to interest payments. The aggregate market value of these
securities at June 30, 2008 was $185,254, which represented 0.37% of the
Fund's Net Assets.
(g) Step coupon bond issued at discount. The interest rate represents the
coupon rate at which the bond will accrue at a specified future date.
(h) Security considered to be illiquid. The Fund is limited to investing 15%
of net assets in illiquid securities at the time of purchase. The
aggregate value of these securities considered illiquid at June 30, 2008
was $142,785, which represented 0.28% of the Fund's Net Assets.
(i) Security has an irrevocable call by the issuer or mandatory put by the
holder. Maturity date reflects such call or put.
(j) Non-income producing security acquired as part of the Adelphia
Communications bankruptcy reorganization.
(k) Non-income producing security acquired as part of a unit with or in
exchange for other securities.
(l) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The value of this security at June
30, 2008 represented less than 0.01% of the Fund's Net Assets. See Note
1A.
(m) Non-income producing security.
(n) The money market fund and the Fund are affiliated by having the same
investment advisor.
(o) The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 1J.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. HIGH YIELD FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, at value (Cost
$52,199,868)* $ 48,889,294
- ------------------------------------------------------
Investments in affiliated money market
funds (Cost $2,551,268) 2,551,268
======================================================
Total investments (Cost
$54,751,136) 51,440,562
======================================================
Receivables for:
Investments sold 330,942
- ------------------------------------------------------
Fund shares sold 1,739,271
- ------------------------------------------------------
Dividends and Interest 1,055,887
- ------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 37,491
- ------------------------------------------------------
Other assets 214
======================================================
Total assets 54,604,367
______________________________________________________
======================================================
LIABILITIES:
Payables for:
Investments purchased 629,186
- ------------------------------------------------------
Fund shares reacquired 206,307
- ------------------------------------------------------
Amount due custodian 806,728
- ------------------------------------------------------
Collateral upon return of securities
loaned 2,551,268
- ------------------------------------------------------
Accrued fees to affiliates 32,632
- ------------------------------------------------------
Accrued other operating expenses 44,789
- ------------------------------------------------------
Trustee deferred compensation and
retirement plans 42,207
- ------------------------------------------------------
Unrealized depreciation on swap
agreements 50,064
- ------------------------------------------------------
Premiums received on swap agreements 8,087
======================================================
Total liabilities 4,371,268
======================================================
Net assets applicable to shares
outstanding $ 50,233,099
______________________________________________________
======================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 58,886,970
- ------------------------------------------------------
Undistributed net investment income 6,454,565
- ------------------------------------------------------
Undistributed net realized gain (loss) (11,747,797)
- ------------------------------------------------------
Unrealized appreciation (depreciation) (3,360,639)
======================================================
$ 50,233,099
______________________________________________________
======================================================
NET ASSETS:
Series I $ 49,636,312
______________________________________________________
======================================================
Series II $ 596,787
______________________________________________________
======================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 8,688,290
______________________________________________________
======================================================
Series II 104,923
______________________________________________________
======================================================
Series I:
Net asset value per share $ 5.71
______________________________________________________
======================================================
Series II:
Net asset value per share $ 5.69
______________________________________________________
======================================================
</Table>
* At June 30, 2008, securities with an aggregate value of $2,496,416 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $ 2,247,626
- ------------------------------------------------------
Dividends from affiliated money market
funds (includes securities lending
income of $70,000) 102,946
- ------------------------------------------------------
Dividends 18,930
======================================================
Total investment income 2,369,502
======================================================
EXPENSES:
Advisory fees 161,008
- ------------------------------------------------------
Administrative services fees 85,583
- ------------------------------------------------------
Custodian fees 4,098
- ------------------------------------------------------
Distribution fees -- Series II 755
- ------------------------------------------------------
Transfer agent fees 6,253
- ------------------------------------------------------
Trustees' and officer's fees and
benefits 8,765
- ------------------------------------------------------
Professional services fees 27,178
- ------------------------------------------------------
Other 9,787
======================================================
Total expenses 303,427
======================================================
Less: Fees waived (59,173)
======================================================
Net expenses 244,254
======================================================
Net investment income 2,125,248
======================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM:
Net realized gain (loss) from:
Investment securities (1,266,209)
- ------------------------------------------------------
Foreign currencies 1,616
- ------------------------------------------------------
Swap agreements 83,891
======================================================
(1,180,702)
======================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (1,115,546)
- ------------------------------------------------------
Swap agreements (3,968)
======================================================
(1,119,514)
======================================================
Net realized and unrealized gain (loss) (2,300,216)
======================================================
Net increase (decrease) in net assets
resulting from operations $ (174,968)
______________________________________________________
======================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. HIGH YIELD FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- -------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,125,248 $ 4,335,824
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) (1,180,702) 773,036
- -------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) (1,119,514) (4,039,148)
=======================================================================================================
Net increase (decrease) in net assets resulting from operations (174,968) 1,069,712
=======================================================================================================
Distributions to shareholders from net investment income:
Series I -- (3,849,927)
- -------------------------------------------------------------------------------------------------------
Series II -- (46,750)
=======================================================================================================
Total distributions from net investment income -- (3,896,677)
=======================================================================================================
Share transactions-net:
Series I (1,418,874) (4,318,662)
- -------------------------------------------------------------------------------------------------------
Series II (63,833) (218,532)
=======================================================================================================
Net increase (decrease) in net assets resulting from share
transactions (1,482,707) (4,537,194)
=======================================================================================================
Net increase (decrease) in net assets (1,657,675) (7,364,159)
=======================================================================================================
NET ASSETS:
Beginning of period 51,890,774 59,254,933
- -------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of
$6,454,565 and $4,329,317, respectively) $50,233,099 $51,890,774
_______________________________________________________________________________________________________
=======================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. HIGH YIELD FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. High Yield Fund (the "Fund") is a series portfolio of AIM Variable
Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is a high level of current income.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
Debt obligations (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing
service. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to specific securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Short-term obligations, including
commercial paper, having 60 days or less to maturity are recorded at
amortized cost which approximates value. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve
some risk of default with respect to interest and/or principal payments.
Senior secured floating rate loans and senior secured floating rate debt
securities are fair valued using an evaluated quote provided by an
independent pricing service. Evaluated quotes provided by the pricing
service may reflect appropriate factors such as ratings, tranche type,
industry, company performance, spread, individual trading characteristics,
institution-size trading in similar groups of securities and other market
data.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on
that day. Securities traded in the over-the-counter market are valued
based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service
they may be considered fair valued. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally
traded. Listed options are valued at the mean between the last bid and the
ask prices from the exchange on which they are principally traded. Options
not listed on an exchange are valued by an independent source at the mean
between the last bid and ask prices. For purposes of determining net asset
value per share, futures and option contracts generally are valued 15
minutes after the close of the customary trading session of the New York
Stock Exchange ("NYSE").
Investments in open-end and closed-end registered investment companies
that do not trade on an exchange are valued at the end of day net asset
value per share. Investments in open-end and closed-end registered
investment companies that trade on an exchange are valued at the last
sales price or official closing price as of the close of the customary
trading session on the exchange where the security is principally traded.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued
at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price
unreliable, the Fund may fair value the security. If the event is likely
to have affected the closing price of the security, the security will be
valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also
be based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current value as of the close of the NYSE. Foreign securities
meeting the approved degree of certainty that the price is not reflective
of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, American
Depositary Receipts and domestic and foreign index futures. Foreign
securities may have additional risks including exchange rate changes,
potential for sharply devalued currencies and high inflation, political
and economical upheaval, the relative lack of issuer information,
relatively low market liquidity and the potential lack of strict financial
and accounting controls and standards.
Securities for which market prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers following procedures
approved by the Board of Trustees. Issuer specific events, market trends,
bid/ask quotes of brokers and information providers and other market data
may be reviewed in the course of making a good faith determination of a
security's fair value.
Valuations change in response to many factors including the historical
and prospective earnings of the issuer, the value of the issuer's assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
AIM V.I. HIGH YIELD FUND
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification
claims is considered remote.
I. LOWER-RATED SECURITIES -- The Fund normally invests at least 80% of its
net assets in lower-quality debt securities, i.e., "junk bonds".
Investments in lower-rated securities or unrated securities of comparable
quality tend to be more sensitive to economic conditions than higher rated
securities. Junk bonds involve a greater risk of default by the issuer
because such securities are generally unsecured and are often subordinated
to other creditors' claims.
J. SECURITIES LENDING -- The Fund may lend portfolio securities having a
market value up to one-third of the Fund's total assets. Such loans are
secured by collateral equal to no less than the market value of the loaned
securities determined daily by the securities lending provider. Such
collateral will be cash or debt securities issued or guaranteed by the
U.S. Government or any of its sponsored agencies. Cash collateral received
in connection with these loans is invested in short-term money market
instruments or affiliated money market funds and is shown as such on the
Schedule of Investments. It is the Fund's policy to obtain additional
collateral from or return excess collateral to the borrower by the end of
the next business day, following the valuation date of the securities
loaned. Therefore, the value of the collateral held may be temporarily
less than the value of the securities on loan. Lending securities entails
a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase
the collateral accordingly, and the borrower fails to return the
securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any
loss on the collateral invested. Dividends received on cash collateral
investments for securities lending transactions, which are net of
compensation to counterparties, is included in Dividends from affiliates
on the Statement of Operations. The aggregate value of securities out on
loan is shown as a footnote on the Statement of Assets and Liabilities.
K. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close
of the NYSE based on quotations posted by banks and major currency
dealers. Portfolio securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations
AIM V.I. HIGH YIELD FUND
resulting from changes in foreign exchange rates on investments and the
fluctuations arising from changes in market prices of securities held. The
combined results of changes in foreign exchange rates and the fluctuation
of market prices on investments (net of estimated foreign tax withholding)
are included with the net realized and unrealized gain or loss from
investments in the Statement of Operations. Reported net realized foreign
currency gains or losses arise from (i) sales of foreign currencies, (ii)
currency gains or losses realized between the trade and settlement dates
on securities transactions, and (iii) the difference between the amounts
of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign currency gains and losses arise
from changes in the fair values of assets and liabilities, other than
investments in securities at fiscal period end, resulting from changes in
exchange rates.
The Fund may invest in foreign securities which may be subject to
foreign taxes on income, gains on investments or currency repatriation, a
portion of which may be recoverable.
L. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. Fluctuations in the value of these contracts are recorded as
unrealized appreciation (depreciation) until the contracts are closed.
When these contracts are closed, realized gains (losses) are recorded.
Realized and unrealized gains and losses on these contracts are included
in the Statement of Operations. The Fund could be exposed to risk, which
may be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
M. SWAP AGREEMENTS -- The Fund may enter into various swap transactions,
including interest rate, index, currency exchange rate and credit default
swap contracts ("CDS") for investment purposes or to manage interest rate,
currency or credit risk.
Interest rate, index, and currency exchange rate swap agreements are
two-party contracts entered into primarily to exchange the returns (or
differentials in rates of returns) earned or realized on particular
predetermined investments or instruments. The gross returns to be
exchanged or "swapped" between the parties are calculated with respect to
a notional amount, i.e., the return on or increase in value of a
particular dollar amount invested at a particular interest rate, in a
particular foreign currency, or in a "basket" of securities representing a
particular index.
A CDS is an agreement between two parties ("Counterparties") to exchange
the credit risk of an issuer. A buyer of a CDS is said to buy protection
by paying an upfront payment and/or a fixed payment over the life of the
agreement to the seller of the CDS. If a defined credit event occurs (such
as payment default or bankruptcy), the Fund as a protection buyer would
cease paying its fixed payment, the Fund would deliver the corresponding
bonds, or other similar bonds issued by the same reference entity to the
seller, and the seller would pay the full notional value, or the "par
value", of the referenced obligation to the Fund. A seller of a CDS is
said to sell protection and thus would receive an upfront payment and/or a
fixed payment over the life of the agreement. If a credit event occurs,
the Fund as a protection seller would cease to receive the fixed payment
stream, the Fund would pay the buyer the full notional value of the
referenced obligation, and the Fund would receive the corresponding bonds
or similar bonds issued by the same reference entity. If no credit event
occurs, the Fund receives the fixed payment over the life of the
agreement. As the seller, the Fund would effectively add leverage to its
portfolio because, in addition to its total net assets, the Fund would be
subject to investment exposure on the notional amount of the CDS. Because
the CDS is a bilateral agreement between Counterparties, the transaction
can alternatively be settled by a cash payment in the case of a credit
event.
Changes in the value of swap agreements are recognized as unrealized
gains (losses) in the Statement of Operations by "marking to market" on a
daily basis to reflect the value of the swap agreement at the end of each
trading day. Payments received or paid at the beginning of the agreement
are reflected as such on the Statement of Assets and Liabilities and may
be referred to as upfront payments. The Fund amortizes upfront payments
and/or accrues for the fixed payment stream on swap agreements on a daily
basis with the net amount, recorded as a component of realized gain (loss)
on the Statement of Operations. A liquidation payment received or made at
the termination of a swap agreement is recorded as realized gain (loss) on
the Statement of Operations. The Fund segregates liquid securities having
a value at least equal to the amount of the potential obligation of a Fund
under any swap transaction. Entering into these agreements involves, to
varying degrees, lack of liquidity and elements of credit, market, and
counterparty risk in excess of amounts recognized on the Statement of
Assets and Liabilities.
N. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $200 million 0.625%
- -------------------------------------------------------------------
Next $300 million 0.55%
- -------------------------------------------------------------------
Next $500 million 0.50%
- -------------------------------------------------------------------
Over $1 billion 0.45%
___________________________________________________________________
===================================================================
</Table>
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
AIM V.I. HIGH YIELD FUND
The Advisor has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 0.95% and Series
II shares to 1.20% of average daily net assets, through at least April 30, 2010.
In determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco")
described more fully below, the only expense offset arrangements from which the
Fund may benefit are in the form of credits that the Fund receives from banks
where the Fund or its transfer agent has deposit accounts in which it holds
uninvested cash. These credits are used to pay certain expenses incurred by the
Fund. To the extent that the annualized expense ratio does not exceed the
expense limitation, AIM will retain its ability to be reimbursed for such fee
waivers or reimbursements prior to the end of each fiscal year.
Further, the Advisor has contractually agreed, through at least April 30,
2010, to waive the advisory fee payable by the Fund in an amount equal to 100%
of the net advisory fees the Advisor receives from the affiliated money market
funds on investments by the Fund of uninvested cash (but not cash collateral
from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2008, the Advisor waived advisory fees of
$59,173.
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund
administrative services and reimbursed $60,720 for services provided by
insurance companies.
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily net
assets of the Series II shares may be paid to insurance companies who furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. For the six months ended June 30, 2008, expenses
incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1 -- Quoted prices in an active market for identical assets.
Level 2 -- Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest
rates, prepayment speeds, credit risk and others.
Level 3 -- Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for
example, when there is little or no market activity for an investment at the end
of the period), unobservable inputs may be used. Unobservable inputs reflect the
Fund's own assumptions about the factors market participants would use in
determining fair value of the securities or instruments and would be based on
the best available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS OTHER
INPUT LEVEL IN SECURITIES INVESTMENTS*
- ----------------------------------------------------
Level 1 $ 2,872,358 --
- ----------------------------------------------------
Level 2 48,568,204 (50,064)
- ----------------------------------------------------
Level 3 -- --
====================================================
$51,440,562 (50,064)
____________________________________________________
====================================================
</Table>
* Other investments include swap contracts, which are included at the unrealized
appreciation/depreciation.
AIM V.I. HIGH YIELD FUND
NOTE 4--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan and receive benefits under such plan. "Trustees' and Officer's
Fees and Benefits" include amounts accrued by the Fund to fund such retirement
benefits. Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $1,563
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--CASH BALANCES
The Fund is permitted to temporarily carry a negative or overdrawn balance in
its account with The State Street Bank and Trust Company ("SSB"), the custodian
bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund
may either (i) leave funds as a compensating balance in the account so the
custodian bank can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank at a rate agreed upon by the custodian
bank and Invesco Aim, not to exceed the contractually agreed upon rate.
NOTE 6--CREDIT DEFAULT SWAP AGREEMENTS
<Table>
<Caption>
OPEN CREDIT DEFAULT SWAP AGREEMENTS AT PERIOD-END
- -----------------------------------------------------------------------------------------------------------------------
NOTIONAL
BUY/SELL (PAY)/RECEIVE EXPIRATION AMOUNT
COUNTERPARTY REFERENCE ENTITY PROTECTION FIXED RATE DATE (000)
- -----------------------------------------------------------------------------------------------------------------------
Lehman Brothers Special Financing
Inc. Dole Foods Co., Inc. Sell 6.15% 09/20/12 $ 120
- -----------------------------------------------------------------------------------------------------------------------
Lehman Brothers Special Financing
Inc. Tenet Healthcare Corp. Sell 3.70% 03/20/09 180
- -----------------------------------------------------------------------------------------------------------------------
Lehman Brothers Special Financing
Inc. Tenet Healthcare Corp. Sell 3.75% 12/20/08 360
- -----------------------------------------------------------------------------------------------------------------------
Lehman Brothers Special Financing
Inc. Visteon Corp. Sell 5.00%(a) 03/20/09 180
- -----------------------------------------------------------------------------------------------------------------------
Merrill Lynch International MBIA Inc. Sell 6.25% 12/20/08 310
- -----------------------------------------------------------------------------------------------------------------------
UBS A.G. Pulte Homes, Inc. Sell 4.20% 12/20/08 210
- -----------------------------------------------------------------------------------------------------------------------
UBS A.G. Pulte Homes, Inc. Sell 4.40% 12/20/08 180
=======================================================================================================================
Total Credit Default Swap
Agreements $1,540
_______________________________________________________________________________________________________________________
=======================================================================================================================
<Caption>
OPEN CREDIT DEFAULT SWAP AGREEMENTS AT PERIOD-END
- --------------------------------------------------
UNREALIZED
APPRECIATION
COUNTERPARTY (DEPRECIATION)
- --------------------------------------------------
Lehman Brothers Special Financing
Inc. $(18,428)
- --------------------------------------------------
Lehman Brothers Special Financing
Inc. 2,060
- --------------------------------------------------
Lehman Brothers Special Financing
Inc. 2,866
- --------------------------------------------------
Lehman Brothers Special Financing
Inc. (2,331)
- --------------------------------------------------
Merrill Lynch International (35,473)
- --------------------------------------------------
UBS A.G. 577
- --------------------------------------------------
UBS A.G. 665
==================================================
Total Credit Default Swap
Agreements $(50,064)
__________________________________________________
==================================================
</Table>
(a) Unamortized premium at period-end of $8,087.
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited to utilizing
$5,421,323 of capital loss carryforward in the fiscal year ended December 31,
2008.
The Fund had a capital loss carryforward as of December 31, 2007 which expires
as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------------------------
December 31, 2010 $10,225,025
_______________________________________________________________________________________________
===============================================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
AIM V.I. HIGH YIELD FUND
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the six months ended June 30, 2008 was $22,276,783 and
$20,980,302, respectively. Cost of investments on a tax basis includes the
adjustments for financial reporting purposes as of the most recently completed
Federal income tax reporting period end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 378,898
- ------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,809,464)
================================================================================================
Net unrealized appreciation (depreciation) of investment securities $(3,430,566)
________________________________________________________________________________________________
================================================================================================
Cost of investments for tax purposes is $54,871,128.
</Table>
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008(a) DECEMBER 31, 2007
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 2,749,446 $ 15,615,103 4,258,577 $ 26,501,855
- ------------------------------------------------------------------------------------------------------------------------
Series II 1,042 5,829 6,878 42,592
- ------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Series I -- -- 669,553 3,849,927
- ------------------------------------------------------------------------------------------------------------------------
Series II -- -- 8,159 46,750
- ------------------------------------------------------------------------------------------------------------------------
Reacquired:
Series I (2,985,799) (17,033,977) (5,538,034) (34,670,444)
- ------------------------------------------------------------------------------------------------------------------------
Series II (12,523) (69,662) (49,587) (307,874)
========================================================================================================================
(247,834) $ (1,482,707) (644,454) $ (4,537,194)
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There are entities that are record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate own 75% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, Invesco
Aim and/or Invesco Aim affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services to
the Fund, Invesco Aim and or Invesco Aim affiliates including but not
limited to services such as, securities brokerage, third party record
keeping and account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record by
these entities are also owned beneficially.
NOTE 10--NEW ACCOUNTING STANDARD
In March 2008, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 161, Disclosures about Derivative Instruments and Hedging
Activities. The standard is intended to improve financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity's financial
position and financial performance. It is effective for financial statements
issued for fiscal years beginning after November 15, 2008. Management is
currently in the process of determining the impact of the standard on the Fund's
disclosures in the financial statements.
AIM V.I. HIGH YIELD FUND
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
----------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------------------------------
2008 2007 2006 2005 2004 2003
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.74 $ 6.12 $ 6.03 $ 6.45 $ 5.97 $ 5.00
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.25 0.46(a) 0.45(a) 0.43(a) 0.42(a) 0.49(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.28) (0.38) 0.19 (0.26) 0.23 0.91
- ----------------------------------------------------------------------------------------------------------------------------
Net increase from payments by affiliates -- -- -- -- 0.02 --
============================================================================================================================
Total from investment operations (0.03) 0.08 0.64 0.17 0.67 1.40
============================================================================================================================
Less dividends from net investment income -- (0.46) (0.55) (0.59) (0.19) (0.43)
============================================================================================================================
Net asset value, end of period $ 5.71 $ 5.74 $ 6.12 $ 6.03 $ 6.45 $ 5.97
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) (0.52)% 1.24% 10.74% 2.72% 11.25%(c) 28.04%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $49,636 $51,225 $58,336 $54,731 $96,602 $37,267
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 0.95%(d) 0.96% 0.96% 1.01% 1.04% 1.20%
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.18%(d) 1.15% 1.18% 1.16% 1.04% 1.20%
============================================================================================================================
Ratio of net investment income to average net
assets 8.25%(d) 7.42% 7.22% 6.58% 6.79% 8.54%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate(e) 49% 113% 135% 69% 131% 101%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Total return is after reimbursement the advisor has agreed to pay for an
economic loss due to a trading error. Total return before reimbursement by
the advisor was 10.90%
(d) Ratios are annualized and based on average daily net assets of $51,198,506.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
<Table>
<Caption>
SERIES II
-----------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------
2008 2007 2006 2005 2004 2003
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.72 $ 6.09 $ 6.00 $ 6.43 $ 5.95 $ 4.99
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.28 0.44(a) 0.43(a) 0.41(a) 0.41(a) 0.49(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.31) (0.38) 0.19 (0.26) 0.24 0.90
- --------------------------------------------------------------------------------------------------------------------------
Net increase from payments by affiliates -- -- -- -- 0.01 --
==========================================================================================================================
Total from investment operations (0.03) 0.06 0.62 0.15 0.66 1.39
==========================================================================================================================
Less dividends from net investment income -- (0.43) (0.53) (0.58) (0.18) (0.43)
==========================================================================================================================
Net asset value, end of period $ 5.69 $ 5.72 $ 6.09 $ 6.00 $ 6.43 $ 5.95
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) (0.52)% 1.01% 10.41% 2.43% 11.14%(c) 27.89%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 597 $ 666 $ 919 $1,556 $1,072 $1,251
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.20%(d) 1.21% 1.21% 1.22% 1.24% 1.45%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.43%(d) 1.40% 1.43% 1.41% 1.29% 1.45%
==========================================================================================================================
Ratio of net investment income to average net
assets 8.00%(d) 7.17% 6.97% 6.37% 6.59% 8.29%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate(e) 49% 113% 135% 69% 131% 101%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Total return is after reimbursement the advisor has agreed to pay for an
economic loss due to a trading error. Total return before reimbursement by
the advisor was 10.96%
(d) Ratios are annualized and based on average daily net assets of $607,168.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. HIGH YIELD FUND
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to Invesco Aim and IADI (Order No. 05-
1318). The WVASC makes findings of fact that Invesco Aim and IADI entered into
certain arrangements permitting market timing of the AIM Funds and failed to
disclose these arrangements in the prospectuses for such Funds, and conclusions
of law to the effect that Invesco Aim and IADI violated the West Virginia
securities laws. The WVASC orders Invesco Aim and IADI to cease any further
violations and seeks to impose monetary sanctions, including restitution to
affected investors, disgorgement of fees, reimbursement of investigatory,
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute. By agreement with the Commissioner of
Securities, Invesco Aim's time to respond to that Order has been indefinitely
suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid. The case pending in Illinois State Court regarding fair value
pricing was dismissed with prejudice on May 6, 2008.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA
purportedly brought on behalf of participants in the Invesco 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds remain nominal defendants in the Consolidated Amended Fund
Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco
defendants' motion to dismiss the Amended Class Action Complaint for Violations
of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June
16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this
lawsuit back to the MDL Court for further proceedings.
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, Invesco Aim and IADI have advised the Fund that they are providing
full cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, Invesco Aim and/or related entities and individuals in the
future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. HIGH YIELD FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $994.80 $4.71 $1,020.14 $4.77 0.95%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 994.80 5.95 1,018.90 6.02 1.20
- ---------------------------------------------------------------------------------------------------
</Table>
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5%
before expenses.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
AIM V.I. HIGH YIELD FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the Board) of AIM their assigned funds. During the contract ated the information provided differently
Variable Insurance Funds is required under renewal process, the Trustees receive from one another and attributed different
the Investment Company Act of 1940 to comparative performance and fee data weight to the various factors. The
approve annually the renewal of the AIM regarding all the AIM Funds prepared by an Trustees recognized that the advisory
V.I. High Yield Fund (the Fund) investment independent company, Lipper, Inc. arrangements and resulting advisory fees
advisory agreement with Invesco Aim (Lipper), under the direction and for the Fund and the other AIM Funds are
Advisors, Inc. (Invesco Aim). During supervision of the independent Senior the result of years of review and
contract renewal meetings held on June Officer who also prepares a separate negotiation between the Trustees and
18-19, 2008, the Board as a whole and the analysis of this information for the Invesco Aim, that the Trustees may focus
disinterested or "independent" Trustees, Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of
voting separately, approved the recommendations to the Investments these arrangements in some years than in
continuance of the Fund's investment Committee regarding the performance, fees others, and that the Trustees'
advisory agreement for another year, and expenses of their assigned funds. The deliberations and conclusions in a
effective July 1, 2008. In doing so, the Investments Committee considers each particular year may be based in part on
Board determined that the Fund's Sub-Committee's recommendations and makes their deliberations and conclusions of
investment advisory agreement is in the its own recommendations regarding the these same arrangements throughout the
best interests of the Fund and its performance, fees and expenses of the AIM year and in prior years.
shareholders and that the compensation to Funds to the full Board. The Investments
Invesco Aim under the Fund's investment Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF
advisory agreement is fair and reasonable. Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION
The independent Trustees met separately its annual recommendation to the Board The discussion below serves as a summary
during their evaluation of the Fund's whether to approve the continuance of each of the Senior Officer's independent
investment advisory agreement with AIM Fund's investment advisory agreement written evaluation with respect to the
independent legal counsel from whom they and sub-advisory agreements for another Fund's investment advisory agreement as
received independent legal advice, and the year. well as a discussion of the material
independent Trustees also received The independent Trustees are assisted factors and related conclusions that
assistance during their deliberations from in their annual evaluation of the Fund's formed the basis for the Board's approval
the independent Senior Officer, a investment advisory agreement by the of the Fund's investment advisory
full-time officer of the AIM Funds who independent Senior Officer. One agreement and sub-advisory agreements.
reports directly to the independent responsibility of the Senior Officer is to Unless otherwise stated, information set
Trustees. manage the process by which the AIM Funds' forth below is as of June 19, 2008 and
proposed management fees are negotiated does not reflect any changes that may have
THE BOARD'S FUND EVALUATION PROCESS during the annual contract renewal process occurred since that date, including but
The Board's Investments Committee has to ensure that they are negotiated in a not limited to changes to the Fund's
established three Sub-Committees that are manner that is at arms' length and performance, advisory fees, expense
responsible for overseeing the management reasonable. Accordingly, the Senior limitations and/or fee waivers.
of a number of the series portfolios of Officer must either supervise a
the AIM Funds. This Sub-Committee competitive bidding process or prepare an I. Investment Advisory Agreement
structure permits the Trustees to focus on independent written evaluation. The Senior A.Nature, Extent and Quality of
the performance of the AIM Funds that have Officer has recommended that an Services Provided by Invesco Aim
been assigned to them. The Sub-Committees independent written evaluation be provided The Board reviewed the advisory services
meet throughout the year to review the and, at the direction of the Board, has provided to the Fund by Invesco Aim under
performance of their assigned funds, and prepared an independent written the Fund's investment advisory agreement,
the Sub-Committees review monthly and evaluation. the performance of Invesco Aim in
quarterly comparative performance During the annual contract renewal providing these services, and the
information and periodic asset flow data process, the Board considered the factors credentials and experience of the officers
for their assigned funds. These materials discussed below under the heading "Factors and employees of Invesco Aim who provide
are prepared under the direction and and Conclusions and Summary of Independent these services. The Board's review of the
supervision of the independent Senior Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide
Officer. Over the course of each year, the fairness and reasonableness of the Fund's these services included the Board's
Sub-Committees meet with portfolio investment advisory agreement and consideration of Invesco Aim's portfolio
managers for their assigned funds and sub-advisory agreements at the contract and product review process, various back
other members of management and review renewal meetings and at their meetings office support functions provided by
with these individuals the performance, throughout the year as part of their Invesco Aim and its affiliates, and
investment objective(s), policies, ongoing oversight of the Fund. The Fund's Invesco Aim's equity and fixed income
strategies and limitations of these funds. investment advisory agreement and trading operations. The Board concluded
In addition to their meetings sub-advisory agreements were considered that the nature, extent and quality of the
throughout the year, the Sub-Committees separately, although the Board also advisory services provided to the Fund by
meet at designated contract renewal considered the common interests of all of Invesco Aim were appropriate and that
meetings each year to conduct an in-depth the AIM Funds in their deliberations. The Invesco Aim currently is providing
review of the performance, fees and Board considered all of the information satisfactory advisory services in
expenses of provided to them and did not identify any accordance with the terms of the Fund's
particular factor that was controlling. investment advisory agreement. In
Each Trustee may have evalu- addition, based on their ongoing meetings
throughout the year
continued
AIM V.I. HIGH YIELD FUND
with the Fund's portfolio manager or quality and efficiency of the services D. Economies of Scale and Breakpoints
managers, the Board concluded that these that Invesco Aim provides to the AIM The Board considered the extent to which
individuals are competent and able to Funds. The Board concluded that Invesco there are economies of scale in Invesco
continue to carry out their Aim continues to be responsive to the Aim's provision of advisory services to
responsibilities under the Fund's Board's focus on fund performance. the Fund. The Board also considered
investment advisory agreement. However, due to the Fund's whether the Fund benefits from such
In determining whether to continue the underperformance, the Board also concluded economies of scale through contractual
Fund's investment advisory agreement, the that it would be appropriate for the Board breakpoints in the Fund's advisory fee
Board considered the prior relationship to continue to monitor more closely the schedule or through advisory fee waivers
between Invesco Aim and the Fund, as well performance of the Fund. Although the or expense limitations. The Board noted
as the Board's knowledge of Invesco Aim's independent written evaluation of the that the Fund's contractual advisory fee
operations, and concluded that it was Fund's Senior Officer only considered Fund schedule includes three breakpoints but
beneficial to maintain the current performance through the most recent that, due to the Fund's asset level at the
relationship, in part, because of such calendar year, the Board also reviewed end of the past calendar year and the way
knowledge. The Board also considered the more recent Fund performance and this in which the breakpoints have been
steps that Invesco Aim and its affiliates review did not change their conclusions. structured, the Fund has yet to benefit
have taken over the last several years to from the breakpoints. Based on this
improve the quality and efficiency of the C. Advisory Fees and Fee Waivers information, the Board concluded that the
services they provide to the AIM Funds in The Board compared the Fund's contractual Fund's advisory fees would reflect
the areas of investment performance, advisory fee rate to the contractual economies of scale at higher asset levels.
product line diversification, advisory fee rates of funds in the Fund's The Board also noted that the Fund shares
distribution, fund operations, shareholder Lipper expense group that are not managed directly in economies of scale through
services and compliance. The Board by Invesco Aim, at a common asset level lower fees charged by third party service
concluded that the quality and efficiency and as of the end of the past calendar providers based on the combined size of
of the services Invesco Aim and its year. The Board noted that the Fund's all of the AIM Funds and affiliates.
affiliates provide to the AIM Funds in contractual advisory fee rate was below
each of these areas have generally the median contractual advisory fee rate E. Profitability and Financial
improved, and support the Board's approval of funds in its expense group. The Board Resources of Invesco Aim
of the continuance of the Fund's also reviewed the methodology used by The Board reviewed information from
investment advisory agreement. Lipper in determining contractual fee Invesco Aim concerning the costs of the
rates. advisory and other services that Invesco
B. Fund Performance The Board also compared the Fund's Aim and its affiliates provide to the Fund
The Board compared the Fund's performance effective fee rate (the advisory fee after and the profitability of Invesco Aim and
during the past one, three and five any advisory fee waivers and before any its affiliates in providing these
calendar years to the performance of funds expense limitations/waivers) to the services. The Board also reviewed
in the Fund's performance group that are advisory fee rates of other clients of information concerning the financial
not managed by Invesco Aim, and against Invesco Aim and its affiliates with condition of Invesco Aim and its
the performance of all funds in the Lipper investment strategies comparable to those affiliates. The Board also reviewed with
Variable Annuity Underlying Funds - High of the Fund, including one mutual fund Invesco Aim the methodology used to
Current Yield Index. The Board also advised by Invesco Aim. The Board noted prepare the profitability information. The
reviewed the criteria used by Invesco Aim that the Fund's rate was above the rate Board considered the overall profitability
to identify the Fund's performance group for the other mutual fund. of Invesco Aim, as well as the
for inclusion in the Lipper reports. The The Board noted that Invesco Aim has profitability of Invesco Aim in connection
Board noted that the Fund's performance contractually agreed to waive fees and/or with managing the Fund. The Board noted
was in the fifth quintile of its limit expenses of the Fund through at that Invesco Aim continues to operate at a
performance group for the one year period, least April 30, 2010 in an amount net profit, although increased expenses in
the fourth quintile for the three year necessary to limit total annual operating recent years have reduced the
period, and the second quintile for the expenses to a specified percentage of profitability of Invesco Aim and its
five year period (the first quintile being average daily net assets for each class of affiliates. The Board concluded that the
the best performing funds and the fifth the Fund. The Board considered the Fund's fees were fair and reasonable, and
quintile being the worst performing contractual nature of this fee waiver and that the level of profits realized by
funds). The Board noted that the Fund's noted that it remains in effect until at Invesco Aim and its affiliates from
performance was below the performance of least April 30, 2010. The Board also providing services to the Fund was not
the Index for the one and three year considered the effect this expense excessive in light of the nature, quality
periods, and above the performance of the limitation would have on the Fund's and extent of the services provided. The
Index for the five year period. The Board estimated total expenses. Board considered whether Invesco Aim is
noted that Invesco Aim acknowledges the After taking account of the Fund's financially sound and has the resources
Fund's underperformance because of shorter contractual advisory fee rate, as well as necessary to perform its obligations under
term performance results and continues to the comparative advisory fee information the Fund's investment advisory agreement,
monitor the Fund. The Board also and the expense limitation discussed and concluded that Invesco Aim has the
considered the steps Invesco Aim has taken above, the Board concluded that the Fund's financial resources necessary to fulfill
over the last several years to improve the advisory fees were fair and reasonable. these obligations.
continued
AIM V.I. HIGH YIELD FUND
F. Independent Written Evaluation of were appropriate. The Board also concluded countries and securities of companies
the Fund's Senior Officer that, based on their review and located in such countries or on various
The Board noted that, at their direction, representations made by Invesco Aim, these types of investments and investment
the Senior Officer of the Fund, who is arrangements were consistent with techniques, and providing investment
independent of Invesco Aim and Invesco regulatory requirements. advisory services. The Board concluded
Aim's affiliates, had prepared an The Board considered the fact that the that the sub-advisory agreements will
independent written evaluation to assist Fund's uninvested cash and cash collateral benefit the Fund and its shareholders by
the Board in determining the from any securities lending arrangements permitting Invesco Aim to utilize the
reasonableness of the proposed management may be invested in money market funds additional resources and talent of the
fees of the AIM Funds, including the Fund. advised by Invesco Aim pursuant to Affiliated Sub-Advisers in managing the
The Board noted that they had relied upon procedures approved by the Board. The Fund.
the Senior Officer's written evaluation Board noted that Invesco Aim will receive
instead of a competitive bidding process. advisory fees from these affiliated money B. Fund Performance
In determining whether to continue the market funds attributable to such The Board did not view Fund performance as
Fund's investment advisory agreement, the investments, although Invesco Aim has a relevant factor in considering whether
Board considered the Senior Officer's contractually agreed to waive through at to approve the sub-advisory agreements for
written evaluation. least April 30, 2010, the advisory fees the Fund, as no Affiliated Sub-Adviser
payable by the Fund in an amount equal to served as a sub-adviser to the Fund prior
G. Collateral Benefits to Invesco Aim 100% of the net advisory fees Invesco Aim to May 1, 2008.
and its Affiliates receives from the affiliated money market
The Board considered various other funds with respect to the Fund's C. Sub-Advisory Fees
benefits received by Invesco Aim and its investment of uninvested cash, but not The Board considered the services to be
affiliates resulting from Invesco Aim's cash collateral. The Board considered the provided by the Affiliated Sub-Advisers
relationship with the Fund, including the contractual nature of this fee waiver and pursuant to the sub-advisory agreements
fees received by Invesco Aim and its noted that it remains in effect until at and the services to be provided by Invesco
affiliates for their provision of least April 30, 2010. The Board concluded Aim pursuant to the Fund's investment
administrative, transfer agency and that the Fund's investment of uninvested advisory agreement, as well as the
distribution services to the Fund. The cash and cash collateral from any allocation of fees between Invesco Aim and
Board considered the performance of securities lending arrangements in the the Affiliated Sub-Advisers pursuant to
Invesco Aim and its affiliates in affiliated money market funds is in the the sub-advisory agreements. The Board
providing these services and the best interests of the Fund and its noted that the sub-advisory fees have no
organizational structure employed by shareholders. direct effect on the Fund or its
Invesco Aim and its affiliates to provide shareholders, as they are paid by Invesco
these services. The Board also considered II. Sub-Advisory Agreements Aim to the Affiliated Sub-Advisers, and
that these services are provided to the A. Nature, Extent and Quality of that Invesco Aim and the Affiliated
Fund pursuant to written contracts which Services Provided by Affiliated Sub-Advisers are affiliates. After taking
are reviewed and approved on an annual Sub-Advisors account of the Fund's contractual
basis by the Board. The Board concluded The Board reviewed the services to be sub-advisory fee rate, as well as other
that Invesco Aim and its affiliates were provided by Invesco Trimark Ltd., Invesco relevant factors, the Board concluded that
providing these services in a satisfactory Asset Management Deutschland, GmbH, the Fund's sub-advisory fees were fair and
manner and in accordance with the terms of Invesco Asset Management Limited, Invesco reasonable.
their contracts, and were qualified to Asset Management (Japan) Limited, Invesco
continue to provide these services to the Australia Limited, Invesco Global Asset D. Financial Resources of the
Fund. Management (N.A.), Inc., Invesco Hong Kong Affiliated Sub-Advisers
The Board considered the benefits Limited, Invesco Institutional (N.A.), The Board considered whether each
realized by Invesco Aim as a result of Inc. and Invesco Senior Secured Affiliated Sub-Adviser is financially
portfolio brokerage transactions executed Management, Inc. (collectively, the sound and has the resources necessary to
through "soft dollar" arrangements. Under "Affiliated Sub-Advisers") under the perform its obligations under its
these arrangements, portfolio brokerage sub-advisory agreements and the respective sub-advisory agreement, and
commissions paid by the Fund and/or other credentials and experience of the officers concluded that each Affiliated Sub-Adviser
funds advised by Invesco Aim are used to and employees of the Affiliated has the financial resources necessary to
pay for research and execution services. Sub-Advisers who will provide these fulfill these obligations.
The Board noted that soft dollar services. The Board concluded that the
arrangements shift the payment obligation nature, extent and quality of the services
for the research and execution services to be provided by the Affiliated
from Invesco Aim to the funds and Sub-Advisers were appropriate. The Board
therefore may reduce Invesco Aim's noted that the Affiliated Sub-Advisers,
expenses. The Board also noted that which have offices and personnel that are
research obtained through soft dollar geographically dispersed in financial
arrangements may be used by Invesco Aim in centers around the world, have been formed
making investment decisions for the Fund in part for the purpose of researching and
and may therefore benefit Fund compiling information and making
shareholders. The Board concluded that recommendations on the markets and
Invesco Aim's soft dollar arrangements economies of various
AIM V.I. HIGH YIELD FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. High Yield Fund, an
investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust
("Trust"), was held on February 29, 2008. The Meeting was held for the following
purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will
serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust that
would permit the Board of Trustees of the Trust to terminate the Trust, the
Fund, and each other series portfolio of the Trust, or a share class without
a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and
each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland,
GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.),
Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and
Invesco Senior Secured Management, Inc.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- -----------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker...................................................... 474,883,590 19,741,622
Frank S. Bayley................................................... 474,653,109 19,972,103
James T. Bunch.................................................... 475,597,417 19,027,795
Bruce L. Crockett................................................. 474,900,579 19,724,633
Albert R. Dowden.................................................. 474,749,929 19,875,283
Jack M. Fields.................................................... 475,205,840 19,419,372
Martin L. Flanagan................................................ 475,248,336 19,376,876
Carl Frischling................................................... 474,453,674 20,171,538
Prema Mathai-Davis................................................ 473,569,192 21,056,020
Lewis F. Pennock.................................................. 475,072,501 19,552,711
Larry Soll, Ph.D. ................................................ 475,170,544 19,454,668
Raymond Stickel, Jr. ............................................. 475,420,825 19,204,387
Philip A. Taylor.................................................. 475,640,570 18,984,642
</Table>
<Table>
<Caption>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
- -------------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of
Trustees of the Trust to terminate the Trust, the Fund,
and each other series portfolio of the Trust, or a share
class without a shareholder vote.......................... 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between Invesco Aim
Advisors, Inc. and each of AIM Funds Management, Inc.;
Invesco Asset Management Deutschland, GmbH; Invesco Asset
Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset
Management (N.A.), Inc.; Invesco Hong Kong Limited;
Invesco Institutional (N.A.), Inc.; and Invesco Senior
Secured Management, Inc................................... 7,157,448 393,593 727,624
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. HIGH YIELD FUND
[INVESCO AIM LOGO] AIM V.I. INTERNATIONAL GROWTH FUND
- SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008
AIM Investments [MOUNTAIN GRAPHIC]
became INVESCO AIM
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FUND PERFORMANCE
=======================================================================================
PERFORMANCE SUMMARY
FUND VS. INDEXES
Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer
charges. If variable product issuer charges were included, returns would be lower.
Series I Shares -12.01%
Series II Shares -12.12
MSCI EAFE Index(TRIANGLE) (Broad Market Index) -10.96
MSCI EAFE Growth Index(TRIANGLE) (Style-Specific Index) -8.14
Lipper VUF International Growth Funds Index(TRIANGLE) (Peer Group Index) -10.98
(TRIANGLE)Lipper Inc.
The MSCI EAFE--REGISTERED TRADEMARK-- INDEX is a free float-adjusted market
capitalization index that is designed to measure developed market equity performance,
excluding the U.S. and Canada.
The MSCI EAFE--REGISTERED TRADEMARK-- GROWTH INDEX is an unmanaged index considered
representative of growth stocks of Europe, Australasia and the Far East.
The LIPPER VUF INTERNATIONAL GROWTH FUNDS INDEX is an equally weighted
representation of the largest variable insurance underlying funds in the Lipper
International Growth Funds category. These funds invest at least 75% of their equity
assets in companies strictly outside the U.S. and typically have an above-average
price-to-cash flow ratio, price-to-book ratio, and three-year sales-per-share growth
value compared to the S&P/Citigroup World ex-U.S. BMI.
The Fund is not managed to track the performance of any particular index, including
the indexes defined here, and consequently, the performance of the Fund may deviate
significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index
results include reinvested dividends, and they do not reflect sales charges.
Performance of an index of funds reflects fund expenses; performance of a market index
does not.
=======================================================================================
==========================================
AVERAGE ANNUAL TOTAL RETURNS THE PERFORMANCE DATA QUOTED REPRESENT AIM V.I. INTERNATIONAL GROWTH FUND, A
As of 6/30/08 PAST PERFORMANCE AND CANNOT GUARANTEE SERIES PORTFOLIO OF AIM VARIABLE INSURANCE
COMPARABLE FUTURE RESULTS; CURRENT FUNDS, IS CURRENTLY OFFERED THROUGH
SERIES I SHARES PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE INSURANCE COMPANIES ISSUING VARIABLE
Inception (5/5/93) 8.93% CONTACT YOUR VARIABLE PRODUCT ISSUER OR PRODUCTS. YOU CANNOT PURCHASE SHARES OF
10 Years 5.74 FINANCIAL ADVISOR FOR THE MOST RECENT THE FUND DIRECTLY. PERFORMANCE FIGURES
5 Years 17.77 MONTH-END VARIABLE PRODUCT PERFORMANCE. GIVEN REPRESENT THE FUND AND ARE NOT
1 Year -10.63 PERFORMANCE FIGURES REFLECT FUND EXPENSES, INTENDED TO REFLECT ACTUAL VARIABLE
REINVESTED DISTRIBUTIONS AND CHANGES IN PRODUCT VALUES. THEY DO NOT REFLECT SALES
SERIES II SHARES NET ASSET VALUE. INVESTMENT RETURN AND CHARGES, EXPENSES AND FEES ASSESSED IN
10 Years 5.47% PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU CONNECTION WITH A VARIABLE PRODUCT. SALES
5 Years 17.46 MAY HAVE A GAIN OR LOSS WHEN YOU SELL CHARGES, EXPENSES AND FEES, WHICH ARE
1 Year -10.84 SHARES. DETERMINED BY THE VARIABLE PRODUCT
========================================== ISSUERS, WILL VARY AND WILL LOWER THE
THE NET ANNUAL FUND OPERATING EXPENSE TOTAL RETURN.
SERIES II SHARES' INCEPTION DATE IS RATIO SET FORTH IN THE MOST RECENT FUND
SEPTEMBER 19, 2001. RETURNS SINCE THAT PROSPECTUS AS OF THE DATE OF THIS REPORT THE MOST RECENT MONTH-END PERFORMANCE
DATE ARE HISTORICAL. ALL OTHER RETURNS ARE FOR SERIES I AND SERIES II SHARES WAS DATA AT THE FUND LEVEL, EXCLUDING VARIABLE
THE BLENDED RETURNS OF THE HISTORICAL 1.07% AND 1.32%, RESPECTIVELY.(1) THE PRODUCT CHARGES, IS AVAILABLE ON THE
PERFORMANCE OF SERIES II SHARES SINCE TOTAL ANNUAL FUND OPERATING EXPENSE RATIO INVESCO AIM AUTOMATED INFORMATION LINE,
THEIR INCEPTION AND THE RESTATED SET FORTH IN THE MOST RECENT FUND 866 702 4402. AS MENTIONED ABOVE, FOR THE
HISTORICAL PERFORMANCE OF SERIES I SHARES PROSPECTUS AS OF THE DATE OF THIS REPORT MOST RECENT MONTH-END PERFORMANCE
(FOR PERIODS PRIOR TO INCEPTION OF SERIES FOR SERIES I AND SERIES II SHARES WAS INCLUDING VARIABLE PRODUCT CHARGES, PLEASE
II SHARES) ADJUSTED TO REFLECT THE RULE 1.08% AND 1.33%, RESPECTIVELY. THE EXPENSE CONTACT YOUR VARIABLE PRODUCT ISSUER OR
12B-1 FEES APPLICABLE TO SERIES II SHARES. RATIOS PRESENTED ABOVE MAY VARY FROM THE FINANCIAL ADVISOR.
THE INCEPTION DATE OF SERIES I SHARES IS EXPENSE RATIOS PRESENTED IN OTHER SECTIONS
MAY 5, 1993. THE PERFORMANCE OF THE FUND'S OF THIS REPORT THAT ARE BASED ON EXPENSES (1) Total annual operating expenses less
SERIES I AND SERIES II SHARE CLASSES WILL INCURRED DURING THE PERIOD COVERED BY THIS any contractual fee waivers and/or
DIFFER PRIMARILY DUE TO DIFFERENT CLASS REPORT. expense reimbursements by the advisor
EXPENSES. in effect through at least April 30,
2010. See current prospectus for more
information.
AIM V.I. INTERNATIONAL GROWTH FUND
PORTFOLIO COMPOSITION
By sector, based on Net Assets
as of June 30, 2008
<Table>
- -------------------------------------------------------------------------
Consumer Discretionary 18.0%
- -------------------------------------------------------------------------
Industrials 11.6
- -------------------------------------------------------------------------
Consumer Staples 10.3
- -------------------------------------------------------------------------
Health Care 10.2
- -------------------------------------------------------------------------
Financials 8.7
- -------------------------------------------------------------------------
Energy 8.2
- -------------------------------------------------------------------------
Information Technology 7.4
- -------------------------------------------------------------------------
Materials 7.1
- -------------------------------------------------------------------------
Telecommunication Services 6.8
- -------------------------------------------------------------------------
Utilities 1.2
- -------------------------------------------------------------------------
Money Market Funds Plus Other Assets Less Liabilities 10.5
_________________________________________________________________________
=========================================================================
</Table>
SCHEDULE OF INVESTMENTS(a)
June 30, 2008
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-85.26%
AUSTRALIA-2.60%
BHP Billiton Ltd.(b) 694,803 $ 29,582,806
- ---------------------------------------------------------------------------------
Cochlear Ltd. 249,170 10,423,002
=================================================================================
40,005,808
=================================================================================
BELGIUM-2.05%
InBev N.V.(b) 300,227 20,752,019
- ---------------------------------------------------------------------------------
KBC Groep N.V.(b) 98,334 10,844,215
=================================================================================
31,596,234
=================================================================================
CANADA-3.93%
Canadian National Railway Co. 235,320 11,302,372
- ---------------------------------------------------------------------------------
Canadian Natural Resources Ltd. 185,353 18,562,552
- ---------------------------------------------------------------------------------
Manulife Financial Corp. 226,695 7,868,330
- ---------------------------------------------------------------------------------
Suncor Energy, Inc. 394,050 22,819,520
=================================================================================
60,552,774
=================================================================================
CHINA-1.26%
China Mobile Ltd.(b) 1,452,809 19,442,314
=================================================================================
DENMARK-1.32%
Novo Nordisk A.S.-Class B(b) 307,736 20,274,465
=================================================================================
FINLAND-0.54%
Nokia Oyj(b) 341,655 8,369,232
=================================================================================
FRANCE-5.14%
Axa(b) 519,286 15,305,700
- ---------------------------------------------------------------------------------
BNP Paribas(b) 256,562 22,985,966
- ---------------------------------------------------------------------------------
Cap Gemini S.A.(b) 232,561 13,669,057
- ---------------------------------------------------------------------------------
Total S.A. 318,341 27,165,690
=================================================================================
79,126,413
=================================================================================
GERMANY-8.54%
Bayer A.G.(b) 418,359 35,139,510
- ---------------------------------------------------------------------------------
Continental A.G.(b) 97,215 9,959,546
- ---------------------------------------------------------------------------------
Daimler A.G.(b) 255,782 15,788,818
- ---------------------------------------------------------------------------------
Deutsche Boerse A.G.(b) 68,241 7,656,590
- ---------------------------------------------------------------------------------
Merck KGaA(b) 181,640 25,791,926
- ---------------------------------------------------------------------------------
Puma A.G. Rudolf Dassler Sport(b) 55,427 18,560,100
- ---------------------------------------------------------------------------------
Siemens A.G.(b) 167,928 18,595,505
=================================================================================
131,491,995
=================================================================================
GREECE-0.75%
OPAP S.A.(b) 330,690 11,506,690
=================================================================================
HONG KONG-3.45%
Esprit Holdings Ltd. 2,103,600 21,852,641
- ---------------------------------------------------------------------------------
Hutchison Whampoa Ltd.(b) 2,083,000 21,064,019
- ---------------------------------------------------------------------------------
Li & Fung Ltd. 3,380,000 10,186,860
=================================================================================
53,103,520
=================================================================================
INDIA-2.46%
Bharat Heavy Electricals Ltd.(b) 261,611 8,441,072
- ---------------------------------------------------------------------------------
Infosys Technologies Ltd. 729,357 29,421,606
=================================================================================
37,862,678
=================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. INTERNATIONAL GROWTH FUND
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------------
INDONESIA-1.55%
PT Astra International Tbk(b) 3,259,500 $ 6,829,153
- ---------------------------------------------------------------------------------
PT Telekomunikasi Indonesia-Series B(b) 21,470,500 17,017,041
=================================================================================
23,846,194
=================================================================================
IRELAND-0.78%
Anglo Irish Bank Corp. PLC(b) 143,797 1,333,895
- ---------------------------------------------------------------------------------
CRH PLC(b) 368,379 10,721,481
=================================================================================
12,055,376
=================================================================================
ISRAEL-1.94%
Teva Pharmaceutical Industries Ltd.-ADR 652,425 29,881,065
=================================================================================
ITALY-2.43%
Eni S.p.A.(b) 641,872 23,901,651
- ---------------------------------------------------------------------------------
Finmeccanica S.p.A.(b) 520,191 13,593,502
=================================================================================
37,495,153
=================================================================================
JAPAN-8.32%
Denso Corp.(b) 479,600 16,418,456
- ---------------------------------------------------------------------------------
Fanuc Ltd.(b) 244,300 23,807,337
- ---------------------------------------------------------------------------------
Keyence Corp. 75,500 17,984,318
- ---------------------------------------------------------------------------------
Komatsu Ltd.(b) 823,000 22,888,070
- ---------------------------------------------------------------------------------
Nidec Corp.(b) 184,600 12,269,253
- ---------------------------------------------------------------------------------
Suzuki Motor Corp. 690,600 16,326,702
- ---------------------------------------------------------------------------------
Toyota Motor Corp.(b) 391,600 18,422,626
=================================================================================
128,116,762
=================================================================================
MEXICO-3.04%
America Movil SAB de C.V.-Series L-ADR 475,589 25,087,320
- ---------------------------------------------------------------------------------
Desarrolladora Homex S.A. de C.V.-ADR(c) 165,959 9,721,878
- ---------------------------------------------------------------------------------
Grupo Televisa S.A.-ADR 282,588 6,674,729
- ---------------------------------------------------------------------------------
Urbi, Desarrollos Urbanos, S.A. de C.V.(c) 1,567,600 5,419,198
=================================================================================
46,903,125
=================================================================================
NETHERLANDS-2.46%
Heineken Holding N.V.(b) 336,656 15,384,126
- ---------------------------------------------------------------------------------
TNT N.V.(b) 664,354 22,565,915
=================================================================================
37,950,041
=================================================================================
NORWAY-1.02%
Petroleum Geo-Services A.S.A.(b)(c) 640,863 15,655,079
=================================================================================
SINGAPORE-2.89%
Keppel Corp. Ltd.(b) 2,726,000 22,477,656
- ---------------------------------------------------------------------------------
United Overseas Bank Ltd.(b) 1,608,000 22,076,908
=================================================================================
44,554,564
=================================================================================
SOUTH AFRICA-0.55%
Standard Bank Group Ltd.(b) 868,755 8,430,250
=================================================================================
SOUTH KOREA-0.91%
Hana Financial Group Inc. 366,590 14,094,228
=================================================================================
SPAIN-2.24%
Banco Santander S.A.(b) 412,496 7,526,457
- ---------------------------------------------------------------------------------
Telefonica S.A.(b) 1,020,306 26,965,589
=================================================================================
34,492,046
=================================================================================
SWITZERLAND-8.84%
Compagnie Financiere Richemont S.A.-Class A(b)(d) 307,868 17,005,207
- ---------------------------------------------------------------------------------
Nestle S.A.(b) 694,330 31,303,335
- ---------------------------------------------------------------------------------
Roche Holding A.G.(b) 222,316 39,899,992
- ---------------------------------------------------------------------------------
Sonova Holding A.G.(b) 163,114 13,431,391
- ---------------------------------------------------------------------------------
Syngenta A.G.(b) 106,768 34,558,867
=================================================================================
136,198,792
=================================================================================
TAIWAN-2.12%
Hon Hai Precision Industry Co., Ltd. 4,254,141 20,948,422
- ---------------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co. Ltd.-ADR 1,075,311 11,731,643
=================================================================================
32,680,065
=================================================================================
TURKEY-0.42%
Akbank T.A.S 1,848,868 6,402,745
=================================================================================
UNITED KINGDOM-13.71%
Aviva PLC(b) 985,992 9,770,189
- ---------------------------------------------------------------------------------
Capita Group PLC(b) 993,573 13,586,067
- ---------------------------------------------------------------------------------
Compass Group PLC(b) 2,027,594 15,233,738
- ---------------------------------------------------------------------------------
Imperial Tobacco Group PLC 929,720 34,649,222
- ---------------------------------------------------------------------------------
Informa PLC 1,574,916 12,956,120
- ---------------------------------------------------------------------------------
International Power PLC(b) 2,106,877 18,027,678
- ---------------------------------------------------------------------------------
Reckitt Benckiser Group PLC(b) 391,797 19,839,376
- ---------------------------------------------------------------------------------
Reed Elsevier PLC(b) 1,039,952 11,890,288
- ---------------------------------------------------------------------------------
Shire Ltd. 1,043,977 17,124,664
- ---------------------------------------------------------------------------------
Tesco PLC(b) 2,943,942 21,618,948
- ---------------------------------------------------------------------------------
Vodafone Group PLC(b) 5,334,417 15,718,261
- ---------------------------------------------------------------------------------
WPP Group PLC(b) 2,154,215 20,739,054
=================================================================================
211,153,605
=================================================================================
Total Common Stocks & Other Equity Interests
(Cost $1,211,658,683) 1,313,241,213
=================================================================================
PREFERRED STOCKS-4.21%
BRAZIL-1.14%
Petroleo Brasileiro S.A.-Pfd.-ADR 303,406 17,582,378
=================================================================================
GERMANY-3.07%
Henkel A.G. & Co. KGaA-Pfd.(b) 402,156 15,970,214
- ---------------------------------------------------------------------------------
Porsche Automobil Holding S.E.-Pfd.(b) 203,588 31,295,240
=================================================================================
47,265,454
=================================================================================
Total Preferred Stocks (Cost $53,427,742) 64,847,832
=================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. INTERNATIONAL GROWTH FUND
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------------
MONEY MARKET FUNDS-9.57%
Liquid Assets Portfolio-Institutional Class(e) 73,675,601 $ 73,675,601
- ---------------------------------------------------------------------------------
Premier Portfolio-Institutional Class(e) 73,675,601 73,675,601
=================================================================================
Total Money Market Funds (Cost $147,351,202) 147,351,202
=================================================================================
TOTAL INVESTMENTS-99.04% (Cost $1,412,437,627) 1,525,440,247
=================================================================================
OTHER ASSETS LESS LIABILITIES-0.96% 14,727,416
=================================================================================
NET ASSETS-100.00% $1,540,167,663
_________________________________________________________________________________
=================================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Pfd. - Preferred
</Table>
Notes to Schedule of Investments:
(a) Industry and/or sector classifications used in this report are generally
according to the Global Industry Classification Standard, which was
developed by and is the exclusive property and a service mark of MSCI Inc.
and Standard & Poor's.
(b) In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate value of these securities at June 30, 2008 was $971,901,840,
which represented 63.10% of the Fund's Net Assets. See Note 1A.
(c) Non-income producing security.
(d) Each unit represents one A bearer share in the company and one bearer
share participation certificate in Richemont S.A.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. INTERNATIONAL GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, at value (Cost
$1,265,086,425) $1,378,089,045
- -------------------------------------------------------
Investments in affiliated money market
funds (Cost $147,351,202) 147,351,202
=======================================================
Total investments (Cost
$1,412,437,627) 1,525,440,247
=======================================================
Foreign currencies, at value (Cost
$10,530,968) 10,614,543
- -------------------------------------------------------
Receivables for:
Investments sold 18,696
- -------------------------------------------------------
Fund shares sold 6,423,567
- -------------------------------------------------------
Dividends 2,180,401
- -------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 50,630
- -------------------------------------------------------
Other assets 15,662
=======================================================
Total assets 1,544,743,746
_______________________________________________________
=======================================================
LIABILITIES:
Payables for:
Investments purchased 2,067,764
- -------------------------------------------------------
Fund shares reacquired 398,018
- -------------------------------------------------------
Accrued fees to affiliates 1,482,200
- -------------------------------------------------------
Accrued other operating expenses 525,099
- -------------------------------------------------------
Trustee deferred compensation and
retirement plans 103,002
=======================================================
Total liabilities 4,576,083
=======================================================
Net assets applicable to shares
outstanding $1,540,167,663
_______________________________________________________
=======================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,390,056,545
- -------------------------------------------------------
Undistributed net investment income 23,812,015
- -------------------------------------------------------
Undistributed net realized gain 13,231,227
- -------------------------------------------------------
Unrealized appreciation 113,067,876
=======================================================
$1,540,167,663
_______________________________________________________
=======================================================
NET ASSETS:
Series I $ 714,007,575
_______________________________________________________
=======================================================
Series II $ 826,160,088
_______________________________________________________
=======================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 24,127,411
_______________________________________________________
=======================================================
Series II 28,280,796
_______________________________________________________
=======================================================
Series I:
Net asset value per share $ 29.59
_______________________________________________________
=======================================================
Series II:
Net asset value per share $ 29.21
_______________________________________________________
=======================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding
taxes of $2,694,763) $ 23,059,355
- -------------------------------------------------------
Dividends from affiliated money market
funds (includes securities lending
income of $261,018) 2,695,776
=======================================================
Total investment income 25,755,131
=======================================================
EXPENSES:
Advisory fees 5,331,439
- -------------------------------------------------------
Administrative services fees 2,004,423
- -------------------------------------------------------
Custodian fees 566,214
- -------------------------------------------------------
Distribution fees -- Series II 958,796
- -------------------------------------------------------
Transfer agent fees 32,039
- -------------------------------------------------------
Trustees' and officer's fees and
benefits 27,956
- -------------------------------------------------------
Other 144,481
=======================================================
Total expenses 9,065,348
=======================================================
Less: Fees waived and expense offset
arrangement(s) (95,922)
=======================================================
Net expenses 8,969,426
=======================================================
Net investment income 16,785,705
=======================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM:
Net realized gain (loss) from:
Investment securities (net of foreign
taxes of $357,722) (7,470,098)
- -------------------------------------------------------
Foreign currencies 172,885
=======================================================
(7,297,213)
=======================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (net of foreign
taxes on holdings of $1,137,523) (203,410,089)
- -------------------------------------------------------
Foreign currencies 57,236
=======================================================
(203,352,853)
=======================================================
Net realized and unrealized gain (loss) (210,650,066)
=======================================================
Net increase (decrease) in net assets
resulting from operations $(193,864,361)
_______________________________________________________
=======================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. INTERNATIONAL GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- ----------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 16,785,705 $ 10,346,855
- ----------------------------------------------------------------------------------------------------------
Net realized gain (loss) (7,297,213) 42,387,660
- ----------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) (203,352,853) 53,567,858
==========================================================================================================
Net increase (decrease) in net assets resulting from operations (193,864,361) 106,302,373
==========================================================================================================
Distributions to shareholders from net investment income:
Series I -- (3,152,708)
- ----------------------------------------------------------------------------------------------------------
Series II -- (2,719,089)
==========================================================================================================
Total distributions from net investment income -- (5,871,797)
==========================================================================================================
Share transactions-net:
Series I 17,477,376 149,884,993
- ----------------------------------------------------------------------------------------------------------
Series II 178,569,799 560,552,308
==========================================================================================================
Net increase in net assets resulting from share transactions 196,047,175 710,437,301
==========================================================================================================
Net increase in net assets 2,182,814 810,867,877
==========================================================================================================
NET ASSETS:
Beginning of period 1,537,984,849 727,116,972
==========================================================================================================
End of period (including undistributed net investment income of
$23,812,015 and $7,026,310, respectively) $1,540,167,663 $1,537,984,849
__________________________________________________________________________________________________________
==========================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. International Growth Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is long-term growth of capital.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on
that day. Securities traded in the over-the-counter market are valued
based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service
they may be considered fair valued. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally
traded. Listed options are valued at the mean between the last bid and the
ask prices from the exchange on which they are principally traded. Options
not listed on an exchange are valued by an independent source at the mean
between the last bid and ask prices. For purposes of determining net asset
value per share, futures and option contracts generally are valued 15
minutes after the close of the customary trading session of the New York
Stock Exchange ("NYSE").
Investments in open-end and closed-end registered investment companies
that do not trade on an exchange are valued at the end of day net asset
value per share. Investments in open-end and closed-end registered
investment companies that trade on an exchange are valued at the last
sales price or official closing price as of the close of the customary
trading session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing
service. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to specific securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Short-term obligations, including
commercial paper, having 60 days or less to maturity are recorded at
amortized cost which approximates value. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve
some risk of default with respect to interest and/or principal payments.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued
at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price
unreliable, the Fund may fair value the security. If the event is likely
to have affected the closing price of the security, the security will be
valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also
be based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current value as of the close of the NYSE. Foreign securities
meeting the approved degree of certainty that the price is not reflective
of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, American
Depositary Receipts and domestic and foreign index futures. Foreign
securities may have additional risks including exchange rate changes,
potential for sharply devalued currencies and high inflation, political
and economical upheaval, the relative lack of issuer information,
relatively low market liquidity and the potential lack of strict financial
and accounting controls and standards.
Securities for which market prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers following procedures
approved by the Board of Trustees. Issuer specific events, market trends,
bid/ask quotes of brokers and information providers and other market data
may be reviewed in the course of making a good faith determination of a
security's fair value.
Valuations change in response to many factors including the historical
and prospective earnings of the issuer, the value of the issuer's assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
AIM V.I. INTERNATIONAL GROWTH FUND
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification
claims is considered remote.
I. SECURITIES LENDING -- The Fund may lend portfolio securities having a
market value up to one-third of the Fund's total assets. Such loans are
secured by collateral equal to no less than the market value of the loaned
securities determined daily by the securities lending provider. Such
collateral will be cash or debt securities issued or guaranteed by the
U.S. Government or any of its sponsored agencies. Cash collateral received
in connection with these loans is invested in short-term money market
instruments or affiliated money market funds and is shown as such on the
Schedule of Investments. It is the Fund's policy to obtain additional
collateral from or return excess collateral to the borrower by the end of
the next business day, following the valuation date of the securities
loaned. Therefore, the value of the collateral held may be temporarily
less than the value of the securities on loan. Lending securities entails
a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase
the collateral accordingly, and the borrower fails to return the
securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any
loss on the collateral invested. Dividends received on cash collateral
investments for securities lending transactions, which are net of
compensation to counterparties, is included in Dividends from affiliates
on the Statement of Operations. The aggregate value of securities out on
loan is shown as a footnote on the Statement of Assets and Liabilities.
J. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close
of the NYSE based on quotations posted by banks and major currency
dealers. Portfolio securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i)
sales of foreign currencies, (ii) currency gains or losses realized
between the trade and settlement dates on securities transactions, and
(iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent
AIM V.I. INTERNATIONAL GROWTH FUND
of the amounts actually received or paid. Net unrealized foreign currency
gains and losses arise from changes in the fair values of assets and
liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to
foreign taxes on income, gains on investments or currency repatriation, a
portion of which may be recoverable.
K. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. Fluctuations in the value of these contracts are recorded as
unrealized appreciation (depreciation) until the contracts are closed.
When these contracts are closed, realized gains (losses) are recorded.
Realized and unrealized gains and losses on these contracts are included
in the Statement of Operations. The Fund could be exposed to risk, which
may be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $250 million 0.75%
- -------------------------------------------------------------------
Over $250 million 0.70%
___________________________________________________________________
===================================================================
</Table>
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd., (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
The Advisor has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit net annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.30% and Series
II shares to 1.45% of average daily net assets, through at least April 30, 2010.
In determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco")
described more fully below, the only expense offset arrangements from which the
Fund may benefit are in the form of credits that the Fund receives from banks
where the Fund or its transfer agent has deposit accounts in which it holds
uninvested cash. These credits are used to pay certain expenses incurred by the
Fund. The Advisor did not waive fees and/or reimburse expenses during the period
under this expense limitation.
Further, the Advisor has contractually agreed, through at least April 30,
2010, to waive the advisory fee payable by the Fund in an amount equal to 100%
of the net advisory fees the Advisor receives from the affiliated money market
funds on investments by the Fund of uninvested cash (but not cash collateral
from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2008, the Advisor waived advisory fees of
$95,059.
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $177,421 for accounting and fund
administrative services and reimbursed $1,827,002 for services provided by
insurance companies.
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily net
assets of the Series II shares may be paid to insurance companies who furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. For the six months ended June 30, 2008, expenses
incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
AIM V.I. INTERNATIONAL GROWTH FUND
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1 -- Quoted prices in an active market for identical assets.
Level 2 -- Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing
a security. These may include quoted prices for similar securities, interest
rates, prepayment speeds, credit risk and others.
Level 3 -- Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for
example, when there is little or no market activity for an investment at the
end of the period), unobservable inputs may be used. Unobservable inputs
reflect the Fund's own assumptions about the factors market participants would
use in determining fair value of the securities or instruments and would be
based on the best available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS IN
INPUT LEVEL SECURITIES
- --------------------------------------
Level 1 $ 553,538,406
- --------------------------------------
Level 2 971,901,841
- --------------------------------------
Level 3 --
======================================
$1,525,440,247
______________________________________
======================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, for the six months ended June 30, 2008, the Fund
engaged in securities purchases of $2,711,010.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2008, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $863.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan and receive benefits under such plan. "Trustees' and Officer's
Fees and Benefits" include amounts accrued by the Fund to fund such retirement
benefits. Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $3,195
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--CASH BALANCES
The Fund is permitted to temporarily carry a negative or overdrawn balance in
its account with The State Street Bank and Trust Company ("SSB"), the custodian
bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund
may either (i) leave funds as a compensating balance in the account so the
custodian bank can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank at a rate agreed upon by the custodian
bank and Invesco Aim, not to exceed the contractually agreed upon rate.
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
AIM V.I. INTERNATIONAL GROWTH FUND
The Fund did not have a capital loss carryforward as of December 31, 2007.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the six months ended June 30, 2008 was $473,307,576 and
$306,739,286, respectively. Cost of investments on a tax basis includes the
adjustments for financial reporting purposes as of the most recently completed
Federal income tax reporting period end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $187,128,067
- ------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (78,061,126)
================================================================================================
Net unrealized appreciation of investment securities $109,066,941
________________________________________________________________________________________________
================================================================================================
Cost of investments for tax purposes is $1,416,373,306.
</Table>
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008(a) DECEMBER 31, 2007
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 3,326,787 $103,051,101 9,094,637 $ 298,953,566
- -------------------------------------------------------------------------------------------------------------------------
Series II 7,957,607 243,140,108 18,926,292 627,011,734
=========================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 90,543 3,152,708
- -------------------------------------------------------------------------------------------------------------------------
Series II -- -- 78,997 2,719,089
=========================================================================================================================
Reacquired:
Series I (2,775,034) (85,573,725) (4,751,273) (152,221,281)
- -------------------------------------------------------------------------------------------------------------------------
Series II (2,098,518) (64,570,309) (2,196,518) (69,178,515)
=========================================================================================================================
6,410,842 $196,047,175 21,242,678 $ 710,437,301
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) There are entities that are record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate own 54% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, Invesco
Aim and/or Invesco Aim affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services to
the Fund, Invesco Aim and or Invesco Aim affiliates including but not
limited to services such as, securities brokerage, third party record
keeping and account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record by
these entities are also owned beneficially.
AIM V.I. INTERNATIONAL GROWTH FUND
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
---------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------
2008 2007 2006 2005 2004 2003
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 33.63 $ 29.44 $ 23.17 $ 19.77 $ 16.04 $ 12.49
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.36 0.34 0.23 0.23 0.15 0.09
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (4.40) 3.98 6.32 3.31 3.70 3.54
===============================================================================================================================
Total from investment operations (4.04) 4.32 6.55 3.54 3.85 3.63
===============================================================================================================================
Less dividends from net investment income -- (0.13) (0.28) (0.14) (0.12) (0.08)
===============================================================================================================================
Net asset value, end of period $ 29.59 $ 33.63 $ 29.44 $ 23.17 $ 19.77 $ 16.04
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) (12.01)% 14.68% 28.28% 17.93% 24.00% 29.06%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $714,008 $792,779 $563,460 $444,608 $346,605 $290,680
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets 1.06%(c)(d) 1.06%(d) 1.10% 1.11% 1.14% 1.10%
===============================================================================================================================
Ratio of net investment income to average
net assets 2.36%(c) 1.06% 0.90% 1.11% 0.90% 0.69%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(e) 22% 20% 34% 36% 48% 79%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$742,529,593.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.07% (annualized) and 1.07% for the six months ended June 30, 2008 and the
year ended December 31, 2007, respectively.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
<Table>
<Caption>
SERIES II
------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------
2008 2007 2006 2005 2004 2003
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 33.24 $ 29.16 $ 23.00 $ 19.65 $ 15.97 $ 12.45
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.32 0.26 0.17 0.18 0.11 0.06
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (4.35) 3.94 6.25 3.30 3.66 3.51
=============================================================================================================================
Total from investment operations (4.03) 4.20 6.42 3.48 3.77 3.57
=============================================================================================================================
Less dividends from net investment income -- (0.12) (0.26) (0.13) (0.09) (0.05)
=============================================================================================================================
Net asset value, end of period $ 29.21 $ 33.24 $ 29.16 $ 23.00 $ 19.65 $ 15.97
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) (12.12)% 14.41% 27.92% 17.70% 23.63% 28.68%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $826,160 $745,206 $163,657 $54,658 $21,497 $10,972
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets 1.31%(c)(d) 1.31%(d) 1.35% 1.36% 1.39% 1.35%
=============================================================================================================================
Ratio of net investment income to average
net assets 2.11%(c) 0.81% 0.65% 0.86% 0.65% 0.44%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate(e) 22% 20% 34% 36% 48% 79%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$771,251,242.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.32% (annualized) and 1.32% for the six months ended June 30, 2008 and the
year ended December 31, 2007, respectively.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. INTERNATIONAL GROWTH FUND
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to Invesco Aim and IADI (Order No. 05-
1318). The WVASC makes findings of fact that Invesco Aim and IADI entered into
certain arrangements permitting market timing of the AIM Funds and failed to
disclose these arrangements in the prospectuses for such Funds, and conclusions
of law to the effect that Invesco Aim and IADI violated the West Virginia
securities laws. The WVASC orders Invesco Aim and IADI to cease any further
violations and seeks to impose monetary sanctions, including restitution to
affected investors, disgorgement of fees, reimbursement of investigatory,
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute. By agreement with the Commissioner of
Securities, Invesco Aim's time to respond to that Order has been indefinitely
suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid. The case pending in Illinois State Court regarding fair value
pricing was dismissed with prejudice on May 6, 2008.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA
purportedly brought on behalf of participants in the Invesco 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds remain nominal defendants in the Consolidated Amended Fund
Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco
defendants' motion to dismiss the Amended Class Action Complaint for Violations
of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June
16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this
lawsuit back to the MDL Court for further proceedings..
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, Invesco Aim and IADI have advised the Fund that they are providing
full cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, Invesco Aim and/or related entities and individuals in the
future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. INTERNATIONAL GROWTH FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $879.90 $4.95 $1,019.59 $5.32 1.06%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 878.80 6.12 1,018.35 6.57 1.31
- ---------------------------------------------------------------------------------------------------
</Table>
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5%
before expenses.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
AIM V.I. INTERNATIONAL GROWTH FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the Board) of AIM their assigned funds. During the contract ated the information provided differently
Variable Insurance Funds is required under renewal process, the Trustees receive from one another and attributed different
the Investment Company Act of 1940 to comparative performance and fee data weight to the various factors. The
approve annually the renewal of the AIM regarding the AIM Funds prepared by an Trustees recognized that the advisory
V.I. International Growth Fund (the Fund) independent company, Lipper, Inc. arrangements and resulting advisory fees
investment advisory agreement with Invesco (Lipper), under the direction and for the Fund and the other AIM Funds are
Aim Advisors, Inc. (Invesco Aim). During supervision of the independent Senior the result of years of review and
contract renewal meetings held on June Officer who also prepares a separate negotiation between the Trustees and
18-19, 2008, the Board as a whole and the analysis of this information for the Invesco Aim, that the Trustees may focus
disinterested or "independent" Trustees, Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of
voting separately, approved the recommendations to the Investments these arrangements in some years than in
continuance of the Fund's investment Committee regarding the performance, fees others, and that the Trustees'
advisory agreement for another year, and expenses of their assigned funds. The deliberations and conclusions in a
effective July 1, 2008. In doing so, the Investments Committee considers each particular year may be based in part on
Board determined that the Fund's Sub-Committee's recommendations and makes their deliberations and conclusions of
investment advisory agreement is in the its own recommendations regarding the these same arrangements throughout the
best interests of the Fund and its performance, fees and expenses of the AIM year and in prior years.
shareholders and that the compensation to Funds to the full Board. The Investments
Invesco Aim under the Fund's investment Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF
advisory agreement is fair and reasonable. Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION
its annual recommendation to the Board
The independent Trustees met separately whether to approve the continuance of each The discussion below serves as a summary
during their evaluation of the Fund's AIM Fund's investment advisory agreement of the Senior Officer's independent
investment advisory agreement with and sub-advisory agreements for another written evaluation with respect to the
independent legal counsel from whom they year. Fund's investment advisory agreement as
received independent legal advice, and the well as a discussion of the material
independent Trustees also received The independent Trustees are assisted factors and related conclusions that
assistance during their deliberations from in their annual evaluation of the Fund's formed the basis for the Board's approval
the independent Senior Officer, a investment advisory agreement by the of the Fund's investment advisory
full-time officer of the AIM Funds who independent Senior Officer. One agreement and sub-advisory agreements.
reports directly to the independent responsibility of the Senior Officer is to Unless otherwise stated, information set
Trustees. manage the process by which the AIM Funds' forth below is as of June 19, 2008 and
proposed management fees are negotiated does not reflect any changes that may have
THE BOARD'S FUND EVALUATION PROCESS during the annual contract renewal process occurred since that date, including but
to ensure that they are negotiated in a not limited to changes to the Fund's
The Board's Investments Committee has manner that is at arms' length and performance, advisory fees, expense
established three Sub-Committees that are reasonable. Accordingly, the Senior limitations and/or fee waivers.
responsible for overseeing the management Officer must either supervise a
of a number of the series portfolios of competitive bidding process or prepare an I. Investment Advisory Agreement
the AIM Funds. This Sub-Committee independent written evaluation. The Senior
structure permits the Trustees to focus on Officer has recommended that an A. Nature, Extent and Quality of
the performance of the AIM Funds that have independent written evaluation be provided Services Provided by Invesco Aim
been assigned to them. The Sub-Committees and, at the direction of the Board, has
meet throughout the year to review the prepared an independent written The Board reviewed the advisory services
performance of their assigned funds, and evaluation. provided to the Fund by Invesco Aim under
the Sub-Committees review monthly and the Fund's investment advisory agreement,
quarterly comparative performance During the annual contract renewal the performance of Invesco Aim in
information and periodic asset flow data process, the Board considered the factors providing these services, and the
for their assigned funds. These materials discussed below under the heading "Factors credentials and experience of the officers
are prepared under the direction and and Conclusions and Summary of Independent and employees of Invesco Aim who provide
supervision of the independent Senior Written Fee Evaluation" in evaluating the these services. The Board's review of the
Officer. Over the course of each year, the fairness and reasonableness of the Fund's qualifications of Invesco Aim to provide
Sub-Committees meet with portfolio investment advisory agreement and these services included the Board's
managers for their assigned funds and sub-advisory agreements at the contract consideration of Invesco Aim's portfolio
other members of management and review renewal meetings and at their meetings and product review process, various back
with these individuals the performance, throughout the year as part of their office support functions provided by
investment objective(s), policies, ongoing oversight of the Fund. The Fund's Invesco Aim, and Invesco Aim's equity and
strategies and limitations of these funds. investment advisory agreement and fixed income trading operations. The Board
sub-advisory agreements were considered concluded that the nature, extent and
In addition to their meetings separately, although the Board also quality of the advisory services provided
throughout the year, the Sub-Committees considered the common interests of all of to the Fund by Invesco Aim were
meet at designated contract renewal the AIM Funds in their deliberations. The appropriate and that Invesco Aim currently
meetings each year to conduct an in-depth Board considered all of the information is providing satisfactory advisory
review of the performance, fees and provided to them and did not identify any services in accordance with the terms of
expenses of particular factor that was controlling. the Fund's investment advisory agreement.
Each Trustee may have evalu- In addition, based on their ongoing
meetings throughout the year with the
continued
AIM V.I. INTERNATIONAL GROWTH FUND
Fund's portfolio manager or managers, the the Board also reviewed more recent Fund the Fund shares directly in economies of
Board concluded that these individuals are performance and this review did not change scale through lower fees charged by third
competent and able to continue to carry their conclusions. party service providers based on the
out their responsibilities under the combined size of all of the AIM Funds and
Fund's investment advisory agreement. C. Advisory Fees and Fee Waivers affiliates.
In determining whether to continue the The Board compared the Fund's contractual E. Profitability and Financial
Fund's advisory agreement, the Board advisory fee rate to the contractual Resources of Invesco Aim
considered the prior relationship between advisory fee rates of funds in the Fund's
Invesco Aim and the Fund, as well as the expense group that are not managed by The Board reviewed information from
Board's knowledge of Invesco Aim's Invesco Aim, at a common asset level and Invesco Aim concerning the costs of the
operations, and concluded that it was as of the end of the past calendar year. advisory and other services that Invesco
beneficial to maintain the current The Board noted that the Fund's Aim and its affiliates provide to the Fund
relationship, in part, because of such contractual advisory fee rate was below and the profitability of Invesco Aim and
knowledge. The Board also considered the the median contractual advisory fee rate its affiliates in providing these
steps that Invesco Aim and its affiliates of funds in its expense group. The Board services. The Board also reviewed
have taken over the last several years to also reviewed the methodology used by information concerning the financial
improve the quality and efficiency of the Lipper and noted that the contractual fee condition of Invesco Aim and its
services they provide to the Funds in the rates shown by Lipper in determining affiliates. The Board also reviewed with
areas of investment performance, product contractual fee rates. The Board noted Invesco Aim the methodology used to
line diversification, distribution, fund that Invesco Aim does not serve as an prepare the profitability information. The
operations, shareholder services and advisor to other mutual funds or other Board considered the overall profitability
compliance. The Board concluded that the clients with investment strategies of Invesco Aim, as well as the
quality and efficiency of the services comparable to those of the Fund. profitability of Invesco Aim in connection
Invesco Aim and its affiliates provide to with managing the Fund. The Board noted
the AIM Funds in each of these areas have The Board noted that Invesco Aim has that Invesco Aim continues to operate at a
generally improved, and support the contractually agreed to waive fees and/or net profit, although increased expenses in
Board's approval of the continuance of the limit expenses of the Fund through at recent years have reduced the
Fund's advisory agreement. least April 30, 2010 in an amount profitability of Invesco Aim and its
necessary to limit total annual operating affiliates. The Board concluded that the
B. Fund Performance expenses to a specified percentage of Fund's fees were fair and reasonable, and
average daily net assets for each class of that the level of profits realized by
The Board compared the Fund's performance the Fund. The Board considered the Invesco Aim and its affiliates from
during the past one, three and five contractual nature of this fee waiver and providing services to the Fund was not
calendar years to the performance of funds noted that it remains in effect until at excessive in light of the nature, quality
in the Fund's performance group that are least April 30, 2010. The Board also and extent of the services provided. The
not managed by Invesco Aim, and against considered the effect this expense Board considered whether Invesco Aim is
the performance of all funds in the Lipper limitation would have on the Fund's financially sound and has the resources
Variable Annuity Underlying Funds -- estimated total expenses. necessary to perform its obligations under
International Growth Funds Index. The the Fund's investment advisory agreement,
Board also reviewed the criteria used by After taking account of the Fund's and concluded that Invesco Aim has the
Invesco Aim to identify the funds in the contractual advisory fee rate, as well as financial resources necessary to fulfill
Fund's performance group for inclusion in the comparative advisory fee information these obligations.
the Lipper reports. The Board noted that and the expense limitation discussed
the Fund's performance was in the third above, the Board concluded that the Fund's F. Independent Written Evaluation of
quintile of its performance group for the advisory fees were fair and reasonable. the Fund's Senior Officer
one year period and the second quintile
for the three and five year periods (the D. Economies of Scale and Breakpoints The Board noted that, at their direction,
first quintile being the best performing the Senior Officer of the Fund, who is
funds and the fifth quintile being the The Board considered the extent to which independent of Invesco Aim and Invesco
worst performing funds). The Board noted there are economies of scale in Invesco Aim's affiliates, had prepared an
that the performance was above the Aim's provision of advisory services to independent written evaluation to assist
performance of the Index for the one, the Fund. The Board also considered the Board in determining the
three and five year periods. The Board whether the Fund benefits from such reasonableness of the proposed management
also considered the steps Invesco Aim has economies of scale through contractual fees of the AIM Funds, including the Fund.
taken over the last several years to breakpoints in the Fund's advisory fee The Board noted that they had relied upon
improve the quality and efficiency of the schedule or through advisory fee waivers the Senior Officer's written evaluation
services that Invesco Aim provides to the or expense limitations. The Board noted instead of a competitive bidding process.
AIM Funds. The Board concluded that that the Fund's contractual advisory fee In determining whether to continue the
Invesco Aim continues to be responsive to schedule includes one breakpoint and that Fund's investment advisory agreement, the
the Board's focus on fund performance. the level of the Fund's advisory fees, as Board considered the Senior Officer's
Although the independent written a percentage of the Fund's net assets, has written evaluation.
evaluation of the Fund's Senior Officer decreased as net assets increased because
only considered Fund performance through of the breakpoint. Based on this G. Collateral Benefits to Invesco Aim
the most recent calendar year, information, the Board concluded that the and its Affiliates
Fund's advisory fees appropriately reflect
economies of scale at current asset The Board considered various other
levels. The Board also noted that benefits received by Invesco Aim and its
continued
AIM V.I. INTERNATIONAL GROWTH FUND
affiliates resulting from Invesco Aim's cash collateral. The Board considered the and the services to be provided by Invesco
relationship with the Fund, including the contractual nature of this fee waiver and Aim pursuant to the Fund's investment
fees received by Invesco Aim and its noted that it remains in effect until at advisory agreement, as well as the
affiliates for their provision of least April 30, 2010. The Board concluded allocation of fees between Invesco Aim and
administrative, transfer agency and that the Fund's investment of uninvested the Affiliated Sub-Advisers pursuant to
distribution services to the Fund. The cash and cash collateral from any the sub-advisory agreements. The Board
Board considered the performance of securities lending arrangements in the noted that the sub-advisory fees have no
Invesco Aim and its affiliates in affiliated money market funds is in the direct effect on the Fund or its
providing these services and the best interests of the Fund and its shareholders, as they are paid by Invesco
organizational structure employed by shareholders. Aim to the Affiliated Sub-Advisers, and
Invesco Aim and its affiliates to provide that Invesco Aim and the Affiliated
these services. The Board also considered II. Sub-Advisory Agreements Sub-Advisers are affiliates. After taking
that these services are provided to the account of the Fund's contractual
Fund pursuant to written contracts which A. Nature, Extent and Quality of sub-advisory fee rate, as well as other
are reviewed and approved on an annual Services Provided by Affiliated relevant factors, the Board concluded that
basis by the Board. The Board concluded Sub-Advisers the Fund's sub-advisory fees were fair and
that Invesco Aim and its affiliates were reasonable.
providing these services in a satisfactory The Board reviewed the services to be
manner and in accordance with the terms of provided by Invesco Trimark Ltd., Invesco D. Financial Resources of the
their contracts, and were qualified to Asset Management Deutschland, GmbH, Affiliated Sub-Advisers
continue to provide these services to the Invesco Asset Management Limited, Invesco
Fund. Asset Management (Japan) Limited, Invesco The Board considered whether each
Australia Limited, Invesco Global Asset Affiliated Sub-Adviser is financially
The Board considered the benefits Management (N.A.), Inc., Invesco Hong Kong sound and has the resources necessary to
realized by Invesco Aim as a result of Limited, Invesco Institutional (N.A.), perform its obligations under its
portfolio brokerage transactions executed Inc. and Invesco Senior Secured respective sub-advisory agreement, and
through "soft dollar" arrangements. Under Management, Inc. (collectively, the concluded that each Affiliated Sub-Adviser
these arrangements, portfolio brokerage "Affiliated Sub-Advisers") under the has the financial resources necessary to
commissions paid by the Fund and/or other sub-advisory agreements and the fulfill these obligations.
funds advised by Invesco Aim are used to credentials and experience of the officers
pay for research and execution services. and employees of the Affiliated
The Board noted that soft dollar Sub-Advisers who will provide these
arrangements shift the payment obligation services. The Board concluded that the
for the research and execution services nature, extent and quality of the services
from Invesco Aim to the funds and to be provided by the Affiliated
therefore may reduce Invesco Aim's Sub-Advisers were appropriate. The Board
expenses. The Board also noted that noted that the Affiliated Sub-Advisers,
research obtained through soft dollar which have offices and personnel that are
arrangements may be used by Invesco Aim in geographically dispersed in financial
making investment decisions for the Fund centers around the world, have been formed
and may therefore benefit Fund in part for the purpose of researching and
shareholders. The Board concluded that compiling information and making
Invesco Aim's soft dollar arrangements recommendations on the markets and
were appropriate. The Board also concluded economies of various countries and
that, based on their review and securities of companies located in such
representations made by Invesco Aim, these countries or on various types of
arrangements were consistent with investments and investment techniques, and
regulatory requirements. providing investment advisory services.
The Board concluded that the sub-advisory
The Board considered the fact that the agreements will benefit the Fund and its
Fund's uninvested cash and cash collateral shareholders by permitting Invesco Aim to
from any securities lending arrangements utilize the additional resources and
may be invested in money market funds talent of the Affiliated Sub-Advisers in
advised by Invesco Aim pursuant to managing the Fund.
procedures approved by the Board. The
Board noted that Invesco Aim will receive B. Fund Performance
advisory fees from these affiliated money
market funds attributable to such The Board did not view Fund performance as
investments, although Invesco Aim has a relevant factor in considering whether
contractually agreed to waive through at to approve the sub-advisory agreements for
least April 30, 2010, the advisory fees the Fund, as no Affiliated Sub-Adviser
payable by the Fund in an amount equal to currently manages any portion of the
100% of the net advisory fees Invesco Aim Fund's assets.
receives from the affiliated money market
funds with respect to the Fund's C. Sub-Advisory Fees
investment of uninvested cash, but not
The Board considered the services to be
provided by the Affiliated Sub-Advisers
pursuant to the sub-advisory agreements
AIM V.I. INTERNATIONAL GROWTH FUND
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. International Growth
Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware
statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held
for the following purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will
serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust that
would permit the Board of Trustees of the Trust to terminate the Trust, the
Fund, and each other series portfolio of the Trust, or a share class without
a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and
each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland,
GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.),
Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and
Invesco Senior Secured Management, Inc.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- -----------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker...................................................... 474,883,590 19,741,622
Frank S. Bayley................................................... 474,653,109 19,972,103
James T. Bunch.................................................... 475,597,417 19,027,795
Bruce L. Crockett................................................. 474,900,579 19,724,633
Albert R. Dowden.................................................. 474,749,929 19,875,283
Jack M. Fields.................................................... 475,205,840 19,419,372
Martin L. Flanagan................................................ 475,248,336 19,376,876
Carl Frischling................................................... 474,453,674 20,171,538
Prema Mathai-Davis................................................ 473,569,192 21,056,020
Lewis F. Pennock.................................................. 475,072,501 19,552,711
Larry Soll, Ph.D. ................................................ 475,170,544 19,454,668
Raymond Stickel, Jr. ............................................. 475,420,825 19,204,387
Philip A. Taylor.................................................. 475,640,570 18,984,642
</Table>
<Table>
<Caption>
WITHHELD/
VOTES FOR VOTES AGAINST ABSTENTIONS
- -------------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of
Trustees of the Trust to terminate the Trust, the Fund,
and each other series portfolio of the Trust, or a
share class without a shareholder vote................. 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between Invesco
Aim Advisors, Inc. and each of AIM Funds Management,
Inc.; Invesco Asset Management Deutschland, GmbH;
Invesco Asset Management Limited; Invesco Asset
Management (Japan) Limited; Invesco Australia Limited;
Invesco Global Asset Management (N.A.), Inc.; Invesco
Hong Kong Limited; Invesco Institutional (N.A.), Inc.;
and Invesco Senior Secured Management, Inc. ........... 35,693,485 1,356,959 1,399,998
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. INTERNATIONAL GROWTH FUND
[INVESCO AIM LOGO] AIM V.I. LARGE CAP GROWTH FUND
- SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008
AIM Investments [MOUNTAIN GRAPHIC]
became INVESCO AIM
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FUND PERFORMANCE
=======================================================================================
PERFORMANCE SUMMARY
FUND VS. INDEXES
Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer
charges. If variable product issuer charges were included, returns would be lower.
Series I Shares -10.92%
Series II Shares -11.05
S&P 500 Index(TRIANGLE) (Broad Market Index) -11.90
Russell 1000 Growth Index(TRIANGLE) (Style-Specific Index) -9.06
Lipper VUF Large-Cap Growth Funds Index(TRIANGLE) (Peer Group Index) -9.93
(TRIANGLE)Lipper Inc.
The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted index
covering all major areas of the U.S. economy. It is not the 500 largest companies, but
rather the most widely held 500 companies chosen with respect to market size,
liquidity, and their industry.
The RUSSELL 1000--REGISTERED TRADEMARK-- GROWTH INDEX measures the performance of
those Russell 1000 companies with higher price-to-book ratios and higher forecasted
growth values. The Russell 1000 Growth Index is a trademark/service mark of the Frank
Russell Company. Russell--REGISTERED TRADEMARK-- is a trademark of the Frank Russell
Company.
The LIPPER VUF LARGE-CAP GROWTH FUNDS INDEX is an equally weighted representation of
the largest variable insurance underlying funds in the Lipper Large-Cap Growth Funds
category. These funds typically have an above-average price-to-earnings ratio,
price-to-book ratio, and three-year sales-per-share growth value, compared to the S&P
500--REGISTERED TRADEMARK-- Index.
The Fund is not managed to track the performance of any particular index, including
the indexes defined here, and consequently, the performance of the Fund may deviate
significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
=======================================================================================
==========================================
AVERAGE ANNUAL TOTAL RETURNS THE NET ANNUAL FUND OPERATING EXPENSE ABLE PRODUCT. SALES CHARGES, EXPENSES AND
As of 6/30/08 RATIO SET FORTH IN THE MOST RECENT FUND FEES, WHICH ARE DETERMINED BY THE VARIABLE
PROSPECTUS AS OF THE DATE OF THIS REPORT PRODUCT ISSUERS, WILL VARY AND WILL LOWER
SERIES I SHARES FOR SERIES I AND SERIES II SHARES WAS THE TOTAL RETURN.
Inception (8/29/03) 7.55% 1.01% AND 1.26%, RESPECTIVELY.(1) THE THE MOST RECENT MONTH-END PERFORMANCE
1 Year -4.05 TOTAL ANNUAL FUND OPERATING EXPENSE RATIO DATA AT THE FUND LEVEL, EXCLUDING VARIABLE
SET FORTH IN THE MOST RECENT FUND PRODUCT CHARGES, IS AVAILABLE ON THE
SERIES II SHARES PROSPECTUS AS OF THE DATE OF THIS REPORT INVESCO AIM AUTOMATED INFORMATION LINE,
Inception (8/29/03) 7.32% FOR SERIES I AND SERIES II SHARES WAS 866 702 4402. AS MENTIONED ABOVE, FOR THE
1 Year -4.30 1.06% AND 1.31%, RESPECTIVELY. THE EXPENSE MOST RECENT MONTH-END PERFORMANCE
========================================== RATIOS PRESENTED ABOVE MAY VARY FROM THE INCLUDING VARIABLE PRODUCT CHARGES, PLEASE
EXPENSE RATIOS PRESENTED IN OTHER SECTIONS CONTACT YOUR VARIABLE PRODUCT ISSUER OR
THE PERFORMANCE OF THE FUND'S SERIES I AND OF THIS REPORT THAT ARE BASED ON EXPENSES FINANCIAL ADVISOR.
SERIES II SHARE CLASSES WILL DIFFER INCURRED DURING THE PERIOD COVERED BY THIS HAD THE ADVISOR NOT WAIVED FEES AND/OR
PRIMARILY DUE TO DIFFERENT CLASS EXPENSES. REPORT. REIMBURSED EXPENSES IN THE PAST,
THE PERFORMANCE DATA QUOTED REPRESENT AIM V.I. LARGE CAP GROWTH FUND, A PERFORMANCE WOULD HAVE BEEN LOWER.
PAST PERFORMANCE AND CANNOT GUARANTEE SERIES PORTFOLIO OF AIM VARIABLE INSURANCE
COMPARABLE FUTURE RESULTS; CURRENT FUNDS, IS CURRENTLY OFFERED THROUGH (1) Total annual operating expenses less
PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE INSURANCE COMPANIES ISSUING VARIABLE any contractual fee waivers and/or
CONTACT YOUR VARIABLE PRODUCT ISSUER OR PRODUCTS. YOU CANNOT PURCHASE SHARES OF expense reimbursements by the advisor
FINANCIAL ADVISOR FOR THE MOST RECENT THE FUND DIRECTLY. PERFORMANCE FIGURES in effect through at least April 30,
MONTH-END VARIABLE PRODUCT PERFORMANCE. GIVEN REPRESENT THE FUND AND ARE NOT 2010. See current prospectus for more
PERFORMANCE FIGURES REFLECT FUND EXPENSES, INTENDED TO REFLECT ACTUAL VARIABLE information.
REINVESTED DISTRIBUTIONS AND CHANGES IN PRODUCT VALUES. THEY DO NOT REFLECT SALES
NET ASSET VALUE. INVESTMENT RETURN AND CHARGES, EXPENSES AND FEES ASSESSED IN
PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU CONNECTION WITH A VARI-
MAY HAVE A GAIN OR LOSS WHEN YOU SELL
SHARES.
AIM V.I. LARGE CAP GROWTH FUND
PORTFOLIO COMPOSITION
By sector, based on Net Assets
as of June 30, 2008
<Table>
- -------------------------------------------------------------------------
Information Technology 30.8%
- -------------------------------------------------------------------------
Industrials 21.5
- -------------------------------------------------------------------------
Health Care 12.3
- -------------------------------------------------------------------------
Materials 9.5
- -------------------------------------------------------------------------
Energy 9.2
- -------------------------------------------------------------------------
Consumer Discretionary 5.0
- -------------------------------------------------------------------------
Consumer Staples 3.9
- -------------------------------------------------------------------------
Financials 3.2
- -------------------------------------------------------------------------
Telecommunication Services 2.9
- -------------------------------------------------------------------------
Money Market Funds Plus Other Assets Less Liabilities 1.7
_________________________________________________________________________
=========================================================================
</Table>
SCHEDULE OF INVESTMENTS(a)
June 30, 2008
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.28%
AEROSPACE & DEFENSE-10.70%
Boeing Co. (The) 11,322 $ 744,082
- ------------------------------------------------------------------------------
General Dynamics Corp. 20,551 1,730,394
- ------------------------------------------------------------------------------
Honeywell International Inc. 36,330 1,826,672
- ------------------------------------------------------------------------------
Lockheed Martin Corp. 42,984 4,240,801
- ------------------------------------------------------------------------------
Raytheon Co. 36,384 2,047,692
- ------------------------------------------------------------------------------
United Technologies Corp. 12,770 787,909
==============================================================================
11,377,550
==============================================================================
APPLICATION SOFTWARE-0.73%
Adobe Systems Inc.(b) 19,800 779,922
==============================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.69%
Janus Capital Group Inc. 27,881 738,010
==============================================================================
AUTO PARTS & EQUIPMENT-0.83%
BorgWarner, Inc. 20,000 887,600
==============================================================================
AUTOMOTIVE RETAIL-0.93%
AutoZone, Inc.(b) 8,200 992,282
==============================================================================
COMMUNICATIONS EQUIPMENT-4.86%
Cisco Systems, Inc.(b) 77,275 1,797,416
- ------------------------------------------------------------------------------
Juniper Networks, Inc.(b) 35,378 784,684
- ------------------------------------------------------------------------------
Nokia Oyj-ADR (Finland) 67,218 1,646,841
- ------------------------------------------------------------------------------
Research In Motion Ltd. (Canada)(b) 8,054 941,513
==============================================================================
5,170,454
==============================================================================
COMPUTER HARDWARE-8.97%
Apple Inc.(b) 18,617 3,117,230
- ------------------------------------------------------------------------------
Hewlett-Packard Co. 104,826 4,634,357
- ------------------------------------------------------------------------------
International Business Machines Corp. 15,069 1,786,129
==============================================================================
9,537,716
==============================================================================
CONSTRUCTION & ENGINEERING-4.04%
Chicago Bridge & Iron Co. N.V.-New York Shares 41,888 1,667,980
- ------------------------------------------------------------------------------
Fluor Corp. 14,133 2,629,869
==============================================================================
4,297,849
==============================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-1.68%
Deere & Co. 9,887 713,149
- ------------------------------------------------------------------------------
Joy Global Inc. 14,141 1,072,312
==============================================================================
1,785,461
==============================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.95%
MasterCard, Inc.-Class A 3,787 1,005,524
==============================================================================
DISTILLERS & VINTNERS-1.54%
Diageo PLC (United Kingdom)(c) 89,170 1,637,812
==============================================================================
DIVERSIFIED BANKS-0.84%
Unibanco-Uniao de Bancos Brasileiros S.A.-GDR
(Brazil) 7,019 890,922
==============================================================================
DIVERSIFIED METALS & MINING-4.35%
BHP Billiton Ltd. (Australia)(c) 22,048 938,743
- ------------------------------------------------------------------------------
Freeport-McMoRan Copper & Gold, Inc. 11,483 1,345,693
- ------------------------------------------------------------------------------
Rio Tinto PLC-ADR (United Kingdom) 4,725 2,338,875
==============================================================================
4,623,311
==============================================================================
EDUCATION SERVICES-0.62%
Apollo Group Inc.-Class A(b) 15,000 663,900
==============================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-5.19%
CF Industries Holdings, Inc. 9,300 1,421,040
- ------------------------------------------------------------------------------
Mosaic Co. (The)(b) 13,500 1,953,450
- ------------------------------------------------------------------------------
Syngenta A. G. (Switzerland)(c) 6,611 2,139,861
==============================================================================
5,514,351
==============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. LARGE CAP GROWTH FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------------
FOOTWEAR-1.92%
NIKE, Inc.-Class B 34,321 $ 2,045,875
==============================================================================
HEALTH CARE EQUIPMENT-3.67%
Bard (C.R.), Inc. 11,369 999,904
- ------------------------------------------------------------------------------
Baxter International Inc. 45,346 2,899,423
==============================================================================
3,899,327
==============================================================================
HEALTH CARE SERVICES-4.35%
Express Scripts, Inc.(b) 35,881 2,250,456
- ------------------------------------------------------------------------------
Medco Health Solutions, Inc.(b) 50,338 2,375,954
==============================================================================
4,626,410
==============================================================================
HEAVY ELECTRICAL EQUIPMENT-3.07%
ABB Ltd. (Switzerland)(b)(c) 115,653 3,264,669
==============================================================================
HOUSEHOLD PRODUCTS-0.77%
Procter & Gamble Co. (The) 13,500 820,935
==============================================================================
INDUSTRIAL CONGLOMERATES-2.05%
McDermott International, Inc.(b) 35,295 2,184,408
==============================================================================
INTEGRATED OIL & GAS-5.00%
Exxon Mobil Corp. 12,412 1,093,870
- ------------------------------------------------------------------------------
Marathon Oil Corp. 29,913 1,551,587
- ------------------------------------------------------------------------------
Occidental Petroleum Corp. 29,724 2,670,999
==============================================================================
5,316,456
==============================================================================
INTERNET RETAIL-0.73%
Expedia, Inc.(b) 42,000 771,960
==============================================================================
INTERNET SOFTWARE & SERVICES-1.18%
Google Inc.-Class A(b) 2,393 1,259,723
==============================================================================
INVESTMENT BANKING & BROKERAGE-0.84%
Goldman Sachs Group, Inc. (The) 5,093 890,766
==============================================================================
IT CONSULTING & OTHER SERVICES-3.64%
Accenture Ltd.-Class A 95,089 3,872,024
==============================================================================
LIFE SCIENCES TOOLS & SERVICES-1.06%
Invitrogen Corp.(b) 28,800 1,130,688
==============================================================================
OIL & GAS DRILLING-2.34%
ENSCO International Inc. 30,880 2,493,251
==============================================================================
OIL & GAS EQUIPMENT & SERVICES-1.82%
National-Oilwell Varco Inc.(b) 21,800 1,934,096
==============================================================================
PHARMACEUTICALS-3.21%
Johnson & Johnson 24,565 1,580,512
- ------------------------------------------------------------------------------
Merck & Co. Inc. 23,117 871,280
- ------------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR (Israel) 21,000 961,800
==============================================================================
3,413,592
==============================================================================
PROPERTY & CASUALTY INSURANCE-0.80%
Chubb Corp. (The) 17,340 849,833
==============================================================================
SEMICONDUCTOR EQUIPMENT-0.95%
MEMC Electronic Materials, Inc.(b) 16,360 1,006,794
==============================================================================
SEMICONDUCTORS-2.24%
Intel Corp. 36,850 791,538
- ------------------------------------------------------------------------------
Texas Instruments Inc. 28,823 811,656
- ------------------------------------------------------------------------------
Xilinx, Inc. 30,700 775,175
==============================================================================
2,378,369
==============================================================================
SOFT DRINKS-1.61%
PepsiCo, Inc. 26,975 1,715,340
==============================================================================
SYSTEMS SOFTWARE-7.24%
BMC Software, Inc.(b) 42,864 1,543,104
- ------------------------------------------------------------------------------
Microsoft Corp. 108,073 2,973,088
- ------------------------------------------------------------------------------
Oracle Corp.(b) 99,997 2,099,937
- ------------------------------------------------------------------------------
Symantec Corp.(b) 56,064 1,084,839
==============================================================================
7,700,968
==============================================================================
WIRELESS TELECOMMUNICATION SERVICES-2.87%
America Movil SAB de C.V.-Series L-ADR (Mexico) 29,259 1,543,412
- ------------------------------------------------------------------------------
China Mobile Ltd. (China)(c) 112,500 1,505,539
==============================================================================
3,048,951
==============================================================================
Total Common Stocks & Other Equity Interests
(Cost $83,340,265) 104,527,099
==============================================================================
MONEY MARKET FUNDS-1.89%
Liquid Assets Portfolio-Institutional Class(d) 1,007,677 1,007,677
- ------------------------------------------------------------------------------
Premier Portfolio-Institutional Class(d) 1,007,677 1,007,677
==============================================================================
Total Money Market Funds (Cost $2,015,354) 2,015,354
==============================================================================
TOTAL INVESTMENTS-100.17% (Cost $85,355,619) 106,542,453
==============================================================================
OTHER ASSETS LESS LIABILITIES-(0.17)% (184,822)
==============================================================================
NET ASSETS-100.00% $106,357,631
______________________________________________________________________________
==============================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
GDR - Global Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Industry and/or sector classifications used in this report are generally
according to the Global Industry Classification Standard, which was
developed by and is the exclusive property and a service mark of MSCI Inc.
and Standard & Poor's.
(b) Non-income producing security.
(c) In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate value of these securities at June 30, 2008 was $9,486,624,
which represented 8.92% of the Fund's Net Assets. See Note 1A.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. LARGE CAP GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, at value (Cost
$83,340,265) $104,527,099
- ------------------------------------------------------
Investments in affiliated money market
funds (Cost $2,015,354) 2,015,354
======================================================
Total investments (Cost
$85,355,619) 106,542,453
======================================================
Foreign currencies, at value (Cost
$2,649) 2,660
- ------------------------------------------------------
Receivables for:
Fund shares sold 18,276
- ------------------------------------------------------
Dividends 71,837
- ------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 32,808
======================================================
Total assets 106,668,034
______________________________________________________
======================================================
LIABILITIES:
Payables for:
Fund shares reacquired 157,025
- ------------------------------------------------------
Accrued fees to affiliates 69,073
- ------------------------------------------------------
Accrued other operating expenses 42,139
- ------------------------------------------------------
Trustee deferred compensation and
retirement plans 42,166
======================================================
Total liabilities 310,403
======================================================
Net assets applicable to shares
outstanding $106,357,631
______________________________________________________
======================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 96,134,224
- ------------------------------------------------------
Undistributed net investment income
(loss) (28,512)
- ------------------------------------------------------
Undistributed net realized gain (loss) (10,935,015)
- ------------------------------------------------------
Unrealized appreciation 21,186,934
======================================================
$106,357,631
______________________________________________________
======================================================
NET ASSETS:
Series I $105,315,465
______________________________________________________
======================================================
Series II $ 1,042,166
______________________________________________________
======================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 7,460,926
______________________________________________________
======================================================
Series II 74,384
______________________________________________________
======================================================
Series I:
Net asset value per share $ 14.12
______________________________________________________
======================================================
Series II:
Net asset value per share $ 14.01
______________________________________________________
======================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding
taxes of $19,008) $ 542,021
- ------------------------------------------------------
Dividends from affiliated money market
funds 41,340
======================================================
Total investment income 583,361
======================================================
EXPENSES:
Advisory fees 390,806
- ------------------------------------------------------
Administrative services fees 160,770
- ------------------------------------------------------
Custodian fees 6,918
- ------------------------------------------------------
Distribution fees -- Series II 1,362
- ------------------------------------------------------
Transfer agent fees 4,585
- ------------------------------------------------------
Trustees' and officer's fees and
benefits 9,701
- ------------------------------------------------------
Other 31,121
======================================================
Total expenses 605,263
======================================================
Less: Fees waived (37,267)
======================================================
Net expenses 567,996
======================================================
Net investment income 15,365
======================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM:
Net realized gain (loss) from:
Investment securities (includes net
gains (losses) from securities
sold to affiliates of $(71,062)) (1,126,357)
- ------------------------------------------------------
Foreign currencies (2,737)
======================================================
(1,129,094)
======================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (13,074,456)
- ------------------------------------------------------
Foreign currencies 107
======================================================
(13,074,349)
======================================================
Net realized and unrealized gain (loss) (14,203,443)
======================================================
Net increase (decrease) in net assets
resulting from operations $(14,188,078)
______________________________________________________
======================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. LARGE CAP GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- ------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 15,365 $ 129,670
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) (1,129,094) 4,673,962
- ------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) (13,074,349) 13,025,734
======================================================================================================
Net increase (decrease) in net assets resulting from operations (14,188,078) 17,829,366
======================================================================================================
Distributions to shareholders from net investment income -- Series 1 -- (38,491)
======================================================================================================
Share transactions-net:
Series I (9,706,897) (9,305,183)
- ------------------------------------------------------------------------------------------------------
Series II (77,377) (929,004)
======================================================================================================
Net increase (decrease) in net assets resulting from share
transactions (9,784,274) (10,234,187)
======================================================================================================
Net increase (decrease) in net assets (23,972,352) 7,556,688
======================================================================================================
NET ASSETS:
Beginning of period 130,329,983 122,773,295
======================================================================================================
End of period (including undistributed net investment income (loss)
of $(28,512) and $(43,877), respectively) $106,357,631 $130,329,983
______________________________________________________________________________________________________
======================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. LARGE CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Large Cap Growth Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is long-term growth of capital.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on
that day. Securities traded in the over-the-counter market are valued
based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service
they may be considered fair valued. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally
traded. Listed options are valued at the mean between the last bid and the
ask prices from the exchange on which they are principally traded. Options
not listed on an exchange are valued by an independent source at the mean
between the last bid and ask prices. For purposes of determining net asset
value per share, futures and option contracts generally are valued 15
minutes after the close of the customary trading session of the New York
Stock Exchange ("NYSE").
Investments in open-end and closed-end registered investment companies
that do not trade on an exchange are valued at the end of day net asset
value per share. Investments in open-end and closed-end registered
investment companies that trade on an exchange are valued at the last
sales price or official closing price as of the close of the customary
trading session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing
service. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to specific securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Short-term obligations, including
commercial paper, having 60 days or less to maturity are recorded at
amortized cost which approximates value. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve
some risk of default with respect to interest and/or principal payments.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued
at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price
unreliable, the Fund may fair value the security. If the event is likely
to have affected the closing price of the security, the security will be
valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also
be based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current value as of the close of the NYSE. Foreign securities
meeting the approved degree of certainty that the price is not reflective
of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, American
Depositary Receipts and domestic and foreign index futures. Foreign
securities may have additional risks including exchange rate changes,
potential for sharply devalued currencies and high inflation, political
and economical upheaval, the relative lack of issuer information,
relatively low market liquidity and the potential lack of strict financial
and accounting controls and standards.
Securities for which market prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers following procedures
approved by the Board of Trustees. Issuer specific events, market trends,
bid/ask quotes of brokers and information providers and other market data
may be reviewed in the course of making a good faith determination of a
security's fair value.
Valuations change in response to many factors including the historical
and prospective earnings of the issuer, the value of the issuer's assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
AIM V.I. LARGE CAP GROWTH FUND
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification
claims is considered remote.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close
of the NYSE based on quotations posted by banks and major currency
dealers. Portfolio securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i)
sales of foreign currencies, (ii) currency gains or losses realized
between the trade and settlement dates on securities transactions, and
(iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized
foreign currency gains and losses arise from changes in the fair values of
assets and liabilities, other than investments in securities at fiscal
period end, resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to
foreign taxes on income, gains on investments or currency repatriation, a
portion of which may be recoverable.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. Fluctuations in the value of these contracts are recorded as
unrealized appreciation (depreciation) until the contracts are closed.
When these contracts are closed, realized gains (losses) are recorded.
Realized and unrealized gains and losses on these contracts are included
in the Statement of Operations. The Fund could be exposed to risk, which
may be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
AIM V.I. LARGE CAP GROWTH FUND
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $250 million 0.695%
- -------------------------------------------------------------------
Next $250 million 0.67%
- -------------------------------------------------------------------
Next $500 million 0.645%
- -------------------------------------------------------------------
Next $1.5 billion 0.62%
- -------------------------------------------------------------------
Next $2.5 billion 0.595%
- -------------------------------------------------------------------
Next $2.5 billion 0.57%
- -------------------------------------------------------------------
Next $2.5 billion 0.545%
- -------------------------------------------------------------------
Over $10 billion 0.52%
___________________________________________________________________
===================================================================
</Table>
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
The Advisor has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.01% and Series
II shares to 1.26% of average daily net assets, through at least April 30, 2010.
In determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco")
described more fully below, the only expense offset arrangements from which the
Fund may benefit are in the form of credits that the Fund receives from banks
where the Fund or its transfer agent has deposit accounts in which it holds
uninvested cash. These credits are used to pay certain expenses incurred by the
Fund. To the extent that the annualized expense ratio does not exceed the
expense limitation, the Advisor will retain its ability to be reimbursed for
such fee waivers or reimbursements prior to the end of each fiscal year.
Further, the Advisor has contractually agreed, through at least April 30,
2010, to waive the advisory fee payable by the Fund in an amount equal to 100%
of the net advisory fees the Advisor receives from the affiliated money market
funds on investments by the Fund of uninvested cash (but not cash collateral
from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2008, the Advisor waived advisory fees of
$37,267.
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund
administrative services and reimbursed $135,907 for services provided by
insurance companies.
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily net
assets of the Series II shares may be paid to insurance companies who furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. For the six months ended June 30, 2008, expenses
incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
AIM V.I. LARGE CAP GROWTH FUND
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1 -- Quoted prices in an active market for identical assets.
Level 2 -- Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest
rates, prepayment speeds, credit risk and others.
Level 3 -- Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for
example, when there is little or no market activity for an investment at the end
of the period), unobservable inputs may be used. Unobservable inputs reflect the
Fund's own assumptions about the factors market participants would use in
determining fair value of the securities or instruments and would be based on
the best available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS IN
INPUT LEVEL SECURITIES
- --------------------------------------
Level 1 $ 97,055,829
- --------------------------------------
Level 2 9,486,624
- --------------------------------------
Level 3 --
======================================
$106,542,453
______________________________________
======================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, for the six months ended June 30, 2008, the Fund
engaged in securities sales of $93,990, which resulted in net realized gains
(losses) of $(71,062), and securities purchases of $63,275.
NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan and receive benefits under such plan. "Trustees' and Officer's
Fees and Benefits" include amounts accrued by the Fund to fund such retirement
benefits. Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $1,643
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--CASH BALANCES
The Fund is permitted to temporarily carry a negative or overdrawn balance in
its account with The State Street Bank and Trust Company ("SSB"), the custodian
bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund
may either (i) leave funds as a compensating balance in the account so the
custodian bank can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank at a rate agreed upon by the custodian
bank and Invesco Aim, not to exceed the contractually agreed upon rate.
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
AIM V.I. LARGE CAP GROWTH FUND
The Fund had a capital loss carryforward as of December 31, 2007 which expires
as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------------------------
December 31, 2009 $3,427,095
- -----------------------------------------------------------------------------------------------
December 31, 2010 3,544,700
- -----------------------------------------------------------------------------------------------
December 31, 2013 10,284
- -----------------------------------------------------------------------------------------------
December 31, 2014 1,757,332
===============================================================================================
Total capital loss carryforward $8,739,411
_______________________________________________________________________________________________
===============================================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of June 12, 2006, the date of the
reorganization of AIM V. I. Blue Chip Fund into the Fund are realized on
securities held in each Fund at such date, the capital loss carryforward may
be further limited for up to five years from the date of reorganization
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the six months ended June 30, 2008 was $17,375,047 and
$26,888,696, respectively. Cost of investments on a tax basis includes the
adjustments for financial reporting purposes as of the most recently completed
Federal income tax reporting period end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $23,292,997
- -----------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,172,673)
===============================================================================================
Net unrealized appreciation of investment securities $20,120,324
_______________________________________________________________________________________________
===============================================================================================
Cost of investments for tax purposes is $86,422,129.
</Table>
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008(a) DECEMBER 31, 2007
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 322,848 $ 4,685,266 1,230,557 $ 18,519,621
- ------------------------------------------------------------------------------------------------------------------------
Series II 489 7,140 404 6,093
========================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 2,379 38,491
- ------------------------------------------------------------------------------------------------------------------------
Series II -- -- -- --
========================================================================================================================
Reacquired:
Series I (1,003,729) (14,392,163) (1,902,716) (27,863,295)
- ------------------------------------------------------------------------------------------------------------------------
Series II (6,011) (84,517) (63,178) (935,097)
========================================================================================================================
(686,403) $ (9,784,274) (732,554) $(10,234,187)
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There are entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate own 90% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, Invesco Aim and/or Invesco Aim affiliates may make payments to
these entities, which are considered to be related to the Fund, for
providing services to the Fund, Invesco Aim and or Invesco Aim affiliates
including but not limited to services such as, securities brokerage,
third party record keeping and account servicing and administrative
services. The Trust has no knowledge as to whether all or any portion of
the shares owned of record by these entities are also owned beneficially.
AIM V.I. LARGE CAP GROWTH FUND
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
------------------------------------------------------------------------------------
AUGUST 29, 2003
(COMMENCEMENT
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, DATE) TO
JUNE 30, ------------------------------------------- DECEMBER 31,
2008 2007 2006 2005 2004 2003
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.85 $ 13.71 $ 12.71 $11.86 $10.90 $10.00
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00 0.02 0.02 (0.01)(a) (0.04)(b) (0.03)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) (1.73) 2.13 1.00 0.88 1.03 0.95
==============================================================================================================================
Total from investment operations (1.73) 2.15 1.02 0.87 0.99 0.92
==============================================================================================================================
Less distributions:
Dividends from net investment income -- (0.01) (0.02) -- -- (0.02)
- ------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.02) (0.03) --
==============================================================================================================================
Total distributions -- (0.01) (0.02) (0.02) (0.03) (0.02)
==============================================================================================================================
Net asset value, end of period $ 14.12 $ 15.85 $ 13.71 $12.71 $11.86 $10.90
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(c) (10.92)% 15.64% 8.05% 7.30% 9.08% 9.16%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $105,315 $129,071 $120,825 $4,352 $ 596 $ 546
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 1.01%(d) 1.01% 1.02% 1.13% 1.33% 1.33%(e)
- ------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.08%(d) 1.08% 1.23% 7.30% 9.88% 14.54%(e)
==============================================================================================================================
Ratio of net investment income (loss)
to average net assets 0.03%(d) 0.11% 0.06% (0.06)% (0.35)%(b) (0.73)%(e)
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate(f) 16% 58% 76% 99% 104% 37%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2, 2004.
Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets excluding the special dividend are
$(0.06) and (0.51)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection with
a variable product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of
$111,984,150.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. LARGE CAP GROWTH FUND
NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
--------------------------------------------------------------------------------
AUGUST 29, 2003
(COMMENCEMENT
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, DATE) TO
JUNE 30, --------------------------------------- DECEMBER 31,
2008 2007 2006 2005 2004 2003
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.75 $13.66 $12.67 $11.84 $10.90 $10.00
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.04) (0.01) (0.03)(a) (0.06)(b) (0.03)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (1.72) 2.13 1.00 0.88 1.03 0.94
============================================================================================================================
Total from investment operations (1.74) 2.09 0.99 0.85 0.97 0.91
============================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- -- (0.01)
- ----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.02) (0.03) --
============================================================================================================================
Total distributions -- -- -- (0.02) (0.03) (0.01)
============================================================================================================================
Net asset value, end of period $ 14.01 $15.75 $13.66 $12.67 $11.84 $10.90
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(c) (11.05)% 15.30% 7.81% 7.15% 8.89% 9.11%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 1,042 $1,259 $1,949 $ 636 $ 594 $ 546
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.26%(d) 1.26% 1.27% 1.33% 1.48% 1.48%(e)
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.33%(d) 1.33% 1.48% 7.55% 10.13% 14.79%(e)
============================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.22)%(d) (0.14)% (0.19)% (0.26)% (0.50)%(b) (0.88)%(e)
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate(f) 16% 58% 76% 99% 104% 37%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2, 2004.
Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets excluding the special dividend are
$(0.08) and (0.66)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection with
a variable product, which if included would reduce total returns.
(d) Ratios are annualized and based on average daily net assets of
$1,095,797.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to Invesco Aim and IADI (Order No. 05-
1318). The WVASC makes findings of fact that Invesco Aim and IADI entered into
certain arrangements permitting market timing of the AIM Funds and failed to
disclose these arrangements in the prospectuses for such Funds, and conclusions
of law to the effect that Invesco Aim and IADI violated the West Virginia
securities laws. The WVASC orders Invesco Aim and IADI to cease any further
violations and seeks to impose monetary sanctions, including restitution to
affected investors, disgorgement of fees, reimbursement of investigatory,
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute. By agreement with the Commissioner of
Securities, Invesco Aim's time to respond to that Order has been indefinitely
suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid. The case pending in Illinois State Court regarding fair value
pricing was dismissed with prejudice on May 6, 2008.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of
AIM V.I. LARGE CAP GROWTH FUND
NOTE 11--LEGAL PROCEEDINGS--(CONTINUED)
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of ERISA purportedly
brought on behalf of participants in the Invesco 401(k) plan. Based on orders
issued by the MDL Court, all claims asserted against the AIM Funds that have
been transferred to the MDL Court have been dismissed, although certain Funds
remain nominal defendants in the Consolidated Amended Fund Derivative Complaint.
On September 15, 2006, the MDL Court granted the Invesco defendants' motion to
dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed
such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth
Court of Appeals reversed the dismissal and remanded this lawsuit back to the
MDL Court for further proceedings.
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, Invesco Aim and IADI have advised the Fund that they are providing
full cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, Invesco Aim and/or related entities and individuals in the
future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. LARGE CAP GROWTH FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $890.80 $4.75 $1,019.84 $5.07 1.01%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 889.50 5.92 1,018.60 6.32 1.26
- ---------------------------------------------------------------------------------------------------
</Table>
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5%
before expenses.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. LARGE CAP GROWTH FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the Board) of AIM their assigned funds. During the contract ated the information provided differently
Variable Insurance Funds is required under renewal process, the Trustees receive from one another and attributed different
the Investment Company Act of 1940 to comparative performance and fee data weight to the various factors. The
approve annually the renewal of the AIM regarding the AIM Funds prepared by an Trustees recognized that the advisory
V.I. Large Cap Growth Fund (the Fund) independent company, Lipper, Inc. arrangements and resulting advisory fees
investment advisory agreement with Invesco (Lipper), under the direction and for the Fund and the other AIM Funds are
Aim Advisors, Inc. (Invesco Aim). During supervision of the independent Senior the result of years of review and
contract renewal meetings held on June Officer who also prepares a separate negotiation between the Trustees and
18-19, 2008, the Board as a whole and the analysis of this information for the Invesco Aim, that the Trustees may focus
disinterested or "independent" Trustees, Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of
voting separately, approved the recommendations to the Investments these arrangements in some years than in
continuance of the Fund's investment Committee regarding the performance, fees others, and that the Trustees'
advisory agreement for another year, and expenses of their assigned funds. The deliberations and conclusions in a
effective July 1, 2008. In doing so, the Investments Committee considers each particular year may be based in part on
Board determined that the Fund's Sub-Committee's recommendations and makes their deliberations and conclusions of
investment advisory agreement is in the its own recommendations regarding the these same arrangements throughout the
best interests of the Fund and its performance, fees and expenses of the AIM year and in prior years.
shareholders and that the compensation to Funds to the full Board. The Investments
Invesco Aim under the Fund's investment Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF
advisory agreement is fair and reasonable. Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION
The independent Trustees met separately its annual recommendation to the Board The discussion below serves as a summary
during their evaluation of the Fund's whether to approve the continuance of each of the Senior Officer's independent
investment advisory agreement with AIM Fund's investment advisory agreement written evaluation with respect to the
independent legal counsel from whom they and sub-advisory agreements for another Fund's investment advisory agreement as
received independent legal advice, and the year. well as a discussion of the material
independent Trustees also received The independent Trustees are assisted factors and related conclusions that
assistance during their deliberations from in their annual evaluation of the Fund's formed the basis for the Board's approval
the independent Senior Officer, a investment advisory agreement by the of the Fund's investment advisory
full-time officer of the AIM Funds who independent Senior Officer. One agreement and sub-advisory agreements.
reports directly to the independent responsibility of the Senior Officer is to Unless otherwise stated, information set
Trustees. manage the process by which the AIM Funds' forth below is as of June 19, 2008 and
proposed management fees are negotiated does not reflect any changes that may have
THE BOARD'S FUND EVALUATION PROCESS during the annual contract renewal process occurred since that date, including but
The Board's Investments Committee has to ensure that they are negotiated in a not limited to changes to the Fund's
established three Sub-Committees that are manner that is at arms' length and performance, advisory fees, expense
responsible for overseeing the management reasonable. Accordingly, the Senior limitations and/or fee waivers.
of a number of the series portfolios of Officer must either supervise a
the AIM Funds. This Sub-Committee competitive bidding process or prepare an I. Investment Advisory Agreement
structure permits the Trustees to focus on independent written evaluation. The Senior A. Nature, Extent and Quality of
the performance of the AIM Funds that have Officer has recommended that an Services Provided by Invesco Aim
been assigned to them. The Sub-Committees independent written evaluation be provided The Board reviewed the advisory services
meet throughout the year to review the and, at the direction of the Board, has provided to the Fund by Invesco Aim under
performance of their assigned funds, and prepared an independent written the Fund's investment advisory agreement,
the Sub-Committees review monthly and evaluation. the performance of Invesco Aim in
quarterly comparative performance During the annual contract renewal providing these services, and the
information and periodic asset flow data process, the Board considered the factors credentials and experience of the officers
for their assigned funds. These materials discussed below under the heading "Factors and employees of Invesco Aim who provide
are prepared under the direction and and Conclusions and Summary of Independent these services. The Board's review of the
supervision of the independent Senior Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide
Officer. Over the course of each year, the fairness and reasonableness of the Fund's these services included the Board's
Sub-Committees meet with portfolio investment advisory agreement and consideration of Invesco Aim's portfolio
managers for their assigned funds and sub-advisory agreements at the contract and product review process, various back
other members of management and review renewal meetings and at their meetings office support functions provided by
with these individuals the performance, throughout the year as part of their Invesco Aim, and Invesco Aim's equity and
investment objective(s), policies, ongoing oversight of the Fund. The Fund's fixed income trading operations. The Board
strategies and limitations of these funds. investment advisory agreement and concluded that the nature, extent and
In addition to their meetings sub-advisory agreements were considered quality of the advisory services provided
throughout the year, the Sub-Committees separately, although the Board also to the Fund by Invesco Aim were
meet at designated contract renewal considered the common interests of all of appropriate and that Invesco Aim currently
meetings each year to conduct an in-depth the AIM Funds in their deliberations. The is providing satisfactory advisory
review of the performance, fees and Board considered all of the information services in accordance with the terms of
expenses of provided to them and did not identify any the Fund's investment advisory agreement.
particular factor that was controlling. In addition, based on their ongoing
Each Trustee may have evalu- meetings throughout the year with the
continued
AIM V.I. LARGE CAP GROWTH FUND
Fund's portfolio manager or managers, the reviewed more recent Fund performance and expenses.
Board concluded that these individuals are this review did not change their After taking account of the Fund's
competent and able to continue to carry conclusions. contractual advisory fee rate, as well as
out their responsibilities under the the comparative advisory fee information
Fund's investment advisory agreement. C. Advisory Fees and Fee Waivers and the expense limitation discussed
In determining whether to continue the The Board compared the Fund's contractual above, the Board concluded that the Fund's
Fund's investment advisory agreement, the advisory fee rate to the contractual advisory fees were fair and reasonable.
Board considered the prior relationship advisory fee rates of funds in the Fund's
between Invesco Aim and the Fund, as well expense group that are not managed by D. Economies of Scale and Breakpoints
as the Board's knowledge of Invesco Aim's Invesco Aim, at a common asset level and The Board considered the extent to which
operations, and concluded that it was as of the end of the past calendar year. there are economies of scale in Invesco
beneficial to maintain the current The Board noted that the Fund's Aim's provision of advisory services to
relationship, in part, because of such contractual advisory fee rate was below the Fund. The Board also considered
knowledge. The Board also considered the the median contractual advisory fee rate whether the Fund benefits from such
steps that Invesco Aim and its affiliates of funds in its expense group. The Board economies of scale through contractual
have taken over the last several years to also reviewed the methodology used by breakpoints in the Fund's advisory fee
improve the quality and efficiency of the Lipper in determining contractual fee schedule or through advisory fee waivers
services they provide to the AIM Funds in rates. or expense limitations. The Board noted
the areas of investment performance, The Board also compared the Fund's that the Fund's contractual advisory fee
product line diversification, effective fee rate (the advisory fee after schedule includes seven breakpoints but
distribution, fund operations, shareholder any advisory fee waivers and before any that, due to the Fund's asset level at the
services and compliance. The Board expense limitations/waivers) to the end of the past calendar year and the way
concluded that the quality and efficiency advisory fee rates of other clients of in which the breakpoint have been
of the services Invesco Aim and its Invesco Aim and its affiliates with structured, the Fund has yet to benefit
affiliates provide to the AIM Funds in investment strategies comparable to those from the breakpoints. Based on this
each of these areas have generally of the Fund, including two mutual funds information, the Board concluded that the
improved, and support the Board's approval advised by Invesco Aim and two mutual Fund's advisory fees would appropriately
of the continuance of the Fund's funds sub-advised by an Invesco Aim reflect economies of scale at higher asset
investment advisory agreement. affiliate. The Board noted that the Fund's levels. The Board also noted that the Fund
rate was: (i) above the rates for the two shares directly in economies of scale
B. Fund Performance mutual funds; and (ii) above the through lower fees charged by third party
The Board compared the Fund's performance sub-advisory fee rates for the two service providers based on the combined
during the past one and three calendar sub-advised funds. size of all of the AIM Funds and
years to the performance of funds in the Additionally, the Board compared the affiliates.
Fund's performance group that are not Fund's effective fee rate to the total
managed by Invesco Aim, and against the advisory fees paid by numerous separately E. Profitability and Financial
performance of all funds in the Lipper managed accounts/wrap accounts advised by Resources of Invesco Aim
Variable Annuity Underlying Funds - Large Invesco Aim affiliates. The Board noted The Board reviewed information from
Cap Growth Index. The Board also reviewed that the Fund's rate was generally above Invesco Aim concerning the costs of the
the criteria used by Invesco Aim to the rates for the separately managed advisory and other services that Invesco
identify the funds in the Fund's accounts/wrap accounts. The Board Aim and its affiliates provide to the Fund
performance group for inclusion in the considered that management of the and the profitability of Invesco Aim and
Lipper reports. The Board noted that the separately managed accounts/wrap accounts its affiliates in providing these
Fund's performance was in the second by the Invesco Aim affiliates involves services. The Board also reviewed
quintile of its performance group for the different levels of services and different information concerning the financial
one and three year periods (the first operational and regulatory requirements condition of Invesco Aim and its
quintile being the best performing funds than Invesco Aim's management of the Fund. affiliates. The Board also reviewed with
and the fifth quintile being the worst The Board concluded that these differences Invesco Aim the methodology used to
performing funds). The Board noted that are appropriately reflected in the fee prepare the profitability information. The
the Fund's performance was above the structure for the Fund. Board considered the overall profitability
performance of the Index for the one and The Board noted that Invesco Aim has of Invesco Aim, as well as the
three year periods. The Board also contractually agreed to waive fees and/or profitability of Invesco Aim in connection
considered the steps Invesco Aim has taken limit expenses of the Fund through at with managing the Fund. The Board noted
over the last several years to improve the least April 30, 2010 in an amount that Invesco Aim continues to operate at a
quality and efficiency of the services necessary to limit total annual operating net profit, although increased expenses in
that Invesco Aim provides to the AIM expenses to a specified percentage of recent years have reduced the
Funds. The Board concluded that Invesco average daily net assets for each class of profitability of Invesco Aim and its
Aim continues to be responsive to the the Fund. The Board considered the affiliates. The Board concluded that the
Board's focus on fund performance. contractual nature of this fee waiver and Fund's fees were fair and reasonable, and
Although the independent written noted that it remains in effect until at that the level of profits realized by
evaluation of the Fund's Senior Officer least April 30, 2010. The Board also Invesco Aim and its affiliates from
only considered Fund performance through considered the effect this expense providing services to the Fund was not
the most recent calendar year, the Board limitation would have on the Fund's excessive in light of the nature, quality
also estimated total and extent of the services provided. The
Board considered whether Invesco Aim is
continued
AIM V.I. LARGE CAP GROWTH FUND
financially sound and has the resources that research obtained through soft dollar graphically dispersed in financial centers
necessary to perform its obligations under arrangements may be used by Invesco Aim in around the world, have been formed in part
the Fund's investment advisory agreement, making investment decisions for the Fund for the purpose of researching and
and concluded that Invesco Aim has the and may therefore benefit Fund compiling information and making
financial resources necessary to fulfill shareholders. The Board concluded that recommendations on the markets and
these obligations. Invesco Aim's soft dollar arrangements economies of various countries and
were appropriate. The Board also concluded securities of companies located in such
F. Independent Written Evaluation of that, based on their review and countries or on various types of
the Fund's Senior Officer representations made by Invesco Aim, these investments and investment techniques, and
The Board noted that, at their direction, arrangements were consistent with providing investment advisory services.
the Senior Officer of the Fund, who is regulatory requirements. The Board concluded that the sub-advisory
independent of Invesco Aim and Invesco The Board considered the fact that the agreements will benefit the Fund and its
Aim's affiliates, had prepared an Fund's uninvested cash and cash collateral shareholders by permitting Invesco Aim to
independent written evaluation to assist from any securities lending arrangements utilize the additional resources and
the Board in determining the may be invested in money market funds talent of the Affiliated Sub-Advisers in
reasonableness of the proposed management advised by Invesco Aim pursuant to managing the Fund.
fees of the AIM Funds, including the Fund. procedures approved by the Board. The
The Board noted that they had relied upon Board noted that Invesco Aim will receive B. Fund Performance
the Senior Officer's written evaluation advisory fees from these affiliated money The Board did not view Fund performance as
instead of a competitive bidding process. market funds attributable to such a relevant factor in considering whether
In determining whether to continue the investments, although Invesco Aim has to approve the sub-advisory agreements for
Fund's investment advisory agreement, the contractually agreed to waive through at the Fund, as no Affiliated Sub-Adviser
Board considered the Senior Officer's least April 30, 2010, the advisory fees currently manages any portion of the
written evaluation. payable by the Fund in an amount equal to Fund's assets.
100% of the net advisory fees Invesco Aim
G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees
and its Affiliates funds with respect to the Fund's The Board considered the services to be
The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers
benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements
affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco
relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment
fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the
affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and
administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to
distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board
Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no
Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its
providing these services and the shareholders. shareholders, as they are paid by Invesco
organizational structure employed by Aim to the Affiliated Sub-Advisers, and
Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements that Invesco Aim and the Affiliated
these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking
that these services are provided to the Services Provided by Affiliated account of the Fund's contractual
Fund pursuant to written contracts which Sub-Advisers sub-advisory fee rate, as well as other
are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that
basis by the Board. The Board concluded provided by Trimark Ltd., Invesco Asset the Fund's sub-advisory fees were fair and
that Invesco Aim and its affiliates were Management Deutschland, GmbH, Invesco reasonable.
providing these services in a satisfactory Asset Management Limited, Invesco Asset
manner and in accordance with the terms of Management (Japan) Limited, Invesco D. Financial Resources of the
their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers
continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each
Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially
The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to
realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its
portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and
through "soft dollar" arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser
these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to
commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations.
funds advised by Invesco Aim are used to Sub-Advisers who will provide these
pay for research and execution services. services. The Board concluded that the
The Board noted that soft dollar nature, extent and quality of the services
arrangements shift the payment obligation to be provided by the Affiliated
for the research and execution services Sub-Advisers were appropriate. The Board
from Invesco Aim to the funds and noted that the Affiliated Sub-Advisers,
therefore may reduce Invesco Aim's which have offices and personnel that are
expenses. The Board also noted geo-
AIM V.I. LARGE CAP GROWTH FUND
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. Large Cap Growth Fund,
an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory
trust ("Trust"), was held on February 29, 2008. The Meeting was held for the
following purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will
serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust that
would permit the Board of Trustees of the Trust to terminate the Trust, the
Fund, and each other series portfolio of the Trust, or a share class without
a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and
each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland,
GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.),
Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and
Invesco Senior Secured Management, Inc.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- -----------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker..................................................... 474,883,590 19,741,622
Frank S. Bayley.................................................. 474,653,109 19,972,103
James T. Bunch................................................... 475,597,417 19,027,795
Bruce L. Crockett................................................ 474,900,579 19,724,633
Albert R. Dowden................................................. 474,749,929 19,875,283
Jack M. Fields................................................... 475,205,840 19,419,372
Martin L. Flanagan............................................... 475,248,336 19,376,876
Carl Frischling.................................................. 474,453,674 20,171,538
Prema Mathai-Davis............................................... 473,569,192 21,056,020
Lewis F. Pennock................................................. 475,072,501 19,552,711
Larry Soll, Ph.D. ............................................... 475,170,544 19,454,668
Raymond Stickel, Jr. ............................................ 475,420,825 19,204,387
Philip A. Taylor................................................. 475,640,570 18,984,642
</Table>
<Table>
<Caption>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
- ----------------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of
Trustees of the Trust to terminate the Trust, the
Fund, and each other series portfolio of the Trust,
or a share class without a shareholder vote........ 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between
Invesco Aim Advisors, Inc. and each of AIM Funds
Management, Inc.; Invesco Asset Management
Deutschland, GmbH; Invesco Asset Management
Limited; Invesco Asset Management (Japan) Limited;
Invesco Australia Limited; Invesco Global Asset
Management (N.A.), Inc.; Invesco Hong Kong Limited;
Invesco Institutional (N.A.), Inc.; and Invesco
Senior Secured Management, Inc. ................... 7,289,772 254,897 317,361
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. LARGE CAP GROWTH FUND
[INVESCO AIM LOGO] AIM V.I. LEISURE FUND
- SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008
AIM Investments [MOUNTAIN GRAPHIC]
became INVESCO AIM
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FUND PERFORMANCE
================================================================================
PERFORMANCE SUMMARY
FUND VS. INDEXES
Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer
charges. If variable product issuer charges were included, returns would be
lower.
Series I Shares -16.02%
Series II Shares -16.07
S&P 500 Index(TRIANGLE) (Broad Market Index / Style-Specific Index) -11.90
(TRIANGLE)Lipper Inc.
The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted index
covering all major areas of the U.S. economy. It is not the 500 largest companies, but
rather the most widely held 500 companies chosen with respect to market size,
liquidity, and their industry.
The Fund is not managed to track the performance of any particular index, including
the index defined here, and consequently, the performance of the Fund may deviate
significantly from the performance of the index.
A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
=======================================================================================
==========================================
AVERAGE ANNUAL TOTAL RETURNS PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU TION LINE, 866 702 4402. AS MENTIONED
As of 6/30/08 MAY HAVE A GAIN OR LOSS WHEN YOU SELL ABOVE, FOR THE MOST RECENT MONTH-END
SHARES. PERFORMANCE INCLUDING VARIABLE PRODUCT
SERIES I SHARES THE NET ANNUAL FUND OPERATING EXPENSE CHARGES, PLEASE CONTACT YOUR VARIABLE
Inception (4/30/02) 4.01% RATIO SET FORTH IN THE MOST RECENT FUND PRODUCT ISSUER OR FINANCIAL ADVISOR.
5 Years 6.03 PROSPECTUS AS OF THE DATE OF THIS REPORT HAD THE ADVISOR NOT WAIVED FEES AND/OR
1 Year -23.06 FOR SERIES I AND SERIES II SHARES WAS REIMBURSED EXPENSES, PERFORMANCE WOULD
1.01% AND 1.26%, RESPECTIVELY.(1) THE HAVE BEEN LOWER.
SERIES II SHARES TOTAL ANNUAL FUND OPERATING EXPENSE RATIO
Inception 3.78% SET FORTH IN THE MOST RECENT FUND (1) Total annual operating expenses
5 Years 5.80 PROSPECTUS AS OF THE DATE OF THIS REPORT less any contractual fee waivers and/or
1 Year -23.26 FOR SERIES I AND SERIES II SHARES WAS expense reimbursements by the advisor
========================================== 1.28% AND 1.53%, RESPECTIVELY. THE EXPENSE in effect through at least April 30,
RATIOS PRESENTED ABOVE MAY VARY FROM THE 2010. See current prospectus for more
SERIES II SHARES' INCEPTION DATE IS APRIL EXPENSE RATIOS PRESENTED IN OTHER SECTIONS information.
30, 2004. RETURNS SINCE THAT DATE ARE OF THIS REPORT THAT ARE BASED ON EXPENSES
HISTORICAL. ALL OTHER RETURNS ARE THE INCURRED DURING THE PERIOD COVERED BY THIS
BLENDED RETURNS OF THE HISTORICAL REPORT.
PERFORMANCE OF SERIES II SHARES SINCE AIM V.I. LEISURE FUND, A SERIES
THEIR INCEPTION AND THE RESTATED PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS,
HISTORICAL PERFORMANCE OF SERIES I SHARES IS CURRENTLY OFFERED THROUGH INSURANCE
(FOR PERIODS PRIOR TO INCEPTION OF SERIES COMPANIES ISSUING VARIABLE PRODUCTS. YOU
II SHARES) ADJUSTED TO REFLECT THE RULE CANNOT PURCHASE SHARES OF THE FUND
12B-1 FEES APPLICABLE TO THE SERIES II DIRECTLY. PERFORMANCE FIGURES GIVEN
SHARES. THE INCEPTION DATE OF SERIES I REPRESENT THE FUND AND ARE NOT INTENDED TO
SHARES IS APRIL 30, 2002. THE PERFORMANCE REFLECT ACTUAL VARIABLE PRODUCT VALUES.
OF THE FUND'S SERIES I AND SERIES II SHARE THEY DO NOT REFLECT SALES CHARGES,
CLASSES WILL DIFFER PRIMARILY DUE TO EXPENSES AND FEES ASSESSED IN CONNECTION
DIFFERENT CLASS EXPENSES. WITH A VARIABLE PRODUCT. SALES CHARGES,
THE PERFORMANCE DATA QUOTED REPRESENT EXPENSES AND FEES, WHICH ARE DETERMINED BY
PAST PERFORMANCE AND CANNOT GUARANTEE THE VARIABLE PRODUCT ISSUERS, WILL VARY
COMPARABLE FUTURE RESULTS; CURRENT AND WILL LOWER THE TOTAL RETURN.
PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE THE MOST RECENT MONTH-END PERFORMANCE
CONTACT YOUR VARIABLE PRODUCT ISSUER OR DATA AT THE FUND LEVEL, EXCLUDING VARIABLE
FINANCIAL ADVISOR FOR THE MOST RECENT PRODUCT CHARGES, IS AVAILABLE ON THE
MONTH-END VARIABLE PRODUCT PERFORMANCE. INVESCO AIM AUTOMATED INFORMA-
PERFORMANCE FIGURES REFLECT FUND EXPENSES,
REINVESTED DISTRIBUTIONS AND CHANGES IN
NET ASSET VALUE. INVESTMENT RETURN AND
AIM V.I. LEISURE FUND
PORTFOLIO COMPOSITION
By sector, based on Net Assets
as of June 30, 2008
<Table>
- -------------------------------------------------------------------------
Consumer Discretionary 76.6%
- -------------------------------------------------------------------------
Consumer Staples 15.6
- -------------------------------------------------------------------------
Financials 2.9
- -------------------------------------------------------------------------
Information Technology 2.5
- -------------------------------------------------------------------------
Money Market Funds Plus Other Assets Less Liabilities 2.4
_________________________________________________________________________
=========================================================================
</Table>
SCHEDULE OF INVESTMENTS(a)
June 30, 2008
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.58%
ADVERTISING-10.25%
Harte-Hanks, Inc. 9,377 $ 107,367
- -----------------------------------------------------------------------------
JC Decaux S.A. (France) 11,123 283,529
- -----------------------------------------------------------------------------
Omnicom Group Inc. 47,738 2,142,481
- -----------------------------------------------------------------------------
WPP Group PLC (United Kingdom)(b) 69,225 666,443
=============================================================================
3,199,820
=============================================================================
APPAREL RETAIL-3.66%
Abercrombie & Fitch Co.-Class A 18,245 1,143,597
=============================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-6.41%
Carter's, Inc.(c) 20,871 288,437
- -----------------------------------------------------------------------------
Coach, Inc.(c) 15,551 449,113
- -----------------------------------------------------------------------------
Compagnie Financiere Richemont S.A.-Class A
(Switzerland)(b)(d) 8,914 492,368
- -----------------------------------------------------------------------------
Polo Ralph Lauren Corp. 12,260 769,683
=============================================================================
1,999,601
=============================================================================
BREWERS-7.15%
Anheuser-Busch Cos., Inc. 9,633 598,402
- -----------------------------------------------------------------------------
Carlsberg A.S.-Class B (Denmark) 2,260 218,280
- -----------------------------------------------------------------------------
Companhia de Bebidas das Americas-ADR (Brazil) 8,457 498,540
- -----------------------------------------------------------------------------
Heineken Holding N.V. (Netherlands)(b) 11,500 525,514
- -----------------------------------------------------------------------------
InBev N.V. (Belgium)(b) 5,669 391,848
=============================================================================
2,232,584
=============================================================================
BROADCASTING & CABLE TV-14.20%
Belo Corp.-Class A 14,316 104,650
- -----------------------------------------------------------------------------
Cablevision Systems Corp.-Class A(c) 35,764 808,266
- -----------------------------------------------------------------------------
CBS Corp.-Class A 3,396 66,154
- -----------------------------------------------------------------------------
CBS Corp.-Class B 3,397 66,208
- -----------------------------------------------------------------------------
Clear Channel Communications, Inc. 5,009 176,317
- -----------------------------------------------------------------------------
Comcast Corp.-Class A 54,617 1,036,085
- -----------------------------------------------------------------------------
DISH Network Corp.-Class A(c) 6,079 177,993
- -----------------------------------------------------------------------------
Jetix Europe N.V. (Netherlands) 22,835 578,117
- -----------------------------------------------------------------------------
Liberty Global, Inc.-Class A(c) 4,582 144,012
- -----------------------------------------------------------------------------
Liberty Global, Inc.-Series C(c)(e) 7,903 239,935
- -----------------------------------------------------------------------------
Liberty Media Corp.-Entertainment-Series A(c) 19,916 482,565
- -----------------------------------------------------------------------------
Scripps Co. (E.W.) (The)-Class A(e) 7,250 301,165
- -----------------------------------------------------------------------------
Sinclair Broadcast Group, Inc.-Class A 22,438 170,529
- -----------------------------------------------------------------------------
Television Broadcasts Ltd.-ADR (Hong Kong)(f) 6,976 80,518
=============================================================================
4,432,514
=============================================================================
CASINOS & GAMING-2.32%
International Game Technology 16,070 401,429
- -----------------------------------------------------------------------------
MGM MIRAGE(c) 9,554 323,785
=============================================================================
725,214
=============================================================================
CATALOG RETAIL-1.19%
Liberty Media Corp.-Interactive-Series A(c) 25,091 370,343
=============================================================================
COMMUNICATIONS EQUIPMENT-0.30%
EchoStar Corp.-Class A(c) 2,968 92,661
=============================================================================
COMPUTER & ELECTRONICS RETAIL-1.63%
Best Buy Co., Inc. 8,512 337,075
- -----------------------------------------------------------------------------
hhgregg, Inc.(c) 17,072 170,720
=============================================================================
507,795
=============================================================================
CONSUMER ELECTRONICS-0.51%
Sony Corp.-ADR (Japan) 3,641 159,257
=============================================================================
DEPARTMENT STORES-1.59%
Kohl's Corp.(c) 12,362 494,974
=============================================================================
DISTILLERS & VINTNERS-3.91%
Diageo PLC (United Kingdom)(b) 42,579 782,061
- -----------------------------------------------------------------------------
Pernod Ricard S.A. (France)(b) 4,288 439,791
=============================================================================
1,221,852
=============================================================================
FOOTWEAR-1.94%
Crocs, Inc.(c)(e) 28,892 231,425
- -----------------------------------------------------------------------------
NIKE, Inc.-Class B 6,254 372,801
=============================================================================
604,226
=============================================================================
GENERAL MERCHANDISE STORES-1.13%
Target Corp. 7,624 354,440
=============================================================================
HOME ENTERTAINMENT SOFTWARE-0.46%
Electronic Arts Inc.(c) 3,222 143,153
=============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. LEISURE FUND
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------------
HOME IMPROVEMENT RETAIL-1.97%
Home Depot, Inc. (The) 14,039 $ 328,794
- -----------------------------------------------------------------------------
Lowe's Cos., Inc. 13,767 285,665
=============================================================================
614,459
=============================================================================
HOTELS, RESORTS & CRUISE LINES-9.82%
Accor S.A. (France)(b) 6,473 429,994
- -----------------------------------------------------------------------------
Carnival Corp.(g) 16,316 537,775
- -----------------------------------------------------------------------------
InterContinental Hotels Group PLC (United
Kingdom)(b) 19,429 259,322
- -----------------------------------------------------------------------------
Marriott International, Inc.-Class A 8,153 213,935
- -----------------------------------------------------------------------------
Regal Hotels International Holdings Ltd. (Hong
Kong)(b) 4,138,000 201,229
- -----------------------------------------------------------------------------
Rezidor Hotel Group A.B. (Sweden)(b)(h) 2,734 11,529
- -----------------------------------------------------------------------------
Rezidor Hotel Group A.B. (Sweden)(b) 59,000 248,798
- -----------------------------------------------------------------------------
Royal Caribbean Cruises Ltd. 4,686 105,295
- -----------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 26,362 1,056,325
=============================================================================
3,064,202
=============================================================================
HYPERMARKETS & SUPER CENTERS-0.88%
Wal-Mart Stores, Inc. 4,893 274,987
=============================================================================
INTERNET SOFTWARE & SERVICES-1.74%
Google Inc.-Class A(c) 1,033 543,792
=============================================================================
INVESTMENT COMPANIES-EXCHANGE TRADED FUNDS-2.00%
iShares Russell 3000 Index Fund 2,818 211,068
- -----------------------------------------------------------------------------
iShares S&P 500 Index Fund 1,596 204,145
- -----------------------------------------------------------------------------
S&P 500 Depositary Receipts Trust-Series 1 1,624 208,002
=============================================================================
623,215
=============================================================================
MOVIES & ENTERTAINMENT-11.98%
News Corp.-Class A 102,929 1,548,052
- -----------------------------------------------------------------------------
Time Warner Inc. 49,453 731,904
- -----------------------------------------------------------------------------
Viacom Inc.-Class A(c) 6,888 210,842
- -----------------------------------------------------------------------------
Viacom Inc.-Class B(c) 5,181 158,228
- -----------------------------------------------------------------------------
Walt Disney Co. (The) 34,977 1,091,282
=============================================================================
3,740,308
=============================================================================
MULTI-SECTOR HOLDINGS-0.23%
Liberty Media Corp.-Capital-Series A(c) 4,979 71,698
=============================================================================
PUBLISHING-1.58%
Gannett Co., Inc. 4,221 91,469
- -----------------------------------------------------------------------------
McGraw-Hill Cos., Inc. (The) 10,016 401,842
=============================================================================
493,311
=============================================================================
RESTAURANTS-4.38%
Burger King Holdings Inc. 14,618 391,617
- -----------------------------------------------------------------------------
Jack in the Box Inc.(c) 7,342 164,534
- -----------------------------------------------------------------------------
McDonald's Corp. 8,700 489,114
- -----------------------------------------------------------------------------
Yum! Brands, Inc. 9,146 320,933
=============================================================================
1,366,198
=============================================================================
SOFT DRINKS-3.63%
Coca-Cola Femsa, S.A.B. de C.V.-ADR (Mexico) 10,052 566,832
- -----------------------------------------------------------------------------
PepsiCo, Inc. 8,900 565,951
=============================================================================
1,132,783
=============================================================================
SPECIALIZED REIT'S-0.70%
FelCor Lodging Trust Inc. 20,882 219,261
=============================================================================
SPECIALTY STORES-2.02%
PetSmart, Inc. 31,599 630,400
=============================================================================
Total Common Stocks & Other Equity Interests
(Cost $29,548,919) 30,456,645
=============================================================================
MONEY MARKET FUNDS-1.57%
Liquid Assets Portfolio-Institutional Class(i) 245,328 245,328
- -----------------------------------------------------------------------------
Premier Portfolio-Institutional Class(i) 245,328 245,328
=============================================================================
Total Money Market Funds (Cost $490,656) 490,656
=============================================================================
TOTAL INVESTMENTS (excluding investments purchased
with cash collateral from securities on
loan)-99.15% (Cost $30,039,575) 30,947,301
=============================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON
LOAN
MONEY MARKET FUNDS-1.91%
Liquid Assets Portfolio-Institutional Class (Cost
$596,050)(i)(j) 596,050 596,050
=============================================================================
TOTAL INVESTMENTS-101.06% (Cost $30,635,625) 31,543,351
=============================================================================
OTHER ASSETS LESS LIABILITIES-(1.06)% (330,296)
=============================================================================
NET ASSETS-100.00% $31,213,055
_____________________________________________________________________________
=============================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
REIT - Real Estate Investment Trust
</Table>
Notes to Schedule of Investments:
(a) Industry and/or sector classifications used in this report are generally
according to the Global Industry Classification Standard, which was
developed by and is the exclusive property and a service mark of MSCI Inc.
and Standard & Poor's.
(b) In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate value of these securities at June 30, 2008 was $4,448,897,
which represented 14.25% of the Fund's Net Assets. See Note 1A.
(c) Non-income producing security.
(d) Each unit represents one A bearer share in the company and one bearer
share participation certificate in Richemont S.A.
(e) All or a portion of this security was out on loan at June 30, 2008.
(f) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an
independent pricing service. The value of this security at June 30, 2008
represented 0.26% of the Fund's Net Assets. See Note 1A.
(g) Each unit represents one common share and one trust share.
(h) Security purchased or received in a transaction exempt from registration
under the Securities Act of 1933, as amended. The security may be resold
pursuant to an exemption from registration under the 1933 Act, typically
to qualified institutional buyers. The value of this security at June 30,
2008 represented 0.04% of the Fund's Net Assets. Unless otherwise
indicated, this security is not considered to be illiquid.
(i) The money market fund and the Fund are affiliated by having the same
investment advisor.
(j) The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 1J.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. LEISURE FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, at value (Cost
$29,548,919)* $30,456,645
- ------------------------------------------------------
Investments in affiliated money market
funds (Cost $1,086,706) 1,086,706
======================================================
Total investments (Cost
$30,635,625) 31,543,351
======================================================
Foreign currencies, at value (Cost
$22,352) 22,573
- ------------------------------------------------------
Receivables for:
Investments sold 144,206
- ------------------------------------------------------
Fund shares sold 117,771
- ------------------------------------------------------
Dividends 44,344
- ------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 12,024
======================================================
Total assets 31,884,269
______________________________________________________
======================================================
LIABILITIES:
Payables for:
Collateral upon return of securities
loaned 596,050
- ------------------------------------------------------
Accrued fees to affiliates 22,222
- ------------------------------------------------------
Accrued other operating expenses 38,119
- ------------------------------------------------------
Trustee deferred compensation and
retirement plans 14,823
======================================================
Total liabilities 671,214
======================================================
Net assets applicable to shares
outstanding $31,213,055
______________________________________________________
======================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $24,520,847
- ------------------------------------------------------
Undistributed net investment income
(loss) (29,032)
- ------------------------------------------------------
Undistributed net realized gain 5,812,289
- ------------------------------------------------------
Unrealized appreciation 908,951
======================================================
$31,213,055
______________________________________________________
======================================================
NET ASSETS:
Series I $31,205,019
______________________________________________________
======================================================
Series II $ 8,036
______________________________________________________
======================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 2,932,117
______________________________________________________
======================================================
Series II 758
______________________________________________________
======================================================
Series I:
Net asset value per share $ 10.64
______________________________________________________
======================================================
Series II:
Net asset value per share $ 10.60
______________________________________________________
======================================================
</Table>
* At June 30, 2008, securities with an aggregate value of $576,456 were on loan
to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding
taxes of $15,327) $ 282,386
- ------------------------------------------------------
Dividends from affiliated money market
funds (includes securities lending
income of $10,517) 22,736
======================================================
Total investment income 305,122
======================================================
EXPENSES:
Advisory fees 137,603
- ------------------------------------------------------
Administrative services fees 70,655
- ------------------------------------------------------
Custodian fees 3,846
- ------------------------------------------------------
Distribution fees -- Series II 11
- ------------------------------------------------------
Transfer agent fees 526
- ------------------------------------------------------
Trustees' and officer's fees and
benefits 8,630
- ------------------------------------------------------
Professional services fees 22,615
- ------------------------------------------------------
Other 7,131
======================================================
Total expenses 251,017
======================================================
Less: Fees waived and expense offset
arrangement(s) (66,228)
======================================================
Net expenses 184,789
======================================================
Net investment income 120,333
======================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM:
Net realized gain from:
Investment securities 844,722
- ------------------------------------------------------
Foreign currencies 7,833
======================================================
852,555
======================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (7,278,750)
- ------------------------------------------------------
Foreign currencies 781
======================================================
(7,277,969)
======================================================
Net realized and unrealized gain (loss) (6,425,414)
======================================================
Net increase (decrease) in net assets
resulting from operations $(6,305,081)
______________________________________________________
======================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. LEISURE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- --------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 120,333 $ 250,424
- --------------------------------------------------------------------------------------------------------
Net realized gain 852,555 5,418,001
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) (7,277,969) (5,558,810)
========================================================================================================
Net increase (decrease) in net assets resulting from operations (6,305,081) 109,615
========================================================================================================
Distributions to shareholders from net investment income:
Series I -- (754,185)
- --------------------------------------------------------------------------------------------------------
Series II -- (134)
========================================================================================================
Total distributions from net investment income -- (754,319)
========================================================================================================
Distributions to shareholders from net realized gains:
Series I -- (2,658,589)
- --------------------------------------------------------------------------------------------------------
Series II -- (579)
========================================================================================================
Total distributions from net realized gains -- (2,659,168)
========================================================================================================
Share transactions-net:
Series I (5,084,742) (6,922,866)
- --------------------------------------------------------------------------------------------------------
Series II 266 (3,987)
========================================================================================================
Net increase (decrease) in net assets resulting from share
transactions (5,084,476) (6,926,853)
========================================================================================================
Net increase (decrease) in net assets (11,389,557) (10,230,725)
________________________________________________________________________________________________________
========================================================================================================
NET ASSETS:
Beginning of period 42,602,612 52,833,337
========================================================================================================
End of period (including undistributed net investment income (loss) of
$(29,032) and $(149,365), respectively) $ 31,213,055 $ 42,602,612
________________________________________________________________________________________________________
========================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. LEISURE FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Leisure Fund (the "Fund") is a series portfolio of AIM Variable
Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is capital growth.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on
that day. Securities traded in the over-the-counter market are valued
based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service
they may be considered fair valued. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally
traded. Listed options are valued at the mean between the last bid and the
ask prices from the exchange on which they are principally traded. Options
not listed on an exchange are valued by an independent source at the mean
between the last bid and ask prices. For purposes of determining net asset
value per share, futures and option contracts generally are valued 15
minutes after the close of the customary trading session of the New York
Stock Exchange ("NYSE").
Investments in open-end and closed-end registered investment companies
that do not trade on an exchange are valued at the end of day net asset
value per share. Investments in open-end and closed-end registered
investment companies that trade on an exchange are valued at the last
sales price or official closing price as of the close of the customary
trading session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing
service. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to specific securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Short-term obligations, including
commercial paper, having 60 days or less to maturity are recorded at
amortized cost which approximates value. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve
some risk of default with respect to interest and/or principal payments.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued
at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price
unreliable, the Fund may fair value the security. If the event is likely
to have affected the closing price of the security, the security will be
valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also
be based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current value as of the close of the NYSE. Foreign securities
meeting the approved degree of certainty that the price is not reflective
of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, American
Depositary Receipts and domestic and foreign index futures. Foreign
securities may have additional risks including exchange rate changes,
potential for sharply devalued currencies and high inflation, political
and economical upheaval, the relative lack of issuer information,
relatively low market liquidity and the potential lack of strict financial
and accounting controls and standards.
Securities for which market prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers following procedures
approved by the Board of Trustees. Issuer specific events, market trends,
bid/ask quotes of brokers and information providers and other market data
may be reviewed in the course of making a good faith determination of a
security's fair value.
Valuations change in response to many factors including the historical
and prospective earnings of the issuer, the value of the issuer's assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
AIM V.I. LEISURE FUND
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification
claims is considered remote.
I. OTHER RISKS -- The Fund's investments are concentrated in a comparatively
narrow segment of the economy. Consequently, the Fund may tend to be more
volatile than other mutual funds, and the value of the Fund's investments
may tend to rise and fall more rapidly.
The leisure sector depends on consumer discretionary spending, which
generally falls during economic downturns.
J. SECURITIES LENDING -- The Fund may lend portfolio securities having a
market value up to one-third of the Fund's total assets. Such loans are
secured by collateral equal to no less than the market value of the loaned
securities determined daily by the securities lending provider. Such
collateral will be cash or debt securities issued or guaranteed by the
U.S. Government or any of its sponsored agencies. Cash collateral received
in connection with these loans is invested in short-term money market
instruments or affiliated money market funds and is shown as such on the
Schedule of Investments. It is the Fund's policy to obtain additional
collateral from or return excess collateral to the borrower by the end of
the next business day, following the valuation date of the securities
loaned. Therefore, the value of the collateral held may be temporarily
less than the value of the securities on loan. Lending securities entails
a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase
the collateral accordingly, and the borrower fails to return the
securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any
loss on the collateral invested. Dividends received on cash collateral
investments for securities lending transactions, which are net of
compensation to counterparties, is included in Dividends from affiliates
on the Statement of Operations. The aggregate value of securities out on
loan is shown as a footnote on the Statement of Assets and Liabilities.
K. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close
of the NYSE based on quotations posted by banks and major currency
dealers. Portfolio securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i)
sales of foreign currencies, (ii) currency gains or losses realized
between the trade and settlement dates on securities transactions, and
(iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent
AIM V.I. LEISURE FUND
of the amounts actually received or paid. Net unrealized foreign currency
gains and losses arise from changes in the fair values of assets and
liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to
foreign taxes on income, gains on investments or currency repatriation, a
portion of which may be recoverable.
L. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. Fluctuations in the value of these contracts are recorded as
unrealized appreciation (depreciation) until the contracts are closed.
When these contracts are closed, realized gains (losses) are recorded.
Realized and unrealized gains and losses on these contracts are included
in the Statement of Operations. The Fund could be exposed to risk, which
may be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $250 million 0.75%
- -------------------------------------------------------------------
Next $250 million 0.74%
- -------------------------------------------------------------------
Next $500 million 0.73%
- -------------------------------------------------------------------
Next $1.5 billion 0.72%
- -------------------------------------------------------------------
Next $2.5 billion 0.71%
- -------------------------------------------------------------------
Next $2.5 billion 0.70%
- -------------------------------------------------------------------
Next $2.5 billion 0.69%
- -------------------------------------------------------------------
Over $10 billion 0.68%
___________________________________________________________________
===================================================================
</Table>
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
The Advisor has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.01% and Series
II shares to 1.26% of average daily net assets, through at least April 30, 2010.
In determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco")
described more fully below, the only expense offset arrangements from which the
Fund may benefit are in the form of credits that the Fund receives from banks
where the Fund or its transfer agent has deposit accounts in which it holds
uninvested cash. These credits are used to pay certain expenses incurred by the
Fund. To the extent that the annualized expense ratio does not exceed the
expense limitation, the Advisor will retain its ability to be reimbursed for
such fee waivers or reimbursements prior to the end of each fiscal year.
Further, the Advisor has contractually agreed, through at least April 30,
2010, to waive the advisory fee payable by the Fund in an amount equal to 100%
of the net advisory fees the Advisor receives from the affiliated money market
funds on investments by the Fund of uninvested cash (but not cash collateral
from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2008, the Advisor waived advisory fees of
$65,961.
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund
administrative services and reimbursed $45,792 for services provided by
insurance companies.
AIM V.I. LEISURE FUND
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily net
assets of the Series II shares may be paid to insurance companies who furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. For the six months ended June 30, 2008, expenses
incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1--Quoted prices in an active market for identical assets.
Level 2--Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest
rates, prepayment speeds, credit risk and others.
Level 3--Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for
example, when there is little or no market activity for an investment at the end
of the period), unobservable inputs may be used. Unobservable inputs reflect the
Fund's own assumptions about the factors market participants would use in
determining fair value of the securities or instruments and would be based on
the best available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS IN
INPUT LEVEL SECURITIES
- --------------------------------------
Level 1 $27,013,935
- --------------------------------------
Level 2 4,529,416
- --------------------------------------
Level 3 --
======================================
$31,543,351
______________________________________
======================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2008, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $267.
NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan and receive benefits under such plan. "Trustees' and Officer's
Fees and Benefits" include amounts accrued by the Fund to fund such retirement
benefits. Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $1,551
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--CASH BALANCES
The Fund is permitted to temporarily carry a negative or overdrawn balance in
its account with The State Street Bank and Trust Company ("SSB"), the custodian
bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund
may either (i) leave funds as a compensating balance in the account so the
custodian bank can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank at a rate agreed upon by the custodian
bank and Invesco Aim, not to exceed the contractually agreed upon rate.
AIM V.I. LEISURE FUND
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
The Fund did not have a capital loss carryforward as of December 31, 2007.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the six months ended June 30, 2008 was $526,694 and $4,629,511,
respectively. Cost of investments on a tax basis includes the adjustments for
financial reporting purposes as of the most recently completed Federal income
tax reporting period end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 4,569,043
- ------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (4,125,673)
================================================================================================
Net unrealized appreciation of investment securities $ 443,370
________________________________________________________________________________________________
================================================================================================
Cost of investments for tax purposes is $31,099,981.
</Table>
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ---------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008(a) DECEMBER 31, 2007
------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------
Sold:
Series I 12,235 $ 130,712 26,829 $ 342,162
- ---------------------------------------------------------------------------------------------------------------------
Series II 23 266 -- --
=====================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 256,214 3,412,774
- ---------------------------------------------------------------------------------------------------------------------
Series II -- -- 54 713
=====================================================================================================================
Reacquired:
Series I (442,805) (5,215,454) (741,988) (10,677,802)
- ---------------------------------------------------------------------------------------------------------------------
Series II -- -- (315) (4,700)
=====================================================================================================================
(430,547) $(5,084,476) (459,206) $ (6,926,853)
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
(a) There is an entity that is a record owner of more than 5% of the
outstanding shares of the Fund and it owns 99% of the outstanding shares of
the Fund. The Fund and the Fund's principal underwriter or advisor, are
parties to participation agreements with this entity whereby this entity
sells units of interest in separate accounts funding variable products that
are invested in the Fund. The Fund, Invesco Aim and/or Invesco Aim
affiliates may make payments to this entity, which is considered to be
related to the Fund, for providing services to the Fund, Invesco Aim and/or
Invesco Aim affiliates including but not limited to services such as,
securities brokerage, third party record keeping and account servicing and
administrative services. The Trust has no knowledge as to whether all or
any portion of the shares owned of record by this entity is also owned
beneficially.
AIM V.I. LEISURE FUND
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
----------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------------------------------
2008 2007 2006 2005 2004 2003
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.67 $ 13.82 $ 11.86 $ 12.38 $ 10.96 $ 8.52
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03 0.09 0.07 0.04 0.00 (0.00)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.06) (0.15) 2.83 (0.19) 1.47 2.44
============================================================================================================================
Total from investment operations (2.03) (0.06) 2.90 (0.15) 1.47 2.44
============================================================================================================================
Less distributions:
Dividends from net investment income -- (0.24) (0.16) (0.14) (0.04) --
- ----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.85) (0.78) (0.23) (0.01) --
============================================================================================================================
Total distributions -- (1.09) (0.94) (0.37) (0.05) --
============================================================================================================================
Net asset value, end of period $ 10.64 $ 12.67 $ 13.82 $ 11.86 $ 12.38 $ 10.96
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(a) (16.02)% (0.79)% 24.61% (1.19)% 13.40% 28.64%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $31,205 $42,593 $52,820 $54,192 $55,967 $34,424
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.01%(b) 1.01% 1.01% 1.16% 1.29% 1.26%
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.37%(b) 1.28% 1.26% 1.31% 1.34% 1.64%
============================================================================================================================
Ratio of net investment income (loss) to
average net assets 0.65%(b) 0.50% 0.54% 0.34% 0.00% (0.14)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate(c) 1% 15% 14% 32% 15% 22%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(b) Ratios are annualized and based on average daily net assets of $36,887,109.
(c) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
<Table>
<Caption>
SERIES II
-------------------------------------------------------------------------
APRIL 30, 2004
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT DATE)
JUNE 30, ---------------------------- TO DECEMBER 31,
2008 2007 2006 2005 2004
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.63 $13.78 $11.84 $12.37 $11.09
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02 0.05 0.04 0.02 (0.02)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.05) (0.15) 2.82 (0.19) 1.35
========================================================================================================================
Total from investment operations (2.03) (0.10) 2.86 (0.17) 1.33
========================================================================================================================
Less distributions:
Dividends from net investment income -- (0.20) (0.14) (0.13) (0.04)
- ------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.85) (0.78) (0.23) (0.01)
========================================================================================================================
Total distributions -- (1.05) (0.92) (0.36) (0.05)
========================================================================================================================
Net asset value, end of period $ 10.60 $12.63 $13.78 $11.84 $12.37
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(a) (16.07)% (1.13)% 24.28% (1.37)% 11.98%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 8 $ 9 $ 14 $ 11 $ 11
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.26%(b) 1.26% 1.26% 1.36% 1.45%(c)
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.62%(b) 1.53% 1.51% 1.56% 1.60%(c)
========================================================================================================================
Ratio of net investment income (loss) to
average net assets 0.40%(b) 0.25% 0.29% 0.14% (0.16)%(c)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(d) 1% 15% 14% 32% 15%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(b) Ratios are annualized and based on average daily net assets of $8,688.
(c) Annualized.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. LEISURE FUND
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor -- Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to Invesco Aim and IADI (Order No. 05-1318). The WVASC makes
findings of fact that Invesco Aim and IADI entered into certain arrangements
permitting market timing of the AIM Funds and failed to disclose these
arrangements in the prospectuses for such Funds, and conclusions of law to the
effect that Invesco Aim and IADI violated the West Virginia securities laws. The
WVASC orders Invesco Aim and IADI to cease any further violations and seeks to
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute. By agreement with the Commissioner of Securities, Invesco Aim's time to
respond to that Order has been indefinitely suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid. The case pending in Illinois State Court regarding fair value
pricing was dismissed with prejudice on May 6, 2008.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA
purportedly brought on behalf of participants in the Invesco 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds remain nominal defendants in the Consolidated Amended Fund
Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco
defendants' motion to dismiss the Amended Class Action Complaint for Violations
of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June
16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this
lawsuit back to the MDL Court for further proceedings.
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, Invesco Aim and IADI have advised the Fund that they are providing
full cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, Invesco Aim and/or related entities and individuals in the
future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. LEISURE FUND
NOTE 11--LEGAL PROCEEDINGS--(CONTINUED)
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $839.80 $4.62 $1,019.84 $5.07 1.01%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 839.30 5.76 1,018.60 6.32 1.26
- ---------------------------------------------------------------------------------------------------
</Table>
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5%
before expenses.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
AIM V.I. LEISURE FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the Board) of comparative performance and fee data from one another and attributed different
AIM Variable Insurance Funds is required regarding the AIM Funds prepared by an weight to the various factors. The
under the Investment Company Act of 1940 independent company, Lipper, Inc. Trustees recognized that the advisory
to approve annually the renewal of the AIM (Lipper), under the direction and arrangements and resulting advisory fees
V.I. Leisure Fund (the Fund) investment supervision of the independent Senior for the Fund and the other AIM Funds are
advisory agreement with Invesco Aim Officer who also prepares a separate the result of years of review and
Advisors, Inc. (Invesco Aim). During analysis of this information for the negotiation between the Trustees and
contract renewal meetings held on June Trustees. Each Sub-Committee then makes Invesco Aim, that the Trustees may focus
18-19, 2008, the Board as a whole and the recommendations to the Investments to a greater extent on certain aspects of
disinterested or "independent" Trustees, Committee regarding the performance, fees these arrangements in some years than in
voting separately, approved the and expenses of their assigned funds. The others, and that the Trustees'
continuance of the Fund's investment Investments Committee also considers each deliberations and conclusions in a
advisory agreement for another year, Sub-Committee's recommendations and makes particular year may be based in part on
effective July 1, 2008. In doing so, the its own recommendations regarding the their deliberations and conclusions of
Board determined that the Fund's performance, fees and expenses of the AIM these same arrangements throughout the
investment advisory agreement is in the Funds to the full Board. The Investments year and in prior years.
best interests of the Fund and its Committee also considers each
shareholders and that the compensation to Sub-Committee's recommendations in making FACTORS AND CONCLUSIONS AND SUMMARY OF
Invesco Aim under the Fund's investment its annual recommendation to the Board INDEPENDENT WRITTEN FEE EVALUATION
advisory agreement is fair and reasonable. whether to approve the continuance of each The discussion below serves as a
The independent Trustees met separately AIM Fund's investment advisory agreement summary of the Senior Officer's
during their evaluation of the Fund's and sub-advisory agreements for another independent written evaluation with
investment advisory agreement with year. respect to the Fund's investment advisory
independent legal counsel from whom they The independent Trustees are assisted agreement as well as a discussion of the
received independent legal advice, and the in their annual evaluation of the Fund's material factors and related conclusions
independent Trustees also received investment advisory agreement by the that formed the basis for the Board's
assistance during their deliberations from independent Senior Officer. One approval of the Fund's investment advisory
the independent Senior Officer, a responsibility of the Senior Officer is to agreement and sub-advisory agreements.
full-time officer of the AIM Funds who manage the process by which the AIM Funds' Unless otherwise stated, information set
reports directly to the independent proposed management fees are negotiated forth below is as of June 19, 2008 and
Trustees. during the annual contract renewal process does not reflect any changes that may have
to ensure that they are negotiated in a occurred since that date, including but
THE BOARD'S FUND EVALUATION PROCESS manner that is at arms' length and not limited to changes to the Fund's
The Board's Investments Committee has reasonable. Accordingly, the Senior performance, advisory fees, expense
established three Sub-Committees that are Officer must either supervise a limitations and/or fee waivers.
responsible for overseeing the management competitive bidding process or prepare an
of a number of the series portfolios of independent written evaluation. The Senior I. Investment Advisory Agreement
the AIM Funds. This Sub-Committee Officer has recommended that an A. Nature, Extent and Quality of
structure permits the Trustees to focus on independent written evaluation be provided Services Provided by Invesco Aim
the performance of the AIM Funds that have and, at the direction of the Board, has The Board reviewed the advisory
been assigned to them. The Sub-Committees prepared an independent written services provided to the Fund by Invesco
meet throughout the year to review the evaluation. Aim under the Fund's investment advisory
performance of their assigned funds, and During the annual contract renewal agreement, the performance of Invesco Aim
the Sub-Committees review monthly and process, the Board considered the factors in providing these services, and the
quarterly comparative performance discussed below under the heading "Factors credentials and experience of the officers
information and periodic asset flow data and Conclusions and Summary of Independent and employees of Invesco Aim who provide
for their assigned funds. These materials Written Fee Evaluation" in evaluating the these services. The Board's review of the
are prepared under the direction and fairness and reasonableness of the Fund's qualifications of Invesco Aim to provide
supervision of the independent Senior investment advisory agreement and these services included the Board's
Officer. Over the course of each year, the sub-advisory agreements at the contract consideration of Invesco Aim's portfolio
Sub-Committees meet with portfolio renewal meetings and at their meetings and product review process, various back
managers for their assigned funds and throughout the year as part of their office support functions provided by
other members of management and review ongoing oversight of the Fund. The Fund's Invesco Aim and its affiliates, and
with these individuals the performance, investment advisory agreement and Invesco Aim's equity and fixed income
investment objective(s), policies, sub-advisory agreements were considered trading operations. The Board concluded
strategies and limitations of these funds. separately, although the Board also that the nature, extent and quality of the
considered the common interests of all of advisory services provided to the Fund by
In addition to their meetings the AIM Funds in their deliberations. The Invesco Aim were appropriate and that
throughout the year, the Sub-Committees Board considered all of the information Invesco Aim currently is providing
meet at designated contract renewal provided to them and did not identify any satisfactory advisory services in
meetings each year to conduct an in-depth particular factor that was controlling. accordance with the terms of the Fund's
review of the performance, fees and Each Trustee may have evaluated the investment advisory agreement. In
expenses of their assigned funds. During information provided differently addition, based on their ongoing meetings
the contract renewal process, the Trustees throughout the year with the Fund's
receive portfolio manager or
continued
AIM V.I. LEISURE FUND
managers, the Board concluded that these Although the independent written that the Fund's contractual advisory fee
individuals are competent and able to evaluation of the Fund's Senior Officer schedule includes seven breakpoints, but
continue to carry out their only considered Fund performance through that, due to the Fund's asset level at the
responsibilities under the Fund's the most recent calendar year, the Board end of the past calendar year and the way
investment advisory agreement. also reviewed more recent Fund performance in which the breakpoints have been
In determining whether to continue the and this review did not change their structured, the Fund has yet to benefit
Fund's investment advisory agreement, the conclusions. from the breakpoints. Based on this
Board considered the prior relationship information, the Board concluded that the
between Invesco Aim and the Fund, as well C.Advisory Fees and Fee Waivers Fund's advisory fees would reflect
as the Board's knowledge of Invesco Aim's The Board compared the Fund's economies of scale at higher asset levels.
operations, and concluded that it was contractual advisory fee rate to the The Board also noted that the Fund shares
beneficial to maintain the current contractual advisory fee rates of funds in directly in economies of scale through
relationship, in part, because of such the Fund's Lipper expense group that are lower fees charged by third party service
knowledge. The Board also considered the not managed by Invesco Aim, at a common providers based on the combined size of
steps that Invesco Aim and its affiliates asset level and as of the end of the past all of the AIM Funds and affiliates.
have taken over the last several years to calendar year. The Board noted that the
improve the quality and efficiency of the Fund's contractual advisory fee rate was E.Profitability and Financial Resources
services they provide to the AIM Funds in below the median contractual advisory fee of Invesco Aim
the areas of investment performance, rate of funds in its expense group. The The Board reviewed information from
product line diversification, Board also reviewed the methodology used Invesco Aim concerning the costs of the
distribution, fund operations, shareholder by Lipper in determining contractual fee advisory and other services that Invesco
services and compliance. The Board rates. Aim and its affiliates provide to the Fund
concluded that the quality and efficiency The Board also compared the Fund's and the profitability of Invesco Aim and
of the services Invesco Aim and its effective fee rate (the advisory fee after its affiliates in providing these
affiliates provide to the AIM Funds in any advisory fee waivers and before any services. The Board also reviewed
each of these areas have generally expense limitations/waivers) to the information concerning the financial
improved, and support the Board's approval advisory fee rates of other clients of condition of Invesco Aim and its
of the continuance of the Fund's Invesco Aim and its affiliates with affiliates. The Board also reviewed with
investment advisory agreement. investment strategies comparable to those Invesco Aim the methodology used to
of the Fund, including one mutual fund prepare the profitability information. The
B. Fund Performance advised by Invesco Aim. The Board noted Board considered the overall profitability
Because there was only one other fund that the Fund's rate was above the rate of Invesco Aim, as well as the
identified by Invesco Aim in the Fund's for the other mutual fund. profitability of Invesco Aim in connection
performance group for inclusion in the The Board noted that Invesco Aim has with managing the Fund. The Board noted
Lipper reports, the Board compared the contractually agreed to waive fees and/or that Invesco Aim continues to operate at a
Fund's performance during the past one, limit expenses of the Fund through at net profit, although increased expenses in
three and five calendar years to the least April 30, 2010 in an amount recent years have reduced the
performance of funds in the Fund's necessary to limit total annual operating profitability of Invesco Aim and its
performance universe identified by Lipper, expenses to a specified percentage of affiliates. The Board concluded that the
and against the performance of all funds average daily net assets for each class of Fund's fees were fair and reasonable, and
in the S&P 500 Index. The Board also the Fund. The Board considered the that the level of profits realized by
reviewed the criteria used by Invesco Aim contractual nature of this fee waiver and Invesco Aim and its affiliates from
to identify the funds in the Fund's noted that it remains in effect until at providing services to the Fund was not
performance group for inclusion in the least April 30, 2010. The Board also excessive in light of the nature, quality
Lipper reports and the methodology used by considered the effect this fee waiver and extent of the services provided. The
Lipper to identify the performance would have on the Fund's total estimated Board considered whether Invesco Aim is
universe. The Board noted that the Fund's expenses. financially sound and has the resources
performance was in the fourth quintile of After taking account of the Fund's necessary to perform its obligations under
its Lipper performance universe for the contractual advisory fee rate, as well as the Fund's investment advisory agreement,
one year period and the third quintile for the comparative advisory fee information and concluded that Invesco Aim has the
the three and five year periods (the first and the expense limitation discussed financial resources necessary to fulfill
quintile being the best performing funds above, the Board concluded that the Fund's these obligations.
and the fifth quintile being the worst advisory fees were fair and reasonable.
performing funds). The Board noted that F. Independent Written Evaluation of
the Fund's performance was below the D. Economies of Scale and Breakpoints the Fund's Senior Officer
performance of the Index for the one, The Board considered the extent to The Board noted that, at their direction,
three and five year periods. The Board which there are economies of scale in the Senior Officer of the Fund, who is
also considered the steps Invesco Aim has Invesco Aim's provision of advisory independent of Invesco Aim and Invesco
taken over the last several years to services to the Fund. The Board also Aim's affiliates, had prepared an
improve the quality and efficiency of the considered whether the Fund benefits from independent written evaluation to assist
services that Invesco Aim provides to the such economies of scale through the Board in determining the
AIM Funds. The Board concluded that contractual breakpoints in the Fund's reasonableness of the proposed management
Invesco Aim continues to be responsive to advisory fee schedule or through advisory fees of the AIM Funds, including the
the Board's focus on fund performance. fee waivers or expense limitations. The Fund. The Board noted that they had
Board noted relied upon the Senior Officer's written
evaluation
continued
AIM V.I. LEISURE FUND
instead of a competitive bidding process. money market funds attributable to such B. Fund Performance
In determining whether to continue the investments, although Invesco Aim has The Board did not view Fund performance as
Fund's investment advisory agreement, the contractually agreed to waive through at a relevant factor in considering whether
Board considered the Senior Officer's least April 30, 2010, the advisory fees to approve the sub-advisory agreements for
written evaluation. payable by the Fund in an amount equal to the Fund, as no Affiliated Sub-Adviser
100% of the net advisory fees Invesco Aim currently manages any portion of the
G. Collateral Benefits to Invesco Aim receives from the affiliated money market Fund's assets.
and its Affiliates funds with respect to the Fund's
The Board considered various other investment of uninvested cash, but not C. Sub-Advisory Fees
benefits received by Invesco Aim and its cash collateral. The Board considered the The Board considered the services to be
affiliates resulting from Invesco Aim's contractual nature of this fee waiver and provided by the Affiliated Sub-Advisers
relationship with the Fund, including the noted that it remains in effect until at pursuant to the sub-advisory agreements
fees received by Invesco Aim and its least April 30, 2010. The Board concluded and the services to be provided by Invesco
affiliates for their provision of that the Fund's investment of uninvested Aim pursuant to the Fund's investment
administrative, transfer agency and cash and cash collateral from any advisory agreement, as well as the
distribution services to the Fund. The securities lending arrangements in the allocation of fees between Invesco Aim and
Board considered the performance of affiliated money market funds is in the the Affiliated Sub-Advisers pursuant to
Invesco Aim and its affiliates in best interests of the Fund and its the sub-advisory agreements. The Board
providing these services and the shareholders. noted that the sub-advisory fees have no
organizational structure employed by direct effect on the Fund or its
Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements shareholders, as they are paid by Invesco
these services. The Board also considered A. Nature, Extent and Quality of Aim to the Affiliated Sub-Advisers, and
that these services are provided to the Services Provided by Affiliated that Invesco Aim and the Affiliated
Fund pursuant to written contracts which Sub-Advisors Sub-Advisers are affiliates. After taking
are reviewed and approved on an annual The Board reviewed the services to be account of the Fund's contractual
basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco sub-advisory fee rate, as well as other
that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, relevant factors, the Board concluded that
providing these services in a satisfactory Invesco Asset Management Limited, Invesco the Fund's sub-advisory fees were fair and
manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco reasonable.
their contracts, and were qualified to Australia Limited, Invesco Global Asset
continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong D. Financial Resources of the
Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Advisers
The Board considered the benefits Inc. and Invesco Senior Secured The Board considered whether each
realized by Invesco Aim as a result of Management, Inc. (collectively, the Affiliated Sub-Adviser is financially
portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the sound and has the resources necessary to
through "soft dollar" arrangements. Under sub-advisory agreements and the perform its obligations under its
these arrangements, portfolio brokerage credentials and experience of the officers respective sub-advisory agreement, and
commissions paid by the Fund and/or other and employees of the Affiliated concluded that each Affiliated Sub-Adviser
funds advised by Invesco Aim are used to Sub-Advisers who will provide these has the financial resources necessary to
pay for research and execution services. services. The Board concluded that the fulfill these obligations.
The Board noted that soft dollar nature, extent and quality of the services
arrangements shift the payment obligation to be provided by the Affiliated
for the research and execution services Sub-Advisers were appropriate. The Board
from Invesco Aim to the funds and noted that the Affiliated Sub-Advisers,
therefore may reduce Invesco Aim's which have offices and personnel that are
expenses. The Board also noted that geographically dispersed in financial
research obtained through soft dollar centers around the world, have been formed
arrangements may be used by Invesco Aim in in part for the purpose of researching and
making investment decisions for the Fund compiling information and making
and may therefore benefit Fund recommendations on the markets and
shareholders. The Board concluded that economies of various countries and
Invesco Aim's soft dollar arrangements securities of companies located in such
were appropriate. The Board also concluded countries or on various types of
that, based on their review and investments and investment techniques, and
representations made by Invesco Aim, these providing investment advisory services.
arrangements were consistent with The Board concluded that the sub-advisory
regulatory requirements. agreements will benefit the Fund and its
The Board considered the fact that the shareholders by permitting Invesco Aim to
Fund's uninvested cash and cash collateral utilize the additional resources and
from any securities lending arrangements talent of the Affiliated Sub-Advisers in
may be invested in money market funds managing the Fund.
advised by Invesco Aim pursuant to
procedures approved by the Board The Board
noted that Invesco Aim will receive
advisory fees from these affiliated
AIM V.I. LEISURE FUND
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. Leisure Fund, an
investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust
("Trust"), was held on February 29, 2008. The Meeting was held for the following
purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom
will serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust
that would permit the Board of Trustees of the Trust to terminate the
Trust, the Fund, and each other series portfolio of the Trust, or a share
class without a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc.
and each of AIM Funds Management, Inc.; Invesco Asset Management
Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset
Management (Japan) Limited; Invesco Australia Limited; Invesco Global
Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco
Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc.
(4)(a) Approve modification of fundamental restriction on issuer
diversification.
(4)(b) Approve modification of fundamental restrictions on issuing senior
securities and borrowing money.
(4)(c) Approve modification of fundamental restriction on underwriting
securities.
(4)(d) Approve modification of fundamental restriction on industry
concentration.
(4)(e) Approve modification of fundamental restriction on real estate
investments.
(4)(f) Approve modification of fundamental restriction on purchasing or selling
commodities.
(4)(g) Approve modification of fundamental restriction on making loans.
(4)(h) Approve modification of fundamental restriction on investments in
investment companies.
(5) Approve making the investment objective of the fund non-fundamental.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- ------------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker.................................................... 474,883,590 19,741,622
Frank S. Bayley................................................. 474,653,109 19,972,103
James T. Bunch.................................................. 475,597,417 19,027,795
Bruce L. Crockett............................................... 474,900,579 19,724,633
Albert R. Dowden................................................ 474,749,929 19,875,283
Jack M. Fields.................................................. 475,205,840 19,419,372
Martin L. Flanagan.............................................. 475,248,336 19,376,876
Carl Frischling................................................. 474,453,674 20,171,538
Prema Mathai-Davis.............................................. 473,569,192 21,056,020
Lewis F. Pennock................................................ 475,072,501 19,552,711
Larry Soll, Ph.D. .............................................. 475,170,544 19,454,668
Raymond Stickel, Jr. ........................................... 475,420,825 19,204,387
Philip A. Taylor................................................ 475,640,570 18,984,642
</Table>
<Table>
<Caption>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
- --------------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of
Trustees of the Trust to terminate the Trust, the Fund,
and each other series portfolio of the Trust, or a share
class without a shareholder vote........................ 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between Invesco Aim
Advisors, Inc. and each of AIM Funds Management, Inc.;
Invesco Asset Management Deutschland, GmbH; Invesco
Asset Management Limited; Invesco Asset Management
(Japan) Limited; Invesco Australia Limited; Invesco
Global Asset Management (N.A.), Inc.; Invesco Hong Kong
Limited; Invesco Institutional (N.A.), Inc.; and Invesco
Senior Secured Management, Inc.......................... 2,897,017 125,376 128,875
(4)(a) Approve modification of fundamental restriction on
issuer diversification.................................. 2,821,848 163,947 165,473
(4)(b) Approve modification of fundamental restrictions on
issuing senior securities and borrowing money........... 2,818,516 163,947 168,805
(4)(c) Approve modification of fundamental restriction on
underwriting securities................................. 2,824,770 161,025 165,473
(4)(d) Approve modification of fundamental restriction on
industry concentration.................................. 2,822,883 162,912 165,473
(4)(e) Approve modification of fundamental restriction on real
estate investments...................................... 2,824,770 161,025 165,473
(4)(f) Approve modification of fundamental restriction on
purchasing or selling commodities....................... 2,823,735 162,060 165,473
(4)(g) Approve modification of fundamental restriction on
making loans............................................ 2,816,354 169,441 165,473
(4)(h) Approve modification of fundamental restriction on
investments in investment companies..................... 2,822,883 162,912 165,473
(5) Approve making the investment objective of the fund non-
fundamental............................................. 2,829,544 159,002 162,722
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. LEISURE FUND
[INVESCO AIM LOGO] AIM V.I. MID CAP CORE EQUITY FUND
- SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008
AIM Investments [MOUNTAIN GRAPHIC]
became INVESCO AIM
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FUND PERFORMANCE
=======================================================================================
PERFORMANCE SUMMARY
FUND VS. INDEXES
Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares -5.35%
Series II Shares -5.47
S&P 500 Index(TRIANGLE) (Broad Market Index) -11.90
Russell Midcap Index(TRIANGLE) (Style-Specific Index) -7.57
Lipper VUF Mid-Cap Core Funds Index(TRIANGLE) (Peer Group Index) -6.55
(TRIANGLE)Lipper Inc.
The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted
index covering all major areas of the U.S. economy. It is not the 500 largest
companies, but rather the most widely held 500 companies chosen with respect to
market size, liquidity, and their industry.
The RUSSELL MIDCAP--REGISTERED TRADEMARK-- INDEX measures the performance of
the 800 smallest companies in the Russell 1000--REGISTERED TRADEMARK-- Index,
which represent approximately 30% of the total market capitalization of the
Russell 1000 Index. The Russell Midcap Index and the Russell 1000 Index are
trademarks/service marks of the Frank Russell Company. Russell--REGISTERED
TRADEMARK-- is a trademark of the Frank Russell Company.
The LIPPER VUF MID-CAP CORE FUNDS INDEX is an equally weighted representation
of the largest variable insurance underlying funds in the Lipper Mid-Cap Core
Funds category. These funds have an average price-to-earnings ratio,
price-to-book ratio, and three-year sales-per-share growth value, compared to
the S&P MidCap 400 Index.
The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
=======================================================================================
==========================================
AVERAGE ANNUAL TOTAL RETURNS PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU VARIABLE PRODUCT VALUES. THEY DO NOT
As of 6/30/08 MAY HAVE A GAIN OR LOSS WHEN YOU SELL REFLECT SALES CHARGES, EXPENSES AND FEES
SHARES. ASSESSED IN CONNECTION WITH A VARIABLE
SERIES I SHARES THE NET ANNUAL FUND OPERATING EXPENSE PRODUCT. SALES CHARGES, EXPENSES AND FEES,
Inception (9/10/01) 8.27% RATIO SET FORTH IN THE MOST RECENT FUND WHICH ARE DETERMINED BY THE VARIABLE
5 Years 10.05 PROSPECTUS AS OF THE DATE OF THIS REPORT PRODUCT ISSUERS, WILL VARY AND WILL LOWER
1 Year -5.79 FOR SERIES I AND SERIES II SHARES WAS THE TOTAL RETURN.
1.02% AND 1.27%, RESPECTIVELY.(1) THE THE MOST RECENT MONTH-END PERFORMANCE
SERIES II SHARES TOTAL ANNUAL FUND OPERATING EXPENSE RATIO DATA AT THE FUND LEVEL, EXCLUDING VARIABLE
Inception (9/10/01) 8.01% SET FORTH IN THE MOST RECENT FUND PRODUCT CHARGES, IS AVAILABLE ON THE
5 Years 9.79 PROSPECTUS AS OF THE DATE OF THIS REPORT INVESCO AIM AUTOMATED INFORMATION LINE,
1 Year -6.01 FOR SERIES I AND SERIES II SHARES WAS 866 702 4402. AS MENTIONED ABOVE, FOR THE
========================================== 1.04% AND 1.29%, RESPECTIVELY. THE EXPENSE MOST RECENT MONTH-END PERFORMANCE
RATIOS PRESENTED ABOVE MAY VARY FROM THE INCLUDING VARIABLE PRODUCT CHARGES, PLEASE
THE PERFORMANCE OF THE FUND'S SERIES I AND EXPENSE RATIOS PRESENTED IN OTHER SECTIONS CONTACT YOUR VARIABLE PRODUCT ISSUER OR
SERIES II SHARE CLASSES WILL DIFFER OF THIS REPORT THAT ARE BASED ON EXPENSES FINANCIAL ADVISOR.
PRIMARILY DUE TO DIFFERENT CLASS EXPENSES. INCURRED DURING THE PERIOD COVERED BY THIS
THE PERFORMANCE DATA QUOTED REPRESENT REPORT. (1) Total annual operating expenses less
PAST PERFORMANCE AND CANNOT GUARANTEE AIM V.I. MID CAP CORE EQUITY FUND, A any contractual fee waivers and/or
COMPARABLE FUTURE RESULTS; CURRENT SERIES PORTFOLIO OF AIM VARIABLE INSURANCE expense reimbursements by the advisor
PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE FUNDS, IS CURRENTLY OFFERED THROUGH in effect through at least April 30,
CONTACT YOUR VARIABLE PRODUCT ISSUER OR INSURANCE COMPANIES ISSUING VARIABLE 2010. See current prospectus for more
FINANCIAL ADVISOR FOR THE MOST RECENT PRODUCTS. YOU CANNOT PURCHASE SHARES OF information.
MONTH-END VARIABLE PRODUCT PERFORMANCE. THE FUND DIRECTLY. PERFORMANCE FIGURES
PERFORMANCE FIGURES REFLECT FUND EXPENSES, GIVEN REPRESENT THE FUND AND ARE NOT
REINVESTED DISTRIBUTIONS AND CHANGES IN INTENDED TO REFLECT ACTUAL
NET ASSET VALUE. INVESTMENT RETURN AND
AIM V.I. MID CAP CORE EQUITY FUND
PORTFOLIO COMPOSITION
By sector, based on Net Assets
as of June 30, 2008
<Table>
- -------------------------------------------------------------------------
Health Care 13.0%
- -------------------------------------------------------------------------
Financials 12.5
- -------------------------------------------------------------------------
Information Technology 11.9
- -------------------------------------------------------------------------
Materials 9.7
- -------------------------------------------------------------------------
Consumer Staples 9.4
- -------------------------------------------------------------------------
Industrials 9.4
- -------------------------------------------------------------------------
Consumer Discretionary 7.5
- -------------------------------------------------------------------------
Energy 6.8
- -------------------------------------------------------------------------
Utilities 1.2
- -------------------------------------------------------------------------
Money Market Funds Plus Other Assets Less Liabilities 18.6
_________________________________________________________________________
=========================================================================
</Table>
SCHEDULE OF INVESTMENTS(a)
June 30, 2008
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-79.01%
ADVERTISING-1.16%
Omnicom Group Inc. 147,579 $ 6,623,346
===============================================================================
AEROSPACE & DEFENSE-1.25%
Goodrich Corp. 81,561 3,870,885
- -------------------------------------------------------------------------------
Precision Castparts Corp. 33,885 3,265,498
===============================================================================
7,136,383
===============================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.93%
Polo Ralph Lauren Corp.(b) 84,537 5,307,233
===============================================================================
APPLICATION SOFTWARE-1.04%
Amdocs Ltd.(c) 151,183 4,447,804
- -------------------------------------------------------------------------------
Cadence Design Systems, Inc.(c) 148,575 1,500,607
===============================================================================
5,948,411
===============================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.66%
Legg Mason, Inc. 218,759 9,531,330
===============================================================================
COMMUNICATIONS EQUIPMENT-2.11%
Foundry Networks, Inc.(c) 331,840 3,922,349
- -------------------------------------------------------------------------------
Motorola, Inc. 482,530 3,541,770
- -------------------------------------------------------------------------------
Polycom, Inc.(c) 189,560 4,617,682
===============================================================================
12,081,801
===============================================================================
COMPUTER STORAGE & PERIPHERALS-1.34%
QLogic Corp.(c) 527,059 7,689,791
===============================================================================
CONSTRUCTION MATERIALS-0.42%
Eagle Materials Inc.(b) 95,864 2,428,235
===============================================================================
CONSUMER ELECTRONICS-0.91%
Harman International Industries, Inc.(b) 125,786 5,206,283
===============================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.40%
Alliance Data Systems Corp.(c) 40,463 2,288,183
===============================================================================
DEPARTMENT STORES-0.73%
Kohl's Corp.(c) 103,899 4,160,116
===============================================================================
DISTRIBUTORS-1.30%
Genuine Parts Co. 187,651 7,445,992
===============================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.50%
Agilent Technologies, Inc.(c) 80,995 2,878,562
===============================================================================
ELECTRONIC MANUFACTURING SERVICES-1.63%
Molex Inc. 258,585 6,312,060
- -------------------------------------------------------------------------------
Tyco Electronics Ltd. 84,343 3,021,166
===============================================================================
9,333,226
===============================================================================
ENVIRONMENTAL & FACILITIES SERVICES-1.43%
Republic Services, Inc. 276,639 8,216,178
===============================================================================
FOOD RETAIL-1.10%
SUPERVALU, Inc.(c) 203,406 6,283,211
===============================================================================
GAS UTILITIES-1.19%
UGI Corp. 237,242 6,811,218
===============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. MID CAP CORE EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-3.98%
Hospira, Inc.(c) 190,543 $ 7,642,680
- -------------------------------------------------------------------------------
Varian Medical Systems, Inc.(c) 141,705 7,347,404
- -------------------------------------------------------------------------------
Zimmer Holdings, Inc.(c) 115,069 7,830,445
===============================================================================
22,820,529
===============================================================================
HEALTH CARE SERVICES-1.17%
Quest Diagnostics Inc. 138,850 6,730,059
===============================================================================
HEALTH CARE TECHNOLOGY-1.15%
IMS Health Inc. 283,880 6,614,404
===============================================================================
HOME FURNISHINGS-0.37%
Leggett & Platt, Inc.(b) 126,991 2,129,639
===============================================================================
HOMEBUILDING-0.44%
Ryland Group, Inc. (The) 114,917 2,506,340
===============================================================================
HOUSEHOLD PRODUCTS-0.37%
Energizer Holdings, Inc.(c) 29,261 2,138,686
===============================================================================
HUMAN RESOURCE & EMPLOYMENT SERVICES-1.53%
Administaff, Inc.(b) 314,382 8,768,114
===============================================================================
INDUSTRIAL MACHINERY-4.39%
Atlas Copco A.B.-Class A (Sweden)(b)(d) 349,600 5,138,163
- -------------------------------------------------------------------------------
Dover Corp. 160,568 7,766,674
- -------------------------------------------------------------------------------
ITT Corp. 91,801 5,813,757
- -------------------------------------------------------------------------------
Parker Hannifin Corp. 90,555 6,458,383
===============================================================================
25,176,977
===============================================================================
INSURANCE BROKERS-1.45%
Marsh & McLennan Cos., Inc. 257,910 6,847,511
- -------------------------------------------------------------------------------
National Financial Partners Corp.(b) 73,687 1,460,476
===============================================================================
8,307,987
===============================================================================
LEISURE PRODUCTS-0.59%
Namco Bandai Holdings Inc. (Japan)(b) 298,100 3,374,929
===============================================================================
LIFE SCIENCES TOOLS & SERVICES-3.93%
PerkinElmer, Inc. 191,567 5,335,141
- -------------------------------------------------------------------------------
Pharmaceutical Product Development, Inc. 206,806 8,871,977
- -------------------------------------------------------------------------------
Techne Corp.(c) 107,672 8,332,736
===============================================================================
22,539,854
===============================================================================
METAL & GLASS CONTAINERS-1.15%
Pactiv Corp.(c) 311,054 6,603,676
===============================================================================
MULTI-SECTOR HOLDINGS-0.16%
PICO Holdings, Inc.(b)(c) 21,187 920,575
===============================================================================
OFFICE ELECTRONICS-0.97%
Xerox Corp. 408,112 5,533,999
===============================================================================
OFFICE SERVICES & SUPPLIES-0.77%
Pitney Bowes Inc. 128,775 4,391,228
===============================================================================
OIL & GAS EQUIPMENT & SERVICES-1.61%
BJ Services Co. 288,622 9,218,587
===============================================================================
OIL & GAS EXPLORATION & PRODUCTION-5.16%
Chesapeake Energy Corp.(b) 192,790 12,716,428
- -------------------------------------------------------------------------------
Newfield Exploration Co.(c) 71,147 4,642,342
- -------------------------------------------------------------------------------
Penn West Energy Trust (Canada)(b) 212,282 7,183,623
- -------------------------------------------------------------------------------
Whiting Petroleum Corp.(c) 47,549 5,043,998
===============================================================================
29,586,391
===============================================================================
PACKAGED FOODS & MEATS-3.07%
Cadbury PLC (United Kingdom)(d) 1,226,486 15,390,450
- -------------------------------------------------------------------------------
Del Monte Foods Co. 309,442 2,197,038
===============================================================================
17,587,488
===============================================================================
PAPER PRODUCTS-1.41%
MeadWestvaco Corp. 339,699 8,098,424
===============================================================================
PERSONAL PRODUCTS-2.46%
Avon Products, Inc. 167,799 6,044,120
- -------------------------------------------------------------------------------
Estee Lauder Cos. Inc. (The)-Class A(b) 173,032 8,037,336
===============================================================================
14,081,456
===============================================================================
PHARMACEUTICALS-2.72%
Barr Pharmaceuticals Inc.(c) 346,422 15,616,704
===============================================================================
PRECIOUS METALS & MINERALS-1.12%
Coeur d'Alene Mines Corp.(b)(c) 2,215,226 6,424,155
===============================================================================
PROPERTY & CASUALTY INSURANCE-3.83%
Axis Capital Holdings Ltd. 334,767 9,979,404
- -------------------------------------------------------------------------------
Progressive Corp. (The) 639,053 11,963,072
===============================================================================
21,942,476
===============================================================================
PUBLISHING-1.03%
Washington Post Co. (The)-Class B 10,090 5,921,821
===============================================================================
REGIONAL BANKS-1.30%
BB&T Corp.(b) 146,191 3,328,769
- -------------------------------------------------------------------------------
PNC Financial Services Group, Inc. 72,673 4,149,628
===============================================================================
7,478,397
===============================================================================
SEMICONDUCTORS-2.45%
Linear Technology Corp.(b) 206,481 6,725,086
- -------------------------------------------------------------------------------
Microchip Technology Inc.(b) 125,017 3,818,019
- -------------------------------------------------------------------------------
Xilinx, Inc. 138,313 3,492,404
===============================================================================
14,035,509
===============================================================================
SPECIALIZED CONSUMER SERVICES-0.08%
Hillenbrand, Inc. 20,674 442,424
===============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. MID CAP CORE EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------------
SPECIALIZED FINANCE-1.61%
Moody's Corp.(b) 268,053 $ 9,231,745
===============================================================================
SPECIALTY CHEMICALS-5.63%
International Flavors & Fragrances Inc. 317,507 12,401,824
- -------------------------------------------------------------------------------
Rohm and Haas Co. 120,798 5,609,859
- -------------------------------------------------------------------------------
Sigma-Aldrich Corp. 264,164 14,227,873
===============================================================================
32,239,556
===============================================================================
SYSTEMS SOFTWARE-1.49%
McAfee Inc.(c) 142,688 4,855,672
- -------------------------------------------------------------------------------
Symantec Corp.(c) 189,702 3,670,734
===============================================================================
8,526,406
===============================================================================
THRIFTS & MORTGAGE FINANCE-2.52%
People's United Financial Inc. 925,624 14,439,734
===============================================================================
Total Common Stocks & Other Equity Interests
(Cost $438,960,026) 452,797,768
===============================================================================
PREFERRED STOCK-2.36%
HOUSEHOLD PRODUCTS-2.36%
Henkel AG & Co. KGaA(Germany)-Pfd. (Cost
$14,422,578)(d) 340,341 13,515,448
===============================================================================
MONEY MARKET FUNDS-18.72%
Liquid Assets Portfolio-Institutional Class(e) 53,663,542 53,663,542
- -------------------------------------------------------------------------------
Premier Portfolio-Institutional Class(e) 53,663,542 53,663,542
===============================================================================
Total Money Market Funds (Cost $107,327,084) 107,327,084
===============================================================================
TOTAL INVESTMENTS (excluding investments purchased
with cash collateral from securities on
loan)-100.09% (Cost $560,709,688) 573,640,300
===============================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES ON LOAN
MONEY MARKET FUNDS-9.89%
Liquid Assets Portfolio-Institutional Class(e)(f)
(Cost $56,684,850) 56,684,850 56,684,850
===============================================================================
TOTAL INVESTMENTS-109.98% (Cost $617,394,538) 630,325,150
===============================================================================
OTHER ASSETS LESS LIABILITIES-(9.98)% (57,217,882)
===============================================================================
NET ASSETS-100.00% $573,107,268
_______________________________________________________________________________
===============================================================================
</Table>
Investment Abbreviations:
<Table>
Pfd. - Preferred
</Table>
Notes to Schedule of Investments:
(a) Industry and/or sector classifications used in this report are generally
according to the Global Industry Classification Standard, which was
developed by and is the exclusive property and a service mark of MSCI Inc.
and Standard & Poor's.
(b) All or a portion of this security was out on loan at June 30, 2008.
(c) Non-income producing security.
(d) In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate value of these securities at June 30, 2008 was $34,044,062,
which represented 5.94% of the Fund's Net Assets. See Note 1A.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor.
(f) The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. Nee Note 11.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. MID CAP CORE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, at value (Cost $453,382,604)* $466,313,216
- --------------------------------------------------------------------------------
Investments in affiliated money market funds (Cost $164,011,934) 164,011,934
================================================================================
Total investments (Cost $617,394,538) 630,325,150
================================================================================
Cash 18,168
- --------------------------------------------------------------------------------
Foreign currencies, at value (Cost $32,313) 32,785
- --------------------------------------------------------------------------------
Receivables for:
Fund shares sold 1,103,792
- --------------------------------------------------------------------------------
Dividends 908,707
- --------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 22,856
- --------------------------------------------------------------------------------
Other assets 9,907
================================================================================
Total assets 632,421,365
________________________________________________________________________________
================================================================================
LIABILITIES:
Payables for:
Investments purchased 235,497
- --------------------------------------------------------------------------------
Fund shares reacquired 1,782,244
- --------------------------------------------------------------------------------
Foreign currency contracts 62,101
- --------------------------------------------------------------------------------
Collateral upon return of securities loaned 56,684,850
- --------------------------------------------------------------------------------
Accrued fees to affiliates 421,889
- --------------------------------------------------------------------------------
Accrued other operating expenses 65,664
- --------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 61,852
================================================================================
Total liabilities 59,314,097
================================================================================
Net assets applicable to shares outstanding $573,107,268
________________________________________________________________________________
================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $467,468,157
- --------------------------------------------------------------------------------
Undistributed net investment income 10,937,778
- --------------------------------------------------------------------------------
Undistributed net realized gain 81,829,281
- --------------------------------------------------------------------------------
Unrealized appreciation 12,872,052
================================================================================
$573,107,268
________________________________________________________________________________
================================================================================
NET ASSETS:
Series I $510,059,534
________________________________________________________________________________
================================================================================
Series II $ 63,047,734
________________________________________________________________________________
================================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 36,997,897
________________________________________________________________________________
================================================================================
Series II 4,616,565
________________________________________________________________________________
================================================================================
Series I:
Net asset value per share $ 13.79
________________________________________________________________________________
================================================================================
Series II:
Net asset value per share $ 13.66
________________________________________________________________________________
================================================================================
</Table>
* At June 30, 2008, securities with an aggregate value of $54,536,960 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding
taxes of $159,919) $ 4,112,002
- ------------------------------------------------------
Dividends from affiliated money market
funds (includes securities lending
income of $174,538) 1,920,882
======================================================
Total investment income 6,032,884
======================================================
EXPENSES:
Advisory fees 2,180,793
- ------------------------------------------------------
Administrative services fees 822,742
- ------------------------------------------------------
Custodian fees 20,454
- ------------------------------------------------------
Distribution fees -- Series II 88,711
- ------------------------------------------------------
Transfer agent fees 11,337
- ------------------------------------------------------
Trustees' and officer's fees and
benefits 17,947
- ------------------------------------------------------
Other 81,626
======================================================
Total expenses 3,223,610
======================================================
Less: Fees waived (73,268)
======================================================
Net expenses 3,150,342
======================================================
Net investment income 2,882,542
======================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM:
Net realized gain (loss) from:
Investment securities 21,511,451
- ------------------------------------------------------
Foreign currencies (14,598)
- ------------------------------------------------------
Foreign currency contracts (165,383)
======================================================
21,331,470
======================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (59,104,924)
- ------------------------------------------------------
Foreign currencies 4,394
- ------------------------------------------------------
Foreign currency contracts (62,101)
======================================================
(59,162,631)
======================================================
Net realized and unrealized gain (loss) (37,831,161)
======================================================
Net increase (decrease) in net assets
resulting from operations $(34,948,619)
______________________________________________________
======================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. MID CAP CORE EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- ------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,882,542 $ 8,238,981
- ------------------------------------------------------------------------------------------------------
Net realized gain 21,331,470 62,335,612
- ------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) (59,162,631) (10,812,599)
======================================================================================================
Net increase (decrease) in net assets resulting from operations (34,948,619) 59,761,994
======================================================================================================
Distributions to shareholders from net investment income:
Series I -- (1,301,490)
- ------------------------------------------------------------------------------------------------------
Series II -- (37,603)
======================================================================================================
Total distributions from net investment income -- (1,339,093)
======================================================================================================
Distributions to shareholders from net realized gains:
Series I -- (8,489,530)
- ------------------------------------------------------------------------------------------------------
Series II -- (1,129,701)
======================================================================================================
Total distributions from net realized gains -- (9,619,231)
======================================================================================================
Share transactions-net:
Series I (44,519,683) (40,138,176)
- ------------------------------------------------------------------------------------------------------
Series II (12,110,716) 18,100,448
======================================================================================================
Net increase (decrease) in net assets resulting from share
transactions (56,630,399) (22,037,728)
======================================================================================================
Net increase (decrease) in net assets (91,579,018) 26,765,942
======================================================================================================
NET ASSETS:
Beginning of period 664,686,286 637,920,344
======================================================================================================
End of period (including undistributed net investment income of
$10,937,778 and $8,055,236, respectively) $573,107,268 $664,686,286
______________________________________________________________________________________________________
======================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. MID CAP CORE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Mid Cap Core Equity Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is long-term growth of capital.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on
that day. Securities traded in the over-the-counter market are valued
based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service
they may be considered fair valued. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally
traded. Listed options are valued at the mean between the last bid and the
ask prices from the exchange on which they are principally traded. Options
not listed on an exchange are valued by an independent source at the mean
between the last bid and ask prices. For purposes of determining net asset
value per share, futures and option contracts generally are valued 15
minutes after the close of the customary trading session of the New York
Stock Exchange ("NYSE").
Investments in open-end and closed-end registered investment companies
that do not trade on an exchange are valued at the end of day net asset
value per share. Investments in open-end and closed-end registered
investment companies that trade on an exchange are valued at the last
sales price or official closing price as of the close of the customary
trading session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing
service. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to specific securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Short-term obligations, including
commercial paper, having 60 days or less to maturity are recorded at
amortized cost which approximates value. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve
some risk of default with respect to interest and/or principal payments.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued
at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price
unreliable, the Fund may fair value the security. If the event is likely
to have affected the closing price of the security, the security will be
valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also
be based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current value as of the close of the NYSE. Foreign securities
meeting the approved degree of certainty that the price is not reflective
of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, American
Depositary Receipts and domestic and foreign index futures. Foreign
securities may have additional risks including exchange rate changes,
potential for sharply devalued currencies and high inflation, political
and economical upheaval, the relative lack of issuer information,
relatively low market liquidity and the potential lack of strict financial
and accounting controls and standards.
Securities for which market prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers following procedures
approved by the Board of Trustees. Issuer specific events, market trends,
bid/ask quotes of brokers and information providers and other market data
may be reviewed in the course of making a good faith determination of a
security's fair value.
Valuations change in response to many factors including the historical
and prospective earnings of the issuer, the value of the issuer's assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
AIM V.I. MID CAP CORE EQUITY FUND
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification
claims is considered remote.
I. SECURITIES LENDING -- The Fund may lend portfolio securities having a
market value up to one-third of the Fund's total assets. Such loans are
secured by collateral equal to no less than the market value of the loaned
securities determined daily by the securities lending provider. Such
collateral will be cash or debt securities issued or guaranteed by the
U.S. Government or any of its sponsored agencies. Cash collateral received
in connection with these loans is invested in short-term money market
instruments or affiliated money market funds and is shown as such on the
Schedule of Investments. It is the Fund's policy to obtain additional
collateral from or return excess collateral to the borrower by the end of
the next business day, following the valuation date of the securities
loaned. Therefore, the value of the collateral held may be temporarily
less than the value of the securities on loan. Lending securities entails
a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase
the collateral accordingly, and the borrower fails to return the
securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any
loss on the collateral invested. Dividends received on cash collateral
investments for securities lending transactions, which are net of
compensation to counterparties, is included in Dividends from affiliates
on the Statement of Operations. The aggregate value of securities out on
loan is shown as a footnote on the Statement of Assets and Liabilities.
J. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close
of the NYSE based on quotations posted by banks and major currency
dealers. Portfolio securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i)
sales of foreign currencies, (ii) currency gains or losses realized
between the trade and settlement dates on securities transactions, and
(iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized
foreign currency gains and losses arise from changes in the fair values of
assets and liabilities, other than investments in securities at fiscal
period end, resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to
foreign taxes on income, gains on investments or currency repatriation, a
portion of which may be recoverable.
AIM V.I. MID CAP CORE EQUITY FUND
K. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. Fluctuations in the value of these contracts are recorded as
unrealized appreciation (depreciation) until the contracts are closed.
When these contracts are closed, realized gains (losses) are recorded.
Realized and unrealized gains and losses on these contracts are included
in the Statement of Operations. The Fund could be exposed to risk, which
may be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
L. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $500 million 0.725%
- -------------------------------------------------------------------
Next $500 million 0.70%
- -------------------------------------------------------------------
Next $500 million 0.675%
- -------------------------------------------------------------------
Over $1.5 billion 0.65%
___________________________________________________________________
===================================================================
</Table>
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
The Advisor has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.30% and Series
II shares to 1.45% of average daily net assets, through at least April 30, 2010.
In determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco")
described more fully below, the only expense offset arrangements from which the
Fund may benefit are in the form of credits that the Fund receives from banks
where the Fund or its transfer agent has deposit accounts in which it holds
uninvested cash. These credits are used to pay certain expenses incurred by the
Fund. The Advisor did not waive fees and/or reimburse expenses during the period
under this expense limitation.
Further, the Advisor has contractually agreed, through at least April 30,
2010, to waive the advisory fee payable by the Fund in an amount equal to 100%
of the net advisory fees the Advisor receives from the affiliated money market
funds on investments by the Fund of uninvested cash (but not cash collateral
from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2008, the Advisor waived advisory fees of
$73,268.
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $74,585 for accounting and fund
administrative services and reimbursed $748,157 for services provided by
insurance companies.
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily net
assets of the Series II shares may be paid to insurance companies who furnish
continuing personal shareholder services to customers who purchase and own
AIM V.I. MID CAP CORE EQUITY FUND
Series II shares of the Fund. For the six months ended June 30, 2008, expenses
incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1 -- Quoted prices in an active market for identical assets.
Level 2 -- Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing
a security. These may include quoted prices for similar securities, interest
rates, prepayment speeds, credit risk and others.
Level 3 -- Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for
example, when there is little or no market activity for an investment at the
end of the period), unobservable inputs may be used. Unobservable inputs
reflect the Fund's own assumptions about the factors market participants would
use in determining fair value of the securities or instruments and would be
based on the best available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS IN
INPUT LEVEL SECURITIES
- ------------------------------------
Level 1 $596,281,090
- ------------------------------------
Level 2 34,044,060
- ------------------------------------
Level 3 --
====================================
$630,325,150
____________________________________
====================================
</Table>
NOTE 4--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan and receive benefits under such plan. "Trustees' and Officer's
Fees and Benefits" include amounts accrued by the Fund to fund such retirement
benefits. Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $2,282
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--CASH BALANCES
The Fund is permitted to temporarily carry a negative or overdrawn balance in
its account with The State Street Bank and Trust Company ("SSB"), the custodian
bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund
may either (i) leave funds as a compensating balance in the account so the
custodian bank can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank at a rate agreed upon by the custodian
bank and Invesco Aim, not to exceed the contractually agreed upon rate.
AIM V.I. MID CAP CORE EQUITY FUND
NOTE 6--FOREIGN CURRENCY CONTRACTS
<Table>
<Caption>
OPEN FOREIGN CURRENCY CONTRACTS AT PERIOD END
- ---------------------------------------------------------------------------------------------------------------
CONTRACT TO
SETTLEMENT -------------------------------------- VALUE UNREALIZED
DATE DELIVER RECEIVE 06/30/08 APPRECIATION
- ---------------------------------------------------------------------------------------------------------------
9/10/08 EUR 5,125,000 USD 8,041,792 $8,039,107 $ 2,685
===============================================================================================================
<Caption>
CONTRACT TO
SETTLEMENT -------------------------------------- VALUE UNREALIZED
DATE DELIVER RECEIVE 06/30/08 (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------
9/10/08 GBP 4,125,000 USD 8,105,666 $8,170,452 $ (64,786)
===============================================================================================================
Total open foreign
currency contracts $ (62,101)
_______________________________________________________________________________________________________________
===============================================================================================================
</Table>
Currency Abbreviations:
<Table>
EUR - Euro GBP - British Pound USD - U.S. Dollar
Sterling
</Table>
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
The Fund did not have a capital loss carryforward as of December 31, 2007.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the six months ended June 30, 2008 was $112,269,859 and
$129,002,963, respectively. Cost of investments on a tax basis includes the
adjustments for financial reporting purposes as of the most recently completed
Federal income tax reporting period end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 50,179,809
- ------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (37,693,084)
================================================================================================
Net unrealized appreciation of investment securities $ 12,486,725
________________________________________________________________________________________________
================================================================================================
Cost of investments for tax purposes is $617,838,425.
</Table>
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008(a) DECEMBER 31, 2007
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 763,368 $ 10,808,949 3,861,535 $ 56,702,650
- -------------------------------------------------------------------------------------------------------------------------
Series II 1,049,908 14,597,991 2,574,352 37,303,201
=========================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 658,441 9,791,025
- -------------------------------------------------------------------------------------------------------------------------
Series II -- -- 79,139 1,167,305
=========================================================================================================================
Reacquired:
Series I (3,955,432) (55,328,632) (7,309,460) (106,631,851)
- -------------------------------------------------------------------------------------------------------------------------
Series II (1,905,267) (26,708,707) (1,410,426) (20,370,058)
=========================================================================================================================
(4,047,423) $(56,630,399) (1,546,419) $ (22,037,728)
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) There are entities that are record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate own 77% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, Invesco
Aim and/or Invesco Aim affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services to
the Fund, Invesco Aim and or Invesco Aim affiliates including but not
limited to services such as, securities brokerage, third party record
keeping and account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record by
these entities are also owned beneficially.
AIM V.I. MID CAP CORE EQUITY FUND
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
---------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------
2008 2007 2006 2005 2004 2003
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.57 $ 13.52 $ 13.61 $ 13.11 $ 12.06 $ 9.53
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.09 0.19 0.14 0.06 0.03(a) 0.00(a)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.87) 1.11 1.39 0.94 1.63 2.60
===============================================================================================================================
Total from investment operations (0.78) 1.30 1.53 1.00 1.66 2.60
===============================================================================================================================
Less distributions:
Dividends from net investment income -- (0.04) (0.14) (0.07) (0.02) --
- -------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.21) (1.48) (0.43) (0.59) (0.07)
===============================================================================================================================
Total distributions -- (0.25) (1.62) (0.50) (0.61) (0.07)
===============================================================================================================================
Net asset value, end of period $ 13.79 $ 14.57 $ 13.52 $ 13.61 $ 13.11 $ 12.06
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) (5.35)% 9.55% 11.24% 7.62% 13.82% 27.31%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $510,060 $585,608 $581,154 $584,860 $496,606 $293,162
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.01%(c)(d) 1.00%(d) 1.04% 1.03% 1.04% 1.07%
===============================================================================================================================
Ratio of net investment income to average
net assets 0.98%(c) 1.23% 0.93% 0.50% 0.25% 0.01%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(e) 22% 62% 83% 70% 55% 37%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$537,291,510.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.03% (annualized) and 1.01% for the six months ended June 30, 2008 and the
year ended December 31, 2007, respectively.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
<Table>
<Caption>
SERIES II
---------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------
2008 2007 2006 2005 2004 2003
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.45 $ 13.42 $ 13.52 $ 13.04 $ 12.01 $ 9.51
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.09 0.13 0.10 0.03 (0.00)(a) (0.03)(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.88) 1.12 1.38 0.92 1.62 2.60
============================================================================================================================
Total from investment operations (0.79) 1.25 1.48 0.95 1.62 2.57
============================================================================================================================
Less distributions:
Dividends from net investment income -- (0.01) (0.10) (0.04) (0.00) --
- ----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.21) (1.48) (0.43) (0.59) (0.07)
============================================================================================================================
Total distributions -- (0.22) (1.58) (0.47) (0.59) (0.07)
============================================================================================================================
Net asset value, end of period $ 13.66 $ 14.45 $ 13.42 $ 13.52 $ 13.04 $12.01
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) (5.47)% 9.29% 10.98% 7.27% 13.57% 27.05%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $63,048 $79,079 $56,766 $50,380 $33,495 $4,874
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.26%(c)(d) 1.25%(d) 1.29% 1.28% 1.29% 1.32%
============================================================================================================================
Ratio of net investment income (loss) to
average net assets 0.73%(c) 0.98% 0.68% 0.25% (0.00)% (0.24)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate(e) 22% 62% 83% 70% 55% 37%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of $71,358,513.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.28% (annualized) and 1.26% for the six months ended June 30, 2008 and the
year ended December 31, 2007, respectively.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. MID CAP CORE EQUITY FUND
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor -- Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to Invesco Aim and IADI (Order No. 05-1318). The WVASC makes
findings of fact that Invesco Aim and IADI entered into certain arrangements
permitting market timing of the AIM Funds and failed to disclose these
arrangements in the prospectuses for such Funds, and conclusions of law to the
effect that Invesco Aim and IADI violated the West Virginia securities laws. The
WVASC orders Invesco Aim and IADI to cease any further violations and seeks to
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute. By agreement with the Commissioner of Securities, Invesco Aim's time to
respond to that Order has been indefinitely suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid. The case pending in Illinois State Court regarding fair value
pricing was dismissed with prejudice on May 6, 2008.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA
purportedly brought on behalf of participants in the Invesco 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds remain nominal defendants in the Consolidated Amended Fund
Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco
defendants' motion to dismiss the Amended Class Action Complaint for Violations
of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June
16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this
lawsuit back to the MDL Court for further proceedings..
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, Invesco Aim and IADI have advised the Fund that they are providing
full cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, Invesco Aim and/or related entities and individuals in the
future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. MID CAP CORE EQUITY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $946.50 $4.89 $1,019.84 $5.07 1.01%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 945.30 6.09 1,018.60 6.32 1.26
- ---------------------------------------------------------------------------------------------------
</Table>
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5%
before expenses.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
AIM V.I. MID CAP CORE EQUITY FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different
Variable Insurance Funds is required under comparative performance and fee data weight to the various factors. The
the Investment Company Act of 1940 to regarding the AIM Funds prepared by an Trustees recognized that the advisory
approve annually the renewal of the AIM independent company, Lipper, Inc. arrangements and resulting advisory fees
V.I. Mid Cap Core Equity Fund (the Fund) (Lipper), under the direction and for the Fund and the other AIM Funds are
investment advisory agreement with Invesco supervision of the independent Senior the result of years of review and
Aim Advisors, Inc. (Invesco Aim). During Officer who also prepares a separate negotiation between the Trustees and
contract renewal meetings held on June analysis of this information for the Invesco Aim, that the Trustees may focus
18-19, 2008, the Board as a whole and the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of
disinterested or "independent" Trustees, recommendations to the Investments these arrangements in some years than in
voting separately, approved the Committee regarding the performance, fees others, and that the Trustees'
continuance of the Fund's investment and expenses of their assigned funds. The deliberations and conclusions in a
advisory agreement for another year, Investments Committee considers each particular year may be based in part on
effective July 1, 2008. In doing so, the Sub-Committee's recommendations and makes their deliberations and conclusions of
Board determined that the Fund's its own recommendations regarding the these same arrangements throughout the
investment advisory agreement is in the performance, fees and expenses of the AIM year and in prior years.
best interests of the Fund and its Funds to the full Board. The Investments
shareholders and that the compensation to Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF
Invesco Aim under the Fund's investment Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION
advisory agreement is fair and reasonable. its annual recommendation to the Board The discussion below serves as a summary
The independent Trustees met separately whether to approve the continuance of each of the Senior Officer's independent
during their evaluation of the Fund's AIM Fund's investment advisory agreement written evaluation with respect to the
investment advisory agreement with and sub-advisory agreements for another Fund's investment advisory agreement as
independent legal counsel from whom they year. well as a discussion of the material
received independent legal advice, and the The independent Trustees are assisted factors and related conclusions that
independent Trustees also received in their annual evaluation of the Fund's formed the basis for the Board's approval
assistance during their deliberations from investment advisory agreement by the of the Fund's investment advisory
the independent Senior Officer, a independent Senior Officer. One agreement and sub-advisory agreements.
full-time officer of the AIM Funds who responsibility of the Senior Officer is to Unless otherwise stated, information set
reports directly to the independent manage the process by which the AIM Funds' forth below is as of June 19, 2008 and
Trustees. proposed management fees are negotiated does not reflect any changes that may have
during the annual contract renewal process occurred since that date, including but
THE BOARD'S FUND EVALUATION PROCESS to ensure that they are negotiated in a not limited to changes to the Fund's
The Board's Investments Committee has manner that is at arms' length and performance, advisory fees, expense
established three Sub-Committees that are reasonable. Accordingly, the Senior limitations and/or fee waivers.
responsible for overseeing the management Officer must either supervise a
of a number of the series portfolios of competitive bidding process or prepare an I. Investment Advisory Agreement
the AIM Funds. This Sub-Committee independent written evaluation. The Senior A. Nature, Extent and Quality of
structure permits the Trustees to focus on Officer has recommended that an Services Provided by Invesco Aim
the performance of the AIM Funds that have independent written evaluation be provided The Board reviewed the advisory services
been assigned to them. The Sub-Committees and, at the direction of the Board, has provided to the Fund by Invesco Aim under
meet throughout the year to review the prepared an independent written the Fund's investment advisory agreement,
performance of their assigned funds, and evaluation. the performance of Invesco Aim in
the Sub-Committees review monthly and During the annual contract renewal providing these services, and the
quarterly comparative performance process, the Board considered the factors credentials and experience of the officers
information and periodic asset flow data discussed below under the heading "Factors and employees of Invesco Aim who provide
for their assigned funds. These materials and Conclusions and Summary of Independent these services. The Board's review of the
are prepared under the direction and Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide
supervision of the independent Senior fairness and reasonableness of the Fund's these services included the Board's
Officer. Over the course of each year, the investment advisory agreement and consideration of Invesco Aim's portfolio
Sub-Committees meet with portfolio sub-advisory agreements at the contract and product review process, various back
managers for their assigned funds and renewal meetings and at their meetings office support functions provided by
other members of management and review throughout the year as part of their Invesco Aim and its affiliates, and
with these individuals the performance, ongoing oversight of the Fund. The Fund's Invesco Aim's equity and fixed income
investment objective(s), policies, investment advisory agreement and trading operations. The Board concluded
strategies and limitations of these funds. sub-advisory agreements were considered that the nature, extent and quality of the
In addition to their meetings separately, although the Board also advisory services provided to the Fund by
throughout the year, the Sub-Committees considered the common interests of all of Invesco Aim were appropriate and that
meet at designated contract renewal the AIM Funds in their deliberations. The Invesco Aim currently is providing
meetings each year to conduct an in-depth Board considered all of the information satisfactory advisory services in
review of the performance, fees and provided to them and did not identify any accordance with the terms of the Fund's
expenses of their assigned funds. During particular factor that was controlling. investment advisory agreement. In
the contract Each Trustee may have evaluated the addition, based on their ongoing meetings
information provided differently throughout the year with the Fund's
portfolio manager or
continued
AIM V.I. MID CAP CORE EQUITY FUND
managers, the Board concluded that these considered Fund performance through the After taking account of the Fund's
individuals are competent and able to most recent calendar year, the Board also contractual advisory fee rate, as well as
continue to carry out their reviewed more recent Fund performance and the comparative advisory fee information
responsibilities under the Fund's this review did not change their and the expense limitation discussed
investment advisory agreement. conclusions. above, the Board concluded that the Fund's
In determining whether to continue the advisory fees were fair and reasonable.
Fund's investment advisory agreement, the C. Advisory Fees and Fee Waivers
Board considered the prior relationship The Board compared the Fund's contractual D. Economies of Scale and Breakpoints
between Invesco Aim and the Fund, as well advisory fee rate to the contractual The Board considered the extent to which
as the Board's knowledge of Invesco Aim's advisory fee rates of funds in the Fund's there are economies of scale in Invesco
operations, and concluded that it was Lipper expense group that are not managed Aim's provision of advisory services to
beneficial to maintain the current by Invesco Aim, at a common asset level the Fund. The Board also considered
relationship, in part, because of such and as of the end of the past calendar whether the Fund benefits from such
knowledge. The Board also considered the year. The Board noted that the Fund's economies of scale through contractual
steps that Invesco Aim and its affiliates contractual advisory fee rate was below breakpoints in the Fund's advisory fee
have taken over the last several years to the median contractual advisory fee rate schedule or through advisory fee waivers
improve the quality and efficiency of the of funds in its expense group. The Board or expense limitations. The Board noted
services they provide to the AIM Funds in also reviewed the methodology used by that the Fund's contractual advisory fee
the areas of investment performance, Lipper in determining contractual fee schedule includes three breakpoints and
product line diversification, rates. that the level of the Fund's advisory
distribution, fund operations, shareholder The Board also compared the Fund's fees, as a percentage of the Fund's net
services and compliance. The Board effective fee rate (the advisory fee after assets, has decreased as net assets
concluded that the quality and efficiency any advisory fee waivers and before any increased because of the breakpoints.
of the services Invesco Aim and its expense limitations/waivers) to the Based on this information, the Board
affiliates provide to the AIM Funds in advisory fee rates of other clients of concluded that the Fund's advisory fees
each of these areas generally have Invesco Aim and its affiliates with appropriately reflect economies of scale
improved, and support the Board's approval investment strategies comparable to those at current asset levels. The Board also
of the continuance of the Fund's of the Fund, including two mutual funds noted that the Fund shares directly in
investment advisory agreement. advised by Invesco Aim. The Board noted economies of scale through lower fees
that the Fund's rate was above the rate charged by third party service providers
B. Fund Performance for one of the mutual funds and below the based on the combined size of all of the
The Board compared the Fund's performance rate for the other mutual fund. AIM Funds and affiliates.
during the past one, three and five Additionally, the Board compared the
calendar years to the performance of funds Fund's effective fee rate to the total E. Profitability and Financial
in the Fund's performance group that are advisory fees paid by numerous separately Resources of Invesco Aim
not managed by Invesco Aim, and against managed accounts/wrap accounts advised by The Board reviewed information from
the performance of all funds in the Lipper an Invesco Aim affiliate. The Board noted Invesco Aim concerning the costs of the
Variable Annuity Underlying Funds - that the Fund's rate was generally above advisory and other services that Invesco
Mid-Cap Core Index. The Board also the rates for the separately managed Aim and its affiliates provide to the Fund
reviewed the criteria used by Invesco Aim accounts/wrap accounts. The Board and the profitability of Invesco Aim and
to identify the funds in the Fund's considered that management of the its affiliates in providing these
performance group for inclusion in the separately managed accounts/wrap accounts services. The Board also reviewed
Lipper reports. The Board noted that the by the Invesco Aim affiliate involves information concerning the financial
Fund's performance was in the second different levels of services and different condition of Invesco Aim and its
quintile of its performance group for the operational and regulatory requirements affiliates. The Board also reviewed with
one year period, the third quintile for than Invesco Aim's management of the Fund. Invesco Aim the methodology used to
the three year period, and the fourth The Board concluded that these differences prepare the profitability information. The
quintile for the five year period (the are appropriately reflected in the fee Board considered the overall profitability
first quintile being the best performing structure for the Fund. of Invesco Aim, as well as the
funds and the fifth quintile being the The Board noted that Invesco Aim has profitability of Invesco Aim in connection
worst performing funds). The Board noted contractually agreed to waive fees and/or with managing the Fund. The Board noted
that the Fund's performance was above the limit expenses of the Fund through at that Invesco Aim continues to operate at a
performance of the Index for the one year least April 30, 2010 in an amount net profit, although increased expenses in
period, and below the performance of the necessary to limit total annual operating recent years have reduced the
Index for the three and five year periods. expenses to a specified percentage of profitability of Invesco Aim and its
The Board also considered the steps average daily net assets for each class of affiliates. The Board concluded that the
Invesco Aim has taken over the last the Fund. The Board considered the Fund's fees were fair and reasonable, and
several years to improve the quality and contractual nature of this fee waiver and that the level of profits realized by
efficiency of the services that Invesco noted that it remains in effect until at Invesco Aim and its affiliates from
Aim provides to the AIM Funds. The Board least April 30, 2010. The Board also providing services to the Fund was not
concluded that Invesco Aim continues to be considered the effect this expense excessive in light of the nature, quality
responsive to the Board's focus on fund limitation would have on the Fund's and extent of the services provided. The
performance. Although the independent estimated total expenses. Board considered whether Invesco Aim is
written evaluation of the Fund's Senior financially sound and has the resources
Officer only necessary to perform its obligations
continued
AIM V.I. MID CAP CORE EQUITY FUND
under the Fund's investment advisory Aim in making investment decisions for the in part for the purpose of researching and
agreement, and concluded that Invesco Aim Fund and may therefore benefit Fund compiling information and making
has the financial resources necessary to shareholders. The Board concluded that recommendations on the markets and
fulfill these obligations. Invesco Aim's soft dollar arrangements economies of various countries and
were appropriate. The Board also concluded securities of companies located in such
F. Independent Written Evaluation of that, based on their review and countries or on various types of
the Fund's Senior Officer representations made by Invesco Aim, these investments and investment techniques, and
The Board noted that, at their direction, arrangements were consistent with providing investment advisory services.
the Senior Officer of the Fund, who is regulatory requirements. The Board concluded that the sub-advisory
independent of Invesco Aim and Invesco The Board considered the fact that the agreements will benefit the Fund and its
Aim's affiliates, had prepared an Fund's uninvested cash and cash collateral shareholders by permitting Invesco Aim to
independent written evaluation to assist from any securities lending arrangements utilize the additional resources and
the Board in determining the may be invested in money market funds talent of the Affiliated Sub-Advisers in
reasonableness of the proposed management advised by Invesco Aim pursuant to managing the Fund.
fees of the AIM Funds, including the Fund. procedures approved by the Board. The
The Board noted that they had relied upon Board noted that Invesco Aim will receive B. Fund Performance
the Senior Officer's written evaluation advisory fees from these affiliated money The Board did not view Fund performance as
instead of a competitive bidding process. market funds attributable to such a relevant factor in considering whether
In determining whether to continue the investments, although Invesco Aim has to approve the sub-advisory agreements for
Fund's investment advisory agreement, the contractually agreed to waive through at the Fund, as no Affiliated Sub-Adviser
Board considered the Senior Officer's least April 30, 2010, the advisory fees currently manages any portion of the
written evaluation. payable by the Fund in an amount equal to Fund's assets.
100% of the net advisory fees Invesco Aim
G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees
and its Affiliates funds with respect to the Fund's The Board considered the services to be
The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers
benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements
affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco
relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment
fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the
affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and
administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to
distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board
Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no
Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its
providing these services and the shareholders. shareholders, as they are paid by Invesco
organizational structure employed by Aim to the Affiliated Sub-Advisers, and
Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements that Invesco Aim and the Affiliated
these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking
that these services are provided to the Services Provided by Affiliated account of the Fund's contractual
Fund pursuant to written contracts which Sub-Advisers sub-advisory fee rate, as well as other
are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that
basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and
that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, reasonable.
providing these services in a satisfactory Invesco Asset Management Limited, Invesco
manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco D. Financial Resources of the
their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers
continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each
Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially
The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to
realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its
portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and
through "soft dollar" arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser
these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to
commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations.
funds advised by Invesco Aim are used to Sub-Advisers who will provide these
pay for research and execution services. services. The Board concluded that the
The Board noted that soft dollar nature, extent and quality of the services
arrangements shift the payment obligation to be provided by the Affiliated
for the research and execution services Sub-Advisers were appropriate. The Board
from Invesco Aim to the funds and noted that the Affiliated Sub-Advisers,
therefore may reduce Invesco Aim's which have offices and personnel that are
expenses. The Board also noted that geographically dispersed in financial
research obtained through soft dollar centers around the world, have been formed
arrangements may be used by Invesco
AIM V.I. MID CAP CORE EQUITY FUND
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. Mid Cap Core Equity
Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware
statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held
for the following purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will
serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust that
would permit the Board of Trustees of the Trust to terminate the Trust, the
Fund, and each other series portfolio of the Trust, or a share class without
a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and
each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland,
GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.),
Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and
Invesco Senior Secured Management, Inc.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- ------------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker.................................................... 474,883,590 19,741,622
Frank S. Bayley................................................. 474,653,109 19,972,103
James T. Bunch.................................................. 475,597,417 19,027,795
Bruce L. Crockett............................................... 474,900,579 19,724,633
Albert R. Dowden................................................ 474,749,929 19,875,283
Jack M. Fields.................................................. 475,205,840 19,419,372
Martin L. Flanagan.............................................. 475,248,336 19,376,876
Carl Frischling................................................. 474,453,674 20,171,538
Prema Mathai-Davis.............................................. 473,569,192 21,056,020
Lewis F. Pennock................................................ 475,072,501 19,552,711
Larry Soll, Ph.D. .............................................. 475,170,544 19,454,668
Raymond Stickel, Jr. ........................................... 475,420,825 19,204,387
Philip A. Taylor................................................ 475,640,570 18,984,642
</Table>
<Table>
<Caption>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
- ---------------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of
Trustees of the Trust to terminate the Trust, the Fund,
and each other series portfolio of the Trust, or a
share class without a shareholder vote................. 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between Invesco
Aim Advisors, Inc. and each of AIM Funds Management,
Inc.; Invesco Asset Management Deutschland, GmbH;
Invesco Asset Management Limited; Invesco Asset
Management (Japan) Limited; Invesco Australia Limited;
Invesco Global Asset Management (N.A.), Inc.; Invesco
Hong Kong Limited; Invesco Institutional (N.A.), Inc.;
and Invesco Senior Secured Management, Inc............. 40,275,628 1,220,515 2,065,705
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. MID CAP CORE EQUITY FUND
[INVESCO AIM LOGO] AIM V.I. MONEY MARKET FUND
- SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008
AIM Investments [MOUNTAIN GRAPHIC]
became INVESCO AIM
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FUND PERFORMANCE
=======================================================================================
PERFORMANCE SUMMARY
As of June 30, 2008, the seven-day SEC yield on the Fund's Series I shares was 1.83%
and the seven-day SEC yield on the Fund's Series II shares was 1.57%.
=======================================================================================
=======================================================================================
AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE
VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING
IN THE FUND.
=======================================================================================
THE PERFORMANCE DATA QUOTED REPRESENT PAST AIM V.I. MONEY MARKET FUND, A SERIES ABLE PRODUCT ISSUERS, WILL VARY AND WILL
PERFORMANCE AND CANNOT GUARANTEE PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS, LOWER THE TOTAL RETURN.
COMPARABLE FUTURE RESULTS; CURRENT IS CURRENTLY OFFERED THROUGH INSURANCE THE MOST RECENT MONTH-END PERFORMANCE
PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE COMPANIES ISSUING VARIABLE PRODUCTS. YOU DATA AT THE FUND LEVEL, EXCLUDING VARIABLE
SEE YOUR VARIABLE PRODUCT ISSUER OR CANNOT PURCHASE SHARES OF THE FUND PRODUCT CHARGES, IS AVAILABLE ON THE
FINANCIAL ADVISOR FOR THE MOST RECENT DIRECTLY. PERFORMANCE FIGURES GIVEN INVESCO AIM AUTOMATED INFORMATION LINE,
MONTH-END VARIABLE PRODUCT PERFORMANCE. REPRESENT THE FUND AND ARE NOT INTENDED TO 866 702 4402. AS MENTIONED ABOVE, FOR THE
PERFORMANCE FIGURES REFLECT FUND EXPENSES, REFLECT ACTUAL VARIABLE PRODUCT VALUES. MOST RECENT MONTH-END PERFORMANCE
REINVESTED DISTRIBUTIONS AND CHANGES IN THEY DO NOT REFLECT SALES CHARGES, INCLUDING VARIABLE PRODUCT CHARGES, PLEASE
NET ASSET VALUE. INVESTMENT RETURN AND EXPENSES AND FEES ASSESSED IN CONNECTION CONTACT YOUR VARIABLE PRODUCT ISSUER OR
PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU WITH A VARIABLE PRODUCT. SALES CHARGES, FINANCIAL ADVISOR.
MAY HAVE A GAIN OR LOSS WHEN YOU SELL EXPENSES AND FEES, WHICH ARE DETERMINED BY
SHARES. THE VARI-
AIM V.I. MONEY MARKET FUND
PORTFOLIO COMPOSITION*
Number of days to Maturity
as of June 30, 2008
<Table>
- -------------------------------------------------------------------------
1-7 46.3%
- -------------------------------------------------------------------------
8-30 22.3
- -------------------------------------------------------------------------
31-90 23.2
- -------------------------------------------------------------------------
91-180 8.2
_________________________________________________________________________
=========================================================================
</Table>
* The number of days to maturity of each holding is determined in accordance
with the provisions of Rule 2a-7 of the Investment Company Act of 1940.
SCHEDULE OF INVESTMENTS
June 30, 2008
(Unaudited)
<Table>
<Caption>
PRINCIPAL
AMOUNT
MATURITY (000) VALUE
- --------------------------------------------------------------------------------------
COMMERCIAL PAPER-43.06%(a)
ASSET-BACKED SECURITIES-COMMERCIAL LOANS/LEASES-4.08%
Amstel Funding Corp.
2.77%(b)(c) 08/21/08 $1,000 $ 996,076
- --------------------------------------------------------------------------------------
2.87%(b)(c) 07/08/08 1,000 999,442
======================================================================================
1,995,518
======================================================================================
ASSET-BACKED SECURITIES-CONSUMER RECEIVABLES-4.08%
Old Line Funding, LLC 2.56%(b) 07/28/08 2,000 1,996,160
======================================================================================
ASSET-BACKED SECURITIES-FULLY SUPPORTED BANK-9.17%
Gotham Funding Corp.
(CEP-Bank of Tokyo-Mitsubishi Ltd.)
2.70%(b)(c) 08/26/08 2,000 1,991,600
- --------------------------------------------------------------------------------------
3.10%(b)(c) 07/25/08 500 498,967
- --------------------------------------------------------------------------------------
Lexington Parker Capital Co., LLC (Multi CEP's-
Liberty Hampshire Co., LLC; agent) 3.10%(b) 07/25/08 2,000 1,995,867
======================================================================================
4,486,434
======================================================================================
ASSET-BACKED SECURITIES-MULTI-PURPOSE-13.53%
Atlantic Asset Securitization LLC
2.55%(b) 07/10/08 1,000 999,362
- --------------------------------------------------------------------------------------
2.57%(b) 07/10/08 1,000 999,358
- --------------------------------------------------------------------------------------
Gemini Securitization Corp., LLC 2.80%(b) 07/24/08 836 834,504
- --------------------------------------------------------------------------------------
Sheffield Receivables Corp. 2.70%(b) 08/29/08 1,800 1,792,035
- --------------------------------------------------------------------------------------
Thames Asset Global Securitization No. 1, Inc.
2.70%(b)(c) 08/15/08 2,000 1,993,250
======================================================================================
6,618,509
======================================================================================
ASSET-BACKED SECURITIES-SECURITIES-2.04%
Grampian Funding Ltd./LLC 2.66%(b)(c) 07/14/08 1,000 999,039
======================================================================================
DIVERSIFIED BANKS-4.06%
Bank of America Corp. 2.72% 11/20/08 1,000 989,291
- --------------------------------------------------------------------------------------
Lloyds TSB Bank PLC 2.80%(c) 08/18/08 500 498,133
- --------------------------------------------------------------------------------------
UBS Finance (Delaware) Inc. 3.05%(c) 07/24/08 500 499,026
======================================================================================
1,986,450
======================================================================================
REGIONAL BANKS-6.10%
Banque et Caisse dEpargne de lEtat 2.55%(c) 10/28/08 2,000 1,983,142
- --------------------------------------------------------------------------------------
Swedbank A.B. 2.72%(c) 07/09/08 1,000 999,395
======================================================================================
2,982,537
======================================================================================
Total Commercial Paper (Cost $21,064,647) 21,064,647
======================================================================================
VARIABLE RATE DEMAND NOTES-19.69%(d)(e)
LETTER OF CREDIT ENHANCED-19.69%(f)
A Mining Group, LLC; Series 2006, Incremental
Taxable Bonds (LOC-Wachovia Bank, N.A.) 2.67% 06/01/29 200 200,000
- --------------------------------------------------------------------------------------
Albany (City of), New York Industrial Development
Agency (Albany Medical Center Hospital); Series
2006 B, Taxable IDR (LOC-RBS Citizens, N.A.)
2.73% 05/01/35 975 975,000
- --------------------------------------------------------------------------------------
Albuquerque (City of), New Mexico (KTech Corp.);
Series 2002, Taxable RB (LOC-Wells Fargo Bank,
N.A.) 2.48% 11/01/22 650 650,000
- --------------------------------------------------------------------------------------
Corp. Finance Managers Inc., Integrated Loan
Program; Series 2003 B, PARTs (LOC-Wells Fargo
Bank, N.A.) 2.48% 02/02/43 1,405 1,405,000
- --------------------------------------------------------------------------------------
EPC Allentown, LLC; Series 2005, Incremental
Taxable Bonds (LOC-Wachovia Bank, N.A.) 2.58% 07/01/30 3,200 3,200,000
- --------------------------------------------------------------------------------------
Roman Catholic Diocese of Charlotte; Series 2002,
Incremental Taxable Bonds (LOC-Wachovia Bank,
N.A.) 2.58% 05/01/14 1,200 1,200,000
- --------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. MONEY MARKET FUND
<Table>
<Caption>
PRINCIPAL
AMOUNT
MATURITY (000) VALUE
- --------------------------------------------------------------------------------------
LETTER OF CREDIT ENHANCED-(CONTINUED)
Thomasville (City of), Georgia Payroll Development
Authority (American Fresh Foods L.P.); Series
2005 B, Taxable RB (LOC-Wachovia Bank, N.A.)
2.62% 09/01/17 $2,000 $ 2,000,000
======================================================================================
Total Variable Rate Demand Notes (Cost
$9,630,000) 9,630,000
======================================================================================
CERTIFICATES OF DEPOSIT-12.26%
ABN AMRO Bank N.V. (United Kingdom) 3.08%(c) 07/31/08 2,000 2,000,000
- --------------------------------------------------------------------------------------
Banco Santander, S.A. 2.65% 09/17/08 1,000 1,000,000
- --------------------------------------------------------------------------------------
HSBC Bank U.S.A N.A. 2.95% 07/03/08 1,000 1,000,000
- --------------------------------------------------------------------------------------
Nordea Bank A.B. 2.64% 10/14/08 1,000 1,000,000
- --------------------------------------------------------------------------------------
Royal Bank of Canada 2.85% 09/08/08 1,000 1,000,000
======================================================================================
Total Certificates of Deposit (Cost
$6,000,000) 6,000,000
======================================================================================
MASTER NOTE AGREEMENT-4.09%
Merrill Lynch Mortgage Capital, Inc.
2.80%(b)(g)(h) (Cost $2,000,000) -- 2,000 2,000,000
======================================================================================
MEDIUM-TERM NOTE-4.09%
Societe Generale S.A. Unsec. Floating Rate MTN
2.46%(b)(c)(e) (Cost $2,000,000) 08/29/08 2,000 2,000,000
======================================================================================
TOTAL INVESTMENTS (excluding Repurchase
Agreements)-83.19% (Cost $40,694,647) 40,694,647
======================================================================================
</Table>
<Table>
<Caption>
REPURCHASE
AMOUNT VALUE
- -----------------------------------------------------------------------------
REPURCHASE AGREEMENTS-16.21%(i)
BNP Paribas, Joint agreement dated 06/30/08,
aggregate maturing value $900,067,500
(collateralized by Corporate and U.S. Government
sponsored agency obligations valued at
$933,677,995; 0%-24.71%, 01/23/09-06/01/38)
2.70%, 07/01/08(c) $2,000,150 $ 2,000,000
- -----------------------------------------------------------------------------
Deutsche Bank Securities Inc., Joint agreement
dated 06/30/08, aggregate maturing value
$1,000,075,000 (collateralized by U.S.
Government sponsored agency obligations valued
at $1,020,000,000; 4.50%-7.31%, 01/01/19-
07/01/38) 2.70%, 07/01/08 3,931,083 3,930,788
- -----------------------------------------------------------------------------
Fortis Bank N.V./S.A., Joint agreement dated
06/30/08, aggregate maturing value $450,033,375
(collateralized by Corporate, U.S. Government
sponsored agency and U.S. Treasury obligations
valued at $463,762,383; 0%-6.00%, 01/01/10-
03/25/38) 2.67%, 07/01/08(c) 2,000,148 2,000,000
=============================================================================
Total Repurchase Agreements (Cost $7,930,788) 7,930,788
=============================================================================
TOTAL INVESTMENTS-99.40% (Cost $48,625,435)(j)(k) 48,625,435
=============================================================================
OTHER ASSETS LESS LIABILITIES-0.60% 295,830
=============================================================================
NET ASSETS-100.00% $48,921,265
_____________________________________________________________________________
=============================================================================
</Table>
Investment Abbreviations:
<Table>
CEP - Credit Enhancement Provider
IDR - Industrial Development Revenue Bonds
LOC - Letter of Credit
MTN - Medium-Term Notes
PARTs - Pooled Adjustable Rate Taxable Notes(SM)
RB - Revenue Bonds
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Securities may be traded on a discount basis. The interest rate shown
represents the discount rate at the time of purchase by the Fund.
(b) Security purchased or received in a transaction exempt from registration
under the Securities Act of 1933, as amended. The security may be resold
pursuant to an exemption from registration under the 1933 Act, typically
to qualified institutional buyers. The aggregate value of these securities
at June 30, 2008 was $20,095,660, which represented 41.08% of the Fund's
Net Assets. Unless otherwise indicated, these securities are not
considered to be illiquid.
(c) The security is credit guaranteed, enhanced or has credit risk by a
foreign entity. The foreign credit exposure to countries other than the
United States of America (as a percentage of net assets) is summarized as
follows: United Kingdom: 11.2%; France: 8.2%; Japan: 5.1%; other countries
less than 5%: 15.3%.
(d) Demand security payable upon demand by the Fund at specified time
intervals no greater than thirteen months.
(e) Interest or dividend rate is redetermined periodically. Rate shown is the
rate in effect on June 30, 2008.
(f) Principal and interest payments are fully enhanced by a letter of credit
from the bank listed or a predecessor bank, branch or subsidiary.
(g) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon one or two business day's notice depending on the
timing of the demand. Interest rates on master notes are redetermined
periodically. Rate shown is the rate in effect on June 30, 2008.
(h) Open master note agreement with no specified maturity date. Either party
may terminate the agreement upon thirty days prior written notice provided
the last maturing advances under the note is paid in full, whether at
maturity or on demand.
(i) Principal amount equals value at period end. See Note 1I.
(j) Also represents cost for federal income tax purposes.
(k) This table provides a listing of those entities that have either issued,
guaranteed, backed or otherwise enhanced the credit quality of more than
5% of the securities held in the portfolio. In instances where the entity
has guaranteed, backed or otherwise enhanced the credit quality of a
security, it is not primarily responsible for the issuer's obligations but
may be called upon to satisfy the issuer's obligations.
<Table>
<Caption>
ENTITIES PERCENTAGE
-------------------------------------------------------------------------------------------
Wachovia Bank, N.A. 13.5%
-------------------------------------------------------------------------------------------
Bank of Tokyo-Mitsubishi Ltd. 5.1
___________________________________________________________________________________________
===========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, excluding repurchase
agreements, at value (Cost
$40,694,647) $40,694,647
- ------------------------------------------------------
Repurchase agreements (Cost $7,930,788) 7,930,788
======================================================
Total investments (Cost
$48,625,435) 48,625,435
======================================================
Receivables for:
Investments sold 105,000
- ------------------------------------------------------
Fund shares sold 193,920
- ------------------------------------------------------
Interest 83,504
- ------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 42,463
- ------------------------------------------------------
Other assets 306
======================================================
Total assets 49,050,628
______________________________________________________
======================================================
LIABILITIES:
Payables for:
Fund shares reacquired 15,747
- ------------------------------------------------------
Accrued fees to affiliates 26,171
- ------------------------------------------------------
Accrued other operating expenses 37,459
- ------------------------------------------------------
Trustee deferred compensation and
retirement plans 49,986
======================================================
Total liabilities 129,363
======================================================
Net assets applicable to shares
outstanding $48,921,265
______________________________________________________
======================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $48,914,851
- ------------------------------------------------------
Undistributed net investment income 6,414
======================================================
$48,921,265
______________________________________________________
======================================================
NET ASSETS:
Series I $46,686,722
______________________________________________________
======================================================
Series II $ 2,234,543
______________________________________________________
======================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 46,685,393
______________________________________________________
======================================================
Series II 2,234,376
______________________________________________________
======================================================
Series I:
Net asset value per share $ 1.00
______________________________________________________
======================================================
Series II:
Net asset value per share $ 1.00
______________________________________________________
======================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $844,185
====================================================
EXPENSES:
Advisory fees 100,756
- ----------------------------------------------------
Administrative services fees 71,783
- ----------------------------------------------------
Custodian fees 2,638
- ----------------------------------------------------
Distribution fees -- Series II 2,999
- ----------------------------------------------------
Transfer agent fees 3,625
- ----------------------------------------------------
Trustees' and officer's fees and benefits 8,809
- ----------------------------------------------------
Professional services fees 20,810
- ----------------------------------------------------
Other 7,210
====================================================
Total expenses 218,630
====================================================
Net investment income 625,555
- ----------------------------------------------------
Net increase in net assets resulting from
operations $625,555
____________________________________________________
====================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. MONEY MARKET FUND
STATEMENT OF CHANGE IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- -------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 625,555 $ 2,114,184
=======================================================================================================
Distributions to shareholders from net investment income:
Series I (598,451) (2,016,504)
- -------------------------------------------------------------------------------------------------------
Series II (27,034) (97,680)
=======================================================================================================
Total distributions from net investment income (625,485) (2,114,184)
=======================================================================================================
Share transactions-net:
Series I 194,261 2,924,198
- -------------------------------------------------------------------------------------------------------
Series II (280,514) 173,554
=======================================================================================================
Net increase (decrease) in net assets resulting from share
transactions (86,253) 3,097,752
=======================================================================================================
Net increase (decrease) in net assets (86,183) 3,097,752
NET ASSETS:
Beginning of period 49,007,448 45,909,696
=======================================================================================================
End of period (including undistributed net investment income of
$6,414 and $6,344, respectively) $48,921,265 $49,007,448
_______________________________________________________________________________________________________
=======================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Money Market Fund (the "Fund") is a series portfolio of AIM Variable
Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is to provide as high a level of current
income as is consistent with the preservation of capital and liquidity.
A. SECURITY VALUATIONS -- The Fund's securities are recorded on the basis of
amortized cost which approximates value as permitted by Rule 2a-7 under
the 1940 Act. This method values a security at its cost on the date of
purchase and, thereafter, assumes a constant amortization to maturity of
any premiums or accretion of any discounts.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income, adjusted for amortization of premiums and accretion
of discounts on investments, is recorded on the accrual basis from
settlement date. Paydown gains and losses on mortgage and asset-backed
securities are recorded as adjustments to interest income.
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized net gains (losses) on
securities per share in the Financial Highlights. Transaction costs are
included in the calculation of the Fund's net asset value and,
accordingly, they reduce the Fund's total returns. These transaction costs
are not considered operating expenses and are not reflected in net
investment income reported in the Statement of Operations and Statement of
Changes in Net Assets, or the net investment income per share and ratios
of expenses and net investment income reported in the Financial
Highlights, nor are they limited by any expense limitation arrangements
between the Fund and the advisor.
The Fund allocates realized and unrealized capital gains and losses to a
class based on the relative net assets of each class. The Fund allocates
income to a class based on the relative value of the settled shares of
each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly to separate accounts of participating insurance companies.
Distributions from net realized gain, if any, are generally paid annually
and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these
AIM V.I. MONEY MARKET FUND
arrangements is unknown as this would involve future claims that may be
made against the Fund that have not yet occurred. The risk of material
loss as a result of such indemnification claims is considered remote.
I. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements.
Collateral on repurchase agreements, including the Fund's pro-rata
interest in joint repurchase agreements, is taken into possession by the
Fund upon entering into the repurchase agreement. Eligible securities for
collateral are securities consistent with the Fund's investment objectives
and may consist of U.S. Government Securities, U.S. Government Agency
Securities and/or, Investment Grade Debt Securities. Collateral consisting
of U.S. Government Securities and U.S. Government Agency Securities is
marked to market daily to ensure its market value is at least 102% of the
sales price of the repurchase agreement. Collateral consisting of
Investment Grade Debt Securities is marked to market daily to ensure its
market value is at least 105% of the sales price of the repurchase
agreement. The investments in some repurchase agreements, pursuant to
procedures approved by the Board of Trustees, are through participation
with other mutual funds, private accounts and certain non-registered
investment companies managed by the investment advisor or its affiliates
("Joint repurchase agreements"). The principal amount of the repurchase
agreement is equal to the value at period-end. If the seller of a
repurchase agreement fails to repurchase the security in accordance with
the terms of the agreement, the Fund might incur expenses in enforcing its
rights, and could experience losses, including a decline in the value of
the collateral and loss of income.
NOTE 2 -- ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $250 million 0.40%
- -------------------------------------------------------------------
Over $250 million 0.35%
___________________________________________________________________
===================================================================
</Table>
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
The Advisor has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.30% and Series
II shares to 1.45% of average daily net assets, through at least April 30, 2010.
In determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) extraordinary items; (iv) expenses related to a
merger or reorganization, as approved by the Fund's Board of Trustees; and (v)
expenses that the Fund has incurred but did not actually pay because of an
expense offset arrangement. Currently, in addition to the expense reimbursement
arrangement with Invesco Ltd. ("Invesco") described more fully below, the only
expense offset arrangements from which the Fund may benefit are in the form of
credits that the Fund receives from banks where the Fund or its transfer agent
has deposit accounts in which it holds uninvested cash. These credits are used
to pay certain expenses incurred by the Fund. The Advisor did not waive fees
and/or reimburse expenses during the period under this expense limitation.
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund
administrative services and reimbursed $46,920 for services provided by
insurance companies.
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily net
assets of the Series II shares may be paid to insurance companies who furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. For the six months ended June 30, 2008, expenses
incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
AIM V.I. MONEY MARKET FUND
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1 -- Quoted prices in an active market for identical assets.
Level 2 -- Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest
rates, prepayment speeds, credit risk and others.
Level 3 -- Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for
example, when there is little or no market activity for an investment at the end
of the period), unobservable inputs may be used. Unobservable inputs reflect the
Fund's own assumptions about the factors market participants would use in
determining fair value of the securities or instruments and would be based on
the best available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS IN
INPUT LEVEL SECURITIES
- --------------------------------------
Level 1 $ --
- --------------------------------------
Level 2 48,625,435
- --------------------------------------
Level 3 --
======================================
$48,625,435
______________________________________
======================================
</Table>
NOTE 4--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan and receive benefits under such plan. "Trustees' and Officer's
Fees and Benefits" include amounts accrued by the Fund to fund such retirement
benefits. Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $1,557
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--CASH BALANCES
The Fund is permitted to temporarily carry a negative or overdrawn balance in
its account with The Bank of New York Mellon, the custodian bank. To compensate
the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds as a compensating balance in the account so the custodian bank can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and Invesco Aim, not
to exceed the contractually agreed upon rate.
NOTE 6--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
The Fund did not have a capital loss carryforward as of December 31, 2007.
AIM V.I. MONEY MARKET FUND
NOTE 7--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008(a) DECEMBER 31, 2007
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 16,527,812 $ 16,527,812 33,843,692 $ 33,843,692
- -------------------------------------------------------------------------------------------------------------------------
Series II 174,211 174,211 611,826 611,826
=========================================================================================================================
Issued as reinvestment of dividends:
Series I 598,451 598,451 2,016,467 2,016,467
- -------------------------------------------------------------------------------------------------------------------------
Series II 27,034 27,034 97,676 97,676
=========================================================================================================================
Reacquired:
Series I (16,932,002) (16,932,002) (32,935,961) (32,935,961)
- -------------------------------------------------------------------------------------------------------------------------
Series II (481,759) (481,759) (535,948) (535,948)
=========================================================================================================================
(86,253) $ (86,253) 3,097,752 $ 3,097,752
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) There are entities that are record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate own 85% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, Invesco
Aim and/or Invesco Aim affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services to
the Fund, Invesco Aim and or Invesco Aim affiliates including but not
limited to services such as, securities brokerage, third party record
keeping and account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record by
these entities are also owned beneficially.
NOTE 8--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
----------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------------------------------
2008 2007 2006 2005 2004 2003
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============================================================================================================================
Net investment income 0.01 0.04 0.04 0.02 0.01 0.01
============================================================================================================================
Less dividends from net investment income (0.01) (0.04) (0.04) (0.02) (0.01) (0.01)
============================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(a) 1.25% 4.54% 4.27% 2.51% 0.69% 0.58%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $46,687 $46,492 $43,568 $44,923 $54,008 $77,505
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets 0.86%(b) 0.86% 0.90% 0.82% 0.75% 0.66%
============================================================================================================================
Ratio of net investment income to average net
assets 2.50%(b) 4.45% 4.20% 2.46% 0.67% 0.59%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America. Total returns are not annualized
for periods less than one year and do not reflect charges assessed in
connection with a variable product, which if included would reduce total
returns.
(b) Ratios are annualized and based on average daily net assets of $48,242,683.
AIM V.I. MONEY MARKET FUND
NOTE 8--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------
2008 2007 2006 2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===========================================================================================================================
Net investment income 0.01 0.04 0.04 0.02 0.004 0.003
===========================================================================================================================
Less dividends from net investment income (0.01) (0.04) (0.04) (0.02) (0.004) (0.003)
===========================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(a) 1.12% 4.28% 4.01% 2.26% 0.44% 0.33%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,235 $2,515 $2,341 $3,080 $ 6,076 $ 2,382
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 1.11%(b) 1.11% 1.15% 1.07% 1.00% 0.91%
===========================================================================================================================
Ratio of net investment income to average net
assets 2.25%(b) 4.20% 3.95% 2.21% 0.42% 0.34%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America. Total returns are not annualized
for periods less than one year and do not reflect charges assessed in
connection with a variable product, which if included would reduce total
returns.
(b) Ratios are annualized and based on average daily net assets of $2,412,003.
NOTE 9--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor -- Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to Invesco Aim and IADI (Order No. 05-1318). The WVASC makes
findings of fact that Invesco Aim and IADI entered into certain arrangements
permitting market timing of the AIM Funds and failed to disclose these
arrangements in the prospectuses for such Funds, and conclusions of law to the
effect that Invesco Aim and IADI violated the West Virginia securities laws. The
WVASC orders Invesco Aim and IADI to cease any further violations and seeks to
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute. By agreement with the Commissioner of Securities, Invesco Aim's time to
respond to that Order has been indefinitely suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid. The case pending in Illinois State Court regarding fair value
pricing was dismissed with prejudice on May 6, 2008.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA
purportedly brought on behalf of participants in the Invesco 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds remain nominal defendants in the Consolidated Amended Fund
Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco
defendants' motion to dismiss the Amended Class Action Complaint for Violations
of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June
16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this
lawsuit back to the MDL Court for further proceedings.
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, Invesco Aim and IADI have advised the Fund that they are providing
full cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, Invesco Aim and/or related entities and individuals in the
future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. MONEY MARKET FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent the
effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $1,012.50 $4.30 $1,020.59 $4.32 0.86%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 1,011.20 5.55 1,019.34 5.57 1.11
- ---------------------------------------------------------------------------------------------------
</Table>
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5%
before expenses.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
AIM V.I. MONEY MARKET FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the Board) of AIM comparative performance and fee data ent weight to the various factors. The
Variable Insurance Funds required under regarding the AIM Funds prepared by an Trustees recognized that the advisory
the Investment Company Act of 1940 to independent company, Lipper, Inc. (Lipper), arrangements and resulting advisory fees
approve annually the renewal of the AIM under the direction and supervision of the for the Fund and the other AIM Funds are
V.I. Money Market Fund (the Fund) independent Senior Officer who also the result of years of review and
investment advisory agreement with Invesco prepares a separate analysis of this negotiation between the Trustees and
Aim Advisors, Inc. (Invesco Aim). During information for the Trustees. Each Invesco Aim, that the Trustees may focus
contract renewal meetings held on June Sub-Committee then makes recommendations to a greater extent on certain aspects of
18-19, 2008, the Board as a whole and the to the Investments Committee regarding the these arrangements in some years than in
disinterested or "independent" Trustees, performance, fees and expenses of their others, and that the Trustees'
voting separately, approved the assigned funds. The Investments Committee deliberations and conclusions in a
continuance of the Fund's investment considers each Sub-Committee's particular year may be based in part on
advisory agreement for another year, recommendations and makes its own their deliberations and conclusions of
effective July 1, 2008. In doing so, the recommendations regarding the performance, these same arrangements throughout the
Board determined that the Fund's fees and expenses of the AIM Funds to the year and in prior years.
investment advisory agreement is in the full Board. The Investments Committee also
best interests of the Fund and its considers each Sub-Committee's FACTORS AND CONCLUSIONS AND SUMMARY OF
shareholders and that the compensation to recommendations in making its annual INDEPENDENT WRITTEN FEE EVALUATION
Invesco Aim under the Fund's investment recommendation to the Board whether to The discussion below serves as a summary
advisory agreement is fair and reasonable. approve the continuance of each AIM Fund's of the Senior Officer's independent
The independent Trustees met separately investment advisory agreement and written evaluation with respect to the
during their evaluation of the Fund's sub-advisory agreements for another year. Fund's investment advisory agreement as
investment advisory agreement with The independent Trustees are assisted well as a discussion of the material
independent legal counsel from whom they in their annual evaluation of the Fund's factors and related conclusions that
received independent legal advice, and the investment advisory agreement by the formed the basis for the Board's approval
independent Trustees also received independent Senior Officer. One of the Fund's investment advisory
assistance during their deliberations from responsibility of the Senior Officer is to agreement and sub-advisory agreements.
the independent Senior Officer, a manage the process by which the AIM Funds' Unless otherwise stated, information set
full-time officer of the AIM Funds who proposed management fees are negotiated forth below is as of June 19, 2008 and
reports directly to the independent during the annual contract renewal process does not reflect any changes that may have
Trustees. to ensure that they are negotiated in a occurred since that date, including but
manner that is at arms' length and not limited to changes to the Fund's
THE BOARD'S FUND EVALUATION PROCESS reasonable. Accordingly, the Senior performance, advisory fees, expense
The Board's Investments Committee has Officer must either supervise a limitations and/or fee waivers.
established three Sub-Committees that are competitive bidding process or prepare an
responsible for overseeing the management independent written evaluation. The Senior I. Investment Advisory Agreement
of a number of the series portfolios of Officer has recommended that an A. Nature, Extent and Quality of
the AIM Funds. This Sub-Committee independent written evaluation be provided Services Provided by Invesco Aim
structure permits the Trustees to focus on and, at the direction of the Board, has The Board reviewed the advisory services
the performance of the AIM Funds that have prepared an independent written provided to the Fund by Invesco Aim under
been assigned to them. The Sub-Committees evaluation. the Fund's investment advisory agreement,
meet throughout the year to review the During the annual contract renewal the performance of Invesco Aim in
performance of their assigned funds, and process, the Board considered the factors providing these services, and the
the Sub-Committees review monthly and discussed below under the heading "Factors credentials and experience of the officers
quarterly comparative performance and Conclusions and Summary of Independent and employees of Invesco Aim who provide
information and periodic asset flow data Written Fee Evaluation" in evaluating the these services. The Board's review of the
for their assigned funds. These materials fairness and reasonableness of the Fund's qualifications of Invesco Aim to provide
are prepared under the direction and investment advisory agreement and these services included the Board's
supervision of the independent Senior sub-advisory agreements at the contract consideration of Invesco Aim's portfolio
Officer. Over the course of each year, the renewal meetings and at their meetings and product review process, various back
Sub-Committees meet with portfolio throughout the year as part of their office support functions provided by
managers for their assigned funds and ongoing oversight of the Fund. The Fund's Invesco Aim and its affiliates, and
other members of management and review investment advisory agreement and Invesco Aim's equity and fixed income
with these individuals the performance, sub-advisory agreements were considered trading operations. The Board concluded
investment objective(s), policies, separately, although the Board also that the nature, extent and quality of the
strategies and limitations of these funds. considered the common interests of all of advisory services provided to the Fund by
In addition to their meetings the AIM Funds in their deliberations. The Invesco Aim were appropriate and that
throughout the year, the Sub-Committees Board considered all of the information Invesco Aim currently is providing
meet at designated contract renewal provided to them and did not identify any satisfactory advisory services in
meetings each year to conduct an in-depth particular factor that was controlling. accordance with the terms of the Fund's
review of the performance, fees and Each Trustee may have evaluated the investment advisory agreement. In
expenses of their assigned funds. During information provided differently from one addition, based on their ongoing meetings
the contract renewal process, the Trustees another and attributed differ- throughout the year with the Fund's
receive portfolio manager or managers, the Board
concluded that
continued
AIM V.I. MONEY MARKET FUND
these individuals are competent and able appropriate for the Board to continue to schedule or through advisory fee waivers
to continue to carry out their monitor more closely the performance of or expense limitations. The Board noted
responsibilities under the Fund's the Fund. Although the independent written that the Fund's contractual advisory fee
investment advisory agreement. evaluation of the Fund's Senior Officer schedule includes one breakpoint but that,
In determining whether to continue the only considered Fund performance through due to the Fund's asset level at the end
Fund's investment advisory agreement, the the most recent calendar year, the Board of the past calendar year and the way in
Board considered the prior relationship also reviewed more recent Fund performance which the breakpoint has been structured,
between Invesco Aim and the Fund, as well and this review did not change their the Fund has yet to benefit from the
as the Board's knowledge of Invesco Aim's conclusions. breakpoint. Based on this information, the
operations, and concluded that it was Board concluded that the Fund's advisory
beneficial to maintain the current C. Advisory Fees and Fee Waivers fees would reflect economies of scale at
relationship, in part, because of such The Board compared the Fund's contractual higher asset levels. The Board also noted
knowledge. The Board also considered the advisory fee rate to the contractual that the Fund shares directly in economies
steps that Invesco Aim and its affiliates advisory fee rates of funds in the Fund's of scale through lower fees charged by
have taken over the last several years to Lipper expense group that are not managed third party service providers based on the
improve the quality and efficiency of the by Invesco Aim, at a common asset level combined size of all of the AIM Funds and
services they provide to the AIM Funds in and as of the end of the past calendar affiliates.
the areas of investment performance, year. The Board noted that the Fund's
product line diversification, contractual advisory fee rate was below E. Profitability and Financial
distribution, fund operations, shareholder the median contractual advisory fee rate Resources of Invesco Aim
services and compliance. The Board of funds in its expense group. The Board The Board reviewed information from
concluded that the quality and efficiency also reviewed the methodology used by Invesco Aim concerning the costs of the
of the services Invesco Aim and its Lipper in determining contractual fee advisory and other services that Invesco
affiliates provide to the AIM Funds in rates. Aim and its affiliates provide to the Fund
each of these areas have generally The Board also compared the Fund's and the profitability of Invesco Aim and
improved, and support the Board's approval effective fee rate (the advisory fee after its affiliates in providing these
of the continuance of the Fund's any advisory fee waivers and before any services. The Board also reviewed
investment advisory agreement. expense limitations/waivers) to the information concerning the financial
advisory fee rates of other clients of condition of Invesco Aim and its
B. Fund Performance Invesco Aim and its affiliates with affiliates. The Board also reviewed with
The Board compared the Fund's performance investment strategies comparable to those Invesco Aim the methodology used to
during the past one, three and five of the Fund, including one mutual fund prepare the profitability information. The
calendar years to the performance of funds advised by Invesco Aim. The Board noted Board considered the overall profitability
in the Fund's performance group that are that the Fund's rate was the same as the of Invesco Aim, as well as the
not managed by Invesco Aim, and against rate for the other mutual funds. profitability of Invesco Aim in connection
the performance of all funds in the Lipper The Board noted that Invesco Aim has with managing the Fund. The Board noted
Variable Annuity Underlying Funds - Money contractually agreed to waive fees and/or that Invesco Aim continues to operate at a
Market Index. The Board also reviewed the limit expenses of the Fund through at net profit, although increased expenses in
criteria used by Invesco Aim to identify least April 30, 2010 in an amount recent years have reduced the
the funds in the Fund's performance group necessary to limit total annual operating profitability of Invesco Aim and its
for inclusion in the Lipper reports. The expenses to a specified percentage of affiliates. The Board concluded that the
Board noted that the Fund's performance average daily net assets for each class of Fund's fees were fair and reasonable, and
was in the fifth quintile of its the Fund. The Board considered the that the level of profits realized by
performance group for the one, three and contractual nature of this fee waiver and Invesco Aim and its affiliates from
five year periods (the first quintile noted that it remains in effect until at providing services to the Fund was not
being the best performing funds and the least April 30, 2010. The Board also excessive in light of the nature, quality
fifth quintile being the worst performing considered the effect this expense and extent of the services provided. The
funds). The Board noted that the Fund's limitation would have on the Fund's Board considered whether Invesco Aim is
performance was below the performance of estimated total expenses. financially sound and has the resources
the Index for the one, three and five year After taking account of the Fund's necessary to perform its obligations under
periods. Invesco Aim advised the Board contractual advisory fee rate, as well as the Fund's investment advisory agreement,
that the Fund has historically been priced the comparative advisory fee information and concluded that Invesco Aim has the
consistent with its role as a conduit to and the expense limitation discussed financial resources necessary to fulfill
and from other Invesco Aim products. The above, the Board concluded that the Fund's these obligations.
Board also considered the steps Invesco advisory fees were fair and reasonable.
Aim has taken over the last several years F. Independent Written Evaluation of
to improve the quality and efficiency of D. Economies of Scale and Breakpoints the Fund's Senior Officer
the services that Invesco Aim provides to The Board considered the extent to which The Board noted that, at their direction,
the AIM Funds. The Board concluded that there are economies of scale in Invesco the Senior Officer of the Fund, who is
Invesco Aim continues to be responsive to Aim's provision of advisory services to independent of Invesco Aim and Invesco
the Board's focus on fund performance. the Fund. The Board also considered Aim's affiliates, had prepared an
However, due to the Fund's whether the Fund benefits from such independent written evaluation to assist
underperformance, the Board also concluded economies of scale through contractual the Board in determining the
that it would be breakpoints in the Fund's advisory fee reasonableness of the proposed management
fees of the AIM Funds, including the Fund.
The
continued
AIM V.I. MONEY MARKET FUND
Board noted that they had relied upon the The Board noted that Invesco Aim will B. Fund Performance
Senior Officer's written evaluation receive advisory fees from these The Board did not view Fund performance as
instead of a competitive bidding process. affiliated money market funds attributable a relevant factor in considering whether
In determining whether to continue the to such investments, although Invesco Aim to approve the sub-advisory agreements for
Fund's investment advisory agreement, the has contractually agreed to waive through the Fund, as no Affiliated Sub-Adviser
Board considered the Senior Officer's at least April 30, 2010, the advisory fees served as a sub-adviser to the Fund prior
written evaluation. payable by the Fund in an amount equal to to May 1, 2008.
100% of the net advisory fees Invesco Aim
G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees
and its Affiliates funds with respect to the Fund's The Board considered the services to be
The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers
benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements
affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco
relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment
fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the
affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and
administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to
distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board
Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no
Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its
providing these services and the shareholders. shareholders, as they are paid by Invesco
organizational structure employed by Aim to the Affiliated Sub-Advisers, and
Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements that Invesco Aim and the Affiliated
these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking
that these services are provided to the Services Provided by Affiliated account of the Fund's contractual
Fund pursuant to written contracts which Sub-Advisors sub-advisory fee rate, as well as other
are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that
basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and
that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, reasonable.
providing these services in a satisfactory Invesco Asset Management Limited, Invesco
manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco D. Financial Resources of the
their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers
continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each
Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially
The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to
realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its
portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and
through "soft dollar" arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser
these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to
commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations.
funds advised by Invesco Aim are used to Sub-Advisers who will provide these
pay for research and execution services. services. The Board concluded that the
The Board noted that soft dollar nature, extent and quality of the services
arrangements shift the payment obligation to be provided by the Affiliated
for the research and execution services Sub-Advisers were appropriate. The Board
from Invesco Aim to the funds and noted that the Affiliated Sub-Advisers,
therefore may reduce Invesco Aim's which have offices and personnel that are
expenses. The Board also noted that geographically dispersed in financial
research obtained through soft dollar centers around the world, have been formed
arrangements may be used by Invesco Aim in in part for the purpose of researching and
making investment decisions for the Fund compiling information and making
and may therefore benefit Fund recommendations on the markets and
shareholders. The Board concluded that economies of various countries and
Invesco Aim's soft dollar arrangements securities of companies located in such
were appropriate. The Board also concluded countries or on various types of
that, based on their review and investments and investment techniques, and
representations made by Invesco Aim, these providing investment advisory services.
arrangements were consistent with The Board concluded that the sub-advisory
regulatory requirements. agreements will benefit the Fund and its
The Board considered the fact that the shareholders by permitting Invesco Aim to
Fund's uninvested cash and cash collateral utilize the additional resources and
from any securities lending arrangements talent of the Affiliated Sub-Advisers in
may be invested in money market funds managing the Fund.
advised by Invesco Aim pursuant to
procedures approved by the Board.
AIM V.I. MONEY MARKET FUND
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. Money Market Fund, an
investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust
("Trust"), was held on February 29, 2008. The Meeting was held for the following
purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will
serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust that
would permit the Board of Trustees of the Trust to terminate the Trust, the
Fund, and each other series portfolio of the Trust, or a share class without
a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and
each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland,
GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.),
Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and
Invesco Senior Secured Management, Inc.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- ------------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker.................................................... 474,883,590 19,741,622
Frank S. Bayley................................................. 474,653,109 19,972,103
James T. Bunch.................................................. 475,597,417 19,027,795
Bruce L. Crockett............................................... 474,900,579 19,724,633
Albert R. Dowden................................................ 474,749,929 19,875,283
Jack M. Fields.................................................. 475,205,840 19,419,372
Martin L. Flanagan.............................................. 475,248,336 19,376,876
Carl Frischling................................................. 474,453,674 20,171,538
Prema Mathai-Davis.............................................. 473,569,192 21,056,020
Lewis F. Pennock................................................ 475,072,501 19,552,711
Larry Soll, Ph.D................................................ 475,170,544 19,454,668
Raymond Stickel, Jr............................................. 475,420,825 19,204,387
Philip A. Taylor................................................ 475,640,570 18,984,642
</Table>
<Table>
<Caption>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
- --------------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of
Trustees of the Trust to terminate the Trust, the Fund,
and each other series portfolio of the Trust, or a share
class without a shareholder vote........................ 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between Invesco Aim
Advisors, Inc. and each of AIM Funds Management, Inc.;
Invesco Asset Management Deutschland, GmbH; Invesco
Asset Management Limited; Invesco Asset Management
(Japan) Limited; Invesco Australia Limited; Invesco
Global Asset Management (N.A.), Inc.; Invesco Hong Kong
Limited; Invesco Institutional (N.A.), Inc.; and Invesco
Senior Secured Management, Inc.......................... 42,952,415 4,778,438 2,032,753
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. MONEY MARKET FUND
[INVESCO AIM LOGO] AIM V.I. SMALL CAP EQUITY FUND
- SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008
AIM Investments [MOUNTAIN GRAPHIC]
became INVESCO AIM
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FUND PERFORMANCE
=======================================================================================
PERFORMANCE SUMMARY
FUND VS. INDEXES
Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer
charges. If variable product issuer charges were included, returns would be
lower.
Series I Shares -4.64%
Series II Shares -4.74
S&P 500 Index(TRIANGLE) (Broad Market Index) -11.90
Russell 2000 Index(TRIANGLE) (Style-Specific Index) -9.37
Lipper VUF Small-Cap Core Funds Index(TRIANGLE) (Peer Group Index) -7.92
(TRIANGLE)Lipper Inc.
The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted
index covering all major areas of the U.S. economy. It is not the 500 largest
companies, but rather the most widely held 500 companies chosen with respect to
market size, liquidity, and their industry.
The RUSSELL 2000--REGISTERED TRADEMARK-- INDEX measures the performance of
the 2,000 smallest companies in the Russell 3000--REGISTERED TRADEMARK-- Index,
which represents approximately 8% of the total market capitalization of the
Russell 3000 Index. The Russell 2000 Index and the Russell 3000 Index are
trademarks/service marks of the Frank Russell Company. Russell--REGISTERED
TRADEMARK-- is a trademark of the Frank Russell Company.
The LIPPER VUF SMALL-CAP CORE FUNDS INDEX is an equally weighted
representation of the largest variable insurance underlying funds in the Lipper
Small-Cap Core Funds category. These funds typically have an average
price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share
growth value, compared to the S&P SmallCap 600 Index.
The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
=======================================================================================
==========================================
AVERAGE ANNUAL TOTAL RETURNS THE NET ANNUAL FUND OPERATING EXPENSE VARIABLE PRODUCT. SALES CHARGES, EXPENSES
As of 6/30/08 RATIO SET FORTH IN THE MOST RECENT FUND AND FEES, WHICH ARE DETERMINED BY THE
PROSPECTUS AS OF THE DATE OF THIS REPORT VARIABLE PRODUCT ISSUERS, WILL VARY AND
SERIES I SHARES FOR SERIES I AND SERIES II SHARES WAS WILL LOWER THE TOTAL RETURN.
Inception (8/29/03) 10.01% 1.13% AND 1.38%, RESPECTIVELY.(1) THE THE MOST RECENT MONTH-END PERFORMANCE
1 Year -7.93 TOTAL ANNUAL FUND OPERATING EXPENSE RATIO DATA AT THE FUND LEVEL, EXCLUDING VARIABLE
SET FORTH IN THE MOST RECENT FUND PRODUCT CHARGES, IS AVAILABLE ON THE
SERIES II SHARES PROSPECTUS AS OF THE DATE OF THIS REPORT INVESCO AIM AUTOMATED INFORMATION LINE,
Inception (8/29/03) 9.77% FOR SERIES I AND SERIES II SHARES WAS 866 702 4402. AS MENTIONED ABOVE, FOR THE
1 Year -8.16 1.13% AND 1.38%, RESPECTIVELY. THE EXPENSE MOST RECENT MONTH-END PERFORMANCE
========================================== RATIOS PRESENTED ABOVE MAY VARY FROM THE INCLUDING VARIABLE PRODUCT CHARGES, PLEASE
EXPENSE RATIOS PRESENTED IN OTHER SECTIONS CONTACT YOUR VARIABLE PRODUCT ISSUER OR
THE PERFORMANCE OF THE FUND'S SERIES I AND OF THIS REPORT THAT ARE BASED ON EXPENSES FINANCIAL ADVISOR.
SERIES II SHARE CLASSES WILL DIFFER INCURRED DURING THE PERIOD COVERED BY THIS HAD THE ADVISOR NOT WAIVED FEES AND/OR
PRIMARILY DUE TO DIFFERENT CLASS EXPENSES. REPORT. REIMBURSED EXPENSES IN THE PAST,
THE PERFORMANCE DATA QUOTED REPRESENT AIM V.I. SMALL CAP EQUITY FUND, A PERFORMANCE WOULD HAVE BEEN LOWER.
PAST PERFORMANCE AND CANNOT GUARANTEE SERIES PORTFOLIO OF AIM VARIABLE INSURANCE
COMPARABLE FUTURE RESULTS; CURRENT FUNDS, IS CURRENTLY OFFERED THROUGH (1) Total annual operating expenses less
PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE INSURANCE COMPANIES ISSUING VARIABLE any contractual fee waivers and/or
CONTACT YOUR VARIABLE PRODUCT ISSUER OR PRODUCTS. YOU CANNOT PURCHASE SHARES OF expense reimbursements by the advisor
FINANCIAL ADVISOR FOR THE MOST RECENT THE FUND DIRECTLY. PERFORMANCE FIGURES in effect through at least April 30,
MONTH-END VARIABLE PRODUCT PERFORMANCE. GIVEN REPRESENT THE FUND AND ARE NOT 2010. See current prospectus for more
PERFORMANCE FIGURES REFLECT FUND EXPENSES, INTENDED TO REFLECT ACTUAL VARIABLE information.
REINVESTED DISTRIBUTIONS AND CHANGES IN PRODUCT VALUES. THEY DO NOT REFLECT SALES
PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU CONNECTION WITH A
MAY HAVE A GAIN OR LOSS WHEN YOU SELL
SHARES.
AIM V.I. SMALL CAP EQUITY FUND
<Table>
</Table>
PORTFOLIO COMPOSITION
By sector, based on Net Assets
as of June 30, 2008
<Table>
- -------------------------------------------------------------------------
Information Technology 17.7%
- -------------------------------------------------------------------------
Industrials 16.4
- -------------------------------------------------------------------------
Health Care 13.5
- -------------------------------------------------------------------------
Financials 11.6
- -------------------------------------------------------------------------
Consumer Discretionary 11.3
- -------------------------------------------------------------------------
Energy 9.4
- -------------------------------------------------------------------------
Materials 8.0
- -------------------------------------------------------------------------
Consumer Staples 4.2
- -------------------------------------------------------------------------
Telecommunication Services 2.6
- -------------------------------------------------------------------------
Utilities 2.1
- -------------------------------------------------------------------------
Money Market Funds Plus Other Assets Less Liabilities 3.2
_________________________________________________________________________
=========================================================================
</Table>
SCHEDULE OF INVESTMENTS(a)
June 30, 2008
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.76%
AEROSPACE & DEFENSE-2.20%
AAR CORP.(b) 78,128 $ 1,057,072
- -------------------------------------------------------------------------------
Aeroviroment Inc.(b) 34,297 932,192
- -------------------------------------------------------------------------------
Curtiss-Wright Corp. 52,246 2,337,486
===============================================================================
4,326,750
===============================================================================
AIRLINES-0.77%
Allegiant Travel Co.(b) 81,100 1,507,649
===============================================================================
APPAREL RETAIL-1.74%
Citi Trends Inc.(b) 103,776 2,351,564
- -------------------------------------------------------------------------------
Tween Brands, Inc.(b) 65,096 1,071,480
===============================================================================
3,423,044
===============================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.68%
Fossil, Inc.(b) 51,154 1,487,047
- -------------------------------------------------------------------------------
Volcom, Inc.(b) 75,777 1,813,343
===============================================================================
3,300,390
===============================================================================
APPLICATION SOFTWARE-0.94%
Blackbaud, Inc. 86,709 1,855,573
===============================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.73%
Affiliated Managers Group, Inc.(b) 19,189 1,728,161
- -------------------------------------------------------------------------------
GAMCO Investors, Inc.-Class A 33,851 1,679,687
===============================================================================
3,407,848
===============================================================================
BIOTECHNOLOGY-0.30%
InterMune, Inc.(b)(c) 45,507 597,052
===============================================================================
CATALOG RETAIL-1.00%
PC Mall, Inc.(b) 145,672 1,975,312
===============================================================================
COMMUNICATIONS EQUIPMENT-1.97%
Arris Group Inc.(b) 225,138 1,902,416
- -------------------------------------------------------------------------------
Comtech Telecommunications Corp.(b) 40,318 1,975,582
===============================================================================
3,877,998
===============================================================================
CONSTRUCTION MATERIALS-0.90%
Texas Industries, Inc.(c) 31,400 1,762,482
===============================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.34%
CyberSource Corp.(b) 117,444 1,964,838
- -------------------------------------------------------------------------------
Euronet Worldwide, Inc.(b) 64,216 1,085,250
- -------------------------------------------------------------------------------
Wright Express Corp.(b) 63,123 1,565,451
===============================================================================
4,615,539
===============================================================================
DIVERSIFIED CHEMICALS-1.05%
FMC Corp. 26,662 2,064,705
===============================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-0.28%
EnerNOC, Inc.(b)(c) 30,493 547,349
===============================================================================
DIVERSIFIED METALS & MINING-1.00%
Compass Minerals International, Inc. 24,547 1,977,506
===============================================================================
EDUCATION SERVICES-1.00%
Capella Education Co.(b) 32,865 1,960,397
===============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. SMALL CAP EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT-2.03%
Belden Inc. 56,014 $ 1,897,754
- -------------------------------------------------------------------------------
General Cable Corp.(b) 34,484 2,098,352
===============================================================================
3,996,106
===============================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.05%
OSI Systems, Inc.(b) 60,729 1,300,815
- -------------------------------------------------------------------------------
Rofin-Sinar Technologies, Inc.(b) 25,438 768,228
===============================================================================
2,069,043
===============================================================================
ELECTRONIC MANUFACTURING SERVICES-0.87%
Methode Electronics, Inc. 163,875 1,712,494
===============================================================================
ENVIRONMENTAL & FACILITIES SERVICES-3.06%
ABM Industries Inc 94,986 2,113,439
- -------------------------------------------------------------------------------
Team, Inc.(b) 60,797 2,086,553
- -------------------------------------------------------------------------------
Waste Connections, Inc.(b) 57,340 1,830,866
===============================================================================
6,030,858
===============================================================================
FOOD RETAIL-0.90%
Ruddick Corp. 51,634 1,771,563
===============================================================================
GAS UTILITIES-1.06%
Energen Corp. 26,676 2,081,528
===============================================================================
GENERAL MERCHANDISE STORES-0.44%
Pantry, Inc. (The)(b) 81,244 866,061
===============================================================================
HEALTH CARE DISTRIBUTORS-1.38%
Owens & Minor, Inc. 59,329 2,710,742
===============================================================================
HEALTH CARE EQUIPMENT-2.11%
Invacare Corp. 111,640 2,281,922
- -------------------------------------------------------------------------------
Quidel Corp.(b) 113,606 1,876,771
===============================================================================
4,158,693
===============================================================================
HEALTH CARE FACILITIES-1.07%
Skilled Healthcare Group Inc.-Class A(b) 156,762 2,103,746
===============================================================================
HEALTH CARE SERVICES-2.47%
Cross Country Healthcare, Inc.(b) 122,433 1,764,260
- -------------------------------------------------------------------------------
Gentiva Health Services, Inc.(b) 132,425 2,522,696
- -------------------------------------------------------------------------------
IPC The Hospitalist Co.(b) 30,310 570,434
===============================================================================
4,857,390
===============================================================================
HEALTH CARE SUPPLIES-0.96%
Haemonetics Corp.(b) 34,004 1,885,862
===============================================================================
HEALTH CARE TECHNOLOGY-0.80%
Omnicell, Inc.(b) 120,185 1,584,038
===============================================================================
HOME ENTERTAINMENT SOFTWARE-0.76%
THQ Inc.(b) 73,526 1,489,637
===============================================================================
HOTELS, RESORTS & CRUISE LINES-0.62%
Ambassadors Group, Inc. 17,953 267,859
- -------------------------------------------------------------------------------
Red Lion Hotels Corp.(b) 119,639 953,523
===============================================================================
1,221,382
===============================================================================
HOUSEHOLD APPLIANCES-0.98%
Snap-on Inc. 37,251 1,937,425
===============================================================================
HOUSEWARES & SPECIALTIES-1.03%
Tupperware Brands Corp. 59,210 2,026,166
===============================================================================
HUMAN RESOURCE & EMPLOYMENT SERVICES-0.76%
Kforce Inc.(b) 175,160 1,487,108
===============================================================================
INDUSTRIAL MACHINERY-5.05%
Chart Industries, Inc.(b) 74,347 3,616,238
- -------------------------------------------------------------------------------
Kadant Inc.(b) 102,101 2,307,483
- -------------------------------------------------------------------------------
RBC Bearings Inc.(b) 53,307 1,776,189
- -------------------------------------------------------------------------------
Valmont Industries, Inc. 21,483 2,240,462
===============================================================================
9,940,372
===============================================================================
INTEGRATED TELECOMMUNICATION SERVICES-2.62%
Alaska Communications Systems Group Inc.(c) 170,111 2,031,125
- -------------------------------------------------------------------------------
Cincinnati Bell Inc.(b) 499,197 1,986,804
===============================================================================
NTELOS Holdings Corp.(c) 45,181 1,146,242
===============================================================================
5,164,171
===============================================================================
INTERNET SOFTWARE & SERVICES-3.07%
Ariba, Inc.(b) 227,249 3,342,833
- -------------------------------------------------------------------------------
DealerTrack Holdings Inc.(b) 46,103 650,513
- -------------------------------------------------------------------------------
Open Text Corp. (Canada)(b)(c) 63,537 2,039,538
===============================================================================
6,032,884
===============================================================================
INVESTMENT BANKING & BROKERAGE-0.88%
CMET Finance Holdings, Inc. (Acquired 12/08/03;
Cost $20,000)(b)(d)(e) 200 2,656
- -------------------------------------------------------------------------------
KBW Inc.(b)(c) 83,799 1,724,583
===============================================================================
1,727,239
===============================================================================
IT CONSULTING & OTHER SERVICES-0.97%
CACI International Inc.-Class A(b) 41,885 1,917,076
===============================================================================
LIFE SCIENCES TOOLS & SERVICES-2.53%
Bio-Rad Laboratories, Inc.-Class A(b) 19,194 1,552,603
- -------------------------------------------------------------------------------
Dionex Corp.(b) 21,855 1,450,516
- -------------------------------------------------------------------------------
eResearch Technology, Inc.(b) 113,313 1,976,179
===============================================================================
4,979,298
===============================================================================
METAL & GLASS CONTAINERS-0.95%
AptarGroup, Inc. 40,651 1,705,309
- -------------------------------------------------------------------------------
Bway Holding Co.(b) 17,939 154,455
===============================================================================
1,859,764
===============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. SMALL CAP EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------------
MOVIES & ENTERTAINMENT-1.02%
World Wrestling Entertainment, Inc.-Class A(c) 129,605 $ 2,004,989
===============================================================================
MULTI-UTILITIES-0.53%
Avista Corp. 48,624 1,043,471
===============================================================================
OFFICE REIT'S-0.89%
Alexandria Real Estate Equities, Inc.(c) 18,005 1,752,607
===============================================================================
OIL & GAS EQUIPMENT & SERVICES-4.48%
Complete Production Services, Inc.(b) 72,654 2,646,059
- -------------------------------------------------------------------------------
Lufkin Industries, Inc. 18,971 1,579,905
- -------------------------------------------------------------------------------
NATCO Group Inc.-Class A(b) 48,069 2,621,203
- -------------------------------------------------------------------------------
Oceaneering International, Inc.(b) 25,688 1,979,260
===============================================================================
8,826,427
===============================================================================
OIL & GAS EXPLORATION & PRODUCTION-4.87%
Comstock Resources, Inc.(b) 36,434 3,076,123
- -------------------------------------------------------------------------------
Parallel Petroleum Corp.(b) 93,834 1,888,878
- -------------------------------------------------------------------------------
Penn Virginia Corp. 46,053 3,473,317
- -------------------------------------------------------------------------------
Venoco Inc.(b) 49,309 1,144,462
===============================================================================
9,582,780
===============================================================================
PACKAGED FOODS & MEATS-2.18%
Flowers Foods, Inc. 75,988 2,153,500
- -------------------------------------------------------------------------------
TreeHouse Foods, Inc.(b) 87,762 2,129,106
===============================================================================
4,282,606
===============================================================================
PERSONAL PRODUCTS-1.16%
Alberto-Culver Co. 87,033 2,286,357
===============================================================================
PHARMACEUTICALS-1.88%
ViroPharma Inc.(b)(c) 152,801 1,689,979
- -------------------------------------------------------------------------------
VIVUS, Inc.(b)(c) 300,300 2,006,004
===============================================================================
3,695,983
===============================================================================
PROPERTY & CASUALTY INSURANCE-1.82%
Assured Guaranty Ltd.(c) 97,837 1,760,088
- -------------------------------------------------------------------------------
FPIC Insurance Group, Inc.(b) 40,359 1,829,070
===============================================================================
3,589,158
===============================================================================
REGIONAL BANKS-4.49%
BancFirst Corp. 25,367 1,085,707
- -------------------------------------------------------------------------------
Commerce Bancshares, Inc. 33,677 1,335,630
- -------------------------------------------------------------------------------
Community Trust Bancorp, Inc. 52,849 1,387,815
- -------------------------------------------------------------------------------
First Financial Bankshares, Inc.(c) 32,517 1,489,604
- -------------------------------------------------------------------------------
Glacier Bancorp, Inc.(c) 105,379 1,685,010
- -------------------------------------------------------------------------------
Sterling Bancshares, Inc. 204,900 1,862,541
===============================================================================
8,846,307
===============================================================================
RESTAURANTS-1.74%
DineEquity, Inc.(c) 47,319 1,767,838
- -------------------------------------------------------------------------------
Papa John's International, Inc.(b) 62,269 1,655,733
===============================================================================
3,423,571
===============================================================================
SEMICONDUCTOR EQUIPMENT-2.04%
ATMI, Inc.(b) 77,006 2,150,008
- -------------------------------------------------------------------------------
MKS Instruments, Inc.(b) 84,995 1,861,390
===============================================================================
4,011,398
===============================================================================
SEMICONDUCTORS-2.31%
DSP Group, Inc.(b) 112,219 785,533
- -------------------------------------------------------------------------------
Power Integrations, Inc.(b) 60,245 1,904,345
- -------------------------------------------------------------------------------
Semtech Corp.(b) 131,787 1,854,243
===============================================================================
4,544,121
===============================================================================
SPECIALIZED REIT'S-1.77%
LaSalle Hotel Properties 59,270 1,489,455
- -------------------------------------------------------------------------------
Senior Housing Properties Trust 48,800 953,064
- -------------------------------------------------------------------------------
Universal Health Realty Income Trust 34,577 1,037,310
===============================================================================
3,479,829
===============================================================================
SPECIALTY CHEMICALS-2.36%
A. Schulman, Inc. 91,082 2,097,619
- -------------------------------------------------------------------------------
H.B. Fuller Co. 86,887 1,949,744
- -------------------------------------------------------------------------------
Zep, Inc. 40,790 606,955
===============================================================================
4,654,318
===============================================================================
SPECIALTY STORES-0.05%
Ulta Salon, Cosmetics & Fragrance, Inc.(b)(c) 8,810 99,024
===============================================================================
STEEL-1.74%
Carpenter Technology Corp. 31,257 1,364,368
- -------------------------------------------------------------------------------
Northwest Pipe Co.(b) 37,000 2,064,600
===============================================================================
3,428,968
===============================================================================
SYSTEMS SOFTWARE-0.80%
Double-Take Software, Inc.(b) 115,080 1,581,199
===============================================================================
TECHNOLOGY DISTRIBUTORS-0.54%
Agilysys, Inc. 93,834 1,064,078
===============================================================================
TRUCKING-2.26%
Landstar System, Inc. 40,638 2,244,031
- -------------------------------------------------------------------------------
Marten Transport, Ltd.(b) 138,159 2,206,399
===============================================================================
4,450,430
===============================================================================
WATER UTILITIES-0.51%
Cascal N.V. (United Kingdom)(b) 82,203 1,011,097
- -------------------------------------------------------------------------------
Total Common Stocks & Other Equity Interests
(Cost $182,335,544) 190,468,958
===============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. SMALL CAP EQUITY FUND
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------------
MONEY MARKET FUNDS-2.49%
Liquid Assets Portfolio-Institutional Class(f) 2,448,798 $ 2,448,798
- -------------------------------------------------------------------------------
Premier Portfolio-Institutional Class(f) 2,448,799 2,448,799
- -------------------------------------------------------------------------------
Total Money Market Funds (Cost $4,897,597) 4,897,597
===============================================================================
TOTAL INVESTMENTS (excluding investments purchased
with cash collateral from securities on
loan)-99.25% (Cost $187,233,141) 195,366,555
===============================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON
LOAN
MONEY MARKET FUNDS-7.65%
Liquid Assets Portfolio-Institutional Class (Cost
$15,068,095)(f)(g) 15,068,095 15,068,095
===============================================================================
TOTAL INVESTMENTS-106.90%
(Cost $202,301,236) 210,434,650
===============================================================================
OTHER ASSETS LESS LIABILITIES-(6.90)% (13,588,479)
===============================================================================
NET ASSETS-100.00% $196,846,171
_______________________________________________________________________________
===============================================================================
</Table>
Investment Abbreviations:
<Table>
REIT - Real Estate Investment Trust
</Table>
Notes to Schedule of Investments:
(a) Industry and/or sector classifications used in this report are generally
according to the Global Industry Classification Standard, which was
developed by and is the exclusive property and a service mark of MSCI Inc.
and Standard & Poor's.
(b) Non-income producing security.
(c) All or a portion of this security was out on loan at June 30, 2008.
(d) Security purchased or received in a transaction exempt from registration
under the Securities Act of 1933, as amended. The security may be resold
pursuant to an exemption from registration under the 1933 Act, typically
to qualified institutional buyers. The value of this security at June 30,
2008 represented less than 0.01% of the Fund's Net Assets. This security
is considered to be illiquid. The Fund is limited to investing 15% of net
assets in illiquid securities at the time of purchase.
(e) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The value of this security at June
30, 2008 represented less than 0.01% of the Fund's Net Assets. See Note
1A.
(f) The money market fund and the Fund are affiliated by having the same
investment advisor.
(g) The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 1I.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. SMALL CAP EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, at value (Cost
$182,335,544)* $190,468,958
- ------------------------------------------------------
Investments in affiliated money market
funds (Cost $19,965,692) 19,965,692
======================================================
Total investments (Cost
$202,301,236) 210,434,650
======================================================
Foreign currencies, at value (Cost $47) 53
- ------------------------------------------------------
Receivables for:
Investments sold 3,402,170
- ------------------------------------------------------
Investments sold to affiliates 162,193
- ------------------------------------------------------
Fund shares sold 2,931,781
- ------------------------------------------------------
Dividends 174,147
- ------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 22,765
- ------------------------------------------------------
Other assets 2,468
======================================================
Total assets 217,130,227
______________________________________________________
======================================================
LIABILITIES:
Payables for:
Investments purchased 4,972,078
- ------------------------------------------------------
Fund shares reacquired 47,108
- ------------------------------------------------------
Collateral upon return of securities
loaned 15,068,095
- ------------------------------------------------------
Accrued fees to affiliates 121,531
- ------------------------------------------------------
Accrued other operating expenses 47,240
- ------------------------------------------------------
Trustee deferred compensation and
retirement plans 28,004
======================================================
Total liabilities 20,284,056
======================================================
Net assets applicable to shares
outstanding $196,846,171
______________________________________________________
======================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $191,142,767
- ------------------------------------------------------
Undistributed net investment income 4,248
- ------------------------------------------------------
Undistributed net realized gain (loss) (2,434,265)
- ------------------------------------------------------
Unrealized appreciation 8,133,421
======================================================
$196,846,171
______________________________________________________
======================================================
NET ASSETS:
Series I $195,848,861
______________________________________________________
======================================================
Series II $ 997,310
______________________________________________________
======================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 13,226,559
______________________________________________________
======================================================
Series II 68,011
______________________________________________________
======================================================
Series I:
Net asset value per share $ 14.81
______________________________________________________
======================================================
Series II:
Net asset value per share $ 14.66
______________________________________________________
======================================================
</Table>
* At June 30, 2008, securities with an aggregate value of $14,489,044 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 784,081
- ------------------------------------------------------
Dividends from affiliated money market
funds (includes securities lending
income of $96,108) 207,733
======================================================
Total investment income 991,814
======================================================
EXPENSES:
Advisory fees 653,735
- ------------------------------------------------------
Administrative services fees 244,237
- ------------------------------------------------------
Custodian fees 13,182
- ------------------------------------------------------
Distribution fees -- Series II 206
- ------------------------------------------------------
Transfer agent fees 7,136
- ------------------------------------------------------
Trustees' and officer's fees and
benefits 10,347
- ------------------------------------------------------
Other 41,296
======================================================
Total expenses 970,139
======================================================
Less: Fees waived and expense offset
arrangement(s) (5,436)
======================================================
Net expenses 964,703
======================================================
Net investment income 27,111
======================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM:
Net realized gain (loss) from investment
securities (includes net gains from
securities sold to affiliates of
$1,130,657) (2,890,537)
- ------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of:
Investment securities (4,327,374)
- ------------------------------------------------------
Foreign currencies (1)
======================================================
(4,327,375)
======================================================
Net realized and unrealized gain (loss) (7,217,912)
======================================================
Net increase (decrease) in net assets
resulting from operations $(7,190,801)
______________________________________________________
======================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. SMALL CAP EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- ------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 27,111 $ (91,276)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) (2,890,537) 4,840,940
- ------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) (4,327,375) (528,972)
======================================================================================================
Net increase (decrease) in net assets resulting from operations (7,190,801) 4,220,692
======================================================================================================
Distributions to shareholders from net investment income -- Series I -- (69,477)
======================================================================================================
Distributions to shareholders from net realized gains:
Series I -- (4,648,828)
- ------------------------------------------------------------------------------------------------------
Series II -- (761)
======================================================================================================
Total distributions from net realized gains -- (4,649,589)
======================================================================================================
Share transactions-net:
Series I 34,720,863 75,616,355
- ------------------------------------------------------------------------------------------------------
Series II 998,229 (897,270)
======================================================================================================
Net increase in net assets resulting from share transactions 35,719,092 74,719,085
======================================================================================================
Net increase in net assets 28,528,291 74,220,711
======================================================================================================
NET ASSETS:
Beginning of period 168,317,880 94,097,169
======================================================================================================
End of period (including undistributed net investment income (loss)
of $4,248 and $(22,863), respectively) $196,846,171 $168,317,880
______________________________________________________________________________________________________
======================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. SMALL CAP EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Small Cap Equity Fund (the "Fund") is a series portfolio of AIM
Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is long-term growth of capital.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on
that day. Securities traded in the over-the-counter market are valued
based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service
they may be considered fair valued. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally
traded. Listed options are valued at the mean between the last bid and the
ask prices from the exchange on which they are principally traded. Options
not listed on an exchange are valued by an independent source at the mean
between the last bid and ask prices. For purposes of determining net asset
value per share, futures and option contracts generally are valued 15
minutes after the close of the customary trading session of the New York
Stock Exchange ("NYSE").
Investments in open-end and closed-end registered investment companies
that do not trade on an exchange are valued at the end of day net asset
value per share. Investments in open-end and closed-end registered
investment companies that trade on an exchange are valued at the last
sales price or official closing price as of the close of the customary
trading session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing
service. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to specific securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Short-term obligations, including
commercial paper, having 60 days or less to maturity are recorded at
amortized cost which approximates value. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve
some risk of default with respect to interest and/or principal payments.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued
at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price
unreliable, the Fund may fair value the security. If the event is likely
to have affected the closing price of the security, the security will be
valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also
be based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current value as of the close of the NYSE. Foreign securities
meeting the approved degree of certainty that the price is not reflective
of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, American
Depositary Receipts and domestic and foreign index futures. Foreign
securities may have additional risks including exchange rate changes,
potential for sharply devalued currencies and high inflation, political
and economical upheaval, the relative lack of issuer information,
relatively low market liquidity and the potential lack of strict financial
and accounting controls and standards.
Securities for which market prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers following procedures
approved by the Board of Trustees. Issuer specific events, market trends,
bid/ask quotes of brokers and information providers and other market data
may be reviewed in the course of making a good faith determination of a
security's fair value.
Valuations change in response to many factors including the historical
and prospective earnings of the issuer, the value of the issuer's assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
AIM V.I. SMALL CAP EQUITY FUND
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification
claims is considered remote.
I. SECURITIES LENDING -- The Fund may lend portfolio securities having a
market value up to one-third of the Fund's total assets. Such loans are
secured by collateral equal to no less than the market value of the loaned
securities determined daily by the securities lending provider. Such
collateral will be cash or debt securities issued or guaranteed by the
U.S. Government or any of its sponsored agencies. Cash collateral received
in connection with these loans is invested in short-term money market
instruments or affiliated money market funds and is shown as such on the
Schedule of Investments. It is the Fund's policy to obtain additional
collateral from or return excess collateral to the borrower by the end of
the next business day, following the valuation date of the securities
loaned. Therefore, the value of the collateral held may be temporarily
less than the value of the securities on loan. Lending securities entails
a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase
the collateral accordingly, and the borrower fails to return the
securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any
loss on the collateral invested. Dividends received on cash collateral
investments for securities lending transactions, which are net of
compensation to counterparties, is included in Dividends from affiliates
on the Statement of Operations. The aggregate value of securities out on
loan is shown as a footnote on the Statement of Assets and Liabilities.
J. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close
of the NYSE based on quotations posted by banks and major currency
dealers. Portfolio securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i)
sales of foreign currencies, (ii) currency gains or losses realized
between the trade and settlement dates on securities transactions, and
(iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized
foreign currency gains and losses arise from changes in the fair values of
assets and liabilities, other than investments in securities at fiscal
period end, resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to
foreign taxes on income, gains on investments or currency repatriation, a
portion of which may be recoverable.
AIM V.I. SMALL CAP EQUITY FUND
K. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. Fluctuations in the value of these contracts are recorded as
unrealized appreciation (depreciation) until the contracts are closed.
When these contracts are closed, realized gains (losses) are recorded.
Realized and unrealized gains and losses on these contracts are included
in the Statement of Operations. The Fund could be exposed to risk, which
may be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $250 million 0.745%
- -------------------------------------------------------------------
Next $250 million 0.73%
- -------------------------------------------------------------------
Next $500 million 0.715%
- -------------------------------------------------------------------
Next $1.5 billion 0.70%
- -------------------------------------------------------------------
Next $2.5 billion 0.685%
- -------------------------------------------------------------------
Next $2.5 billion 0.67%
- -------------------------------------------------------------------
Next $2.5 billion 0.655%
- -------------------------------------------------------------------
Over $10 billion 0.64%
___________________________________________________________________
===================================================================
</Table>
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
The Advisor has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.15% and Series
II shares to 1.40% of average daily net assets, through at least April 30, 2010.
In determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco")
described more fully below, the only expense offset arrangements from which the
Fund may benefit are in the form of credits that the Fund receives from banks
where the Fund or its transfer agent has deposit accounts in which it holds
uninvested cash. These credits are used to pay certain expenses incurred by the
Fund. The Advisor did not waive fees and/or reimburse expenses during the period
under this expense limitation.
Further, the Advisor has contractually agreed, through at least April 30,
2010, to waive the advisory fee payable by the Fund in an amount equal to 100%
of the net advisory fees the Advisor receives from the affiliated money market
funds on investments by the Fund of uninvested cash (but not cash collateral
from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2008, the Advisor waived advisory fees of
$4,560.
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund
administrative services and reimbursed $219,374 for services provided by
insurance companies.
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily
AIM V.I. SMALL CAP EQUITY FUND
net assets of the Series II shares may be paid to insurance companies who
furnish continuing personal shareholder services to customers who purchase and
own Series II shares of the Fund. For the six months ended June 30, 2008,
expenses incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1--Quoted prices in an active market for identical assets.
Level 2--Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest
rates, prepayment speeds, credit risk and others.
Level 3--Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for
example, when there is little or no market activity for an investment at the end
of the period), unobservable inputs may be used. Unobservable inputs reflect the
Fund's own assumptions about the factors market participants would use in
determining fair value of the securities or instruments and would be based on
the best available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS IN
INPUT LEVEL SECURITIES
- --------------------------------------
Level 1 $210,431,994
- --------------------------------------
Level 2 --
- --------------------------------------
Level 3 2,656
======================================
$210,434,650
______________________________________
======================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, for the six months ended June 30, 2008, the Fund
engaged in securities sales of $3,950,314, which resulted in net realized gains
of $1,130,657, and securities purchases of $2,042,425.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2008, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $876.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan and receive benefits under such plan. "Trustees' and Officer's
Fees and Benefits" include amounts accrued by the Fund to fund such retirement
benefits. Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $1,686
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--CASH BALANCES
The Fund is permitted to temporarily carry a negative or overdrawn balance in
its account with The State Street Bank and Trust Company ("SSB"), the custodian
bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund
may either (i) leave funds as a compensating balance in the account so the
custodian bank can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank at a rate agreed upon by the custodian
bank and Invesco Aim, not to exceed the contractually agreed upon rate.
AIM V.I. SMALL CAP EQUITY FUND
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
The Fund did not have a capital loss carryforward as of December 31, 2007.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the six months ended June 30, 2008 was $98,533,275 and
$62,156,863, respectively. Cost of investments on a tax basis includes the
adjustments for financial reporting purposes as of the most recently completed
Federal income tax reporting period end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 26,951,636
- ------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (19,040,204)
================================================================================================
Net unrealized appreciation of investment securities $ 7,911,432
________________________________________________________________________________________________
================================================================================================
Cost of investments for tax purposes is $202,523,218.
</Table>
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2008(a) 2007
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 3,554,827 $ 51,702,273 5,013,005 $ 80,543,288
- ------------------------------------------------------------------------------------------------------------------------
Series II 73,081 1,105,786 2,377 39,660
========================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 294,710 4,718,304
- ------------------------------------------------------------------------------------------------------------------------
Series II -- -- 48 761
========================================================================================================================
Issued in connection with acquisitions:(b)
Series I -- -- 1,275,124 20,411,826
- ------------------------------------------------------------------------------------------------------------------------
Series II -- -- 12,068 191,836
========================================================================================================================
Reacquired:
Series I (1,166,600) (16,981,410) (1,881,501) (30,057,063)
- ------------------------------------------------------------------------------------------------------------------------
Series II (7,166) (107,557) (68,936) (1,129,527)
========================================================================================================================
2,454,142 $ 35,719,092 4,646,895 $ 74,719,085
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There are entities that are record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate own 86% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, Invesco
Aim and/or Invesco Aim affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services to
the Fund, Invesco Aim and or Invesco Aim affiliates including but not
limited to services such as, securities brokerage, third party record
keeping and account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record by
these entities are also owned beneficially.
AIM V.I. SMALL CAP EQUITY FUND
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-----------------------------------------------------------------------------------------
AUGUST 29, 2003
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT DATE)
JUNE 30, -------------------------------------------- TO DECEMBER 31,
2008 2007 2006 2005 2004 2003
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.53 $ 15.19 $ 13.46 $ 12.45 $ 11.38 $10.00
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) --(a) (0.01)(a) (0.01)(a) (0.06)(a) (0.06)(a) (0.01)
- -----------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) (0.72) 0.81 2.37 1.07 1.13 1.41
===================================================================================================================================
Total from investment operations (0.72) 0.80 2.36 1.01 1.07 1.40
===================================================================================================================================
Less distributions:
Dividends from net investment income -- (0.01) -- -- (0.00) (0.01)
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.45) (0.63) -- -- (0.01)
===================================================================================================================================
Total distributions -- (0.46) (0.63) -- (0.00) (0.02)
===================================================================================================================================
Net asset value, end of period $ 14.81 $ 15.53 $ 15.19 $ 13.46 $ 12.45 $11.38
___________________________________________________________________________________________________________________________________
===================================================================================================================================
Total return(b) (4.64)% 5.19% 17.44% 8.11% 9.41% 13.94%
___________________________________________________________________________________________________________________________________
===================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $195,849 $168,286 $93,243 $42,752 $25,964 $2,231
___________________________________________________________________________________________________________________________________
===================================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 1.10%(d) 1.12% 1.15% 1.22% 1.30% 1.32%(c)
- -----------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.11%(d) 1.15% 1.33% 1.57% 2.01% 12.86%(c)
===================================================================================================================================
Ratio of net investment income (loss)
to average net assets 0.03%(d) (0.07)% (0.06)% (0.44)% (0.56)% (0.44)%(c)
___________________________________________________________________________________________________________________________________
===================================================================================================================================
Portfolio turnover rate(e) 36% 45% 52% 70% 156% 26%
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Annualized.
(d) Ratios are annualized and based on average daily net assets of
$176,297,671.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year. For the period ending December 31, 2007,
the portfolio turnover calculation excludes the value of securities
purchased of $17,709,035 and sold of $19,432,514 in the effort to realign
the Fund's portfolio holdings after the reorganization of AIM V.I. Small
Cap Growth into the Fund.
<Table>
<Caption>
SERIES II
------------------------------------------------------------------------------------
AUGUST 29, 2003
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT DATE)
JUNE 30, --------------------------------------- TO DECEMBER 31,
2008 2007 2006 2005 2004 2003
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $15.39 $15.10 $13.41 $12.43 $11.38 $10.00
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) (0.05)(a) (0.04)(a) (0.08)(a) (0.08)(a) (0.02)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.72) 0.79 2.36 1.06 1.13 1.41
===============================================================================================================================
Total from investment operations (0.73) 0.74 2.32 0.98 1.05 1.39
===============================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.00) (0.00)
- -------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.45) (0.63) -- -- (0.01)
===============================================================================================================================
Total distributions -- (0.45) (0.63) -- (0.00) (0.01)
===============================================================================================================================
Net asset value, end of period $14.66 $15.39 $15.10 $13.41 $12.43 $11.38
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 4.74% 4.84% 17.20% 7.88% 9.23% 13.88%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 997 $ 32 $ 854 $ 679 $ 622 $ 569
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.35%(d) 1.37% 1.40% 1.42% 1.45% 1.47%(c)
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.36%(d) 1.40% 1.58% 1.82% 2.26% 13.11%(c)
===============================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.22)%(d) (0.32)% (0.31)% (0.64)% (0.71)% (0.59)%(c)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(e) 36% 45% 52% 70% 156% 26%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Annualized.
(d) Ratios are annualized and based on average daily net assets of $165.887.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year. For the period ending December 31, 2007,
the portfolio turnover calculation excludes the value of securities
purchased of $17,709,035 and sold of $19,432,514 in the effort to realign
the Fund's portfolio holdings after the reorganization of AIM V.I. Small
Cap Growth into the Fund.
AIM V.I. SMALL CAP EQUITY FUND
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor -- Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to Invesco Aim and IADI (Order No. 05-1318). The WVASC makes
findings of fact that Invesco Aim and IADI entered into certain arrangements
permitting market timing of the AIM Funds and failed to disclose these
arrangements in the prospectuses for such Funds, and conclusions of law to the
effect that Invesco Aim and IADI violated the West Virginia securities laws. The
WVASC orders Invesco Aim and IADI to cease any further violations and seeks to
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute. By agreement with the Commissioner of Securities, Invesco Aim's time to
respond to that Order has been indefinitely suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid. The case pending in Illinois State Court regarding fair value
pricing was dismissed with prejudice on May 6, 2008.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA
purportedly brought on behalf of participants in the Invesco 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds remain nominal defendants in the Consolidated Amended Fund
Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco
defendants' motion to dismiss the Amended Class Action Complaint for Violations
of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June
16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this
lawsuit back to the MDL Court for further proceedings.
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, Invesco Aim and IADI have advised the Fund that they are providing
full cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, Invesco Aim and/or related entities and individuals in the
future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. SMALL CAP EQUITY FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $953.60 $5.34 $1,019.39 $5.52 1.10%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 952.60 6.55 1,018.15 6.77 1.35
- ---------------------------------------------------------------------------------------------------
</Table>
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5%
before expenses.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
AIM V.I. SMALL CAP EQUITY FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different
Variable Insurance Funds is required under comparative performance and fee data weight to the various factors. The
the Investment Company Act of 1940 to regarding the AIM Funds prepared by an Trustees recognized that the advisory
approve annually the renewal of the AIM independent company, Lipper, Inc. arrangements and resulting advisory fees
V.I. Small Cap Equity Fund (the Fund) (Lipper), under the direction and for the Fund and the other AIM Funds are
investment advisory agreement with Invesco supervision of the independent Senior the result of years of review and
Aim Advisors, Inc. (Invesco Aim). During Officer who also prepares a separate negotiation between the Trustees and
contract renewal meetings held on June analysis of this information for the Invesco Aim, that the Trustees may focus
18-19, 2008, the Board as a whole and the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of
disinterested or "independent" Trustees, recommendations to the Investments these arrangements in some years than in
voting separately, approved the Committee regarding the performance, fees others, and that the Trustees'
continuance of the Fund's investment and expenses of their assigned funds. The deliberations and conclusions in a
advisory agreement for another year, Investments Committee considers each particular year may be based in part on
effective July 1, 2008. In doing so, the Sub-Committee's recommendations and makes their deliberations and conclusions of
Board determined that the Fund's its own recommendations regarding the these same arrangements throughout the
investment advisory agreement is in the performance, fees and expenses of the AIM year and in prior years.
best interests of the Fund and its Funds to the full Board. The Investments
shareholders and that the compensation to Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF
Invesco Aim under the Fund's investment Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION
advisory agreement is fair and reasonable. its annual recommendation to the Board The discussion below serves as a summary
The independent Trustees met separately whether to approve the continuance of each of the Senior Officer's independent
during their evaluation of the Fund's AIM Fund's investment advisory agreement written evaluation with respect to the
investment advisory agreement with and sub-advisory agreements for another Fund's investment advisory agreement as
independent legal counsel from whom they year. well as a discussion of the material
received independent legal advice, and the The independent Trustees are assisted factors and related conclusions that
independent Trustees also received in their annual evaluation of the Fund's formed the basis for the Board's approval
assistance during their deliberations from investment advisory agreement by the of the Fund's investment advisory
the independent Senior Officer, a independent Senior Officer. One agreement and sub-advisory agreements.
full-time officer of the AIM Funds who responsibility of the Senior Officer is to Unless otherwise stated, information set
reports directly to the independent manage the process by which the AIM Funds' forth below is as of June 19, 2008 and
Trustees. proposed management fees are negotiated does not reflect any changes that may have
during the annual contract renewal process occurred since that date, including but
THE BOARD'S FUND EVALUATION PROCESS to ensure that they are negotiated in a not limited to changes to the Fund's
The Board's Investments Committee has manner that is at arms' length and performance, advisory fees, expense
established three Sub-Committees that are reasonable. Accordingly, the Senior limitations and/or fee waivers.
responsible for overseeing the management Officer must either supervise a
of a number of the series portfolios of competitive bidding process or prepare an I. Investment Advisory Agreement
the AIM Funds. This Sub-Committee independent written evaluation. The Senior A. Nature, Extent and Quality of
structure permits the Trustees to focus on Officer has recommended that an Services Provided by Invesco Aim
the performance of the AIM Funds that have independent written evaluation be provided The Board reviewed the advisory services
been assigned to them. The Sub-Committees and, at the direction of the Board, has provided to the Fund by Invesco Aim under
meet throughout the year to review the prepared an independent written the Fund's investment advisory agreement,
performance of their assigned funds, and evaluation. the performance of Invesco Aim in
the Sub-Committees review monthly and During the annual contract renewal providing these services, and the
quarterly comparative performance process, the Board considered the factors credentials and experience of the officers
information and periodic asset flow data discussed below under the heading "Factors and employees of Invesco Aim who provide
for their assigned funds. These materials and Conclusions and Summary of Independent these services. The Board's review of the
are prepared under the direction and Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide
supervision of the independent Senior fairness and reasonableness of the Fund's these services included the Board's
Officer. Over the course of each year, the investment advisory agreement and consideration of Invesco Aim's portfolio
Sub-Committees meet with portfolio sub-advisory agreements at the contract and product review process, various back
managers for their assigned funds and renewal meetings and at their meetings office support functions provided by
other members of management and review throughout the year as part of their Invesco Aim, and Invesco Aim's equity and
with these individuals the performance, ongoing oversight of the Fund. The Fund's fixed income trading operations. The Board
investment objective(s), policies, investment advisory agreement and concluded that the nature, extent and
strategies and limitations of these funds. sub-advisory agreements were considered quality of the advisory services provided
In addition to their meetings separately, although the Board also to the Fund by Invesco Aim were
throughout the year, the Sub-Committees considered the common interests of all of appropriate and that Invesco Aim currently
meet at designated contract renewal the AIM Funds in their deliberations. The is providing satisfactory advisory
meetings each year to conduct an in-depth Board considered all of the information services in accordance with the terms of
review of the performance, fees and provided to them and did not identify any the Fund's investment advisory agreement.
expenses of their assigned funds. During particular factor that was controlling. In addition, based on their ongoing
the contract Each Trustee may have evaluated the meetings throughout the year with the
information provided differently Fund's portfolio manager or managers,
continued
AIM V.I. SMALL CAP EQUITY FUND
the Board concluded that these individuals review did not change their conclusions. from the breakpoints. Based on this
are competent and able to continue to information, the Board concluded that the
carry out their responsibilities under the C. Advisory Fees and Fee Waivers Fund's advisory fees would appropriately
Fund's investment advisory agreement. The Board compared the Fund's contractual reflect economies of scale at higher asset
In determining whether to continue the advisory fee rate to the contractual levels. The Board also noted that the Fund
Fund's investment advisory agreement, the advisory fee rates of funds in the Fund's shares directly in economies of scale
Board considered the prior relationship expense group that are not managed by through lower fees charged by third party
between Invesco Aim and the Fund, as well Invesco Aim, at a common asset level and service providers based on the combined
as the Board's knowledge of Invesco Aim's as of the end of the past calendar year. size of all of the AIM Funds and
operations, and concluded that it was The Board noted that the Fund's affiliates.
beneficial to maintain the current contractual advisory fee rate was below
relationship, in part, because of such the median contractual advisory fee rate E. Profitability and Financial
knowledge. The Board also considered the of funds in its expense group. The Board Resources of Invesco Aim
steps that Invesco Aim and its affiliates also reviewed the methodology used by The Board reviewed information from
have taken over the last several years to Lipper in determining contractual fee Invesco Aim concerning the costs of the
improve the quality and efficiency of the rates. advisory and other services that Invesco
services they provide to the AIM Funds in The Board also compared the Fund's Aim and its affiliates provide to the Fund
the areas of investment performance, effective fee rate (the advisory fee after and the profitability of Invesco Aim and
product line diversification, any advisory fee waivers and before any its affiliates in providing these
distribution, fund operations, shareholder expense limitations/waivers) to the services. The Board also reviewed
services and compliance. The Board advisory fee rates of other clients of information concerning the financial
concluded that the quality and efficiency Invesco Aim and its affiliates with condition of Invesco Aim and its
of the services Invesco Aim and its investment strategies comparable to those affiliates. The Board also reviewed with
affiliates provide to the AIM Funds in of the Fund, including two mutual funds Invesco Aim the methodology used to
each of these areas have generally advised by Invesco Aim. The Board noted prepare the profitability information. The
improved, and support the Board's approval that the Fund's rate was above the rates Board considered the overall profitability
of the continuance of the Fund's for the two mutual funds. of Invesco Aim, as well as the
investment advisory agreement. The Board noted that Invesco Aim has profitability of Invesco Aim in connection
contractually agreed to waive fees and/or with managing the Fund. The Board noted
B. Fund Performance limit expenses of the Fund through at that Invesco Aim continues to operate at a
The Board compared the Fund's performance least April 30, 2010 in an amount net profit, although increased expenses in
during the past one and three calendar necessary to limit total annual operating recent years have reduced the
years to the performance of funds in the expenses to a specified percentage of profitability of Invesco Aim and its
Fund's performance group that are not average daily net assets for each class of affiliates. The Board concluded that the
managed by Invesco Aim, and against the the Fund. The Board considered the Fund's fees were fair and reasonable, and
performance of all funds in the Lipper contractual nature of this fee waiver and that the level of profits realized by
Variable Annuity Underlying Funds - noted that it remains in effect until at Invesco Aim and its affiliates from
Small-Cap Core Index. The Board also least April 30, 2010. The Board also providing services to the Fund was not
reviewed the criteria used by Invesco Aim considered the effect this expense excessive in light of the nature, quality
to identify the funds in the Fund's limitation would have on the Fund's and extent of the services provided. The
performance group for inclusion in the estimated total expenses. Board considered whether Invesco Aim is
Lipper reports. The Board noted that the After taking account of the Fund's financially sound and has the resources
Fund's performance was in the first contractual advisory fee rate, as well as necessary to perform its obligations under
quintile of its performance group for the the comparative advisory fee information the Fund's investment advisory agreement,
one year period and the second quintile and the expense limitation discussed and concluded that Invesco Aim has the
for the three year period (the first above, the Board concluded that the Fund's financial resources necessary to fulfill
quintile being the best performing funds advisory fees were fair and reasonable. these obligations.
and the fifth quintile being the worst
performing funds). The Board noted that D. Economies of Scale and Breakpoints F. Independent Written Evaluation of
the Fund's performance was above the The Board considered the extent to which the Fund's Senior Officer
performance of the Index for the one and there are economies of scale in Invesco The Board noted that, at their direction,
three year periods. The Board also Aim's provision of advisory services to the Senior Officer of the Fund, who is
considered the steps Invesco Aim has taken the Fund. The Board also considered independent of Invesco Aim and Invesco
over the last several years to improve the whether the Fund benefits from such Aim's affiliates, had prepared an
quality and efficiency of the services economies of scale through contractual independent written evaluation to assist
that Invesco Aim provides to the AIM breakpoints in the Fund's advisory fee the Board in determining the
Funds. The Board concluded that Invesco schedule or through advisory fee waivers reasonableness of the proposed management
Aim continues to be responsive to the or expense limitations. The Board noted fees of the AIM Funds, including the Fund.
Board's focus on fund performance. that the Fund's contractual advisory fee The Board noted that they had relied upon
Although the independent written schedule includes seven breakpoints but the Senior Officer's written evaluation
evaluation of the Fund's Senior Officer that, due to the Fund's asset level at the instead of a competitive bidding process.
only considered Fund performance through end of the past calendar year and the way In determining whether to continue the
the most recent calendar year, the Board in which the breakpoints have been Fund's investment advisory agreement, the
also reviewed more recent Fund performance structured, the Fund has yet to benefit Board considered the Senior Officer's
and this written evaluation.
continued
AIM V.I. SMALL CAP EQUITY FUND
G. Collateral Benefits to Invesco Aim to 100% of the net advisory fees Invesco C. Sub-Advisory Fees
and its Affiliates Aim receives from the affiliated money The Board considered the services to be
The Board considered various other market funds with respect to the Fund's provided by the Affiliated Sub-Advisers
benefits received by Invesco Aim and its investment of uninvested cash, but not pursuant to the sub-advisory agreements
affiliates resulting from Invesco Aim's cash collateral. The Board considered the and the services to be provided by Invesco
relationship with the Fund, including the contractual nature of this fee waiver and Aim pursuant to the Fund's investment
fees received by Invesco Aim and its noted that it remains in effect until at advisory agreement, as well as the
affiliates for their provision of least April 30, 2010. The Board concluded allocation of fees between Invesco Aim and
administrative, transfer agency and that the Fund's investment of uninvested the Affiliated Sub-Advisers pursuant to
distribution services to the Fund. The cash and cash collateral from any the sub-advisory agreements. The Board
Board considered the performance of securities lending arrangements in the noted that the sub-advisory fees have no
Invesco Aim and its affiliates in affiliated money market funds is in the direct effect on the Fund or its
providing these services and the best interests of the Fund and its shareholders, as they are paid by Invesco
organizational structure employed by shareholders. Aim to the Affiliated Sub-Advisers, and
Invesco Aim and its affiliates to provide that Invesco Aim and the Affiliated
these services. The Board also considered II. Sub-Advisory Agreements Sub-Advisers are affiliates. After taking
that these services are provided to the A. Nature, Extent and Quality of account of the Fund's contractual
Fund pursuant to written contracts which Services Provided by Affiliated sub-advisory fee rate, as well as other
are reviewed and approved on an annual Sub-Advisers relevant factors, the Board concluded that
basis by the Board. The Board concluded The Board reviewed the services to be the Fund's sub-advisory fees were fair and
that Invesco Aim and its affiliates were provided by Invesco Trimark Ltd., Invesco reasonable.
providing these services in a satisfactory Asset Management Deutschland, GmbH,
manner and in accordance with the terms of Invesco Asset Management Limited, Invesco D. Financial Resources of the
their contracts, and were qualified to Asset Management (Japan) Limited, Invesco Affiliated Sub-Advisers
continue to provide these services to the Australia Limited, Invesco Global Asset The Board considered whether each
Fund. Management (N.A.), Inc., Invesco Hong Kong Affiliated Sub-Adviser is financially
The Board considered the benefits Limited, Invesco Institutional (N.A.), sound and has the resources necessary to
realized by Invesco Aim as a result of Inc. and Invesco Senior Secured perform its obligations under its
portfolio brokerage transactions executed Management, Inc. (collectively, the respective sub-advisory agreement, and
through "soft dollar" arrangements. Under "Affiliated Sub-Advisers") under the concluded that each Affiliated Sub-Adviser
these arrangements, portfolio brokerage sub-advisory agreements and the has the financial resources necessary to
commissions paid by the Fund and/or other credentials and experience of the officers fulfill these obligations.
funds advised by Invesco Aim are used to and employees of the Affiliated
pay for research and execution services. Sub-Advisers who will provide these
The Board noted that soft dollar services. The Board concluded that the
arrangements shift the payment obligation nature, extent and quality of the services
for the research and execution services to be provided by the Affiliated
from Invesco Aim to the funds and Sub-Advisers were appropriate. The Board
therefore may reduce Invesco Aim's noted that the Affiliated Sub-Advisers,
expenses. The Board also noted that which have offices and personnel that are
research obtained through soft dollar geographically dispersed in financial
arrangements may be used by Invesco Aim in centers around the world, have been formed
making investment decisions for the Fund in part for the purpose of researching and
and may therefore benefit Fund compiling information and making
shareholders. The Board concluded that recommendations on the markets and
Invesco Aim's soft dollar arrangements economies of various countries and
were appropriate. The Board also concluded securities of companies located in such
that, based on their review and countries or on various types of
representations made by Invesco Aim, these investments and investment techniques, and
arrangements were consistent with providing investment advisory services.
regulatory requirements. The Board concluded that the sub-advisory
The Board considered the fact that the agreements will benefit the Fund and its
Fund's uninvested cash and cash collateral shareholders by permitting Invesco Aim to
from any securities lending arrangements utilize the additional resources and
may be invested in money market funds talent of the Affiliated Sub-Advisers in
advised by Invesco Aim pursuant to managing the Fund.
procedures approved by the Board. The
Board noted that Invesco Aim will receive B. Fund Performance
advisory fees from these affiliated money The Board did not view Fund performance as
market funds attributable to such a relevant factor in considering whether
investments, although Invesco Aim has to approve the sub-advisory agreements for
contractually agreed to waive through at the Fund, as no Affiliated Sub-Adviser
least April 30, 2010, the advisory fees currently manages any portion of the
payable by the Fund in an amount equal Fund's assets.
AIM V.I. SMALL CAP EQUITY FUND
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. Small Cap Equity Fund,
an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory
trust ("Trust"), was held on February 29, 2008. The Meeting was held for the
following purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will
serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust that
would permit the Board of Trustees of the Trust to terminate the Trust, the
Fund, and each other series portfolio of the Trust, or a share class without
a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and
each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland,
GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.),
Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and
Invesco Senior Secured Management, Inc.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- ------------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker.................................................... 474,883,590 19,741,622
Frank S. Bayley................................................. 474,653,109 19,972,103
James T. Bunch.................................................. 475,597,417 19,027,795
Bruce L. Crockett............................................... 474,900,579 19,724,633
Albert R. Dowden................................................ 474,749,929 19,875,283
Jack M. Fields.................................................. 475,205,840 19,419,372
Martin L. Flanagan.............................................. 475,248,336 19,376,876
Carl Frischling................................................. 474,453,674 20,171,538
Prema Mathai-Davis.............................................. 473,569,192 21,056,020
Lewis F. Pennock................................................ 475,072,501 19,552,711
Larry Soll, Ph.D................................................ 475,170,544 19,454,668
Raymond Stickel, Jr............................................. 475,420,825 19,204,387
Philip A. Taylor................................................ 475,640,570 18,984,642
</Table>
<Table>
<Caption>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
- --------------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of
Trustees of the Trust to terminate the Trust, the Fund,
and each other series portfolio of the Trust, or a share
class without a shareholder vote........................ 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between Invesco Aim
Advisors, Inc. and each of AIM Funds Management, Inc.;
Invesco Asset Management Deutschland, GmbH; Invesco
Asset Management Limited; Invesco Asset Management
(Japan) Limited; Invesco Australia Limited; Invesco
Global Asset Management (N.A.), Inc.; Invesco Hong Kong
Limited; Invesco Institutional (N.A.), Inc.; and Invesco
Senior Secured Management, Inc.......................... 9,094,939 470,850 438,017
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. SMALL CAP EQUITY FUND
[INVESCO AIM LOGO] AIM V.I. TECHNOLOGY FUND
- SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008
AIM Investments [MOUNTAIN GRAPHIC]
became INVESCO AIM
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FUND PERFORMANCE
=======================================================================================
PERFORMANCE SUMMARY
FUND VS. INDEXES
Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer
charges. If variable product issuer charges were included, returns would be
lower.
Series I Shares -12.19%
Series II Shares -12.31
S&P 500 Index(TRIANGLE) (Broad Market Index) -11.90
S&P North American Technology Sector Index(TRIANGLE) (Style-Specific Index) -12.16
Lipper VUF Science & Technology Funds Category Average(TRIANGLE) (Peer Group) -14.13
(TRIANGLE)Lipper Inc.
The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted
index covering all major areas of the U.S. economy. It is not the 500 largest
companies, but rather the most widely held 500 companies chosen with respect to
market size, liquidity, and their industry.
The S&P NORTH AMERICAN TECHNOLOGY SECTOR INDEX is a modified
capitalization-weighted index composed of companies involved in the technology
industry.
The LIPPER VUF SCIENCE & TECHNOLOGY FUNDS CATEGORY AVERAGE represents an
average of all of the variable insurance underlying funds in the Lipper Science
& Technology Funds category. These funds invest at least 65% of their portfolios
in science and technology stocks.
The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
=======================================================================================
==========================================
AVERAGE ANNUAL TOTAL RETURNS CURRENT PERFORMANCE MAY BE LOWER OR SALES CHARGES, EXPENSES AND FEES ASSESSED
As of 6/30/08 HIGHER. PLEASE CONTACT YOUR VARIABLE IN CONNECTION WITH A VARIABLE PRODUCT.
PRODUCT ISSUER OR FINANCIAL ADVISOR FOR SALES CHARGES, EXPENSES AND FEES, WHICH
SERIES I SHARES THE MOST RECENT MONTH-END VARIABLE PRODUCT ARE DETERMINED BY THE VARIABLE PRODUCT
Inception (5/20/97) 2.65% PERFORMANCE. PERFORMANCE FIGURES REFLECT ISSUERS, WILL VARY AND WILL LOWER THE
10 Years -0.23 FUND EXPENSES, REINVESTED DISTRIBUTIONS TOTAL RETURN.
5 Years 6.36 AND CHANGES IN NET ASSET VALUE. INVESTMENT THE MOST RECENT MONTH-END PERFORMANCE
1 Year -11.42 RETURN AND PRINCIPAL VALUE WILL FLUCTUATE DATA AT THE FUND LEVEL, EXCLUDING VARIABLE
SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN PRODUCT CHARGES, IS AVAILABLE ON THE
SERIES II SHARES YOU SELL SHARES. INVESCO AIM AUTOMATED INFORMATION LINE,
10 Years -0.49% THE TOTAL ANNUAL FUND OPERATING EXPENSE 866 702 4402. AS MENTIONED ABOVE, FOR THE
5 Years 6.08 RATIO SET FORTH IN THE MOST RECENT FUND MOST RECENT MONTH-END PERFORMANCE
1 Year -11.66 PROSPECTUS AS OF THE DATE OF THIS REPORT INCLUDING VARIABLE PRODUCT CHARGES, PLEASE
========================================== FOR SERIES I AND SERIES II SHARES WAS CONTACT YOUR VARIABLE PRODUCT ISSUER OR
1.11% AND 1.36%, RESPECTIVELY. THE EXPENSE FINANCIAL ADVISOR.
SERIES II SHARES' INCEPTION DATE IS APRIL RATIOS PRESENTED ABOVE MAY VARY FROM THE
30, 2004. RETURNS SINCE THAT DATE ARE EXPENSE RATIOS PRESENTED IN OTHER SECTIONS
HISTORICAL. ALL OTHER RETURNS ARE THE OF THIS REPORT THAT ARE BASED ON EXPENSES
BLENDED RETURNS OF THE HISTORICAL INCURRED DURING THE PERIOD COVERED BY THIS
PERFORMANCE OF SERIES II SHARES SINCE REPORT.
THEIR INCEPTION AND THE RESTATED AIM V.I. TECHNOLOGY FUND, A SERIES
HISTORICAL PERFORMANCE OF SERIES I SHARES PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS,
(FOR PERIODS PRIOR TO INCEPTION OF SERIES IS CURRENTLY OFFERED THROUGH INSURANCE
II SHARES) ADJUSTED TO REFLECT THE RULE COMPANIES ISSUING VARIABLE PRODUCTS. YOU
12B-1 FEES APPLICABLE TO SERIES II SHARES. CANNOT PURCHASE SHARES OF THE FUND
THE INCEPTION DATE OF SERIES I SHARES IS DIRECTLY. PERFORMANCE FIGURES GIVEN
MAY 20, 1997. THE PERFORMANCE OF THE REPRESENT THE FUND AND ARE NOT INTENDED TO
FUND'S SERIES I AND SERIES II SHARE REFLECT ACTUAL VARIABLE PRODUCT VALUES.
CLASSES WILL DIFFER PRIMARILY DUE TO THEY DO NOT REFLECT
DIFFERENT CLASS EXPENSES.
THE PERFORMANCE DATA QUOTED REPRESENT
PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS;
AIM V.I. TECHNOLOGY FUND
PORTFOLIO COMPOSITION
By sector, based on Net Assets
as of June 30, 2008
<Table>
- ------------------------------------------------------------------------
Information Technology 84.2%
- ------------------------------------------------------------------------
Telecommunication Services 3.1
- ------------------------------------------------------------------------
Consumer Discretionary 1.8
- ------------------------------------------------------------------------
Financials 1.1
- ------------------------------------------------------------------------
Money Market Funds, US Treasury Bills Plus Other Assets Less
Liabilities 9.8
________________________________________________________________________
========================================================================
</Table>
SCHEDULE OF INVESTMENTS(a)
June 30, 2008
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-90.21%
ADVERTISING-0.75%
Focus Media Holding Ltd.-ADR (China)(b)(c) 34,394 $ 953,402
================================================================================
APPLICATION SOFTWARE-8.31%
Adobe Systems Inc.(c) 110,111 4,337,272
- --------------------------------------------------------------------------------
Amdocs Ltd.(c) 83,261 2,449,539
- --------------------------------------------------------------------------------
ANSYS, Inc.(b)(c) 31,509 1,484,704
- --------------------------------------------------------------------------------
Autodesk, Inc.(b)(c) 38,320 1,295,599
- --------------------------------------------------------------------------------
Nuance Communications, Inc.(b)(c) 63,396 993,415
================================================================================
10,560,529
================================================================================
COMMUNICATIONS EQUIPMENT-16.28%
Brocade Communications Systems, Inc.(c) 93,241 768,306
- --------------------------------------------------------------------------------
Cisco Systems, Inc.(b)(c) 197,161 4,585,965
- --------------------------------------------------------------------------------
CommScope, Inc.(b)(c) 31,050 1,638,508
- --------------------------------------------------------------------------------
Corning Inc. 111,857 2,578,304
- --------------------------------------------------------------------------------
Foundry Networks, Inc.(b)(c) 127,522 1,507,310
- --------------------------------------------------------------------------------
Harris Corp. 12,701 641,273
- --------------------------------------------------------------------------------
NICE Systems Ltd.-ADR (Israel)(c) 53,062 1,569,043
- --------------------------------------------------------------------------------
Nokia Oyj-ADR (Finland) 121,996 2,988,902
- --------------------------------------------------------------------------------
Nortel Networks Corp. (Canada)(b)(c) 2,727 22,416
- --------------------------------------------------------------------------------
Polycom, Inc.(b)(c) 66,766 1,626,420
- --------------------------------------------------------------------------------
QUALCOMM Inc. 31,421 1,394,150
- --------------------------------------------------------------------------------
Research In Motion Ltd. (Canada)(b)(c) 11,784 1,377,550
================================================================================
20,698,147
================================================================================
COMPUTER HARDWARE-8.42%
Apple Inc.(c) 27,818 4,657,846
- --------------------------------------------------------------------------------
Dell Inc.(b)(c) 37,146 812,754
- --------------------------------------------------------------------------------
Hewlett-Packard Co. 102,380 4,526,220
- --------------------------------------------------------------------------------
Teradata Corp.(c) 30,505 705,886
================================================================================
10,702,706
================================================================================
COMPUTER STORAGE & PERIPHERALS-3.41%
EMC Corp.(b)(c) 159,411 2,341,747
- --------------------------------------------------------------------------------
NetApp, Inc.(b)(c) 60,985 1,320,935
- --------------------------------------------------------------------------------
Seagate Technology 34,867 667,006
================================================================================
4,329,688
================================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.89%
Alliance Data Systems Corp.(b)(c) 20,017 1,131,961
================================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.63%
Amphenol Corp.-Class A(b) 30,433 1,365,833
- --------------------------------------------------------------------------------
Dolby Laboratories Inc.-Class A(c) 17,575 708,273
================================================================================
2,074,106
================================================================================
ELECTRONIC MANUFACTURING SERVICES-1.06%
Hon Hai Precision Industry Co., Ltd. (Taiwan)(c) 273,249 1,345,544
================================================================================
HOME ENTERTAINMENT SOFTWARE-5.60%
Activision Blizzard, Inc.(c) 126,163 4,298,373
- --------------------------------------------------------------------------------
Nintendo Co., Ltd. (Japan)(d) 5,000 2,814,409
================================================================================
7,112,782
================================================================================
INTERNET RETAIL-0.99%
Amazon.com, Inc.(b)(c) 17,187 1,260,323
================================================================================
INTERNET SOFTWARE & SERVICES-8.47%
Akamai Technologies, Inc.(b)(c) 18,189 632,795
- --------------------------------------------------------------------------------
DivX, Inc.(c) 55,779 409,418
- --------------------------------------------------------------------------------
eBay Inc.(b)(c) 75,573 2,065,410
- --------------------------------------------------------------------------------
Google Inc.-Class A(c) 8,159 4,295,061
- --------------------------------------------------------------------------------
Omniture, Inc.(b)(c) 41,913 778,324
- --------------------------------------------------------------------------------
ValueClick, Inc.(b)(c) 104,747 1,586,917
- --------------------------------------------------------------------------------
Yahoo! Inc.(b)(c) 48,213 996,081
================================================================================
10,764,006
================================================================================
IT CONSULTING & OTHER SERVICES-1.76%
Cognizant Technology Solutions Corp.-Class A(b)(c) 68,829 2,237,631
================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. TECHNOLOGY FUND
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-1.13%
BlueStream Ventures L.P. (Acquired 08/03/00-
06/13/08; Cost $3,149,655)(c)(e)(f)(g) -- $ 1,433,903
================================================================================
SEMICONDUCTOR EQUIPMENT-4.96%
Applied Materials, Inc. 85,220 1,626,850
- --------------------------------------------------------------------------------
ASML Holding N.V.-New York Shares (Netherlands) 27,900 680,760
- --------------------------------------------------------------------------------
FormFactor Inc.(b)(c) 66,695 1,229,189
- --------------------------------------------------------------------------------
KLA-Tencor Corp.(b) 16,284 662,921
- --------------------------------------------------------------------------------
MEMC Electronic Materials, Inc.(b)(c) 20,552 1,264,770
- --------------------------------------------------------------------------------
Varian Semiconductor Equipment Associates,
Inc.(b)(c) 24,033 836,829
================================================================================
6,301,319
================================================================================
SEMICONDUCTORS-13.14%
Broadcom Corp.-Class A(b)(c) 99,482 2,714,864
- --------------------------------------------------------------------------------
Intel Corp. 125,426 2,694,151
- --------------------------------------------------------------------------------
Marvell Technology Group Ltd.(b)(c) 112,226 1,981,911
- --------------------------------------------------------------------------------
National Semiconductor Corp.(b) 69,234 1,422,066
- --------------------------------------------------------------------------------
NVIDIA Corp.(c) 134,795 2,523,363
- --------------------------------------------------------------------------------
ON Semiconductor Corp.(b)(c) 237,367 2,176,655
- --------------------------------------------------------------------------------
Supertex, Inc.(b)(c) 25,091 585,624
- --------------------------------------------------------------------------------
Texas Instruments Inc. 92,314 2,599,562
================================================================================
16,698,196
================================================================================
SYSTEMS SOFTWARE-10.29%
Check Point Software Technologies Ltd. (Israel)(c) 82,672 1,956,846
- --------------------------------------------------------------------------------
McAfee Inc.(c) 103,831 3,533,369
- --------------------------------------------------------------------------------
Microsoft Corp. 153,928 4,234,559
- --------------------------------------------------------------------------------
Oracle Corp.(b)(c) 95,987 2,015,727
- --------------------------------------------------------------------------------
Red Hat, Inc.(b)(c) 64,911 1,343,009
================================================================================
13,083,510
================================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.12%
America Movil SAB de C.V.-Series L-ADR (Mexico) 24,475 1,291,056
- --------------------------------------------------------------------------------
American Tower Corp.-Class A(b)(c) 63,441 2,680,383
================================================================================
3,971,439
================================================================================
Total Common Stocks & Other Equity Interests
(Cost $111,024,078) 114,659,192
================================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. TREASURY SECURITIES-0.16%
U.S. TREASURY BILLS-0.16%
1.26%, 09/11/08(h)(i) $ 110,000 109,635
- --------------------------------------------------------------------------------
1.48%, 09/18/08(h)(i) 85,000 84,668
================================================================================
Total U.S. Treasury Securities (Cost
$194,447) 194,303
================================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-9.42%
Liquid Assets Portfolio-Institutional Class(j) 5,987,650 5,987,650
- --------------------------------------------------------------------------------
Premier Portfolio-Institutional Class(j) 5,987,650 5,987,650
================================================================================
Total Money Market Funds (Cost $11,975,300) 11,975,300
================================================================================
TOTAL INVESTMENTS (excluding investments purchased
with cash collateral from securities on
loan)-99.79% (Cost $123,193,825) 126,828,795
================================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON
LOAN
MONEY MARKET FUNDS-26.83%
Liquid Assets Portfolio-Institutional Class (Cost
$34,105,600)(j)(k) 34,105,600 34,105,600
================================================================================
TOTAL INVESTMENTS-126.62% (Cost $157,299,425) 160,934,395
================================================================================
OTHER ASSETS LESS LIABILITIES-(26.62)% (33,830,961)
================================================================================
NET ASSETS-100.00% $127,103,434
________________________________________________________________________________
================================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Industry and/or sector classifications used in this report are generally
according to the Global Industry Classification Standard, which was
developed by and is the exclusive property and a service mark of MSCI Inc.
and Standard & Poor's.
(b) All or a portion of this security was out on loan at June 30, 2008.
(c) Non-income producing security.
(d) In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The value of this security at June 30, 2008 represented 2.21% of the
Fund's Net Assets. See Note 1A.
(e) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The value of this security at June
30, 2008 represented 1.13% of the Fund's Net Assets. See Note 1A.
(f) The Fund has a remaining commitment of $33,750 to purchase additional
interests in BlueStream Ventures L.P., which is subject to the terms of
the limited partnership agreement.
(g) Security purchased or received in a transaction exempt from registration
under the Securities Act of 1933, as amended. The security may be resold
pursuant to an exemption from registration under the 1933 Act, typically
to qualified institutional buyers. The value of this security at June 30,
2008 represented 1.13% of the Fund's Net Assets. This security is
considered to be illiquid. The Fund is limited to investing 15% of net
assets in illiquid securities at the time of purchase.
(h) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an
independent pricing service. The aggregate value of these securities at
June 30, 2008 was $194,303, which represented 0.15% of the Fund's Net
Assets. See Note 1A.
(i) Security traded on a discount basis. The interest rate shown represents
the discount rate at the time of purchase by the Fund.
(j) The money market fund and the Fund are affiliated by having the same
investment advisor.
(k) The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 1J.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. TECHNOLOGY FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, at value (Cost
$111,218,525)* $ 114,853,495
- -------------------------------------------------------
Investments in affiliated money market
funds (Cost $46,080,900) 46,080,900
=======================================================
Total investments (Cost
$157,299,425) 160,934,395
=======================================================
Foreign currencies, at value (Cost
$608,316) 616,756
- -------------------------------------------------------
Receivables for:
Investments sold 540,302
- -------------------------------------------------------
Fund shares sold 155,915
- -------------------------------------------------------
Dividends 50,796
- -------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 40,862
- -------------------------------------------------------
Other assets 4,396
=======================================================
Total assets 162,343,422
_______________________________________________________
=======================================================
LIABILITIES:
Payables for:
Investments purchased 603,838
- -------------------------------------------------------
Fund shares reacquired 338,505
- -------------------------------------------------------
Collateral upon return of securities
loaned 34,105,600
- -------------------------------------------------------
Accrued fees to affiliates 88,391
- -------------------------------------------------------
Accrued other operating expenses 49,952
- -------------------------------------------------------
Trustee deferred compensation and
retirement plans 53,702
=======================================================
Total liabilities 35,239,988
=======================================================
Net assets applicable to shares
outstanding $ 127,103,434
_______________________________________________________
=======================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 564,549,425
- -------------------------------------------------------
Undistributed net investment income
(loss) (218,202)
- -------------------------------------------------------
Undistributed net realized gain (loss) (440,868,252)
- -------------------------------------------------------
Unrealized appreciation 3,640,463
=======================================================
$ 127,103,434
_______________________________________________________
=======================================================
NET ASSETS:
Series I $ 127,011,400
_______________________________________________________
=======================================================
Series II $ 92,034
_______________________________________________________
=======================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 9,578,834
_______________________________________________________
=======================================================
Series II 7,022
_______________________________________________________
=======================================================
Series I:
Net asset value per share $ 13.26
_______________________________________________________
=======================================================
Series II:
Net asset value per share $ 13.11
_______________________________________________________
=======================================================
</Table>
* At June 30, 2008, securities with an aggregate value of $32,926,650 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding
taxes of $19,106) $ 301,020
- ------------------------------------------------------
Dividends from affiliated money market
funds (includes securities lending
income of $44,213) 288,720
======================================================
Total investment income 589,740
======================================================
EXPENSES:
Advisory fees 496,540
- ------------------------------------------------------
Administrative services fees 187,703
- ------------------------------------------------------
Custodian fees 10,085
- ------------------------------------------------------
Distribution fees -- Series II 120
- ------------------------------------------------------
Transfer agent fees 16,137
- ------------------------------------------------------
Trustees' and officer's fees and
benefits 9,950
- ------------------------------------------------------
Other 52,549
======================================================
Total expenses 773,084
======================================================
Less: Fees waived and expense offset
arrangement(s) (9,421)
======================================================
Net expenses 763,663
======================================================
Net investment income (loss) (173,923)
======================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM:
Net realized gain from:
Investment securities (includes net
gains (losses) from securities
sold to affiliates of $(62,661)) 1,812,736
- ------------------------------------------------------
Foreign currencies 4,446
- ------------------------------------------------------
Futures contracts 303,041
======================================================
2,120,223
======================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (21,460,727)
- ------------------------------------------------------
Foreign currencies 5,233
======================================================
(21,455,494)
======================================================
Net realized and unrealized gain (loss) (19,335,271)
======================================================
Net increase (decrease) in net assets
resulting from operations $(19,509,194)
______________________________________________________
======================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. TECHNOLOGY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- ---------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (173,923) $ (638,699)
- ---------------------------------------------------------------------------------------
Net realized gain 2,120,223 13,189,887
- ---------------------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) (21,455,494) (112,456)
=======================================================================================
Net increase (decrease) in net assets
resulting from operations (19,509,194) 12,438,732
=======================================================================================
Share transactions-net:
Series I (12,234,641) (27,010,839)
- ---------------------------------------------------------------------------------------
Series II (21,230) (14,017)
=======================================================================================
Net increase (decrease) in net assets
resulting from share transactions (12,255,871) (27,024,856)
=======================================================================================
Net increase (decrease) in net assets (31,765,065) (14,586,124)
_______________________________________________________________________________________
=======================================================================================
NET ASSETS:
Beginning of period 158,868,499 173,454,623
- ---------------------------------------------------------------------------------------
End of period (including undistributed net
investment income (loss) of $(218,202) and
$(44,279), respectively) $127,103,434 $158,868,499
_______________________________________________________________________________________
=======================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Technology Fund (the "Fund") is a series portfolio of AIM Variable
Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is capital growth.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on
that day. Securities traded in the over-the-counter market are valued
based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service
they may be considered fair valued. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally
traded. Listed options are valued at the mean between the last bid and the
ask prices from the exchange on which they are principally traded. Options
not listed on an exchange are valued by an independent source at the mean
between the last bid and ask prices. For purposes of determining net asset
value per share, futures and option contracts generally are valued 15
minutes after the close of the customary trading session of the New York
Stock Exchange ("NYSE").
Investments in open-end and closed-end registered investment companies
that do not trade on an exchange are valued at the end of day net asset
value per share. Investments in open-end and closed-end registered
investment companies that trade on an exchange are valued at the last
sales price or official closing price as of the close of the customary
trading session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing
service. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to specific securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Short-term obligations, including
commercial paper, having 60 days or less to maturity are recorded at
amortized cost which approximates value. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve
some risk of default with respect to interest and/or principal payments.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued
at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price
unreliable, the Fund may fair value the security. If the event is likely
to have affected the closing price of the security, the security will be
valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also
be based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current value as of the close of the NYSE. Foreign securities
meeting the approved degree of certainty that the price is not reflective
of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, American
Depositary Receipts and domestic and foreign index futures. Foreign
securities may have additional risks including exchange rate changes,
potential for sharply devalued currencies and high inflation, political
and economical upheaval, the relative lack of issuer information,
relatively low market liquidity and the potential lack of strict financial
and accounting controls and standards.
Securities for which market prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers following procedures
approved by the Board of Trustees. Issuer specific events, market trends,
bid/ask quotes of brokers and information providers and other market data
may be reviewed in the course of making a good faith determination of a
security's fair value.
Valuations change in response to many factors including the historical
and prospective earnings of the issuer, the value of the issuer's assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
AIM V.I. TECHNOLOGY FUND
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification
claims is considered remote.
I. OTHER RISKS -- The Fund's investments are concentrated in a comparatively
narrow segment of the economy. Consequently, the Fund may tend to be more
volatile than other mutual funds, and the value of the Fund's investments
may tend to rise and fall more rapidly.
Many of the products and services offered in technology-related
industries are subject to rapid obsolescence, which may lower the value of
the securities of the companies in this sector.
J. SECURITIES LENDING -- The Fund may lend portfolio securities having a
market value up to one-third of the Fund's total assets. Such loans are
secured by collateral equal to no less than the market value of the loaned
securities determined daily by the securities lending provider. Such
collateral will be cash or debt securities issued or guaranteed by the
U.S. Government or any of its sponsored agencies. Cash collateral received
in connection with these loans is invested in short-term money market
instruments or affiliated money market funds and is shown as such on the
Schedule of Investments. It is the Fund's policy to obtain additional
collateral from or return excess collateral to the borrower by the end of
the next business day, following the valuation date of the securities
loaned. Therefore, the value of the collateral held may be temporarily
less than the value of the securities on loan. Lending securities entails
a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase
the collateral accordingly, and the borrower fails to return the
securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any
loss on the collateral invested. Dividends received on cash collateral
investments for securities lending transactions, which are net of
compensation to counterparties, is included in Dividends from affiliates
on the Statement of Operations. The aggregate value of securities out on
loan is shown as a footnote on the Statement of Assets and Liabilities.
K. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close
of the NYSE based on quotations posted by banks and major currency
dealers. Portfolio securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i)
sales of foreign currencies, (ii) currency gains or losses realized
between the trade and settlement dates on securities transactions, and
AIM V.I. TECHNOLOGY FUND
(iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized
foreign currency gains and losses arise from changes in the fair values of
assets and liabilities, other than investments in securities at fiscal
period end, resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to
foreign taxes on income, gains on investments or currency repatriation, a
portion of which may be recoverable.
L. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. Fluctuations in the value of these contracts are recorded as
unrealized appreciation (depreciation) until the contracts are closed.
When these contracts are closed, realized gains (losses) are recorded.
Realized and unrealized gains and losses on these contracts are included
in the Statement of Operations. The Fund could be exposed to risk, which
may be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
M. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts.
Initial margin deposits required upon entering into futures contracts are
satisfied by the segregation of specific securities as collateral for the
account of the broker (the Fund's agent in acquiring the futures
position). During the period the futures contracts are open, changes in
the value of the contracts are recognized as unrealized gains or losses by
recalculating the value of the contracts on a daily basis. Variation
margin payments are received or made depending upon whether unrealized
gains or losses are incurred. When the contracts are closed, the Fund
recognizes a realized gain or loss equal to the difference between the
proceeds from, or cost of, the closing transaction and the Fund's basis in
the contract. If the Fund were unable to liquidate a futures contract
and/or enter into an offsetting closing transaction, the Fund would
continue to be subject to market risk with respect to the value of the
contracts and continue to be required to maintain the margin deposits on
the futures contracts. Risks may exceed amounts recognized in the
Statement of Assets and Liabilities.
N. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $250 million 0.75%
- -------------------------------------------------------------------
Next $250 million 0.74%
- -------------------------------------------------------------------
Next $500 million 0.73%
- -------------------------------------------------------------------
Next $1.5 billion 0.72%
- -------------------------------------------------------------------
Next $2.5 billion 0.71%
- -------------------------------------------------------------------
Next $2.5 billion 0.70%
- -------------------------------------------------------------------
Next $2.5 billion 0.69%
- -------------------------------------------------------------------
Over $10 billion 0.68%
___________________________________________________________________
===================================================================
</Table>
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
The Advisor has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.30% and Series
II shares to 1.45% of average daily net assets, through at least April 30, 2010.
In determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco")
described more fully below, the only expense offset arrangements from which the
Fund may benefit are in the form of credits that the Fund receives from banks
where the Fund or its transfer agent has deposit accounts in which it holds
uninvested cash. These credits are used to pay certain expenses incurred by the
Fund. The Advisor did not waive fees and/or reimburse expenses during the period
under this expense limitation.
Further, the Advisor has contractually agreed, through at least April 30,
2010, to waive the advisory fee payable by the Fund in an amount equal to 100%
of the net advisory fees the Advisor receives from the affiliated money market
funds on investments by the Fund of uninvested cash (but not cash collateral
from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2008, the Advisor waived advisory fees of
$9,267.
AIM V.I. TECHNOLOGY FUND
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund
administrative services and reimbursed $162,840 for services provided by
insurance companies.
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily net
assets of the Series II shares may be paid to insurance companies who furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. For the six months ended June 30, 2008, expenses
incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1--Quoted prices in an active market for identical assets.
Level 2--Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest
rates, prepayment speeds, credit risk and others.
Level 3--Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for
example, when there is little or no market activity for an investment at the end
of the period), unobservable inputs may be used. Unobservable inputs reflect the
Fund's own assumptions about the factors market participants would use in
determining fair value of the securities or instruments and would be based on
the best available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS IN
INPUT LEVEL SECURITIES
- --------------------------------------
Level 1 $156,491,780
- --------------------------------------
Level 2 3,008,712
- --------------------------------------
Level 3 1,433,903
======================================
$160,934,395
______________________________________
======================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, for the six months ended June 30, 2008, the Fund
engaged in securities sales of $497,969, which resulted in net realized gains
(losses) of $(62,661), and securities purchases of $250,476.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2008, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $154.
AIM V.I. TECHNOLOGY FUND
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan and receive benefits under such plan. "Trustees' and Officer's
Fees and Benefits" include amounts accrued by the Fund to fund such retirement
benefits. Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $1,688
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--CASH BALANCES
The Fund is permitted to temporarily carry a negative or overdrawn balance in
its account with The State Street Bank and Trust Company ("SSB"), the custodian
bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund
may either (i) leave funds as a compensating balance in the account so the
custodian bank can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank at a rate agreed upon by the custodian
bank and Invesco Aim, not to exceed the contractually agreed upon rate.
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as to utilizing
$442,360,803 of capital loss carryforward in the fiscal year ended December 31,
2008.
The Fund had a capital loss carryforward as of December 31, 2007 which expires
as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -------------------------------------------------------------------------------
December 31, 2008 $256,455,919
- -------------------------------------------------------------------------------
December 31, 2009 153,547,080
- -------------------------------------------------------------------------------
December 31, 2010 33,793,499
===============================================================================
Total capital loss carryforward $443,796,498
_______________________________________________________________________________
===============================================================================
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
</Table>
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the six months ended June 30, 2008 was $51,577,751 and
$59,935,231, respectively. Cost of investments on a tax basis includes the
adjustments for financial reporting purposes as of the most recently completed
Federal income tax reporting period end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 16,834,055
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (12,074,335)
===============================================================================
Net unrealized appreciation of investment securities $ 4,759,720
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $156,174,675.
</Table>
AIM V.I. TECHNOLOGY FUND
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008(a) DECEMBER 31, 2007
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,155,559 $ 15,643,001 2,069,689 $ 31,052,670
- ------------------------------------------------------------------------------------------------------------------------
Series II 86 1,129 1,031 14,874
- ------------------------------------------------------------------------------------------------------------------------
Reacquired:
Series I (2,087,891) (27,877,642) (3,920,382) (58,063,509)
- ------------------------------------------------------------------------------------------------------------------------
Series II (1,744) (22,359) (1,948) (28,891)
========================================================================================================================
(933,990) $(12,255,871) (1,851,610) $(27,024,856)
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There are entities that are record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate own 66% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, Invesco
Aim and/or Invesco Aim affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services to
the Fund, Invesco Aim and or Invesco Aim affiliates including but not
limited to services such as, securities brokerage, third party record
keeping and account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record by
these entities are also owned beneficially.
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
---------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------
2008 2007 2006 2005 2004 2003
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.10 $ 14.02 $ 12.69 $ 12.42 $ 11.87 $ 8.17
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.06) (0.08) (0.07) (0.04)(a) (0.08)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (1.82) 1.14 1.41 0.34 0.59 3.78
============================================================================================================================
Total from investment operations (1.84) 1.08 1.33 0.27 0.55 3.70
============================================================================================================================
Net asset value, end of period $ 13.26 $ 15.10 $ 14.02 $ 12.69 $ 12.42 $ 11.87
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) (12.19)% 7.70% 10.48% 2.17% 4.63% 45.29%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $127,011 $158,739 $173,321 $190,700 $200,556 $171,546
____________________________________________________________________________________________________________________________
============================================================================================================================
With fee waivers and/or expense
reimbursements 1.15%(c) 1.10% 1.12% 1.12% 1.15% 1.10%
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.16%(c) 1.10% 1.12% 1.12% 1.15% 1.10%
============================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.26)%(c) (0.38)% (0.54)% (0.60)% (0.39)%(a) (0.85)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate(d) 43% 59% 116% 114% 137% 89%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2, 2004.
Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets excluding the special dividend are
$(0.09) and (0.82)%, respectively.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$133,041,571.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. TECHNOLOGY FUND
NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-------------------------------------------------------------------
SIX MONTHS APRIL 30, 2004
ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT DATE)
JUNE 30, ---------------------------- TO DECEMBER 31,
2008 2007 2006 2005 2004
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.95 $13.91 $12.62 $12.39 $11.09
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04) (0.10) (0.12) (0.11) (0.05)(a)
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (1.80) 1.14 1.41 0.34 1.35
=====================================================================================================================
Total from investment operations (1.84) 1.04 1.29 0.23 1.30
=====================================================================================================================
Net asset value, end of period $ 13.11 $14.95 $13.91 $12.62 $12.39
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(b) (12.31)% 7.48% 10.22% 1.86% 11.72%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 92 $ 130 $ 134 $ 142 $ 166
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.40%(c) 1.35% 1.37% 1.37% 1.40%(d)
- ---------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.41%(c) 1.35% 1.37% 1.37% 1.40%(d)
=====================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.51)%(c) (0.63)% (0.79)% (0.85)% (0.64)%(a)(d)
_____________________________________________________________________________________________________________________
=====================================================================================================================
Portfolio turnover rate(e) 43% 59% 116% 114% 137%
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2, 2004.
Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets excluding the special dividend are
$(0.10) and (1.07)%, respectively.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of $96,521.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor -- Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to Invesco Aim and IADI (Order No. 05-1318). The WVASC makes
findings of fact that Invesco Aim and IADI entered into certain arrangements
permitting market timing of the AIM Funds and failed to disclose these
arrangements in the prospectuses for such Funds, and conclusions of law to the
effect that Invesco Aim and IADI violated the West Virginia securities laws. The
WVASC orders Invesco Aim and IADI to cease any further violations and seeks to
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute. By agreement with the Commissioner of Securities, Invesco Aim's time to
respond to that Order has been indefinitely suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid. The case pending in Illinois State Court regarding fair value
pricing was dismissed with prejudice on May 6, 2008.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA
purportedly brought on behalf of participants in the Invesco 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds remain nominal defendants in the Consolidated Amended Fund
Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco
defendants' motion to dismiss the Amended Class Action Complaint for Violations
of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June
16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this
lawsuit back to the MDL Court for further proceedings.
AIM V.I. TECHNOLOGY FUND
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, Invesco Aim and IADI have advised the Fund that they are providing
full cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, Invesco Aim and/or related entities and individuals in the
future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. TECHNOLOGY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $878.10 $5.37 $1,019.14 $5.77 1.15%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 876.90 6.53 1,017.90 7.02 1.40
- ---------------------------------------------------------------------------------------------------
</Table>
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5%
before expenses.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
AIM V.I. TECHNOLOGY FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different
Variable Insurance Funds is required under comparative performance and fee data weight to the various factors. The
the Investment Company Act of 1940 to regarding the AIM Funds prepared by an Trustees recognized that the advisory
approve annually the renewal of the AIM independent company, Lipper, Inc. arrangements and resulting advisory fees
V.I. Technology Fund (the Fund) investment (Lipper), under the direction and for the Fund and the other AIM Funds are
advisory agreement with Invesco Aim supervision of the independent Senior the result of years of review and
Advisors, Inc. (Invesco Aim). During Officer who also prepares a separate negotiation between the Trustees and
contract renewal meetings held on June analysis of this information for the Invesco Aim, that the Trustees may focus
18-19, 2008, the Board as a whole and the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of
disinterested or "independent" Trustees, recommendations to the Investments these arrangements in some years than in
voting separately, approved the Committee regarding the performance, fees others, and that the Trustees'
continuance of the Fund's investment and expenses of their assigned funds. The deliberations and conclusions in a
advisory agreement for another year, Investments Committee considers each particular year may be based in part on
effective July 1, 2008. In doing so, the Sub-Committee's recommendations and makes their deliberations and conclusions of
Board determined that the Fund's its own recommendations regarding the these same arrangements throughout the
investment advisory agreement is in the performance, fees and expenses of the AIM year and in prior years.
best interests of the Fund and its Funds to the full Board. The Investments
shareholders and that the compensation to Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF
Invesco Aim under the Fund's investment Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION
advisory agreement is fair and reasonable. its annual recommendation to the Board The discussion below serves as a summary
The independent Trustees met separately whether to approve the continuance of each of the Senior Officer's independent
during their evaluation of the Fund's AIM Fund's investment advisory agreement written evaluation with respect to the
investment advisory agreement with and sub-advisory agreements for another Fund's investment advisory agreement as
independent legal counsel from whom they year. well as a discussion of the material
received independent legal advice, and the The independent Trustees are assisted factors and related conclusions that
independent Trustees also received in their annual evaluation of the Fund's formed the basis for the Board's approval
assistance during their deliberations from investment advisory agreement by the of the Fund's investment advisory
the independent Senior Officer, a independent Senior Officer. One agreement and sub-advisory agreements.
full-time officer of the AIM Funds who responsibility of the Senior Officer is to Unless otherwise stated, information set
reports directly to the independent manage the process by which the AIM Funds' forth below is as of June 19, 2008 and
Trustees. proposed management fees are negotiated does not reflect any changes that may have
during the annual contract renewal process occurred since that date, including but
THE BOARD'S FUND EVALUATION PROCESS to ensure that they are negotiated in a not limited to changes to the Fund's
The Board's Investments Committee has manner that is at arms' length and performance, advisory fees, expense
established three Sub-Committees that are reasonable. Accordingly, the Senior limitations and/or fee waivers.
responsible for overseeing the management Officer must either supervise a
of a number of the series portfolios of competitive bidding process or prepare an I. Investment Advisory Agreement
the AIM Funds. This Sub-Committee independent written evaluation. The Senior A. Nature, Extent and Quality of
structure permits the Trustees to focus on Officer has recommended that an Services Provided by Invesco Aim
the performance of the AIM Funds that have independent written evaluation be provided The Board reviewed the advisory services
been assigned to them. The Sub-Committees and, at the direction of the Board, has provided to the Fund by Invesco Aim under
meet throughout the year to review the prepared an independent written the Fund's investment advisory agreement,
performance of their assigned funds, and evaluation. the performance of Invesco Aim in
the Sub-Committees review monthly and During the annual contract renewal providing these services, and the
quarterly comparative performance process, the Board considered the factors credentials and experience of the officers
information and periodic asset flow data discussed below under the heading "Factors and employees of Invesco Aim who provide
for their assigned funds. These materials and Conclusions and Summary of Independent these services. The Board's review of the
are prepared under the direction and Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide
supervision of the independent Senior fairness and reasonableness of the Fund's these services included the Board's
Officer. Over the course of each year, the investment advisory agreement and consideration of Invesco Aim's portfolio
Sub-Committees meet with portfolio sub-advisory agreements at the contract and product review process, various back
managers for their assigned funds and renewal meetings and at their meetings office support functions provided by
other members of management and review throughout the year as part of their Invesco Aim, and Invesco Aim's equity and
with these individuals the performance, ongoing oversight of the Fund. The Fund's fixed income trading operations. The Board
investment objective(s), policies, investment advisory agreement and concluded that the nature, extent and
strategies and limitations of these funds. sub-advisory agreements were considered quality of the advisory services provided
In addition to their meetings separately, although the Board also to the Fund by Invesco Aim were
throughout the year, the Sub-Committees considered the common interests of all of appropriate and that Invesco Aim currently
meet at designated contract renewal the AIM Funds in their deliberations. The is providing satisfactory advisory
meetings each year to conduct an in-depth Board considered all of the information services in accordance with the terms of
review of the performance, fees and provided to them and did not identify any the Fund's investment advisory agreement.
expenses of their assigned funds. During particular factor that was controlling. In addition, based on their ongoing
the contract Each Trustee may have evaluated the meetings throughout the year with the
information provided differently Fund's portfolio manager or managers,
continued
AIM V.I. TECHNOLOGY FUND
the Board concluded that these individuals focus on fund performance. However, due to economies of scale through contractual
are competent and able to continue to the Fund's underperformance, the Board breakpoints in the Fund's advisory fee
carry out their responsibilities under the also concluded that it would be schedule or through advisory fee waivers
Fund's investment advisory agreement. appropriate for the Board to continue to or expense limitations. The Board noted
In determining whether to continue the monitor more closely the performance of that the Fund's contractual advisory fee
Fund's investment advisory agreement, the the Fund. Although the independent written schedule includes seven breakpoints but
Board considered the prior relationship evaluation of the Fund's Senior Officer that, due to the Fund's asset level at the
between Invesco Aim and the Fund, as well only considered Fund performance through end of the past calendar year and the way
as the Board's knowledge of Invesco Aim's the most recent calendar year, the Board in which the breakpoints have been
operations, and concluded that it was also reviewed more recent Fund performance structured, the Fund has yet to benefit
beneficial to maintain the current and this review did not change their from the breakpoints. Based on this
relationship, in part, because of such conclusions. information, the Board concluded that the
knowledge. The Board also considered the Fund's advisory fees would appropriately
steps that Invesco Aim and its affiliates C. Advisory Fees and Fee Waivers reflect economies of scale at higher asset
have taken over the last several years to The Board compared the Fund's contractual levels. The Board also noted that the Fund
improve the quality and efficiency of the advisory fee rate to the contractual shares directly in economies of scale
services they provide to the AIM Funds in advisory fee rates of funds in the Fund's through lower fees charged by third party
the areas of investment performance, expense group that are not managed by service providers based on the combined
product line diversification, Invesco Aim, at a common asset level and size of all of the AIM Funds and
distribution, fund operations, shareholder as of the end of the past calendar year. affiliates.
services and compliance. The Board The Board noted that the Fund's
concluded that the quality and efficiency contractual advisory fee rate was at the E. Profitability and Financial
of the services Invesco Aim and its median contractual advisory fee rate of Resources of Invesco Aim
affiliates provide to the AIM Funds in funds in its expense group. The Board also The Board reviewed information from
each of these areas have generally reviewed the methodology used by Lipper in Invesco Aim concerning the costs of the
improved, and support the Board's approval determining contractual fee rates. advisory and other services that Invesco
of the continuance of the Fund's The Board also compared the Fund's Aim and its affiliates provide to the Fund
investment advisory agreement. effective fee rate (the advisory fee after and the profitability of Invesco Aim and
any advisory fee waivers and before any its affiliates in providing these
B. Fund Performance expense limitations/waivers) to the services. The Board also reviewed
The Board compared the Fund's performance advisory fee rates of other clients of information concerning the financial
during the past one, three and five Invesco Aim and its affiliates with condition of Invesco Aim and its
calendar years to the performance of funds investment strategies comparable to those affiliates. The Board also reviewed with
in the Fund's performance group that are of the Fund, including one mutual fund Invesco Aim the methodology used to
not managed by Invesco Aim, and against advised by Invesco Aim. The Board noted prepare the profitability information. The
the performance of all funds in the Lipper that the Fund's rate was above the rate Board considered the overall profitability
Variable Annuity Underlying Funds -- for the mutual fund. of Invesco Aim, as well as the
Science & Technology Index. The Board also The Board noted that Invesco Aim has profitability of Invesco Aim in connection
reviewed the criteria used by Invesco Aim contractually agreed to waive fees and/or with managing the Fund. The Board noted
to identify the funds in the Fund's limit expenses of the Fund through at that Invesco Aim continues to operate at a
performance group for inclusion in the least April 30, 2010 in an amount net profit, although increased expenses in
Lipper reports. The Board noted that the necessary to limit total annual operating recent years have reduced the
Fund's performance was in the fifth expenses to a specified percentage of profitability of Invesco Aim and its
quintile of its performance group for the average daily net assets for each class of affiliates. The Board concluded that the
one, three and five year periods (the the Fund. The Board considered the Fund's fees were fair and reasonable, and
first quintile being the best performing contractual nature of this fee waiver and that the level of profits realized by
funds and the fifth quintile being the noted that it remains in effect until at Invesco Aim and its affiliates from
worst performing funds). The Board noted least April 30, 2010. The Board also providing services to the Fund was not
that the Fund's performance was below the considered the effect this expense excessive in light of the nature, quality
performance of the Index for the one, limitation would have on the Fund's and extent of the services provided. The
three and five year periods. The Board estimated total expenses. Board considered whether Invesco Aim is
noted that Invesco Aim made changes to the After taking account of the Fund's financially sound and has the resources
Fund's portfolio management team in 2006, contractual advisory fee rate, as well as necessary to perform its obligations under
2007 and 2008, which need more time to be the comparative advisory fee information the Fund's investment advisory agreement,
evaluated before a conclusion can be and the expense limitation discussed and concluded that Invesco Aim has the
reached that the changes have adequately above, the Board concluded that the Fund's financial resources necessary to fulfill
addressed the Fund's underperformance. The advisory fees were fair and reasonable. these obligations.
Board also considered the steps Invesco
Aim has taken over the last several years D. Economies of Scale and Breakpoints F. Independent Written Evaluation of
to improve the quality and efficiency of The Board considered the extent to which the Fund's Senior Officer
the services that Invesco Aim provides to there are economies of scale in Invesco The Board noted that, at their direction,
the AIM Funds. The Board concluded that Aim's provision of advisory services to the Senior Officer of the Fund, who is
Invesco Aim continues to be responsive to the Fund. The Board also considered independent of Invesco Aim and Invesco
the Board's whether the Fund benefits from such Aim's affiliates, had prepared an
independent written evaluation to assist
the
continued
AIM V.I. TECHNOLOGY FUND
Board in determining the reasonableness of ments may be invested in money market and talent of the Affiliated Sub-Advisers
the proposed management fees of the AIM funds advised by Invesco Aim pursuant to in managing the Fund.
Funds, including the Fund. The Board noted procedures approved by the Board. The
that they had relied upon the Senior Board noted that Invesco Aim will receive B. Fund Performance
Officer's written evaluation instead of a advisory fees from these affiliated money The Board did not view Fund performance as
competitive bidding process. In market funds attributable to such a relevant factor in considering whether
determining whether to continue the Fund's investments, although Invesco Aim has to approve the sub-advisory agreements for
investment advisory agreement, the Board contractually agreed to waive through at the Fund, as no Affiliated Sub-Adviser
considered the Senior Officer's written least April 30, 2010, the advisory fees currently manages any portion of the
evaluation. payable by the Fund in an amount equal to Fund's assets.
100% of the net advisory fees Invesco Aim
G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees
and its Affiliates funds with respect to the Fund's The Board considered the services to be
The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers
benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements
affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco
relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment
fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the
affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and
administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to
distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board
Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no
Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its
providing these services and the shareholders. shareholders, as they are paid by Invesco
organizational structure employed by Aim to the Affiliated Sub-Advisers, and
Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements that Invesco Aim and the Affiliated
these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking
that these services are provided to the Services Provided by Affiliated account of the Fund's contractual
Fund pursuant to written contracts which Sub-Advisers sub-advisory fee rate, as well as other
are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that
basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and
that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, reasonable.
providing these services in a satisfactory Invesco Asset Management Limited, Invesco
manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco D. Financial Resources of the
their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers
continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each
Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially
The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to
realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its
portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and
through "soft dollar" arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser
these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to
commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations.
funds advised by Invesco Aim are used to Sub-Advisers who will provide these
pay for research and execution services. services. The Board concluded that the
The Board noted that soft dollar nature, extent and quality of the services
arrangements shift the payment obligation to be provided by the Affiliated
for the research and execution services Sub-Advisers were appropriate. The Board
from Invesco Aim to the funds and noted that the Affiliated Sub-Advisers,
therefore may reduce Invesco Aim's which have offices and personnel that are
expenses. The Board also noted that geographically dispersed in financial
research obtained through soft dollar centers around the world, have been formed
arrangements may be used by Invesco Aim in in part for the purpose of researching and
making investment decisions for the Fund compiling information and making
and may therefore benefit Fund recommendations on the markets and
shareholders. The Board concluded that economies of various countries and
Invesco Aim's soft dollar arrangements securities of companies located in such
were appropriate. The Board also concluded countries or on various types of
that, based on their review and investments and investment techniques, and
representations made by Invesco Aim, these providing investment advisory services.
arrangements were consistent with The Board concluded that the sub-advisory
regulatory requirements. agreements will benefit the Fund and its
The Board considered the fact that the shareholders by permitting Invesco Aim to
Fund's uninvested cash and cash collateral utilize the additional resources
from any securities lending arrange-
AIM V.I. TECHNOLOGY FUND
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. Technology Fund, an
investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust
("Trust"), was held on February 29, 2008. The Meeting was held for the following
purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom
will serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust
that would permit the Board of Trustees of the Trust to terminate the
Trust, the Fund, and each other series portfolio of the Trust, or a share
class without a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc.
and each of AIM Funds Management, Inc.; Invesco Asset Management
Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset
Management (Japan) Limited; Invesco Australia Limited; Invesco Global
Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco
Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc.
(4)(a) Approve modification of fundamental restriction on issuer
diversification.
(4)(b) Approve modification of fundamental restrictions on issuing senior
securities and borrowing money.
(4)(c) Approve modification of fundamental restriction on underwriting
securities.
(4)(d) Approve modification of fundamental restriction on industry
concentration.
(4)(e) Approve modification of fundamental restriction on real estate
investments.
(4)(f) Approve modification of fundamental restriction on purchasing or selling
commodities.
(4)(g) Approve modification of fundamental restriction on making loans.
(4)(h) Approve modification of fundamental restriction on investments in
investment companies.
(5) Approve making the investment objective of the fund non-fundamental.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- ----------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker 474,883,590 19,741,622
Frank S. Bayley.................................................... 474,653,109 19,972,103
James T. Bunch..................................................... 475,597,417 19,027,795
Bruce L. Crockett.................................................. 474,900,579 19,724,633
Albert R. Dowden................................................... 474,749,929 19,875,283
Jack M. Fields..................................................... 475,205,840 19,419,372
Martin L. Flanagan................................................. 475,248,336 19,376,876
Carl Frischling.................................................... 474,453,674 20,171,538
Prema Mathai-Davis................................................. 473,569,192 21,056,020
Lewis F. Pennock................................................... 475,072,501 19,552,711
Larry Soll, Ph.D................................................... 475,170,544 19,454,668
Raymond Stickel, Jr................................................ 475,420,825 19,204,387
Philip A. Taylor................................................... 475,640,570 18,984,642
</Table>
<Table>
<Caption>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
- ----------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of Trustees
of the Trust to terminate the Trust, the Fund, and each
other series portfolio of the Trust, or a share class
without a shareholder vote.................................. 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between Invesco Aim
Advisors, Inc. and each of AIM Funds Management, Inc.;
Invesco Asset Management Deutschland, GmbH; Invesco Asset
Management Limited; Invesco Asset Management (Japan)
Limited; Invesco Australia Limited; Invesco Global Asset
Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco
Institutional (N.A.), Inc.; and Invesco Senior Secured
Management, Inc............................................. 9,820,806 241,551 220,907
(4)(a) Approve modification of fundamental restriction on issuer
diversification............................................. 9,898,337 228,208 156,719
(4)(b) Approve modification of fundamental restrictions on issuing
senior securities and borrowing money....................... 9,898,337 229,138 155,789
(4)(c) Approve modification of fundamental restriction on
underwriting securities..................................... 9,866,533 260,827 155,904
(4)(d) Approve modification of fundamental restriction on industry
concentration............................................... 9,904,593 222,882 155,789
(4)(e) Approve modification of fundamental restriction on real
estate investments.......................................... 9,904,479 222,996 155,789
(4)(f) Approve modification of fundamental restriction on
purchasing or selling commodities........................... 9,898,337 228,208 156,719
(4)(g) Approve modification of fundamental restriction on making
loans....................................................... 9,904,593 221,838 156,833
(4)(h) Approve modification of fundamental restriction on
investments in investment companies......................... 9,898,336 229,024 155,904
(5) Approve making the investment objective of the fund non-
fundamental................................................. 9,779,883 264,159 239,222
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. TECHNOLOGY FUND
[INVESCO AIM LOGO] AIM V.I. UTILITIES FUND
- SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008
AIM Investments [MOUNTAIN GRAPHIC]
became INVESCO AIM
on March 31, 2008.
For more details, go to
invescoaim.com
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the
SEC Web site, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. You can obtain information
on the operation of the Public Reference Room, including information about
duplicating fee charges, by calling 202 942 8090 or 800 732 0330, or by
electronic request at the following E-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent
portfolio holdings, as filed on Form N-Q, have also been made available to
insurance companies issuing variable annuity contracts and variable life
insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800 410 4246 or on the
Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on
Proxy Policy. The information is also available on the SEC Web site, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2008, is available at our Web
site. Go to invescoaim.com, access the About Us tab, click on Required Notices
and then click on Proxy Voting Activity. Next, select the Fund from the
drop-down menu. The information is also available on the SEC Web site, sec.gov.
Unless otherwise noted, all data provided by Invesco Aim.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
Invesco Aim Distributors, Inc.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FUND PERFORMANCE
=======================================================================================
PERFORMANCE SUMMARY
FUND VS. INDEXES
Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer
charges. If variable product issuer charges were included, returns would be lower.
Series I Shares -3.00%
Series II Shares -3.11
S&P 500 Index(TRIANGLE) (Broad Market Index) -11.90
Lipper VUF Utility Funds Category Average(TRIANGLE) (Peer Group) -3.59
(TRIANGLE) Lipper Inc.
The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted
index covering all major areas of the U.S. economy. It is not the 500 largest
companies, but rather the most widely held 500 companies chosen with respect to
market size, liquidity, and their industry.
The LIPPER VUF UTILITY FUNDS CATEGORY AVERAGE represents an average of all of
the variable insurance underlying funds in the Lipper Utility Funds category.
These funds invest primarily in the equity securities of domestic and foreign
companies providing utilities.
The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
=======================================================================================
==========================================
AVERAGE ANNUAL TOTAL RETURNS HIGHER. PLEASE CONTACT YOUR VARIABLE GIVEN REPRESENT THE FUND AND ARE NOT
As of 6/30/08 PRODUCT ISSUER OR FINANCIAL ADVISOR FOR INTENDED TO REFLECT ACTUAL VARIABLE
THE MOST RECENT MONTH-END VARIABLE PRODUCT PRODUCT VALUES. THEY DO NOT REFLECT SALES
SERIES I SHARES PERFORMANCE. PERFORMANCE FIGURES REFLECT CHARGES, EXPENSES AND FEES ASSESSED IN
Inception (12/30/94) 9.01% FUND EXPENSES, REINVESTED DISTRIBUTIONS CONNECTION WITH A VARIABLE PRODUCT. SALES
10 Years 6.50 AND CHANGES IN NET ASSET VALUE. INVESTMENT CHARGES, EXPENSES AND FEES, WHICH ARE
5 Years 17.87 RETURN AND PRINCIPAL VALUE WILL FLUCTUATE DETERMINED BY THE VARIABLE PRODUCT
1 Year 3.77 SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN ISSUERS, WILL VARY AND WILL LOWER THE
YOU SELL SHARES. TOTAL RETURN.
SERIES II SHARES THE NET ANNUAL FUND OPERATING EXPENSE THE MOST RECENT MONTH-END PERFORMANCE
10 Years 6.25 RATIO SET FORTH IN THE MOST RECENT FUND DATA AT THE FUND LEVEL, EXCLUDING VARIABLE
5 Years 17.60 PROSPECTUS AS OF THE DATE OF THIS REPORT PRODUCT CHARGES, IS AVAILABLE ON THE
1 Year 3.59 FOR SERIES I AND SERIES II SHARES WAS INVESCO AIM AUTOMATED INFORMATION LINE,
========================================== 0.93% AND 1.18%, RESPECTIVELY.(1) THE 866 702 4402. AS MENTIONED ABOVE, FOR THE
SERIES II SHARES' INCEPTION DATE IS APRIL TOTAL ANNUAL FUND OPERATING EXPENSE RATIO MOST RECENT MONTH-END PERFORMANCE
30, 2004. RETURNS SINCE THAT DATE ARE SET FORTH IN THE MOST RECENT FUND INCLUDING VARIABLE PRODUCT CHARGES, PLEASE
HISTORICAL. ALL OTHER RETURNS ARE THE PROSPECTUS AS OF THE DATE OF THIS REPORT CONTACT YOUR VARIABLE PRODUCT ISSUER OR
BLENDED RETURNS OF THE HISTORICAL FOR SERIES I AND SERIES II SHARES WAS FINANCIAL ADVISOR.
PERFORMANCE OF SERIES II SHARES SINCE 0.94% AND 1.19%, RESPECTIVELY. THE EXPENSE
THEIR INCEPTION AND THE RESTATED RATIOS PRESENTED ABOVE MAY VARY FROM THE (1) Total annual operating expenses less
HISTORICAL PERFORMANCE OF SERIES I SHARES EXPENSE RATIOS PRESENTED IN OTHER SECTIONS any contractual fee waivers and/or
(FOR PERIODS PRIOR TO INCEPTION OF SERIES OF THIS REPORT THAT ARE BASED ON EXPENSES expense reimbursements by the advisor
II SHARES) ADJUSTED TO REFLECT THE RULE INCURRED DURING THE PERIOD COVERED BY THIS in effect through at least April 30,
12B-1 FEES APPLICABLE TO SERIES II SHARES. REPORT. 2010. See current prospectus for more
THE INCEPTION DATE OF SERIES I SHARES IS AIM V.I. UTILITIES FUND, A SERIES information.
DECEMBER 30, 1994. THE PERFORMANCE OF THE PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS,
FUND'S SERIES I AND SERIES II SHARE IS CURRENTLY OFFERED THROUGH INSURANCE
CLASSES WILL DIFFER PRIMARILY DUE TO COMPANIES ISSUING VARIABLE PRODUCTS. YOU
DIFFERENT CLASS EXPENSES. CANNOT PURCHASE SHARES OF THE FUND
THE PERFORMANCE DATA QUOTED REPRESENT DIRECTLY. PERFORMANCE FIGURES
PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS; CURRENT
PERFORMANCE MAY BE LOWER OR
AIM V.I. UTILITIES FUND
PORTFOLIO COMPOSITION
By industry, based on Net Assets
as of June 30, 2008
<Table>
- -------------------------------------------------------------------------
Electric Utilities 34.4%
- -------------------------------------------------------------------------
Multi-Utilities 24.8
- -------------------------------------------------------------------------
Gas Utilities 12.3
- -------------------------------------------------------------------------
Integrated Telecommunication Services 11.7
- -------------------------------------------------------------------------
Oil & Gas Storage & Transportation 8.4
- -------------------------------------------------------------------------
Independent Power Producers & Energy Traders 6.3
- -------------------------------------------------------------------------
Money Market Funds Plus Other Assets Less Liabilities 2.1
_________________________________________________________________________
=========================================================================
</Table>
SCHEDULE OF INVESTMENTS(a)
June 30, 2008
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCKS-97.94%
ELECTRIC UTILITIES-34.39%
Duke Energy Corp. 165,000 $ 2,867,700
- ------------------------------------------------------------------------------
E.ON A.G. (Germany)(b) 22,000 4,430,302
- ------------------------------------------------------------------------------
Edison International 98,000 5,035,240
- ------------------------------------------------------------------------------
Enel S.p.A. (Italy)(b)(c) 189,000 1,793,337
- ------------------------------------------------------------------------------
Entergy Corp. 48,000 5,783,040
- ------------------------------------------------------------------------------
Exelon Corp. 82,000 7,376,720
- ------------------------------------------------------------------------------
FirstEnergy Corp. 58,000 4,775,140
- ------------------------------------------------------------------------------
FPL Group, Inc. 91,000 5,967,780
- ------------------------------------------------------------------------------
Pepco Holdings, Inc. 128,000 3,283,200
- ------------------------------------------------------------------------------
Portland General Electric Co. 90,000 2,026,800
- ------------------------------------------------------------------------------
PPL Corp. 89,000 4,652,030
- ------------------------------------------------------------------------------
Southern Co. 49,000 1,711,080
==============================================================================
49,702,369
==============================================================================
GAS UTILITIES-12.30%
AGL Resources Inc. 90,000 3,112,200
- ------------------------------------------------------------------------------
Equitable Resources, Inc. 78,000 5,386,680
- ------------------------------------------------------------------------------
ONEOK, Inc. 78,000 3,808,740
- ------------------------------------------------------------------------------
Questar Corp. 77,000 5,470,080
==============================================================================
17,777,700
==============================================================================
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS-6.34%
Constellation Energy Group Inc. 49,000 4,022,900
- ------------------------------------------------------------------------------
NRG Energy, Inc.(d) 120,000 5,148,000
==============================================================================
9,170,900
==============================================================================
INTEGRATED TELECOMMUNICATION SERVICES-11.71%
Alaska Communications Systems Group Inc. 375,000 4,477,500
- ------------------------------------------------------------------------------
AT&T Inc. 231,000 7,782,390
- ------------------------------------------------------------------------------
Verizon Communications Inc. 132,000 4,672,800
==============================================================================
16,932,690
==============================================================================
MULTI-UTILITIES-24.76%
Ameren Corp. 87,000 3,674,010
- ------------------------------------------------------------------------------
CMS Energy Corp. 245,000 3,650,500
- ------------------------------------------------------------------------------
Dominion Resources, Inc. 82,000 3,894,180
- ------------------------------------------------------------------------------
National Grid PLC (United Kingdom)(b) 215,000 2,817,590
- ------------------------------------------------------------------------------
OGE Energy Corp. 26,000 824,460
- ------------------------------------------------------------------------------
PG&E Corp. 93,000 3,691,170
- ------------------------------------------------------------------------------
Public Service Enterprise Group Inc. 76,000 3,490,680
- ------------------------------------------------------------------------------
SCANA Corp. 25,000 925,000
- ------------------------------------------------------------------------------
Sempra Energy 91,000 5,136,950
- ------------------------------------------------------------------------------
Veolia Environnement (France)(b) 42,000 2,340,043
- ------------------------------------------------------------------------------
Wisconsin Energy Corp. 49,000 2,215,780
- ------------------------------------------------------------------------------
Xcel Energy, Inc. 156,000 3,130,920
==============================================================================
35,791,283
==============================================================================
OIL & GAS STORAGE & TRANSPORTATION-8.44%
El Paso Corp. 283,000 6,152,420
- ------------------------------------------------------------------------------
Williams Cos., Inc. (The) 150,000 6,046,500
==============================================================================
12,198,920
==============================================================================
Total Common Stocks (Cost $98,451,203) 141,573,862
==============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. UTILITIES FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------------
MONEY MARKET FUNDS-2.34%
Liquid Assets Portfolio-Institutional Class(e) 1,690,843 $ 1,690,843
- ------------------------------------------------------------------------------
Premier Portfolio-Institutional Class(e) 1,690,843 1,690,843
==============================================================================
Total Money Market Funds (Cost $3,381,686) 3,381,686
==============================================================================
TOTAL INVESTMENTS (excluding investments purchased
with cash collateral from securities on
loan)-100.28% (Cost $101,832,889) 144,955,548
==============================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON
LOAN
MONEY MARKET FUNDS-0.99%
Liquid Assets Portfolio-Institutional Class(e)(f) 1,424,375 1,424,375
==============================================================================
TOTAL INVESTMENTS-101.27% (Cost $103,257,264) 146,379,923
==============================================================================
OTHER ASSETS LESS LIABILITIES-(1.27)% (1,842,499)
==============================================================================
NET ASSETS-100.00% $144,537,424
______________________________________________________________________________
==============================================================================
</Table>
Notes to Schedule of Investments:
(a) Industry and/or sector classifications used in this report are generally
according to the Global Industry Classification Standard, which was
developed by and is the exclusive property and a service mark of MSCI Inc.
and Standard & Poor's.
(b) In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate value of these securities at June 30, 2008 was $11,381,272,
which represented 7.87% of the Fund's Net Assets. See Note 1A.
(c) All or a portion of this security was out on loan at June 30, 2008.
(d) Non-income producing security.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor.
(f) The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 1J.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. UTILITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008
(Unaudited)
<Table>
ASSETS:
Investments, at value (Cost
$98,451,203)* $141,573,862
- ------------------------------------------------------
Investments in affiliated money market
funds (Cost $4,806,061) 4,806,061
======================================================
Total investments (Cost
$103,257,264) 146,379,923
======================================================
Foreign currencies, at value (Cost
$18,805) 18,888
- ------------------------------------------------------
Receivables for:
Fund shares sold 30,689
- ------------------------------------------------------
Dividends 532,479
- ------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 43,601
- ------------------------------------------------------
Other assets 45
======================================================
Total assets 147,005,625
______________________________________________________
======================================================
LIABILITIES:
Payables for:
Investments purchased 509,099
- ------------------------------------------------------
Fund shares reacquired 361,875
- ------------------------------------------------------
Collateral upon return of securities
loaned 1,424,375
- ------------------------------------------------------
Accrued fees to affiliates 87,120
- ------------------------------------------------------
Accrued other operating expenses 32,283
- ------------------------------------------------------
Trustee deferred compensation and
retirement plans 53,449
======================================================
Total liabilities 2,468,201
======================================================
Net assets applicable to shares
outstanding $144,537,424
______________________________________________________
======================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 84,872,851
- ------------------------------------------------------
Undistributed net investment income 4,797,929
- ------------------------------------------------------
Undistributed net realized gain 11,729,209
- ------------------------------------------------------
Unrealized appreciation 43,137,435
======================================================
$144,537,424
______________________________________________________
======================================================
NET ASSETS:
Series I $141,841,629
______________________________________________________
======================================================
Series II $ 2,695,795
______________________________________________________
======================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 6,099,523
______________________________________________________
======================================================
Series II 116,924
______________________________________________________
======================================================
Series I:
Net asset value per share $ 23.25
______________________________________________________
======================================================
Series II:
Net asset value per share $ 23.06
______________________________________________________
======================================================
</Table>
* At June 30, 2008, securities with an aggregate value of $1,348,553 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the six months ended June 30, 2008
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding
taxes of $47,697) $ 2,386,886
- ------------------------------------------------------
Dividends from affiliated money market
funds (includes securities lending
income of $33,850) 99,046
======================================================
Total investment income 2,485,932
======================================================
EXPENSES:
Advisory fees 443,437
- ------------------------------------------------------
Administrative services fees 194,229
- ------------------------------------------------------
Custodian fees 6,734
- ------------------------------------------------------
Distribution fees -- Series II 3,373
- ------------------------------------------------------
Transfer agent fees 9,425
- ------------------------------------------------------
Trustees' and officer's fees and
benefits 10,283
- ------------------------------------------------------
Other 25,083
======================================================
Total expenses 692,564
======================================================
Less: Fees waived (4,165)
======================================================
Net expenses 688,399
======================================================
Net investment income 1,797,533
======================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM:
Net realized gain from:
Investment securities 2,497,551
- ------------------------------------------------------
Foreign currencies 1,233
======================================================
2,498,784
======================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (9,682,124)
- ------------------------------------------------------
Foreign currencies 8,605
======================================================
(9,673,519)
======================================================
Net realized and unrealized gain (loss) (7,174,735)
======================================================
Net increase (decrease) in net assets
resulting from operations $(5,377,202)
______________________________________________________
======================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. UTILITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2008 and the year ended December 31, 2007
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2008 2007
- --------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,797,533 $ 3,053,887
- --------------------------------------------------------------------------------------------------------
Net realized gain 2,498,784 12,120,624
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) (9,673,519) 12,996,939
========================================================================================================
Net increase (decrease) in net assets resulting from operations (5,377,202) 28,171,450
========================================================================================================
Distributions to shareholders from net investment income:
Series I -- (2,819,765)
- --------------------------------------------------------------------------------------------------------
Series II -- (60,178)
========================================================================================================
Total distributions from net investment income -- (2,879,943)
========================================================================================================
Distributions to shareholders from net realized gains:
Series I -- (7,308,544)
- --------------------------------------------------------------------------------------------------------
Series II -- (167,024)
========================================================================================================
Total distributions from net realized gains -- (7,475,568)
========================================================================================================
Share transactions-net:
Series I (8,648,895) (820,698)
- --------------------------------------------------------------------------------------------------------
Series II (477,094) 504,038
========================================================================================================
Net increase (decrease) in net assets resulting from share
transactions (9,125,989) (316,660)
========================================================================================================
Net increase (decrease) in net assets (14,503,191) 17,499,279
========================================================================================================
NET ASSETS:
Beginning of period 159,040,615 141,541,336
========================================================================================================
End of period (including undistributed net investment income of
$4,797,929 and $3,000,396, respectively) $144,537,424 $159,040,615
________________________________________________________________________________________________________
========================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Utilities Fund (the "Fund") is a series portfolio of AIM Variable
Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twenty
separate portfolios, (each constituting a "Fund").
The Fund currently offers two classes of shares, Series I and Series II, both
of which are offered to insurance company separate accounts funding variable
annuity contracts and variable life insurance policies ("variable products").
Matters affecting each Fund or class will be voted on exclusively by the
shareholders of such Fund or class. Current Securities and Exchange Commission
("SEC") guidance, however, requires participating insurance companies offering
separate accounts to vote shares proportionally in accordance with the
instructions of the contract owners whose investments are funded by shares of
each Fund or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objectives are capital growth and income.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on
that day. Securities traded in the over-the-counter market are valued
based on prices furnished by independent pricing services or market
makers. When such securities are valued by an independent pricing service
they may be considered fair valued. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally
traded. Listed options are valued at the mean between the last bid and the
ask prices from the exchange on which they are principally traded. Options
not listed on an exchange are valued by an independent source at the mean
between the last bid and ask prices. For purposes of determining net asset
value per share, futures and option contracts generally are valued 15
minutes after the close of the customary trading session of the New York
Stock Exchange ("NYSE").
Investments in open-end and closed-end registered investment companies
that do not trade on an exchange are valued at the end of day net asset
value per share. Investments in open-end and closed-end registered
investment companies that trade on an exchange are valued at the last
sales price or official closing price as of the close of the customary
trading session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing
service. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to specific securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Short-term obligations, including
commercial paper, having 60 days or less to maturity are recorded at
amortized cost which approximates value. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve
some risk of default with respect to interest and/or principal payments.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued
at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price
unreliable, the Fund may fair value the security. If the event is likely
to have affected the closing price of the security, the security will be
valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also
be based on a screening process of an independent pricing service to
indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trades is
not the current value as of the close of the NYSE. Foreign securities
meeting the approved degree of certainty that the price is not reflective
of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, American
Depositary Receipts and domestic and foreign index futures. Foreign
securities may have additional risks including exchange rate changes,
potential for sharply devalued currencies and high inflation, political
and economical upheaval, the relative lack of issuer information,
relatively low market liquidity and the potential lack of strict financial
and accounting controls and standards.
Securities for which market prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers following procedures
approved by the Board of Trustees. Issuer specific events, market trends,
bid/ask quotes of brokers and information providers and other market data
may be reviewed in the course of making a good faith determination of a
security's fair value.
Valuations change in response to many factors including the historical
and prospective earnings of the issuer, the value of the issuer's assets,
general economic conditions, interest rates, investor perceptions and
market liquidity.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
AIM V.I. UTILITIES FUND
The Fund may periodically participate in litigation related to Fund
investments. As such, the Fund may receive proceeds from litigation
settlements. Any proceeds as received are included in the Statement of
Operations as realized gain/loss for investments no longer held and as
unrealized gain/loss for investments still held.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, the investment
advisor may determine the country in which an issuer is located and/or
credit risk exposure based on various factors. These factors include the
laws of the country under which the issuer is organized, where the issuer
maintains a principal office, the country in which the issuer derives 50%
or more of its total revenues and the country that has the primary market
for the issuer's securities, as well as other criteria. Among the other
criteria that may be evaluated for making this determination are the
country in which the issuer maintains 50% or more of its assets, the type
of security, financial guarantees and enhancements, the nature of the
collateral and the sponsor organization. Country of issuer and/or credit
risk exposure has been determined to be the United States of America
unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements
of Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial
statements.
The Fund files tax returns in the U.S. Federal jurisdiction and certain
other jurisdictions. Generally the Fund is subject to examinations by such
taxing authorities for up to three years after the filing of the return
for the tax period.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates by a
significant amount.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities
that may arise out of performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into
contracts that contain a variety of indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification
claims is considered remote.
I. OTHER RISKS -- The Fund's investments are concentrated in a comparatively
narrow segment of the economy. Consequently, the Fund may tend to be more
volatile than other mutual funds, and the value of the Fund's investments
may tend to rise and fall more rapidly.
A large percentage of the Fund's assets may be invested in securities of
a limited number of companies, each investment has a greater effect on the
Fund's overall performance, and any change in the value of those
securities could significantly affect the value of your investment in the
Fund.
Government regulation, difficulties in obtaining adequate financing and
investment return, environmental issues, prices of fuel for generation of
electricity, availability of natural gas, risks associated with power
marketing and trading, and risks associated with nuclear power facilities
may adversely affect the market value of the Fund's holdings.
J. SECURITIES LENDING -- The Fund may lend portfolio securities having a
market value up to one-third of the Fund's total assets. Such loans are
secured by collateral equal to no less than the market value of the loaned
securities determined daily by the securities lending provider. Such
collateral will be cash or debt securities issued or guaranteed by the
U.S. Government or any of its sponsored agencies. Cash collateral received
in connection with these loans is invested in short-term money market
instruments or affiliated money market funds and is shown as such on the
Schedule of Investments. It is the Fund's policy to obtain additional
collateral from or return excess collateral to the borrower by the end of
the next business day, following the valuation date of the securities
loaned. Therefore, the value of the collateral held may be temporarily
less than the value of the securities on loan. Lending securities entails
a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase
the collateral accordingly, and the borrower fails to return the
securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any
loss on the collateral invested. Dividends received on cash collateral
investments for securities lending transactions, which are net of
compensation to counterparties, is included in Dividends from affiliates
on the Statement of Operations. The aggregate value of securities out on
loan is shown as a footnote on the Statement of Assets and Liabilities.
K. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close
of the NYSE based on quotations posted by banks and major currency
dealers. Portfolio securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated
AIM V.I. UTILITIES FUND
into U.S. dollar amounts on the respective dates of such transactions. The
Fund does not separately account for the portion of the results of
operations resulting from changes in foreign exchange rates on investments
and the fluctuations arising from changes in market prices of securities
held. The combined results of changes in foreign exchange rates and the
fluctuation of market prices on investments (net of estimated foreign tax
withholding) are included with the net realized and unrealized gain or
loss from investments in the Statement of Operations. Reported net
realized foreign currency gains or losses arise from (i) sales of foreign
currencies, (ii) currency gains or losses realized between the trade and
settlement dates on securities transactions, and (iii) the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign currency gains and
losses arise from changes in the fair values of assets and liabilities,
other than investments in securities at fiscal period end, resulting from
changes in exchange rates.
The Fund may invest in foreign securities which may be subject to
foreign taxes on income, gains on investments or currency repatriation, a
portion of which may be recoverable.
L. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. Fluctuations in the value of these contracts are recorded as
unrealized appreciation (depreciation) until the contracts are closed.
When these contracts are closed, realized gains (losses) are recorded.
Realized and unrealized gains and losses on these contracts are included
in the Statement of Operations. The Fund could be exposed to risk, which
may be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with Invesco
Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the
investment advisory agreement, the Fund pays an advisory fee to the Advisor
based on the annual rate of 0.60% of the Fund's average daily net assets.
Under the terms of a master sub-advisory agreement approved by shareholders of
the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and
each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management
Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited,
Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco
Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco
Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the
Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub-
Advisor(s) that provide discretionary investment management services to the Fund
based on the percentage of assets allocated to such Sub-Advisor(s).
The Advisor has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 0.93% and Series
II shares to 1.18% of average daily net assets, through at least April 30, 2010.
In determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
net annual operating expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items; (v) expenses related to a merger or reorganization, as approved by the
Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with Invesco Ltd. ("Invesco")
described more fully below, the only expense offset arrangements from which the
Fund may benefit are in the form of credits that the Fund receives from banks
where the Fund or its transfer agent has deposit accounts in which it holds
uninvested cash. These credits are used to pay certain expenses incurred by the
Fund. To the extent that the annualized expense ratio does not exceed the
expense limitation, the Advisor will retain its ability to be reimbursed for
such fee waivers or reimbursements prior to the end of each fiscal year.
Further, the Advisor has contractually agreed, through at least April 30,
2010, to waive the advisory fee payable by the Fund in an amount equal to 100%
of the net advisory fees the Advisor receives from the affiliated money market
funds on investments by the Fund of uninvested cash (but not cash collateral
from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2008, the Advisor waived advisory fees of
$4,165.
At the request of the Trustees of the Trust, Invesco agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the six months ended June 30, 2008, Invesco did not
reimburse any expenses.
The Trust has entered into a master administrative services agreement with
Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for
costs incurred in providing accounting services and fund administrative services
to the Fund and to reimburse Invesco Aim for administrative services fees paid
to insurance companies that have agreed to provide services to the participants
of separate accounts. These administrative services provided by the insurance
companies may include, among other things: the printing of prospectuses,
financial reports and proxy statements and the delivery of the same to existing
participants; the maintenance of master accounts; the facilitation of purchases
and redemptions requested by the participants; and the servicing of
participants' accounts. Pursuant to such agreement, for the six months ended
June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund
administrative services and reimbursed $169,366 for services provided by
insurance companies.
The Trust has entered into a transfer agency and service agreement with
Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has
agreed to pay IAIS a fee for providing transfer agency and shareholder services
to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the
course of providing such services. For the six months ended June 30, 2008,
expenses incurred under the agreement are shown in the Statement of Operations
as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Aim
Distributors, Inc. ("IADI") to serve as the distributor for the Fund. The Trust
has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Series II shares (the "Plan"). The Fund, pursuant to the Plan, pays IADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Series II shares. Of the Plan payments, up to 0.25% of the average daily net
assets of the Series II shares may be paid to insurance companies who furnish
continuing personal shareholder services to customers who purchase and own
AIM V.I. UTILITIES FUND
Series II shares of the Fund. For the six months ended June 30, 2008, expenses
incurred under the Plan are detailed in the Statement of Operations as
distribution fees.
Certain officers and trustees of the Trust are officers and directors of
Invesco Aim, IAIS and/or IADI.
NOTE 3--SUPPLEMENTAL INFORMATION
The Fund adopted the provisions of Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of
the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the
inputs to valuation methods giving the highest priority to readily available
unadjusted quoted prices in an active market for identical assets (level 1) and
the lowest priority to unobservable inputs (level 3) market prices are not
readily available or are unreliable. Based on the inputs the securities or other
instruments are tiered into three levels of hierarchy under SFAS 157. Changes in
valuation methods may result in transfers in or out of an investment's assigned
level within the hierarchy,
Level 1 -- Quoted prices in an active market for identical assets.
Level 2 -- Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest
rates, prepayment speeds, credit risk and others.
Level 3 -- Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for
example, when there is little or no market activity for an investment at the end
of the period), unobservable inputs may be used. Unobservable inputs reflect the
Fund's own assumptions about the factors market participants would use in
determining fair value of the securities or instruments and would be based on
the best available information.
Below is a summary of the tiered input levels, as of the end of the reporting
period, June 30, 2008. The inputs or methods used for valuing securities may not
be an indication of the risk associated with investing in those securities.
<Table>
<Caption>
INVESTMENTS IN
INPUT LEVEL SECURITIES
- ------------------------------------
Level 1 $134,998,651
- ------------------------------------
Level 2 11,381,272
- ------------------------------------
Level 3 --
====================================
$146,379,923
____________________________________
====================================
</Table>
NOTE 4--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to certain Trustees and Officers of the Fund. Trustees have
the option to defer compensation payable by the Fund, and "Trustees' and
Officer's Fees and Benefits" also include amounts accrued by the Fund to fund
such deferred compensation amounts. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested. Finally, certain current Trustees are eligible to
participate in a retirement plan that provides for benefits to be paid upon
retirement to Trustees over a period of time based on the number of years of
service. The Fund may have certain former Trustees who also participate in a
retirement plan and receive benefits under such plan. "Trustees' and Officer's
Fees and Benefits" include amounts accrued by the Fund to fund such retirement
benefits. Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2008, the Fund paid legal fees of $1,679
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--CASH BALANCES
The Fund is permitted to temporarily carry a negative or overdrawn balance in
its account with The State Street Bank and Trust Company ("SSB"), the custodian
bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund
may either (i) leave funds as a compensating balance in the account so the
custodian bank can be compensated by earning the additional interest; or (ii)
compensate by paying the custodian bank at a rate agreed upon by the custodian
bank and Invesco Aim, not to exceed the contractually agreed upon rate.
AIM V.I. UTILITIES FUND
NOTE 6--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as to utilizing
$919,463 of capital loss carryforward in the fiscal year ended December 31,
2008.
The Fund had a capital loss carryforward as of December 31, 2007 which expires
as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ---------------------------------------------------------------------------------
December 31, 2009 $1,839,286
_________________________________________________________________________________
=================================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the six months ended June 30, 2008 was $17,273,713 and
$23,290,622, respectively. Cost of investments on a tax basis includes the
adjustments for financial reporting purposes as of the most recently completed
Federal income tax reporting period end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $45,387,999
- -----------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,424,165)
===============================================================================================
Net unrealized appreciation of investment securities $42,963,834
_______________________________________________________________________________________________
===============================================================================================
Cost of investments for tax purposes is $103,416,089.
</Table>
NOTE 8--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2008(a) DECEMBER 31, 2007
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 797,449 $ 18,347,815 2,496,664 $ 59,127,619
- ------------------------------------------------------------------------------------------------------------------------
Series II 15,238 342,475 47,500 1,114,914
========================================================================================================================
Issued as reinvestment of dividends:
Series I -- -- 416,289 10,128,309
- ------------------------------------------------------------------------------------------------------------------------
Series II -- -- 9,404 227,202
========================================================================================================================
Reacquired:
Series I (1,195,105) (26,996,710) (2,965,731) (70,076,626)
- ------------------------------------------------------------------------------------------------------------------------
Series II (36,683) (819,569) (35,116) (838,078)
========================================================================================================================
(419,101) $ (9,125,989) (30,990) $ (316,660)
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There are entities that are record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate own 61% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, Invesco
Aim and/or Invesco Aim affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services to
the Fund, Invesco Aim and or Invesco Aim affiliates including but not
limited to services such as, securities brokerage, third party record
keeping and account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record by
these entities are also owned beneficially.
AIM V.I. UTILITIES FUND
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------------
2008 2007 2006 2005 2004 2003
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.97 $ 21.23 $ 17.83 $ 15.61 $ 12.95 $ 11.16
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.28 0.47 0.47 0.42 0.42 0.33
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (1.00) 3.94 4.06 2.21 2.57 1.60
==============================================================================================================================
Total from investment operations (0.72) 4.41 4.53 2.63 2.99 1.93
==============================================================================================================================
Less distributions:
Dividends from net investment income -- (0.47) (0.70) (0.41) (0.33) (0.14)
- ------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (1.20) (0.43) -- -- --
==============================================================================================================================
Total distributions -- (1.67) (1.13) (0.41) (0.33) (0.14)
==============================================================================================================================
Net asset value, end of period $ 23.25 $ 23.97 $ 21.23 $ 17.83 $ 15.61 $ 12.95
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) (3.00)% 20.64% 25.46% 16.83% 23.65% 17.38%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $141,842 $155,748 $139,080 $114,104 $159,554 $62,510
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 0.93%(c) 0.93% 0.93% 0.93% 1.01% 1.08%
- ------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 0.94%(c) 0.94% 0.96% 0.96% 1.01% 1.08%
==============================================================================================================================
Ratio of net investment income to average
net assets 2.44%(c) 1.97% 2.40% 2.49% 3.09% 2.84%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate(d) 12% 30% 38% 49% 52% 58%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of
$145,911,705.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. UTILITIES FUND
NOTE 9--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-------------------------------------------------------------------------
APRIL 30, 2004
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT DATE)
JUNE 30, ---------------------------- TO DECEMBER 31,
2008 2007 2006 2005 2004
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $23.80 $21.12 $17.76 $15.57 $12.63
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.25 0.41 0.42 0.38 0.26
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.99) 3.91 4.06 2.20 2.68
========================================================================================================================
Total from investment operations (0.74) 4.32 4.48 2.58 2.94
========================================================================================================================
Less distributions:
Dividends from net investment income -- (0.44) (0.69) (0.39) --
- ------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (1.20) (0.43) -- --
========================================================================================================================
Total distributions -- (1.64) (1.12) (0.39) --
========================================================================================================================
Net asset value, end of period $23.06 $23.80 $21.12 $17.76 $15.57
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) (3.11)% 20.32% 25.25% 16.55% 23.28%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,696 $3,293 $2,462 $ 801 $ 602
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.18%(c) 1.18% 1.18% 1.18% 1.28%(d)
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.19%(c) 1.19% 1.21% 1.21% 1.28%(d)
========================================================================================================================
Ratio of net investment income to average
net assets 2.19%(c) 1.72% 2.15% 2.24% 2.82%(d)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(e) 12% 30% 38% 49% 52%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
(c) Ratios are annualized and based on average daily net assets of $2,712,812.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 10--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to Invesco Aim and IADI (Order No. 05-
1318). The WVASC makes findings of fact that Invesco Aim and IADI entered into
certain arrangements permitting market timing of the AIM Funds and failed to
disclose these arrangements in the prospectuses for such Funds, and conclusions
of law to the effect that Invesco Aim and IADI violated the West Virginia
securities laws. The WVASC orders Invesco Aim and IADI to cease any further
violations and seeks to impose monetary sanctions, including restitution to
affected investors, disgorgement of fees, reimbursement of investigatory,
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute. By agreement with the Commissioner of
Securities, Invesco Aim's time to respond to that Order has been indefinitely
suspended.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, Invesco Funds Group,
Inc. ("IFG"), Invesco Aim, IADI and/or related entities and individuals,
depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds; and
- that certain AIM Funds inadequately employed fair value pricing.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
negligence, breach of fiduciary duty and/or breach of contract. These lawsuits
seek remedies that include, depending on the lawsuit, damages, restitution,
injunctive relief, imposition of a constructive trust, removal of certain
directors and/or employees, various corrective measures under ERISA, rescission
of certain AIM Funds' advisory agreements and/or distribution plans and recovery
of all fees paid. The case pending in Illinois State Court regarding fair value
pricing was dismissed with prejudice on May 6, 2008.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various Invesco Aim- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA
purportedly brought on behalf of participants in the Invesco 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds
AIM V.I. UTILITIES FUND
NOTE 10--LEGAL PROCEEDINGS--(CONTINUED)
remain nominal defendants in the Consolidated Amended Fund Derivative Complaint.
On September 15, 2006, the MDL Court granted the Invesco defendants' motion to
dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed
such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth
Court of Appeals reversed the dismissal and remanded this lawsuit back to the
MDL Court for further proceedings.
IFG, Invesco Aim, IADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, Invesco Aim and IADI have advised the Fund that they are providing
full cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, Invesco Aim and/or related entities and individuals in the
future.
At the present time, management of Invesco Aim and the Fund are unable to
estimate the impact, if any, that the outcome of the Pending Litigation and
Regulatory Inquiries described above may have on Invesco Aim, IADI or the Fund.
AIM V.I. UTILITIES FUND
NOTE 10--LEGAL PROCEEDINGS--(CONTINUED)
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-1); and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period January 1, 2008,
through June 30, 2008.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs. Therefore, the hypothetical information is useful in comparing
ongoing costs, and will not help you determine the relative total costs of
owning different funds.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
HYPOTHETICAL
(5% ANNUAL RETURN BEFORE
ACTUAL EXPENSES)
------------------------------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO
- ---------------------------------------------------------------------------------------------------
Series I $1,000.00 $970.00 $4.56 $1,020.24 $4.67 0.93%
- ---------------------------------------------------------------------------------------------------
Series II 1,000.00 968.90 5.78 1,019.00 5.92 1.18
- ---------------------------------------------------------------------------------------------------
</Table>
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2008, through June 30, 2008, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5%
before expenses.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
182/366 to reflect the most recent fiscal half year.
AIM V.I. UTILITIES FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees (the Board) of AIM comparative performance and fee data ent weight to the various factors. The
Variable Insurance Funds is required under regarding the AIM Funds prepared by an Trustees recognized that the advisory
the Investment Company Act of 1940 to independent company, Lipper, Inc. arrangements and resulting advisory fees
approve annually the renewal of the AIM (Lipper), under the direction and for the Fund and the other AIM Funds are
V.I. Utilities Fund (the Fund) investment supervision of the independent Senior the result of years of review and
advisory agreement with Invesco Aim Officer who also prepares a separate negotiation between the Trustees and
Advisors, Inc. (Invesco Aim). During analysis of this information for the Invesco Aim, that the Trustees may focus
contract renewal meetings held on June Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of
18-19, 2008, the Board as a whole and the recommendations to the Investments these arrangements in some years than in
disinterested or "independent" Trustees, Committee regarding the performance, fees others, and that the Trustees'
voting separately, approved the and expenses of their assigned funds. The deliberations and conclusions in a
continuance of the Fund's investment Investments Committee considers each particular year may be based in part on
advisory agreement for another year, Sub-Committee's recommendations and makes their deliberations and conclusions of
effective July 1, 2008. In doing so, the its own recommendations regarding the these same arrangements throughout the
Board determined that the Fund's performance, fees and expenses of the AIM year and in prior years.
investment advisory agreement is in the Funds to the full Board. The Investments
best interests of the Fund and its Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF
shareholders and that the compensation to Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION
Invesco Aim under the Fund's investment its annual recommendation to the Board The discussion below serves as a summary
advisory agreement is fair and reasonable. whether to approve the continuance of each of the Senior Officer's independent
The independent Trustees met separately AIM Fund's investment advisory agreement written evaluation with respect to the
during their evaluation of the Fund's and sub-advisory agreements for another Fund's investment advisory agreement as
investment advisory agreement with year. well as a discussion of the material
independent legal counsel from whom they The independent Trustees are assisted factors and related conclusions that
received independent legal advice, and the in their annual evaluation of the Fund's formed the basis for the Board's approval
independent Trustees also received investment advisory agreement by the of the Fund's investment advisory
assistance during their deliberations from independent Senior Officer. One agreement and sub-advisory agreements.
the independent Senior Officer, a responsibility of the Senior Officer is to Unless otherwise stated, information set
full-time officer of the AIM Funds who manage the process by which the AIM Funds' forth below is as of June 19, 2008 and
reports directly to the independent proposed management fees are negotiated does not reflect any changes that may have
Trustees. during the annual contract renewal process occurred since that date, including but
to ensure that they are negotiated in a not limited to changes to the Fund's
THE BOARD'S FUND EVALUATION PROCESS manner that is at arms' length and performance, advisory fees, expense
The Board's Investments Committee has reasonable. Accordingly, the Senior limitations and/or fee waivers.
established three Sub-Committees that are Officer must either supervise a
responsible for overseeing the management competitive bidding process or prepare an I. Investment Advisory Agreement
of a number of the series portfolios of independent written evaluation. The Senior A. Nature, Extent and Quality of
the AIM Funds. This Sub-Committee Officer has recommended that an Services Provided by Invesco Aim
structure permits the Trustees to focus on independent written evaluation be provided The Board reviewed the advisory services
the performance of the AIM Funds that have and, at the direction of the Board, has provided to the Fund by Invesco Aim under
been assigned to them. The Sub-Committees prepared an independent written the Fund's investment advisory agreement,
meet throughout the year to review the evaluation. the performance of Invesco Aim in
performance of their assigned funds, and During the annual contract renewal providing these services, and the
the Sub-Committees review monthly and process, the Board considered the factors credentials and experience of the officers
quarterly comparative performance discussed below under the heading "Factors and employees of Invesco Aim who provide
information and periodic asset flow data and Conclusions and Summary of Independent these services. The Board's review of the
for their assigned funds. These materials Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide
are prepared under the direction and fairness and reasonableness of the Fund's these services included the Board's
supervision of the independent Senior investment advisory agreement and consideration of Invesco Aim's portfolio
Officer. Over the course of each year, the sub-advisory agreements at the contract and product review process, various back
Sub-Committees meet with portfolio renewal meetings and at their meetings office support functions provided by
managers for their assigned funds and throughout the year as part of their Invesco Aim and its affiliates, and
other members of management and review ongoing oversight of the Fund. The Fund's Invesco Aim's equity and fixed income
with these individuals the performance, investment advisory agreement and trading operations. The Board concluded
investment objective(s), policies, sub-advisory agreements were considered that the nature, extent and quality of the
strategies and limitations of these funds. separately, although the Board also advisory services provided to the Fund by
In addition to their meetings considered the common interests of all of Invesco Aim were appropriate and that
throughout the year, the Sub-Committees the AIM Funds in their deliberations. The Invesco Aim currently is providing
meet at designated contract renewal Board considered all of the information satisfactory advisory services in
meetings each year to conduct an in-depth provided to them and did not identify any accordance with the terms of the Fund's
review of the performance, fees and particular factor that was controlling. investment advisory agreement. In
expenses of their assigned funds. During Each Trustee may have evaluated the addition, based on their ongoing meetings
the contract renewal process, the Trustees information provided differently from one throughout the year with the Fund's
receive another and attributed differ portfolio manager or managers, the Board
concluded that
continued
AIM V.I. UTILITIES FUND
these individuals are competent and able to the Board's focus on fund performance. or expense limitations. The Board noted
to continue to carry out their Although the independent written that the Fund's contractual advisory fee
responsibilities under the Fund's evaluation of the Fund's Senior Officer schedule does not include any breakpoints.
investment advisory agreement. only considered Fund performance through The Board considered whether it would be
In determining whether to continue the the most recent calendar year, the Board appropriate to add advisory fee
Fund's investment advisory agreement, the also reviewed more recent Fund performance breakpoints for the Fund or whether, due
Board considered the prior relationship and this review did not change their to the nature of the Fund and the advisory
between Invesco Aim and the Fund, as well conclusions. fee structures of comparable funds, it was
as the Board's knowledge of Invesco Aim's reasonable to structure the advisory fee
operations, and concluded that it was C. Advisory Fees and Fee Waivers without breakpoints. Based on this review,
beneficial to maintain the current The Board compared the Fund's contractual the Board concluded that it was not
relationship, in part, because of such advisory fee rate to the contractual necessary to add breakpoints to the Fund's
knowledge. The Board also considered the advisory fee rates of funds in the Fund's advisory fee schedule. Based on this
steps that Invesco Aim and its affiliates Lipper expense group that are not managed information, the Board concluded that,
have taken over the last several years to by Invesco Aim, at a common asset level absent breakpoints, the Fund's contractual
improve the quality and efficiency of the and as of the end of the past calendar advisory fees remain constant and do not
services they provide to the AIM Funds in year. The Board noted that the Fund's reflect economies of scale. The Board also
the areas of investment performance, contractual advisory fee rate was below noted that the Fund shares directly in
product line diversification, the median contractual advisory fee rate economies of scale through lower fees
distribution, fund operations, shareholder of funds in its expense group. The Board charged by third party service providers
services and compliance. The Board also reviewed the methodology used by based on the combined size of all of the
concluded that the quality and efficiency Lipper in determining contractual fee AIM Funds and affiliates.
of the services Invesco Aim and its rates.
affiliates provide to the AIM Funds in The Board also compared the Fund's E. Profitability and Financial
each of these areas have generally effective fee rate (the advisory fee after Resources of Invesco Aim
improved, and support the Board's approval any advisory fee waivers and before any The Board reviewed information from
of the continuance of the Fund's expense limitations/waivers) to the Invesco Aim concerning the costs of the
investment advisory agreement. advisory fee rates of other clients of advisory and other services that Invesco
Invesco Aim and its affiliates with Aim and its affiliates provide to the Fund
B. Fund Performance investment strategies comparable to those and the profitability of Invesco Aim and
Because there were only four funds of the Fund, including one mutual fund its affiliates in providing these
identified by Invesco Aim in the Funds advised by Invesco Aim. The Board noted services. The Board also reviewed
performance group for inclusion in the that the Fund's rate was below the rate information concerning the financial
Lipper reports, the Board compared the for the other mutual fund. condition of Invesco Aim and its
Fund's performance during the past one, The Board noted that Invesco Aim has affiliates. The Board also reviewed with
three and five calendar years to the contractually agreed to waive fees and/or Invesco Aim the methodology used to
performance of funds in the Fund's limit expenses of the Fund through at prepare the profitability information. The
performance universe identified by Lipper, least April 30, 2010 in an amount Board considered the overall profitability
and against the performance of all funds necessary to limit total annual operating of Invesco Aim, as well as the
in the Lipper Variable Annuity Underlying expenses to a specified percentage of profitability of Invesco Aim in connection
Funds - Utility Index. The Board also average daily net assets for each class of with managing the Fund. The Board noted
reviewed the criteria used by Invesco Aim the Fund. The Board considered the that Invesco Aim continues to operate at a
to identify the funds in the Fund's contractual nature of this fee waiver and net profit, although increased expenses in
performance group for inclusion in the noted that it remains in effect until at recent years have reduced the
Lipper reports and the methodology used by least April 30, 2010. The Board also profitability of Invesco Aim and its
Lipper to identify the performance considered the effect this expense affiliates. The Board concluded that the
universe. The Board noted that the Fund's limitation would have on the Fund's Fund's fees were fair and reasonable, and
performance was in the third quintile of estimated total expenses. that the level of profits realized by
its Lipper performance universe for the After taking account of the Fund's Invesco Aim and its affiliates from
one and five year periods and the second contractual advisory fee rate, as well as providing services to the Fund was not
quintile for the three year period (the the comparative advisory fee information excessive in light of the nature, quality
first quintile being the best performing and the expense limitation discussed and extent of the services provided. The
funds and the fifth quintile being the above, the Board concluded that the Fund's Board considered whether Invesco Aim is
worst performing funds). The Board noted advisory fees were fair and reasonable. financially sound and has the resources
that the Fund's performance was below the necessary to perform its obligations under
performance of the Index for the one and D. Economies of Scale and Breakpoints the Fund's investment advisory agreement,
five year periods and above the Index for The Board considered the extent to which and concluded that Invesco Aim has the
the three year period. The Board also there are economies of scale in Invesco financial resources necessary to fulfill
considered the steps Invesco Aim has taken Aim's provision of advisory services to these obligations.
over the last several years to improve the the Fund. The Board also considered
quality and efficiency of the services whether the Fund benefits from such F. Independent Written Evaluation of
that Invesco Aim provides to the AIM economies of scale through contractual the Fund's Senior Officer
Funds. The Board concluded that Invesco breakpoints in the Fund's advisory fee The Board noted that, at their direction,
Aim continues to be responsive schedule or through advisory fee waivers the Senior Officer of the Fund, who is
independent of Invesco Aim and Invesco
continued
AIM V.I. UTILITIES FUND
Aim's affiliates, had prepared an Fund's uninvested cash and cash collateral by permitting Invesco Aim to utilize the
independent written evaluation to assist from any securities lending arrangements additional resources and talent of the
the Board in determining the may be invested in money market funds Affiliated Sub-Advisers in managing the
reasonableness of the proposed management advised by Invesco Aim pursuant to Fund.
fees of the AIM Funds, including the Fund. procedures approved by the Board. The
The Board noted that they had relied upon Board noted that Invesco Aim will receive B. Fund Performance
the Senior Officer's written evaluation advisory fees from these affiliated money The Board did not view Fund performance as
instead of a competitive bidding process. market funds attributable to such a relevant factor in considering whether
In determining whether to continue the investments, although Invesco Aim has to approve the sub-advisory agreements for
Fund's investment advisory agreement, the contractually agreed to waive through at the Fund, as no Affiliated Sub-Adviser
Board considered the Senior Officer's least April 30, 2010, the advisory fees currently manages any portion of the
written evaluation. payable by the Fund in an amount equal to Fund's assets.
100% of the net advisory fees Invesco Aim
G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees
and its Affiliates funds with respect to the Fund's The Board considered the services to be
The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers
benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements
affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco
relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment
fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the
affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and
administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to
distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board
Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no
Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its
providing these services and the shareholders. shareholders, as they are paid by Invesco
organizational structure employed by Aim to the Affiliated Sub-Advisers, and
Invesco Aim and its affiliates to provide II Sub-Advisory Agreements that Invesco Aim and the Affiliated
these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking
that these services are provided to the Services Provided by Affiliated account of the Fund's contractual
Fund pursuant to written contracts which Sub-Advisers sub-advisory fee rate, as well as other
are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that
basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and
that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, reasonable.
providing these services in a satisfactory Invesco Asset Management Limited, Invesco
manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco D. Financial Resources of the
their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers
continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each
Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially
The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to
realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its
portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and
through "soft dollar" arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser
these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to
commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations.
funds advised by Invesco Aim are used to Sub-Advisers who will provide these
pay for research and execution services. services. The Board concluded that the
The Board noted that soft dollar nature, extent and quality of the services
arrangements shift the payment obligation to be provided by the Affiliated
for the research and execution services Sub-Advisers were appropriate. The Board
from Invesco Aim to the funds and noted that the Affiliated Sub-Advisers,
therefore may reduce Invesco Aim's which have offices and personnel that are
expenses. The Board also noted that geographically dispersed in financial
research obtained through soft dollar centers around the world, have been formed
arrangements may be used by Invesco Aim in in part for the purpose of researching and
making investment decisions for the Fund compiling information and making
and may therefore benefit Fund recommendations on the markets and
shareholders. The Board concluded that economies of various countries and
Invesco Aim's soft dollar arrangements securities of companies located in such
were appropriate. The Board also concluded countries or on various types of
that, based on their review and investments and investment techniques, and
representations made by Invesco Aim, these providing investment advisory services.
arrangements were consistent with The Board concluded that the sub-advisory
regulatory requirements. agreements will benefit the Fund and its
The Board considered the fact that the shareholders
AIM V.I. UTILITIES FUND
NOTE 10--LEGAL PROCEEDINGS--(CONTINUED)
PROXY RESULTS
A Special Meeting ("Meeting") of Shareholders of AIM V.I. Utilities Fund, an
investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust
("Trust"), was held on February 29, 2008. The Meeting was held for the following
purposes:
(1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom
will serve until his or her successor is elected and qualified.
(2) Approve an amendment to the Trust's Agreement and Declaration of Trust
that would permit the Board of Trustees of the Trust to terminate the
Trust, the Fund, and each other series portfolio of the Trust, or a share
class without a shareholder vote.
(3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc.
and each of AIM Funds Management, Inc.; Invesco Asset Management
Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset
Management (Japan) Limited; Invesco Australia Limited; Invesco Global
Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco
Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc.
(4)(a) Approve modification of fundamental restriction on issuer
diversification.
(4)(b) Approve modification of fundamental restrictions on issuing senior
securities and borrowing money.
(4)(c) Approve modification of fundamental restriction on underwriting
securities.
(4)(d) Approve modification of fundamental restriction on industry
concentration.
(4)(e) Approve modification of fundamental restriction on real estate
investments.
(4)(f) Approve modification of fundamental restriction on purchasing or selling
commodities.
(4)(g) Approve modification of fundamental restriction on making loans.
(4)(h) Approve modification of fundamental restriction on investments in
investment companies.
(5) Approve making the investment objective of the fund non-fundamental.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
MATTERS VOTES FOR ABSTENTIONS**
- ------------------------------------------------------------------------------------------------------------
(1)* Bob R. Baker.................................................... 474,883,590 19,741,622
Frank S. Bayley................................................. 474,653,109 19,972,103
James T. Bunch.................................................. 475,597,417 19,027,795
Bruce L. Crockett............................................... 474,900,579 19,724,633
Albert R. Dowden................................................ 474,749,929 19,875,283
Jack M. Fields.................................................. 475,205,840 19,419,372
Martin L. Flanagan.............................................. 475,248,336 19,376,876
Carl Frischling................................................. 474,453,674 20,171,538
Prema Mathai-Davis.............................................. 473,569,192 21,056,020
Lewis F. Pennock................................................ 475,072,501 19,552,711
Larry Soll, Ph.D................................................ 475,170,544 19,454,668
Raymond Stickel, Jr. ........................................... 475,420,825 19,204,387
Philip A. Taylor................................................ 475,640,570 18,984,642
</Table>
<Table>
<Caption>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
- --------------------------------------------------------------------------------------------------------------------
(2)* Approve an amendment to the Trust's Agreement and
Declaration of Trust that would permit the Board of
Trustees of the Trust to terminate the Trust, the Fund,
and each other series portfolio of the Trust, or a share
class without a shareholder vote........................ 438,131,484 35,586,925 20,906,803
(3) Approve a new sub-advisory agreement between Invesco Aim
Advisors, Inc. and each of AIM Funds Management, Inc.;
Invesco Asset Management Deutschland, GmbH; Invesco
Asset Management Limited; Invesco Asset Management
(Japan) Limited; Invesco Australia Limited; Invesco
Global Asset Management (N.A.), Inc.; Invesco Hong Kong
Limited; Invesco Institutional (N.A.), Inc.; and Invesco
Senior Secured Management, Inc.......................... 5,523,791 298,546 264,095
(4)(a) Approve modification of fundamental restriction on
issuer diversification.................................. 5,573,223 304,778 208,431
(4)(b) Approve modification of fundamental restrictions on
issuing senior securities and borrowing money........... 5,563,200 305,272 217,960
(4)(c) Approve modification of fundamental restriction on
underwriting securities................................. 5,573,223 304,778 208,431
(4)(d) Approve modification of fundamental restriction on
industry concentration.................................. 5,573,223 305,306 207,903
(4)(e) Approve modification of fundamental restriction on real
estate investments...................................... 5,557,483 319,145 209,804
(4)(f) Approve modification of fundamental restriction on
purchasing or selling commodities....................... 5,563,819 314,183 208,430
(4)(g) Approve modification of fundamental restriction on
making loans............................................ 5,552,317 324,557 209,558
(4)(h) Approve modification of fundamental restriction on
investments in investment companies..................... 5,550,428 316,566 219,438
(5) Approve making the investment objective of the fund non-
fundamental............................................. 5,289,751 414,908 381,773
</Table>
* Proposals 1 and 2 required approval by a combined vote of all of the
portfolios of AIM Variable Insurance Funds.
** Includes Broker Non-Votes.
AIM V.I. UTILITIES FUND
ITEM 2. CODE OF ETHICS.
There were no amendments to the Code of Ethics (the "Code") that
applies to the Registrant's Principal Executive Officer ("PEO") and
Principal Financial Officer ("PFO") during the period covered by the
report. The Registrant did not grant any waivers, including implicit
waivers, from any provisions of the Code to the PEO or PFO during the
period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Investments in securities of unaffiliated issuers is included as part
of the reports to stockholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 11. CONTROLS AND PROCEDURES.
(a) As of June 16, 2008, an evaluation was performed under the supervision and
with the participation of the officers of the Registrant, including the
Principal Executive Officer ("PEO") and Principal Financial Officer
("PFO"), to assess the effectiveness of the Registrant's disclosure
controls and procedures, as that term is defined in Rule 30a-3(c) under the
Investment Company Act of 1940 (the "Act"), as amended. Based on that
evaluation, the Registrant's officers, including the PEO and PFO, concluded
that, as of June 16, 2008, the Registrant's disclosure controls and
procedures were reasonably designed to ensure: (1) that information
required to be disclosed by the Registrant on Form N-CSR is recorded,
processed, summarized and reported within the time periods specified by the
rules and forms of the Securities and Exchange Commission; and (2) that
material information relating to the Registrant is made known to the PEO
and PFO as appropriate to allow timely decisions regarding required
disclosure.
(b) There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the second fiscal quarter of the period covered by the
report that has materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
12(a)(1) Not applicable.
12(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act
of 1940.
12(a)(3) Not applicable.
12(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act
of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Variable Insurance Funds
By: /s/ Philip A. Taylor
---------------------------------
Philip A. Taylor
Principal Executive Officer
Date: August 25, 2008
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ Philip A. Taylor
---------------------------------
Philip A. Taylor
Principal Executive Officer
Date: August 25, 2008
By: /s/ Sidney M. Dilgren
---------------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: August 25, 2008
EXHIBIT INDEX
12(a)(1) Not applicable.
12(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act
of 1940.
12(a)(3) Not applicable.
12(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act
of 1940.