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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANIES
Investment Company Act file number 811-07452
AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 2500 Houston, Texas 77046
(Address of principal executive offices) (Zip code)
Philip A. Taylor 11 Greenway Plaza, Suite 2500 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: 6/30/10
Invesco V.I. Basic Balanced Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIBBA-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -6.90 | % | ||
Series II Shares | -7.04 | |||
S&P 500 Index▼ (Broad Market Index) | -6.64 | |||
Custom Basic Balanced Index§ (Style-Specific Index) | -0.82 | |||
Lipper VUF Mixed-Asset Target Allocation Moderate Funds Index▼ (Peer Group Index) | -2.28 |
▼ Lipper Inc.; § Invesco, Lipper, Inc. |
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Custom Basic Balanced Index, created by Invesco to serve as a benchmark for Invesco Basic Balanced Fund, is composed of the following indexes: Russell 1000® Value (60%) and Barclays Capital U.S. Aggregate (40%). The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Mixed-Asset Target Allocation Moderate Funds Index is an unmanaged index considered representative of mixed-asset target allocation moderate variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
Series I Shares | ||||
Inception (5/1/98) | 0.67 | % | ||
10 Years | -2.33 | |||
5 Years | -1.94 | |||
1 Year | 13.90 | |||
Series II Shares | ||||
10 Years | -2.57 | % | ||
5 Years | -2.18 | |||
1 Year | 13.74 |
Series II shares incepted on January 24, 2002. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.92% and 1.17%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.51% and 1.76%, 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.
Invesco V.I. Basic Balanced Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246.
As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. |
Invesco V.I. Basic Balanced Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–66.48% | ||||||||
Advertising–0.55% | ||||||||
Interpublic Group of Cos., Inc. (The)(b) | 22,591 | $ | 161,074 | |||||
Aerospace & Defense–0.32% | ||||||||
General Dynamics Corp. | 1,595 | 93,403 | ||||||
Air Freight & Logistics–0.47% | ||||||||
FedEx Corp. | 1,975 | 138,467 | ||||||
Apparel Retail–0.63% | ||||||||
Gap, Inc. (The) | 9,491 | 184,695 | ||||||
Asset Management & Custody Banks–0.92% | ||||||||
Janus Capital Group Inc. | 10,142 | 90,061 | ||||||
State Street Corp. | 5,306 | 179,449 | ||||||
269,510 | ||||||||
Automobile Manufacturers–0.40% | ||||||||
Ford Motor Co.(b) | 11,555 | 116,474 | ||||||
Biotechnology–0.84% | ||||||||
Genzyme Corp.(b) | 4,812 | 244,305 | ||||||
Cable & Satellite–2.00% | ||||||||
Comcast Corp. Class A | 19,113 | 331,993 | ||||||
Time Warner Cable, Inc. | 4,820 | 251,025 | ||||||
583,018 | ||||||||
Communications Equipment–0.96% | ||||||||
Cisco Systems, Inc.(b) | 13,108 | 279,332 | ||||||
Computer Hardware–1.91% | ||||||||
Dell Inc.(b) | 15,783 | 190,343 | ||||||
Hewlett-Packard Co. | 8,480 | 367,014 | ||||||
557,357 | ||||||||
Consumer Electronics–0.70% | ||||||||
Sony Corp.–ADR (Japan) | 7,611 | 203,062 | ||||||
Data Processing & Outsourced Services–0.54% | ||||||||
Western Union Co. | 10,561 | 157,465 | ||||||
Diversified Banks–1.19% | ||||||||
U.S. Bancorp | 5,720 | 127,842 | ||||||
Wells Fargo & Co. | 8,632 | 220,979 | ||||||
348,821 | ||||||||
Diversified Chemicals–1.18% | ||||||||
Dow Chemical Co. (The) | 8,712 | 206,648 | ||||||
PPG Industries, Inc. | 2,302 | 139,064 | ||||||
345,712 | ||||||||
Diversified Support Services–0.37% | ||||||||
Cintas Corp. | 4,555 | 109,183 | ||||||
Diversified Metals & Mining–0.41% | ||||||||
Freeport-McMoRan Copper & Gold Inc. | 2,040 | 120,625 | ||||||
Drug Retail–0.55% | ||||||||
Walgreen Co. | 6,031 | 161,028 | ||||||
Electric Utilities–2.88% | ||||||||
American Electric Power Co., Inc. | 13,231 | 427,361 | ||||||
Edison International | 2,842 | 90,148 | ||||||
Entergy Corp. | 2,201 | 157,636 | ||||||
FirstEnergy Corp. | 4,726 | 166,497 | ||||||
841,642 | ||||||||
Food Distributors–0.79% | ||||||||
Sysco Corp. | 8,060 | 230,274 | ||||||
Health Care Distributors–0.48% | ||||||||
Cardinal Health, Inc. | 4,143 | 139,246 | ||||||
Health Care Equipment–0.88% | ||||||||
Covidien PLC (Ireland) | 6,424 | 258,116 | ||||||
Home Improvement Retail–1.12% | ||||||||
Home Depot, Inc. (The) | 11,693 | 328,223 | ||||||
Human Resource & Employment Services–0.70% | ||||||||
Manpower Inc. | 2,560 | 110,541 | ||||||
Robert Half International, Inc. | 4,020 | 94,671 | ||||||
205,212 | ||||||||
Hypermarkets & Super Centers–1.21% | ||||||||
Wal-Mart Stores, Inc. | 7,364 | 353,988 | ||||||
Industrial Conglomerates–3.77% | ||||||||
General Electric Co. | 40,876 | 589,432 | ||||||
Siemens AG–ADR (Germany) | 2,368 | 212,007 | ||||||
Tyco International Ltd. | 8,491 | 299,138 | ||||||
1,100,577 | ||||||||
Industrial Machinery–1.62% | ||||||||
Dover Corp. | 5,500 | 229,845 | ||||||
Ingersoll-Rand PLC (Ireland) | 7,038 | 242,741 | ||||||
472,586 | ||||||||
Insurance Brokers–2.20% | ||||||||
Marsh & McLennan Cos., Inc. | 28,536 | 643,487 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Basic Balanced Fund
Shares | Value | |||||||
Integrated Oil & Gas–4.89% | ||||||||
ConocoPhillips | 4,087 | $ | 200,631 | |||||
Exxon Mobil Corp. | 3,423 | 195,350 | ||||||
Hess Corp. | 3,964 | 199,548 | ||||||
Occidental Petroleum Corp. | 6,205 | 478,716 | ||||||
Royal Dutch Shell PLC–ADR (United Kingdom) | 7,069 | 355,005 | ||||||
1,429,250 | ||||||||
Integrated Telecommunication Services–0.67% | ||||||||
Verizon Communications Inc. | 6,946 | 194,627 | ||||||
Internet Software & Services–2.21% | ||||||||
eBay Inc.(b) | 22,935 | 449,755 | ||||||
Yahoo! Inc.(b) | 14,226 | 196,746 | ||||||
646,501 | ||||||||
Investment Banking & Brokerage–0.89% | ||||||||
Charles Schwab Corp. (The) | 18,374 | 260,543 | ||||||
IT Consulting & Other Services–0.64% | ||||||||
Amdocs Ltd.(b) | 6,918 | 185,748 | ||||||
Life & Health Insurance–0.43% | ||||||||
Principal Financial Group, Inc. | 5,326 | 124,841 | ||||||
Managed Health Care–0.97% | ||||||||
UnitedHealth Group Inc. | 9,946 | 282,466 | ||||||
Motorcycle Manufacturers–0.34% | ||||||||
Harley-Davidson, Inc. | 4,509 | 100,235 | ||||||
Movies & Entertainment–3.26% | ||||||||
Time Warner Inc. | 12,977 | 375,165 | ||||||
Viacom Inc.–Class B | 18,384 | 576,706 | ||||||
951,871 | ||||||||
Office Services & Supplies–0.40% | ||||||||
Avery Dennison Corp. | 3,657 | 117,499 | ||||||
Oil & Gas Equipment & Services–0.82% | ||||||||
Schlumberger Ltd. | 4,352 | 240,840 | ||||||
Oil & Gas Exploration & Production–1.71% | ||||||||
Anadarko Petroleum Corp. | 5,953 | 214,844 | ||||||
Devon Energy Corp. | 3,202 | 195,066 | ||||||
Noble Energy, Inc. | 1,510 | 91,098 | ||||||
501,008 | ||||||||
Other Diversified Financial Services–5.62% | ||||||||
Bank of America Corp. | 33,771 | 485,289 | ||||||
Citigroup Inc.(b) | 53,418 | 200,852 | ||||||
JPMorgan Chase & Co. | 26,081 | 954,825 | ||||||
1,640,966 | ||||||||
Packaged Foods & Meats–2.00% | ||||||||
Kraft Foods Inc.–Class A | 15,726 | 440,328 | ||||||
Unilever N.V. (Netherlands) | 5,255 | 143,567 | ||||||
583,895 | ||||||||
Personal Products–0.68% | ||||||||
Avon Products, Inc. | 7,502 | 198,803 | ||||||
Pharmaceuticals–5.31% | ||||||||
Abbott Laboratories | 3,259 | 152,456 | ||||||
Bayer AG–ADR (Germany) | 3,687 | 205,735 | ||||||
Bristol-Myers Squibb Co. | 15,227 | 379,761 | ||||||
Merck & Co., Inc. | 9,382 | 328,089 | ||||||
Pfizer Inc. | 19,323 | 275,546 | ||||||
Roche Holdings AG–ADR (Switzerland) | 6,037 | 208,679 | ||||||
1,550,266 | ||||||||
Property & Casualty Insurance–0.79% | ||||||||
Chubb Corp. (The) | 4,620 | 231,046 | ||||||
Regional Banks–2.58% | ||||||||
BB&T Corp. | 6,650 | 174,962 | ||||||
Fifth Third Bancorp | 11,968 | 147,087 | ||||||
PNC Financial Services Group, Inc. | 7,617 | 430,360 | ||||||
752,409 | ||||||||
Semiconductor Equipment–0.34% | ||||||||
Lam Research Corp.(b) | 2,619 | 99,679 | ||||||
Semiconductors–0.80% | ||||||||
Intel Corp. | 12,006 | 233,517 | ||||||
Soft Drinks–0.54% | ||||||||
Coca-Cola Co. (The) | 3,123 | 156,525 | ||||||
Wireless Telecommunication Services–1.00% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 14,195 | 293,411 | ||||||
Total Common Stocks & Other Equity Interests (Cost $19,795,873) | 19,422,828 | |||||||
Principal | ||||||||
Amount | ||||||||
Bonds & Notes–12.47% | ||||||||
Airlines–0.36% | ||||||||
Delta Air Lines, Inc., Series 2001-1, Class A-2, Sr. Sec. Pass Through Ctfs., 7.11%, 09/18/11 | $ | 100,000 | 103,875 | |||||
Automotive Retail–0.31% | ||||||||
Advance Auto Parts Inc., Sr. Unsec. Gtd. Notes, 5.75%, 05/01/20 | 25,000 | 25,406 | ||||||
AutoZone Inc., Sr. Unsec. Notes, 5.88%, 10/15/12 | 60,000 | 64,798 | ||||||
90,204 | ||||||||
Brewers–0.19% | ||||||||
Anheuser-Busch InBev Worldwide Inc., Sr. Unsec. Gtd. Global Notes, 5.38%, 01/15/20 | 50,000 | 54,042 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Basic Balanced Fund
Principal | ||||||||
Amount | Value | |||||||
Broadcasting–0.52% | ||||||||
CBS Corp., Sr. Unsec. Gtd. Global Notes, 5.75%, 04/15/20 | $ | 50,000 | $ | 53,428 | ||||
COX Communications Inc., Sr. Unsec. Bonds, 8.38%, 03/01/39(c) | 30,000 | 39,512 | ||||||
Sr. Unsec. Global Notes, 5.45%, 12/15/14 | 20,000 | 22,050 | ||||||
COX Enterprises Inc., Sr. Unsec. Notes, 7.88%, 09/15/10(c) | 35,000 | 35,394 | ||||||
150,384 | ||||||||
Consumer Finance–0.07% | ||||||||
Capital One Bank USA N.A., Sr. Unsec. Global Notes, 5.75%, 09/15/10 | 20,000 | 20,176 | ||||||
Diversified Banks–0.85% | ||||||||
Barclays Bank PLC (United Kingdom), Sr. Unsec. Global Notes, 5.13%, 01/08/20 | 60,000 | 60,086 | ||||||
Royal Bank of Scotland PLC (The) (United Kingdom), Sr. Unsec. Gtd. Global Notes, 4.88%, 03/16/15 | 25,000 | 24,904 | ||||||
Standard Chartered PLC (United Kingdom), Sr. Unsec. Notes, 5.50%, 11/18/14(c) | 100,000 | 110,898 | ||||||
Wells Fargo & Co., Sr. Unsec. Global Notes, 3.63%, 04/15/15 | 50,000 | 50,933 | ||||||
246,821 | ||||||||
Electric Utilities–0.79% | ||||||||
Carolina Power & Light Co., Sec. First Mortgage Bonds, 5.30%, 01/15/19 | 15,000 | 16,897 | ||||||
DCP Midstream LLC, Sr. Unsec. Notes, 7.88%, 08/16/10 | 85,000 | 85,648 | ||||||
Ohio Power Co., Series M, Sr. Unsec. Notes, 5.38%, 10/01/21 | 50,000 | 54,012 | ||||||
PPL Electric Utilities Corp., Sec. First Mortgage Bonds, 6.25%, 05/15/39 | 50,000 | 58,343 | ||||||
Virginia Electric & Power Co., Sr. Unsec. Notes, 5.00%, 06/30/19 | 15,000 | 16,432 | ||||||
231,332 | ||||||||
Gold–0.18% | ||||||||
Newmont Mining Corp., Sr. Unsec. Gtd. Notes, 5.13%, 10/01/19 | 50,000 | 53,473 | ||||||
Health Care Equipment–0.20% | ||||||||
Boston Scientific Corp., Sr. Unsec. Notes, 6.00%, 01/15/20 | 30,000 | 29,884 | ||||||
CareFusion Corp., Sr. Unsec. Global Notes, 6.38%, 08/01/19 | 25,000 | 28,540 | ||||||
58,424 | ||||||||
Health Care Services–0.27% | ||||||||
Express Scripts Inc., Sr. Unsec. Gtd. Global Notes, 6.25%, 06/15/14 | 70,000 | 79,304 | ||||||
Hotels, Resorts & Cruise Lines–0.32% | ||||||||
Hyatt Hotels Corp., Sr. Unsec. Notes, 5.75%, 08/15/15(c) | 70,000 | 74,207 | ||||||
Wyndham Worldwide Corp., Sr. Unsec. Notes, 7.38%, 03/01/20 | 20,000 | 20,175 | ||||||
94,382 | ||||||||
Industrial REIT’s–0.32% | ||||||||
ProLogis, Sr. Unsec. Notes, 6.88%, 03/15/20 | 100,000 | 94,369 | ||||||
Integrated Telecommunication Services–0.97% | ||||||||
British Telecommunications PLC (United Kingdom), Sr. Unsec. Global Notes, 9.38%, 12/15/10 | 60,000 | 62,115 | ||||||
Cellco Partnership/Verizon Wireless Capital LLC, Sr. Unsec. Global Notes, 3.75%, 05/20/11 | 60,000 | 61,535 | ||||||
Koninklijke KPN N.V. (Netherlands), Sr. Unsec. Global Bonds, 8.00%, 10/01/10 | 40,000 | 40,646 | ||||||
Telecom Italia Capital S.A. (Italy), Sr. Unsec. Gtd. Global Notes, 4.88%, 10/01/10 | 40,000 | 40,228 | ||||||
Windstream Georgia Communications Corp., Sr. Unsec., 6.50%, 11/15/13 | 79,000 | 79,616 | ||||||
284,140 | ||||||||
Investment Banking & Brokerage–0.18% | ||||||||
Macquarie Group Ltd. (Australia), Sr. Unsec. Notes, 6.00%, 01/14/20(c) | 50,000 | 53,719 | ||||||
Life & Health Insurance–0.68% | ||||||||
MetLife Inc., Sr. Unsec. Global Notes, 7.72%, 02/15/19 | 75,000 | 89,019 | ||||||
Monumental Global Funding II, Sr. Sec. Notes, 5.65%, 07/14/11(c) | 25,000 | 25,861 | ||||||
Prudential Financial Inc., Series D, Sr. Unsec. Medium-Term Notes, 3.88%, 01/14/15 | 50,000 | 50,493 | ||||||
7.38%, 06/15/19 | 30,000 | 34,466 | ||||||
199,839 | ||||||||
Managed Health Care–0.16% | ||||||||
UnitedHealth Group Inc., Sr. Unsec. Notes, 5.25%, 03/15/11 | 45,000 | 46,166 | ||||||
Mortgage Backed Securities–0.31% | ||||||||
U.S. Bank N.A., Sr. Unsec. Medium-Term Global Notes, 5.92%, 05/25/12 | 85,224 | 89,120 | ||||||
Multi-Line Insurance–0.16% | ||||||||
Liberty Mutual Group Inc., Sr. Unsec. Notes, 5.75%, 03/15/14(c) | 45,000 | 46,986 | ||||||
Office Electronics–0.29% | ||||||||
Xerox Corp., Sr. Unsec. Notes, 6.88%, 08/15/11 | 40,000 | 42,264 | ||||||
4.25%, 02/15/15 | 40,000 | 41,233 | ||||||
83,497 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Basic Balanced Fund
Principal | ||||||||
Amount | Value | |||||||
Office REIT’s–0.16% | ||||||||
Digital Realty Trust L.P., Unsec. Gtd. Unsub. Bonds, 5.88%, 02/01/20(c) | $ | 45,000 | $ | 46,254 | ||||
Oil & Gas Exploration & Production–0.05% | ||||||||
Petrobras International Finance Co. (Cayman Islands), Sr. Unsec. Gtd. Global Notes, 6.88%, 01/20/40 | 15,000 | 15,188 | ||||||
Oil & Gas Refining & Marketing–0.14% | ||||||||
Premcor Refining Group Inc. (The), Sr. Unsec. Gtd. Global Notes, 6.75%, 02/01/11 | 40,000 | 41,093 | ||||||
Oil & Gas Storage & Transportation–0.52% | ||||||||
Enterprise Products Operating LLC, Sr. Unsec. Gtd. Notes, 5.20%, 09/01/20 | 25,000 | 25,777 | ||||||
6.45%, 09/01/40 | 25,000 | 26,274 | ||||||
Spectra Energy Capital LLC, Sr. Unsec. Gtd. Notes, 5.65%, 03/01/20 | 50,000 | 52,703 | ||||||
Transcontinental Gas Pipe Line Co. LLC, Series B, Sr. Unsec. Global Notes, 7.00%, 08/15/11 | 45,000 | 47,398 | ||||||
152,152 | ||||||||
Other Diversified Financial Services–2.39% | ||||||||
Bank of America Corp., Sr. Unsec. Global Notes, 6.50%, 08/01/16 | 20,000 | 21,693 | ||||||
Bear Stearns Cos. LLC (The), Sr. Unsec. Floating Rate Notes, 0.70%, 07/19/10(d) | 180,000 | 180,053 | ||||||
Citigroup Inc., Sr. Unsec. Global Notes, 6.01%, 01/15/15 | 65,000 | 68,229 | ||||||
Countrywide Home Loans Inc., Series L, Sr. Unsec. Gtd. Medium-Term Global Notes, 4.00%, 03/22/11 | 15,000 | 15,307 | ||||||
ERAC USA Finance LLC, Sr. Gtd. Notes, 2.75%, 07/01/13(c) | 20,000 | 20,121 | ||||||
General Electric Capital Corp., Sr. Unsec. Global Notes, 5.90%, 05/13/14 | 75,000 | 82,934 | ||||||
Sr. Unsec. Medium-Term Global Notes, 5.50%, 01/08/20 | 50,000 | 53,005 | ||||||
JPMorgan Chase & Co., Sr. Unsec. Global Notes, 4.75%, 05/01/13 | 65,000 | 69,436 | ||||||
Sr. Unsec. Notes, 3.40%, 06/24/15 | 70,000 | 70,189 | ||||||
4.95%, 03/25/20 | 25,000 | 25,958 | ||||||
Merrill Lynch & Co. Inc., Sr. Unsec. Medium-Term Notes, 6.88%, 04/25/18 | 85,000 | 91,028 | ||||||
Twin Reefs Pass-Through Trust, Floating Rate Pass Through Ctfs., 1.39%, (Acquired 12/07/04; Cost: $90,000)(c)(d)(e)(f) | 90,000 | 292 | ||||||
698,245 | ||||||||
Packaged Foods & Meats–0.11% | ||||||||
Kraft Foods Inc., Sr. Unsec. Global Notes, 5.63%, 11/01/11 | 30,000 | 31,600 | ||||||
Paper Packaging–0.15% | ||||||||
Bemis Co. Inc., Sr. Unsec. Notes, 5.65%, 08/01/14 | 40,000 | 44,168 | ||||||
Paper Products–0.10% | ||||||||
International Paper Co., Sr. Unsec. Global Bonds, 7.50%, 08/15/21 | 25,000 | 29,209 | ||||||
Pharmaceuticals–0.14% | ||||||||
Abbott Laboratories, Sr. Unsec. Global Notes, 2.70%, 05/27/15 | 40,000 | 40,901 | ||||||
Property & Casualty Insurance–0.09% | ||||||||
CNA Financial Corp., Sr. Unsec. Notes, 7.35%, 11/15/19 | 25,000 | 26,823 | ||||||
Publishing–0.14% | ||||||||
Reed Elsevier Capital Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 08/01/11 | 40,000 | 42,287 | ||||||
Regional Banks–0.14% | ||||||||
PNC Funding Corp., Sr. Unsec. Gtd. Global Notes, 3.63%, 02/08/15 | 40,000 | 41,101 | ||||||
Retail REIT’s–0.10% | ||||||||
WT Finance Aust Pty Ltd./ Westfield Capital/WEA Finance LLC (Australia), Sr. Unsec. Gtd. Notes, 4.38%, 11/15/10(c) | 30,000 | 30,300 | ||||||
Specialized Finance–0.18% | ||||||||
NASDAQ OMX Group Inc. (The), Sr. Unsec. Notes, 5.55%, 01/15/20 | 50,000 | 51,239 | ||||||
Specialty REIT’s–0.18% | ||||||||
Healthcare Realty Trust Inc., Sr. Unsec. Notes, 6.50%, 01/17/17 | 50,000 | 52,635 | ||||||
Steel–0.21% | ||||||||
ArcelorMittal (Luxembourg), Sr. Unsec. Global Bonds, 9.00%, 02/15/15 | 15,000 | 17,732 | ||||||
Sr. Unsec. Global Notes, 7.00%, 10/15/39 | 40,000 | 42,179 | ||||||
59,911 | ||||||||
Technology Distributors–0.17% | ||||||||
Avnet Inc., Sr. Unsec. Notes, 5.88%, 06/15/20 | 50,000 | 50,632 | ||||||
Tobacco–0.12% | ||||||||
Altria Group Inc., Sr. Unsec. Gtd. Global Notes, 4.13%, 09/11/15 | 35,000 | 35,736 | ||||||
Trading Companies & Distributors–0.07% | ||||||||
GATX Corp., Sr. Unsec. Notes, 4.75%, 10/01/12 | 20,000 | 21,041 | ||||||
Wireless Telecommunication Services–0.18% | ||||||||
American Tower Corp., Sr. Unsec. Global Notes, 4.63%, 04/01/15 | 30,000 | 31,169 | ||||||
Vodafone Group PLC (United Kingdom), Sr. Unsec. Global Notes, 5.50%, 06/15/11 | 20,000 | 20,809 | ||||||
51,978 | ||||||||
Total Bonds & Notes (Cost $3,571,892) | 3,642,746 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Basic Balanced Fund
Principal | ||||||||
Amount | Value | |||||||
U.S. Government Sponsored Agency Mortgage-Backed Securities–8.77% | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–2.01% | ||||||||
Pass Through Ctfs., | ||||||||
7.00%, 06/01/15 to 06/01/32 | $ | 66,578 | $ | 74,233 | ||||
7.50%, 12/01/30 to 05/01/31 | 12,195 | 13,975 | ||||||
6.50%, 08/01/32 | 3,752 | 4,175 | ||||||
5.50%, 01/01/35 to 02/01/37 | 362,794 | 390,962 | ||||||
Pass Through Ctfs., TBA, 4.50%, 07/01/40(g) | 100,000 | 103,594 | ||||||
586,939 | ||||||||
Federal National Mortgage Association (FNMA)–5.61% | ||||||||
Pass Through Ctfs., | ||||||||
7.50%, 11/01/15 to 03/01/31 | 63,617 | 73,782 | ||||||
7.00%, 02/01/16 to 09/01/32 | 18,927 | 21,061 | ||||||
6.50%, 07/01/16 to 10/01/35 | 57,895 | 65,159 | ||||||
6.00%, 01/01/17 to 03/01/37 | 222,384 | 242,064 | ||||||
5.50%, 03/01/21 | 832 | 900 | ||||||
8.00%, 08/01/21 to 12/01/23 | 12,097 | 13,808 | ||||||
Pass Through Ctfs., TBA, | ||||||||
4.00%, 07/01/25(g) | 50,000 | 51,953 | ||||||
4.50%, 07/01/25(g) | 130,000 | 137,170 | ||||||
5.00%, 07/01/25 to 07/01/40(g) | 630,000 | 667,509 | ||||||
5.50%, 07/01/25 to 07/01/40(g) | 240,000 | 257,999 | ||||||
6.00%, 07/01/40(g) | 100,000 | 108,469 | ||||||
1,639,874 | ||||||||
Government National Mortgage Association (GNMA)–1.15% | ||||||||
Pass Through Ctfs., | ||||||||
7.50%, 06/15/23 to 10/15/31 | 27,799 | 31,719 | ||||||
8.50%, 11/15/24 | 28,254 | 32,809 | ||||||
8.00%, 08/15/25 | 6,472 | 7,494 | ||||||
6.50%, 03/15/29 to 01/15/37 | 236,936 | 264,036 | ||||||
336,058 | ||||||||
Total U.S. Government Sponsored Agency Mortgage-Backed Securities (Cost $2,461,868) | 2,562,871 | |||||||
U.S. Treasury Securities–7.63% | ||||||||
U.S. Treasury Notes–6.36% | ||||||||
0.75%, 05/31/12 | 800,000 | 802,313 | ||||||
1.50%, 12/31/13(h) | 85,000 | 85,704 | ||||||
2.13%, 05/31/15 | 680,000 | 691,688 | ||||||
3.63%, 08/15/19 | 200,000 | 211,438 | ||||||
3.50%, 05/15/20 | 65,000 | 68,016 | ||||||
1,859,159 | ||||||||
U.S. Treasury Bonds–1.27% | ||||||||
5.38%, 02/15/31 | 195,000 | 239,820 | ||||||
4.50%, 08/15/39 | 40,000 | 44,056 | ||||||
4.38%, 05/15/40 | 80,000 | 86,513 | ||||||
370,389 | ||||||||
Total U.S. Treasury Securities (Cost $2,190,877) | 2,229,548 | |||||||
Asset-Backed Securities–5.72% | ||||||||
BA Credit Card Trust, Series 2010-A1, Class A1, Floating Rate Pass Through Ctfs., 0.65%, 09/15/15(d) | 40,000 | 39,920 | ||||||
Bear Stearns Adjustable Rate Mortgage Trust, Series 2003-6, Class 1A3, Variable Rate Pass Through Ctfs., 3.68%, 08/25/33(d) | 35,012 | 32,023 | ||||||
Bear Stearns Commercial Mortgage Securities, Series 2004-PWR6, Class A6, Pass Through Ctfs., 4.83%, 11/11/41 | 80,000 | 83,617 | ||||||
Series 2005-PWR8, Class A4, Pass Through Ctfs., 4.67%, 06/11/41 | 45,000 | 46,645 | ||||||
Series 2006-PW11, Class A4, Variable Rate Pass Through Ctfs., 5.62%, 03/11/39(d) | 100,000 | 106,399 | ||||||
Series 2006-T24, Class A4, Pass Through Ctfs., 5.54%, 10/12/41 | 50,000 | 52,556 | ||||||
Chase Issuance Trust, Series 2007-A17, Class A, Pass Through Ctfs., 5.12%, 10/15/14 | 80,000 | 86,946 | ||||||
Series 2009-A3, Class A3, Pass Through Ctfs., 2.40%, 06/17/13 | 50,000 | 50,720 | ||||||
Citibank Credit Card Issuance Trust, Series 2009-A5, Class A5, Pass Through Ctfs., 2.25%, 12/23/14 | 50,000 | 50,923 | ||||||
Citigroup Mortgage Loan Trust Inc., Series 2004-UST1, Class A4, Variable Rate Pass Through Ctfs., 2.50%, 08/25/34(d) | 94,585 | 96,743 | ||||||
Countrywide Asset-Backed Ctfs., Series 2007-4, Class A1B, Pass Through Ctfs., 5.81%, 09/25/37 | 43,958 | 42,780 | ||||||
Credit Suisse Mortgage Capital Ctfs., Series 2010-6R, Class 1A1, Pass Through Ctfs., 5.50%, 02/27/37(c) | 69,506 | 71,580 | ||||||
GS Mortgage Securities Corp. II, Series 2005-GG4, Class A4A, Pass Through Ctfs., 4.75%, 07/10/39 | 125,000 | 129,481 | ||||||
Honda Auto Receivables Owner Trust, Series 2009-2, Class A3, Pass Through Ctfs., 2.79%, 01/15/13 | 45,000 | 45,801 | ||||||
LB-UBS Commercial Mortgage Trust, Series 2001-WM, Class A2, Pass Through Ctfs., 6.53%, 07/14/16(c) | 80,000 | 82,950 | ||||||
Morgan Stanley Capital I, Series 2005-HQ7, Class A4, Variable Rate Pass Through Ctfs., 5.38%, 11/14/42(d) | 60,000 | 64,085 | ||||||
Series 2005-T19, Class A4A, Pass Through Ctfs., 4.89%, 06/12/47 | 80,000 | 84,823 | ||||||
Series 2008-T29, Class A1, Pass Through Ctfs., 6.23%, 01/11/43 | 45,563 | 48,290 | ||||||
Option One Mortgage Securities Corp., Series 2007-4A, Floating Rate Notes, 0.44%, 04/25/12 (Acquired 05/11/07; Cost: $47,228)(c)(d) | 47,228 | 35,421 | ||||||
TIAA Seasoned Commercial Mortgage Trust, Series 2007-C4, Class A2, Variable Rate Pass Through Ctfs., 5.79%, 08/15/39(d) | 25,000 | 26,308 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Basic Balanced Fund
Principal | ||||||||
Amount | Value | |||||||
USAA Auto Owner Trust, Series 2009-1, Class A3, Pass Through Ctfs., 3.02%, 06/17/13 | $ | 80,000 | $ | 81,278 | ||||
Wachovia Bank Commercial Mortgage Trust, Series 2005-C18, Class A4, Pass Through Ctfs., 4.94%, 04/15/42 | 100,000 | 105,388 | ||||||
Series 2005-C21, Class AM, Variable Rate Pass Through Ctfs., 5.38%, 10/15/44(d) | 40,000 | 38,939 | ||||||
WaMu Mortgage Pass Through Ctfs., Series 2003-AR8, Class A, Floating Rate Pass Through Ctfs., 2.83%, 08/25/33(d) | 74,437 | 74,566 | ||||||
Wells Fargo Mortgage Backed Securities Trust, Series 2004-K, Class 1A2, Floating Rate Pass Through Ctfs., 4.47%, 07/25/34(d) | 23,197 | 23,221 | ||||||
Series 2004-Z, Class 2A1, Floating Rate Pass Through Ctfs., 2.97%, 12/25/34(d) | 75,678 | 70,758 | ||||||
Total Asset-Backed Securities (Cost $1,537,232) | 1,672,161 | |||||||
U.S. Government Sponsored Agency Securities–0.46% | ||||||||
Federal National Mortgage Association (FNMA)–0.46% | ||||||||
Unsec. Global Notes, 2.63%, 11/20/14 (Cost $129,316) | 130,000 | 134,438 | ||||||
Shares | ||||||||
Money Market Funds–1.76% | ||||||||
Liquid Assets Portfolio–Institutional Class | 256,660 | 256,660 | ||||||
Premier Portfolio–Institutional Class | 256,660 | 256,660 | ||||||
Total Money Market Funds (Cost $513,320) | 513,320 | |||||||
TOTAL INVESTMENTS–103.29% (Cost $30,200,378) | 30,177,912 | |||||||
OTHER ASSETS LESS LIABILITIES–(3.29)% | (961,860 | ) | ||||||
NET ASSETS–100.00% | $ | 29,216,052 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt | |
Ctfs. | – Certificates | |
Gtd. | – Guaranteed | |
REIT | – Real Estate Investment Trust | |
Sec. | – Secured | |
Sr. | – Senior | |
TBA | – To Be Announced | |
Unsec. | – Unsecured | |
Unsub. | – Unsubordinated |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2010 was $673,495, which represented 2.31% of the Fund’s Net Assets. | |
(d) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2010. | |
(e) | Perpetual bond with no specified maturity date. | |
(f) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The value of this security at June 30, 2010 represented less than 0.01% of the Fund’s Net Assets. | |
(g) | Security purchased on a forward commitment basis. This security is subject to dollar roll transactions. See Note 1I. | |
(h) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1L and Note 4. |
By security type, based on total investments
as of June 30, 2010
Common Stocks & Other Equity Interests | 64.4 | % | ||
Bonds & Notes | 12.1 | |||
U.S. Government Sponsored Agency Mortgage-Backed Securities | 8.5 | |||
U.S. Treasury Securities | 7.4 | |||
Asset-Backed Securities | 5.5 | |||
U.S. Government Sponsored Agency Securities | 0.4 | |||
Money Market Funds | 1.7 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Basic Balanced Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $29,687,058) | $ | 29,664,592 | ||
Investments in affiliated money market funds, at value and cost | 513,320 | |||
Total investments, at value (Cost $30,200,378) | 30,177,912 | |||
Cash | 126,283 | |||
Foreign currencies, at value (Cost $25) | 25 | |||
Receivables for: | ||||
Investments sold | 14,075,534 | |||
Investments sold to affiliates | 1,403,632 | |||
Variation margin | 563 | |||
Fund shares sold | 525 | |||
Dividends and interest | 99,691 | |||
Investment for trustee deferred compensation and retirement plans | 25,763 | |||
Other assets | 1,827 | |||
Total assets | 45,911,755 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 14,727,853 | |||
Investments purchased from affiliates | 1,875,235 | |||
Fund shares reacquired | 1,652 | |||
Accrued fees to affiliates | 15,676 | |||
Accrued other operating expenses | 40,769 | |||
Trustee deferred compensation and retirement plans | 34,518 | |||
Total liabilities | 16,695,703 | |||
Net assets applicable to shares outstanding | $ | 29,216,052 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 49,369,881 | ||
Undistributed net investment income | 771,864 | |||
Undistributed net realized gain (loss) | (20,882,739 | ) | ||
Unrealized appreciation (depreciation) | (42,954 | ) | ||
$ | 29,216,052 | |||
Net Assets: | ||||
Series I | $ | 26,939,180 | ||
Series II | $ | 2,276,872 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 3,330,699 | |||
Series II | 282,977 | |||
Series I: | ||||
Net asset value per share | $ | 8.09 | ||
Series II: | ||||
Net asset value per share | $ | 8.05 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Interest | $ | 196,081 | ||
Dividends (net of foreign withholding taxes of $5,334) | 161,474 | |||
Dividends from affiliated money market funds | 723 | |||
Total investment income | 358,278 | |||
Expenses: | ||||
Advisory fees | 123,601 | |||
Administrative services fees | 57,190 | |||
Custodian fees | 9,168 | |||
Distribution fees — Series II | 3,485 | |||
Transfer agent fees | 4,683 | |||
Trustees’ and officers’ fees and benefits | 9,501 | |||
Professional services fees | 21,836 | |||
Other | 13,931 | |||
Total expenses | 243,395 | |||
Less: Fees waived | (91,589 | ) | ||
Net expenses | 151,806 | |||
Net investment income | 206,472 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $248,519) | (624,308 | ) | ||
Foreign currencies | (6,417 | ) | ||
Futures contracts | 13,532 | |||
(617,193 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (1,712,183 | ) | ||
Foreign currencies | (9,628 | ) | ||
Futures contracts | (17,855 | ) | ||
(1,739,666 | ) | |||
Net realized and unrealized gain (loss) | (2,356,859 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (2,150,387 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Basic Balanced Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 206,472 | $ | 632,897 | ||||
Net realized gain (loss) | (617,193 | ) | (5,065,105 | ) | ||||
Change in net unrealized appreciation (depreciation) | (1,739,666 | ) | 13,494,233 | |||||
Net increase (decrease) in net assets resulting from operations | (2,150,387 | ) | 9,062,025 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (1,432,717 | ) | |||||
Series II | — | (137,986 | ) | |||||
Total distributions from net investment income | — | (1,570,703 | ) | |||||
Share transactions–net: | ||||||||
Series I | (2,320,613 | ) | (3,151,421 | ) | ||||
Series II | (748,916 | ) | (329,105 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (3,069,529 | ) | (3,480,526 | ) | ||||
Net increase (decrease) in net assets | (5,219,916 | ) | 4,010,796 | |||||
Net assets: | ||||||||
Beginning of period | 34,435,968 | 30,425,172 | ||||||
End of period (includes undistributed net investment income of $771,864 and $565,392, respectively) | $ | 29,216,052 | $ | 34,435,968 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Basic Balanced Fund, formerly AIM V.I. Basic Balanced Fund, (the “Fund”), is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital and secondarily, current income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean |
Invesco V.I. Basic Balanced Fund
between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
Invesco V.I. Basic Balanced Fund
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Dollar Roll and Forward Commitment Transactions — The Fund may engage in dollar roll and forward commitment transactions with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC. These transactions are often conducted on a to be announced (“TBA”) basis. In a TBA mortgage-backed transaction, the seller does not specify the particular securities to be delivered. Rather, a Fund agrees to accept any security that meets specified terms, such as an agreed upon issuer, coupon rate and terms of the underlying mortgages. TBA mortgage-backed transactions generally settle once a month on a specific date. | |
In a dollar roll transaction, the Fund sells a mortgage-backed security held in the Fund to a financial institution such as a bank or broker-dealer, and simultaneously agrees to purchase a substantially similar security (same type, coupon and maturity) from the institution at an agreed upon price and future date. The mortgage-backed securities to be purchased will bear the same coupon as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. Based on the typical structure of dollar roll transactions by the Fund, the dollar roll transactions are accounted for as financing transactions in which the Fund receives compensation as either a “fee” or a “drop”. “Fee” income which is agreed upon amongst the parties at the commencement of the dollar roll and the “drop” which is the difference between the selling price and the repurchase price of the mortgage-backed securities are amortized to income. During the period between the sale and purchase settlement dates, the Fund will not be entitled to receive interest and principal payments on securities purchased and not yet settled. Proceeds of the sale may be invested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, could generate income for the Fund exceeding the yield on the security sold. Dollar roll transactions are considered borrowings under the 1940 Act. | ||
Forward commitment transactions involve commitments by the Fund to acquire or sell TBA mortgage-backed securities from/to a financial institution, such as a bank or broker-dealer at a specified future date and amount. The TBA mortgage-backed security is marked to market until settlement and the unrealized appreciation or depreciation is recorded in the statement of operations. | ||
At the time the Fund enters into the dollar roll or forward commitment transaction, mortgage-backed securities or other liquid assets held by the Fund having a dollar value equal to the purchase price or in an amount sufficient to honor the forward commitment will be segregated. | ||
Dollar roll transactions involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to purchase under the agreement. In the event that the buyer of securities in a dollar roll transaction files for bankruptcy or becomes insolvent, the Fund’s use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund’s obligation to purchase the securities. The return earned by the Fund with the proceeds of the dollar roll transaction may not exceed the return on the securities sold. | ||
Forward commitment transactions involve the risk that a counter-party to the transaction may fail to complete the transaction. If this occurs, the Fund may lose the opportunity to purchase or sell the security at the agreed upon price. Settlement dates of forward commitment transactions may be a month or more after entering into these transactions and as a result the market values of the securities may vary from the purchase or sale prices. Therefore, forward commitment transactions may increase the Fund’s overall interest rate exposure. | ||
J. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
K. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future |
Invesco V.I. Basic Balanced Fund
date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. | ||
L. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. | |
M. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $150 million | 0 | .75% | ||
Over $150 million | 0 | .50% | ||
Effective January 1, 2010, through at least April 30, 2011, the Adviser has contractually agreed to waive advisory fees to the extent necessary so that the advisory fees payable by the Fund (based on the Fund’s average daily net assets) do not exceed the annual rate of:
Average Net Assets | Rate | |||
First $250 million | 0 | .62% | ||
Next $250 million | 0 | .605% | ||
Next $500 million | 0 | .59% | ||
Next $1.5 billion | 0 | .575% | ||
Next $2.5 billion | 0 | .56% | ||
Next $2.5 billion | 0 | .545% | ||
Next $2.5 billion | 0 | .53% | ||
Over $10 billion | 0 | .515% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 0.91% and Series II shares to 1.16% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Invesco V.I. Basic Balanced Fund
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $91,589.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $24,794 for accounting and fund administrative services and reimbursed $32,396 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
�� | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 19,521,734 | $ | 414,414 | $ | — | $ | 19,936,148 | ||||||||
U.S. Treasury Securities | — | 2,229,548 | — | 2,229,548 | ||||||||||||
U.S. Government Sponsored Agency Securities | — | 2,697,309 | — | 2,697,309 | ||||||||||||
Corporate Debt Securities | — | 3,642,746 | — | 3,642,746 | ||||||||||||
Asset-Backed Securities | — | 1,672,161 | — | 1,672,161 | ||||||||||||
$ | 19,521,734 | $ | 10,656,178 | $ | — | $ | 30,177,912 | |||||||||
Futures* | (10,794 | ) | — | — | (10,794 | ) | ||||||||||
Total Investments | $ | 19,510,940 | $ | 10,656,178 | $ | — | $ | 30,167,118 | ||||||||
* | Unrealized appreciation (depreciation). |
Invesco V.I. Basic Balanced Fund
NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure 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. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2010:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Interest rate risk | ||||||||
Futures contracts(a) | $ | 5,976 | $ | (16,770 | ) | |||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets & Liabilities. |
Effect of Derivative Instruments for the six months ended June 30, 2010
The table below summarizes the gains on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain on | ||||
Statement of Operations | ||||
Futures* | ||||
Realized Gain | ||||
Interest rate risk | $ | 13,532 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Interest rate risk | (17,855 | ) | ||
Total | $ | (4,323 | ) | |
* | The average value of futuresd outstanding during the period was $2,210,469. |
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Month/ | Appreciation | ||||||||||||||
Contract | Contracts | Commitment | Value | (Depreciation) | ||||||||||||
U.S. Treasury 2 Year Notes | 2 | September-2010/Long | $ | 437,656 | $ | 1,371 | ||||||||||
U.S. Treasury 30 Year Bonds | 2 | September-2010/Long | 255,000 | 4,605 | ||||||||||||
Subtotal | $ | 692,656 | $ | 5,976 | ||||||||||||
U.S. Treasury 10 Year Notes | 6 | September-2010/Short | (735,281 | ) | (16,770 | ) | ||||||||||
Total | $ | (42,625 | ) | $ | (10,794 | ) | ||||||||||
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2010, the Fund engaged in securities purchases of $2,329,121 and securities sales of $1,717,894, which resulted in net realized gains of $248,519.
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $1,337 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.
Invesco 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, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 8—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, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2010 | $ | 10,514,572 | ||
December 31, 2016 | 3,766,236 | |||
December 31, 2017 | 5,167,583 | |||
Total capital loss carryforward | $ | 19,448,391 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2010 was $21,823,334 and $24,917,412, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 804,111 | ||
Aggregate unrealized (depreciation) of investment securities | (1,595,847 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (791,736 | ) | |
Cost of investments for tax purposes is $30,969,648. |
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 48,991 | $ | 434,360 | 349,171 | $ | 2,595,538 | ||||||||||
Series II | 11,078 | 97,694 | 32,625 | 248,311 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 168,555 | 1,432,717 | ||||||||||||
Series II | — | — | 16,291 | 137,986 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (313,250 | ) | (2,754,973 | ) | (972,587 | ) | (7,179,676 | ) | ||||||||
Series II | (95,710 | ) | (846,610 | ) | (98,463 | ) | (715,402 | ) | ||||||||
Net increase (decrease) in share activity | (348,891 | ) | $ | (3,069,529 | ) | (504,408 | ) | $ | (3,480,526 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 83% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Basic Balanced Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | |||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 8.69 | $ | 0.06 | $ | (0.66 | ) | $ | (0.60 | ) | $ | — | $ | 8.09 | (6.90 | )% | $ | 26,939 | 0.90 | %(d) | 1.46 | %(d) | 1.27 | %(d) | 77 | % | ||||||||||||||||||||||
Year ended 12/31/09 | 6.81 | 0.15 | 2.14 | 2.29 | (0.41 | ) | 8.69 | 33.84 | 31,253 | 0.90 | 1.50 | 2.06 | 57 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 11.81 | 0.31 | (4.84 | ) | (4.53 | ) | (0.47 | ) | 6.81 | (38.32 | ) | 27,596 | 0.91 | 1.35 | 3.11 | 50 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 11.92 | 0.28 | (0.01 | ) | 0.27 | (0.38 | ) | 11.81 | 2.20 | 59,000 | 0.91 | 1.18 | 2.31 | 47 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 10.99 | 0.25 | 0.91 | 1.16 | (0.23 | ) | 11.92 | 10.55 | 84,212 | 0.91 | 1.15 | 2.16 | 44 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 10.59 | 0.18 | 0.38 | 0.56 | (0.16 | ) | 10.99 | 5.29 | 90,633 | 0.95 | 1.15 | 1.68 | 44 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 8.66 | 0.04 | (0.65 | ) | (0.61 | ) | — | 8.05 | (7.04 | ) | 2,277 | 1.15 | (d) | 1.71 | (d) | 1.02 | (d) | 77 | ||||||||||||||||||||||||||||||
Year ended 12/31/09 | 6.78 | 0.13 | 2.13 | 2.26 | (0.38 | ) | 8.66 | 33.54 | 3,183 | 1.15 | 1.75 | 1.81 | 57 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 11.73 | 0.28 | (4.79 | ) | (4.51 | ) | (0.44 | ) | 6.78 | (38.46 | ) | 2,829 | 1.16 | 1.60 | 2.86 | 50 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 11.84 | 0.25 | (0.01 | ) | 0.24 | (0.35 | ) | 11.73 | 1.94 | 5,295 | 1.16 | 1.43 | 2.06 | 47 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 10.91 | 0.22 | 0.91 | 1.13 | (0.20 | ) | 11.84 | 10.36 | 5,878 | 1.16 | 1.40 | 1.91 | 44 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 10.53 | 0.15 | 0.37 | 0.52 | (0.14 | ) | 10.91 | 4.91 | 5,870 | 1.20 | 1.40 | 1.43 | 44 | |||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $30,423 and $2,811 for Series I and Series II shares, respectively. |
Invesco V.I. Basic Balanced Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 931.00 | $ | 4.31 | $ | 1,020.33 | $ | 4.51 | 0.90 | % | ||||||||||||||||||
Series II | 1,000.00 | 929.60 | 5.50 | 1,019.09 | 5.76 | 1.15 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Basic Balanced Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Basic Balanced Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund.
Invesco V.I. Basic Balanced Fund
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser and against the Lipper VA Underlying Funds — Mixed-Asset Target Allocation Moderate Funds Index. The Board noted that the performance of Series I shares of the Fund was in the first quintile of its performance universe for the one year period and the fifth quintile for the 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 performance of Series I shares of the Fund was above the performance of the Index for the one year period and below the performance of the Index for the three and five year periods. The Board also noted that Invesco Advisers made manager and process changes relating to the fixed income portion of the Fund’s portfolio assets in 2008 and early 2009. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year.
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 mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including two mutual funds advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was above the effective fee rate for the other mutual funds advised by Invesco Advisers, one of which is a fund of funds for which Invesco Advisers does not charge a separate advisory fee.
Other than the mutual funds described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other client accounts with investment strategies comparable to those of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011, 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 effect this expense limitation has on the Fund’s total estimated expenses.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above, the expense limitations and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes seven breakpoints, and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for the research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Basic Balanced Fund
Invesco V.I. Basic Value Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIBVA-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -10.87 | % | ||
Series II Shares | -11.09 | |||
S&P 500 Index6 (Broad Market Index) | -6.64 | |||
Russell 1000 Value Index6 (Style-Specific Index) | -5.12 | |||
Lipper VUF Large-Cap Value Funds Index6 (Peer Group Index) | -6.79 |
6 | Lipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Large-Cap Value Funds Index is an unmanaged index considered representative of large-cap value variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
Series I Shares | ||||
Inception (9/10/01) | -0.98 | % | ||
5 Years | -4.98 | |||
1 Year | 13.15 | |||
Series II Shares | ||||
Inception (9/10/01) | -1.22 | % | ||
5 Years | -5.23 | |||
1 Year | 13.02 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.00% and 1.25%, 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.
Invesco V.I. Basic Value Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246.
As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Basic Value Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–93.96% | ||||||||
Advertising–4.74% | ||||||||
Interpublic Group of Cos., Inc. (The)(b) | 303,441 | $ | 2,163,534 | |||||
Omnicom Group Inc. | 331,964 | 11,386,365 | ||||||
13,549,899 | ||||||||
Aerospace & Defense–1.90% | ||||||||
Honeywell International Inc. | 139,338 | 5,438,362 | ||||||
Asset Management & Custody Banks–1.83% | ||||||||
Bank of New York Mellon Corp. | 212,076 | 5,236,156 | ||||||
Brewers–3.29% | ||||||||
Molson Coors Brewing Co.–Class B | 222,452 | 9,423,067 | ||||||
Cable & Satellite–5.62% | ||||||||
Comcast Corp.–Class A | 421,824 | 7,327,083 | ||||||
Time Warner Cable, Inc. | 168,195 | 8,759,595 | ||||||
16,086,678 | ||||||||
Casinos & Gaming–1.48% | ||||||||
International Game Technology | 269,101 | 4,224,886 | ||||||
Computer Hardware–4.20% | ||||||||
Dell Inc.(b) | 290,677 | 3,505,564 | ||||||
Hewlett-Packard Co. | 196,563 | 8,507,247 | ||||||
12,012,811 | ||||||||
Data Processing & Outsourced Services–1.26% | ||||||||
Western Union Co. | 242,012 | 3,608,399 | ||||||
Department Stores–1.75% | ||||||||
Macy’s, Inc. | 279,389 | 5,001,063 | ||||||
Diversified Banks–5.11% | ||||||||
Comerica Inc. | 101,966 | 3,755,408 | ||||||
U.S. Bancorp | 166,230 | 3,715,240 | ||||||
Wells Fargo & Co. | 279,855 | 7,164,288 | ||||||
14,634,936 | ||||||||
General Merchandise Stores–2.55% | ||||||||
Target Corp. | 148,175 | 7,285,765 | ||||||
Household Products–2.49% | ||||||||
Procter & Gamble Co. (The) | 118,551 | 7,110,689 | ||||||
Hypermarkets & Super Centers–2.97% | ||||||||
Wal-Mart Stores, Inc. | 177,085 | 8,512,476 | ||||||
Industrial Conglomerates–2.52% | ||||||||
General Electric Co. | 249,234 | 3,593,954 | ||||||
Tyco International Ltd. | 102,326 | 3,604,945 | ||||||
7,198,899 | ||||||||
Industrial Machinery–2.50% | ||||||||
Illinois Tool Works, Inc. | 173,360 | 7,156,301 | ||||||
Integrated Oil & Gas–9.55% | ||||||||
Chevron Corp. | 106,126 | 7,201,710 | ||||||
Exxon Mobil Corp. | 100,109 | 5,713,221 | ||||||
Petroleo Brasileiro S.A.–ADR (Brazil) | 169,825 | 5,828,394 | ||||||
Royal Dutch Shell PLC–ADR (United Kingdom) | 170,742 | 8,574,663 | ||||||
27,317,988 | ||||||||
Internet Software & Services–2.67% | ||||||||
eBay, Inc.(b) | 389,178 | 7,631,781 | ||||||
Investment Banking & Brokerage–2.73% | ||||||||
Goldman Sachs Group, Inc. (The) | 27,844 | 3,655,082 | ||||||
Morgan Stanley | 178,482 | 4,142,567 | ||||||
7,797,649 | ||||||||
IT Consulting & Other Services–1.35% | ||||||||
Accenture PLC–Class A (Ireland) | 100,092 | 3,868,556 | ||||||
Life & Health Insurance–2.81% | ||||||||
MetLife, Inc. | 114,471 | 4,322,425 | ||||||
Torchmark Corp. | 74,870 | 3,706,814 | ||||||
8,029,239 | ||||||||
Managed Health Care–1.25% | ||||||||
UnitedHealth Group Inc. | 126,292 | 3,586,693 | ||||||
Movies & Entertainment–1.97% | ||||||||
Time Warner Inc. | 194,991 | 5,637,190 | ||||||
Oil & Gas Drilling–1.52% | ||||||||
Noble Corp.(b) | 140,786 | 4,351,695 | ||||||
Other Diversified Financial Services–6.80% | ||||||||
Bank of America Corp. | 600,551 | 8,629,918 | ||||||
JPMorgan Chase & Co. | 295,970 | 10,835,461 | ||||||
19,465,379 | ||||||||
Packaged Foods & Meats–2.00% | ||||||||
Kraft Foods Inc.–Class A | 204,056 | 5,713,568 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Basic Value Fund
Shares | Value | |||||||
Pharmaceuticals–3.52% | ||||||||
Bristol-Myers Squibb Co. | 201,637 | $ | 5,028,827 | |||||
Pfizer Inc. | 353,492 | 5,040,796 | ||||||
10,069,623 | ||||||||
Property & Casualty Insurance–7.89% | ||||||||
Allied World Assurance Co. Holdings, Ltd. (Bermuda) | 35,986 | 1,633,045 | ||||||
Aspen Insurance Holdings Ltd. | 78,324 | 1,937,736 | ||||||
Chubb Corp. | 233,625 | 11,683,586 | ||||||
Travelers Cos., Inc. (The) | 148,732 | 7,325,051 | ||||||
22,579,418 | ||||||||
Semiconductors–1.71% | ||||||||
Intel Corp. | 251,550 | 4,892,647 | ||||||
Soft Drinks–1.27% | ||||||||
Coca-Cola Co. (The) | 72,557 | 3,636,557 | ||||||
Steel–1.45% | ||||||||
POSCO–ADR (South Korea) | 44,131 | 4,162,436 | ||||||
Wireless Telecommunication Services–1.26% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 174,083 | 3,598,296 | ||||||
Total Common Stocks & Other Equity Interests (Cost $268,675,733) | 268,819,102 | |||||||
Money Market Funds–2.14% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 3,068,363 | 3,068,363 | ||||||
Premier Portfolio–Institutional Class(c) | 3,068,363 | 3,068,363 | ||||||
Total Money Market Funds (Cost $6,136,726) | 6,136,726 | |||||||
TOTAL INVESTMENTS–96.10% (Cost $274,812,459) | 274,955,828 | |||||||
OTHER ASSETS LESS LIABILITIES–3.90% | 11,146,981 | |||||||
NET ASSETS–100.00% | $ | 286,102,809 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
as of June 30, 2010
Financials | 27.2 | % | ||
Consumer Discretionary | 18.1 | |||
Consumer Staples | 12.0 | |||
Information Technology | 11.2 | |||
Energy | 11.1 | |||
Industrials | 6.9 | |||
Health Care | 4.8 | |||
Materials | 1.4 | |||
Telecommunication Services | 1.3 | |||
Money Market Funds Plus Other Assets Less Liabilities | 6.0 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Basic Value Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $268,675,733) | $ | 268,819,102 | ||
Investments in affiliated money market funds, at value and cost | 6,136,726 | |||
Total investments, at value (Cost $274,812,459) | 274,955,828 | |||
Receivables for: | ||||
Investments sold | 173,069,663 | |||
Investments sold to affiliates | 25,824,361 | |||
Fund shares sold | 1,052,225 | |||
Dividends | 266,194 | |||
Investment for trustee deferred compensation and retirement plans | 19,061 | |||
Other assets | 2,131 | |||
Total assets | 475,189,463 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 184,618,604 | |||
Investments purchased from affiliates | 3,607,296 | |||
Fund shares reacquired | 481,858 | |||
Accrued fees to affiliates | 278,069 | |||
Accrued other operating expenses | 23,760 | |||
Trustee deferred compensation and retirement plans | 77,067 | |||
Total liabilities | 189,086,654 | |||
Net assets applicable to shares outstanding | $ | 286,102,809 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 372,853,527 | ||
Undistributed net investment income | 1,808,324 | |||
Undistributed net realized gain (loss) | (88,575,745 | ) | ||
Unrealized appreciation | 16,703 | |||
$ | 286,102,809 | |||
Net Assets: | ||||
Series I | $ | 170,616,757 | ||
Series II | $ | 115,486,052 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 32,010,114 | |||
Series II | 21,826,260 | |||
Series I: | ||||
Net asset value per share | $ | 5.33 | ||
Series II: | ||||
Net asset value per share | $ | 5.29 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $70,943) | $ | 2,168,425 | ||
Dividends from affiliated money market funds | 3,025 | |||
Total investment income | 2,171,450 | |||
Expenses: | ||||
Advisory fees | 1,177,943 | |||
Administrative services fees | 454,663 | |||
Custodian fees | 8,196 | |||
Distribution fees — Series II | 164,310 | |||
Transfer agent fees | 10,453 | |||
Trustees’ and officers’ fees and benefits | 14,613 | |||
Other | 20,594 | |||
Total expenses | 1,850,772 | |||
Less: Fees waived | (5,225 | ) | ||
Net expenses | 1,845,547 | |||
Net investment income | 325,903 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains (losses) from securities sold to affiliates of $(391,829)) | (3,141,916 | ) | ||
Foreign currencies | (67,187 | ) | ||
(3,209,103 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (31,104,559 | ) | ||
Foreign currencies | (126,666 | ) | ||
(31,231,225 | ) | |||
Net realized and unrealized gain (loss) | (34,440,328 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (34,114,425 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Basic Value Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 325,903 | $ | 1,541,745 | ||||
Net realized gain (loss) | (3,209,103 | ) | (33,121,862 | ) | ||||
Change in net unrealized appreciation (depreciation) | (31,231,225 | ) | 158,453,793 | |||||
Net increase (decrease) in net assets resulting from operations | (34,114,425 | ) | 126,873,676 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (3,201,037 | ) | |||||
Series II | — | (1,368,809 | ) | |||||
Total distributions from net investment income | — | (4,569,846 | ) | |||||
Share transactions–net: | ||||||||
Series I | (35,650,828 | ) | (1,497,408 | ) | ||||
Series II | (4,285,185 | ) | (45,220,456 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (39,936,013 | ) | (46,717,864 | ) | ||||
Net increase (decrease) in net assets | (74,050,438 | ) | 75,585,966 | |||||
Net assets: | ||||||||
Beginning of period | 360,153,247 | 284,567,281 | ||||||
End of period (includes undistributed net investment income of $1,808,324 and $1,482,421, respectively) | $ | 286,102,809 | $ | 360,153,247 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Basic Value Fund, formerly AIM V.I. Basic Value Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. |
Invesco V.I. Basic Value Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. Basic Value Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
J. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .695% | ||
Next $250 million | 0 | .67% | ||
Next $500 million | 0 | .645% | ||
Next $1.5 billion | 0 | .62% | ||
Next $2.5 billion | 0 | .595% | ||
Next $2.5 billion | 0 | .57% | ||
Next $2.5 billion | 0 | .545% | ||
Over $10 billion | 0 | .52% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an
Invesco V.I. Basic Value Fund
expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds use money market fund waiver without securities lending.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $5,225.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $44,332 for accounting and fund administrative services and reimbursed $410,331 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 274,955,828 | $ | — | $ | — | $ | 274,955,828 | ||||||||
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2010, the Fund engaged in securities purchases of $32,223,016 and securities sales of $4,128,486, which resulted in net realized (losses) of $(391,829).
Invesco V.I. Basic Value Fund
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $1,723 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—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, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 40,544,207 | ||
December 31, 2017 | 32,409,899 | |||
Total capital loss carryforward | $ | 72,954,106 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2010 was $252,587,835 and $300,283,504, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | — | ||
Aggregate unrealized (depreciation) of investment securities | (10,640,302 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (10,640,302 | ) | |
Cost of investments for tax purposes is $285,596,130. |
Invesco V.I. Basic Value Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
�� | June 30, 2010(a) | December 31, 2009 | ||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Class A | 1,353,253 | $ | 8,270,144 | 7,249,578 | $ | 36,341,584 | ||||||||||
Series II | 2,718,880 | 16,185,905 | 6,780,957 | 32,543,999 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Class A | — | — | 550,953 | 3,201,037 | ||||||||||||
Series II | — | — | 236,818 | 1,368,809 | ||||||||||||
Reacquired: | ||||||||||||||||
Class A | (7,154,992 | ) | (43,920,972 | ) | (8,478,204 | ) | (41,040,029 | ) | ||||||||
Series II | (3,398,612 | ) | (20,471,090 | ) | (15,711,336 | ) | (79,133,264 | ) | ||||||||
Net increase (decrease) in share activity | (6,481,471 | ) | $ | (39,936,013 | ) | (9,371,234 | ) | $ | (46,717,864 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 62% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Basic Value Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income | unrealized) | operations | income | gains | Distributions | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 5.98 | $ | 0.01 | (c) | $ | (0.66 | ) | $ | (0.65 | ) | $ | — | $ | — | $ | — | $ | 5.33 | (10.87 | )% | $ | 170,617 | 0.99 | %(d) | 0.99 | %(d) | 0.29 | %(d) | 76 | % | |||||||||||||||||||||||||
Year ended 12/31/09 | 4.10 | 0.03 | (c) | 1.94 | 1.97 | (0.09 | ) | — | (0.09 | ) | 5.98 | 48.00 | 226,282 | 0.98 | 0.99 | 0.59 | 23 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 12.73 | 0.10 | (c) | (6.68 | ) | (6.58 | ) | (0.09 | ) | (1.96 | ) | (2.05 | ) | 4.10 | (51.77 | ) | 157,693 | 1.03 | 1.03 | 0.99 | 58 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.35 | 0.07 | (c) | 0.17 | 0.24 | (0.08 | ) | (0.78 | ) | (0.86 | ) | 12.73 | 1.62 | 399,974 | 0.96 | 0.99 | 0.52 | 25 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 12.37 | 0.07 | (c) | 1.54 | 1.61 | (0.05 | ) | (0.58 | ) | (0.63 | ) | 13.35 | 13.12 | 489,352 | 0.97 | 1.02 | 0.54 | 15 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 11.84 | 0.05 | 0.63 | 0.68 | (0.01 | ) | (0.14 | ) | (0.15 | ) | 12.37 | 5.74 | 487,332 | 0.97 | 1.02 | 0.38 | 16 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 5.95 | 0.00 | (c) | (0.66 | ) | (0.66 | ) | — | — | — | 5.29 | (11.09 | ) | 115,486 | 1.24 | (d) | 1.24 | (d) | 0.04 | (d) | 76 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 4.07 | 0.02 | (c) | 1.92 | 1.94 | (0.06 | ) | — | (0.06 | ) | 5.95 | 47.74 | 133,872 | 1.23 | 1.24 | 0.34 | 23 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 12.62 | 0.07 | (c) | (6.61 | ) | (6.54 | ) | (0.05 | ) | (1.96 | ) | (2.01 | ) | 4.07 | (51.90 | ) | 126,874 | 1.28 | 1.28 | 0.74 | 58 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.24 | 0.04 | (c) | 0.16 | 0.20 | (0.04 | ) | (0.78 | ) | (0.82 | ) | 12.62 | 1.36 | 303,628 | 1.21 | 1.24 | 0.27 | 25 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 12.26 | 0.04 | (c) | 1.54 | 1.58 | (0.02 | ) | (0.58 | ) | (0.60 | ) | 13.24 | 12.94 | 339,457 | 1.22 | 1.27 | 0.29 | 15 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 11.76 | 0.02 | 0.62 | 0.64 | 0.00 | (0.14 | ) | (0.14 | ) | 12.26 | 5.43 | 363,393 | 1.22 | 1.27 | 0.13 | 16 | ||||||||||||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $212,673 and $132,537 for Series I and Series II shares, respectively. |
Invesco 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, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 891.30 | $ | 4.64 | $ | 1,019.89 | $ | 4.96 | 0.99 | % | ||||||||||||||||||
Series II | 1,000.00 | 889.10 | 5.81 | 1,018.65 | 6.21 | 1.24 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Basic Value Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Basic Value Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
Invesco V.I. Basic Value Fund
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser and against the Lipper VA Underlying Funds Large-Cap Value Index. The Board noted that the performance of Series I shares of the Fund was in the first quintile of its performance universe for the one year period and in the fifth quintile for the 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 performance of Series I shares of the Fund was above the performance of the Index for the one year period and below the performance of the Index for the three and five year periods. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including two mutual funds advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was above the effective fee rates for the other mutual funds.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients based upon policies reviewed with the Board. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts, including provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets managed for other client accounts and noted that advance notice of redemptions affecting management assets is often provided to Invesco Advisers by institutional clients. Although the Board noted that the fees charged to other client accounts were often lower than the advisory fee charged by Invesco Advisers to the Fund and other Invesco Funds, the Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts were more comparable. In light of this information, the Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from services provided to other client accounts and accordingly, the Board did not place significant weight on these fee comparisons.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes seven breakpoints, and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for the research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Basic Value Fund
Invesco V.I. Capital Appreciation Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VICAP-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -8.61 | % | ||
Series II Shares | -8.70 | |||
S&P 500 Index▼ (Broad Market Index) | -6.64 | |||
Russell 1000 Growth Index▼ (Style-Specific Index) | -7.65 | |||
Lipper VUF Multi-Cap Growth Funds Category Average▼ (Peer Group) | -6.48 |
▼ | Lipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Russell 1000® Growth Index is an unmanaged index considered representative of large-cap growth stocks. The Russell 1000 Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Multi-Cap Growth Funds Category Average represents an average of all of the variable insurance underlying funds in the Lipper Multi-Cap Growth Funds category.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (5/5/93) | 4.85 | % | ||
10 Years | -5.91 | |||
5 Years | -3.34 | |||
1 Year | 7.72 | |||
Series II Shares | ||||
10 Years | -6.14 | % | ||
5 Years | -3.58 | |||
1 Year | 7.50 |
Series II shares incepted on August 21, 2001. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.92% and 1.17%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Capital Appreciation Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Capital Appreciation Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–95.86% | ||||||||
Aerospace & Defense–2.27% | ||||||||
Goodrich Corp. | 56,818 | $ | 3,764,193 | |||||
Rockwell Collins, Inc. | 39,272 | 2,086,521 | ||||||
United Technologies Corp. | 116,159 | 7,539,881 | ||||||
13,390,595 | ||||||||
Air Freight & Logistics–0.57% | ||||||||
Expeditors International of Washington, Inc. | 97,144 | 3,352,440 | ||||||
Airlines–1.29% | ||||||||
Delta Air Lines, Inc.(b) | 215,083 | 2,527,225 | ||||||
UAL Corp.(b)(c) | 248,287 | 5,104,781 | ||||||
7,632,006 | ||||||||
Apparel Retail–1.02% | ||||||||
American Eagle Outfitters, Inc. | 313,021 | 3,677,997 | ||||||
Men’s Wearhouse, Inc. (The) | 126,009 | 2,313,525 | ||||||
5,991,522 | ||||||||
Apparel, Accessories & Luxury Goods–1.15% | ||||||||
Coach, Inc. | 185,643 | 6,785,252 | ||||||
Asset Management & Custody Banks–0.41% | ||||||||
T. Rowe Price Group Inc. | 54,760 | 2,430,796 | ||||||
Auto Parts & Equipment–2.20% | ||||||||
Autoliv, Inc. (Sweden) | 113,497 | 5,430,832 | ||||||
BorgWarner, Inc.(b) | 42,066 | 1,570,744 | ||||||
Johnson Controls, Inc. | 222,602 | 5,981,316 | ||||||
12,982,892 | ||||||||
Automobile Manufacturers–0.64% | ||||||||
Toyota Motor Corp. (Japan) | 110,000 | 3,783,900 | ||||||
Biotechnology–2.89% | ||||||||
Amgen Inc.(b) | 143,324 | 7,538,843 | ||||||
Gilead Sciences, Inc.(b) | 277,319 | 9,506,495 | ||||||
17,045,338 | ||||||||
Broadcasting–0.70% | ||||||||
Scripps Networks Interactive Inc.–Class A | 102,586 | 4,138,319 | ||||||
Casinos & Gaming–0.56% | ||||||||
International Game Technology | 211,656 | 3,322,999 | ||||||
Communications Equipment–3.72% | ||||||||
Cisco Systems, Inc.(b) | 446,633 | 9,517,749 | ||||||
QUALCOMM Inc. | 234,890 | 7,713,788 | ||||||
Research In Motion Ltd. (Canada)(b) | 94,944 | 4,676,941 | ||||||
21,908,478 | ||||||||
Computer Hardware–7.15% | ||||||||
Apple Inc.(b) | 129,788 | 32,645,576 | ||||||
Hewlett-Packard Co. | 135,790 | 5,876,991 | ||||||
Teradata Corp.(b) | 118,561 | 3,613,739 | ||||||
42,136,306 | ||||||||
Computer Storage & Peripherals–0.93% | ||||||||
EMC Corp.(b) | 299,806 | 5,486,450 | ||||||
Construction & Engineering–0.56% | ||||||||
Fluor Corp. | 77,674 | 3,301,145 | ||||||
Construction, Farm Machinery & Heavy Trucks–0.32% | ||||||||
Komatsu Ltd. (Japan) | 105,500 | 1,906,931 | ||||||
Consumer Finance–0.49% | ||||||||
American Express Co. | 72,142 | 2,864,037 | ||||||
Data Processing & Outsourced Services–2.41% | ||||||||
MasterCard, Inc.–Class A | 24,925 | 4,973,285 | ||||||
Visa Inc.–Class A | 130,270 | 9,216,603 | ||||||
14,189,888 | ||||||||
Department Stores–0.49% | ||||||||
Kohl’s Corp.(b) | 60,800 | 2,888,000 | ||||||
Diversified Banks–0.52% | ||||||||
Banco Bradesco S.A.–ADR (Brazil)(c) | 194,363 | 3,082,597 | ||||||
Diversified Metals & Mining–0.47% | ||||||||
BHP Billiton Ltd. (Australia) | 89,792 | 2,791,025 | ||||||
Drug Retail–0.85% | ||||||||
Walgreen Co. | 187,762 | 5,013,246 | ||||||
Electrical Components & Equipment–1.67% | ||||||||
Cooper Industries PLC (Ireland) | 224,372 | 9,872,368 | ||||||
Electronic Components–0.84% | ||||||||
Corning Inc. | 308,068 | 4,975,298 | ||||||
Electronic Manufacturing Services–1.51% | ||||||||
Flextronics International Ltd. (Singapore)(b) | 793,514 | 4,443,678 | ||||||
Tyco Electronics Ltd. (Switzerland) | 174,731 | 4,434,673 | ||||||
8,878,351 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Capital Appreciation Fund
Shares | Value | |||||||
Fertilizers & Agricultural Chemicals–0.78% | ||||||||
Monsanto Co. | 43,004 | $ | 1,987,645 | |||||
Potash Corp. of Saskatchewan Inc. (Canada) | 30,011 | 2,588,149 | ||||||
4,575,794 | ||||||||
Gas Utilities–0.29% | ||||||||
EQT Corp. | 47,610 | 1,720,625 | ||||||
General Merchandise Stores–1.50% | ||||||||
Dollar Tree, Inc.(b) | 211,844 | 8,819,045 | ||||||
Health Care Distributors–2.24% | ||||||||
Cardinal Health, Inc. | 221,524 | 7,445,422 | ||||||
McKesson Corp. | 85,597 | 5,748,694 | ||||||
13,194,116 | ||||||||
Health Care Equipment–1.65% | ||||||||
Baxter International Inc. | 91,590 | 3,722,218 | ||||||
Hospira, Inc.(b) | 43,100 | 2,476,095 | ||||||
Thoratec Corp.(b) | 31,041 | 1,326,382 | ||||||
Varian Medical Systems, Inc.(b) | 41,593 | 2,174,482 | ||||||
9,699,177 | ||||||||
Health Care Services–3.34% | ||||||||
Express Scripts, Inc.(b) | 215,604 | 10,137,700 | ||||||
Medco Health Solutions, Inc.(b) | 173,533 | 9,558,198 | ||||||
19,695,898 | ||||||||
Health Care Supplies–0.61% | ||||||||
DENTSPLY International Inc. | 119,308 | 3,568,502 | ||||||
Home Improvement Retail–1.30% | ||||||||
Lowe’s Cos., Inc. | 374,802 | 7,653,457 | ||||||
Homefurnishing Retail–0.80% | ||||||||
Bed Bath & Beyond Inc.(b) | 126,624 | 4,695,218 | ||||||
Hotels, Resorts & Cruise Lines–1.10% | ||||||||
Carnival Corp.(d) | 213,486 | 6,455,817 | ||||||
Household Products–0.60% | ||||||||
Colgate-Palmolive Co. | 44,994 | 3,543,728 | ||||||
Housewares & Specialties–0.46% | ||||||||
Fortune Brands, Inc. | 68,539 | 2,685,358 | ||||||
Human Resource & Employment Services–0.49% | ||||||||
Robert Half International, Inc. | 121,733 | 2,866,812 | ||||||
Hypermarkets & Super Centers–1.65% | ||||||||
Costco Wholesale Corp. | 177,613 | 9,738,521 | ||||||
Industrial Gases–0.55% | ||||||||
Praxair, Inc. | 42,564 | 3,234,438 | ||||||
Industrial Machinery–3.19% | ||||||||
Illinois Tool Works Inc. | 104,717 | 4,322,718 | ||||||
Ingersoll-Rand PLC (Ireland) | 322,869 | 11,135,752 | ||||||
Kennametal Inc. | 132,111 | 3,359,582 | ||||||
18,818,052 | ||||||||
Integrated Oil & Gas–2.78% | ||||||||
Exxon Mobil Corp. | 107,707 | 6,146,839 | ||||||
Occidental Petroleum Corp. | 132,663 | 10,234,950 | ||||||
16,381,789 | ||||||||
Internet Retail–2.22% | ||||||||
Amazon.com, Inc.(b) | 92,275 | 10,081,966 | ||||||
Priceline.com Inc.(b) | 17,009 | 3,002,769 | ||||||
13,084,735 | ||||||||
Internet Software & Services–4.00% | ||||||||
Google Inc.–Class A(b) | 39,302 | 17,487,425 | ||||||
VeriSign, Inc.(b) | 229,435 | 6,091,499 | ||||||
23,578,924 | ||||||||
Investment Banking & Brokerage–2.28% | ||||||||
Goldman Sachs Group, Inc. (The) | 56,061 | 7,359,127 | ||||||
Jefferies Group, Inc.(c) | 288,108 | 6,073,317 | ||||||
13,432,444 | ||||||||
IT Consulting & Other Services–1.95% | ||||||||
Amdocs Ltd.(b) | 132,223 | 3,550,188 | ||||||
Cognizant Technology Solutions Corp.–Class A(b) | 60,365 | 3,021,872 | ||||||
International Business Machines Corp. | 39,649 | 4,895,858 | ||||||
11,467,918 | ||||||||
Life Sciences Tools & Services–1.33% | ||||||||
Life Technologies Corp.(b) | 63,762 | 3,012,754 | ||||||
Thermo Fisher Scientific, Inc.(b) | 98,413 | �� | 4,827,158 | |||||
7,839,912 | ||||||||
Managed Health Care–2.39% | ||||||||
UnitedHealth Group Inc. | 495,348 | 14,067,883 | ||||||
Oil & Gas Drilling–0.31% | ||||||||
Transocean Ltd.(b) | 39,764 | 1,842,266 | ||||||
Oil & Gas Equipment & Services–3.89% | ||||||||
Baker Hughes Inc. | 88,734 | 3,688,672 | ||||||
Cameron International Corp.(b) | 143,910 | 4,679,953 | ||||||
Halliburton Co. | 86,450 | 2,122,348 | ||||||
Hornbeck Offshore Services, Inc.(b) | 150,320 | 2,194,672 | ||||||
Schlumberger Ltd. | 43,804 | 2,424,113 | ||||||
Smith International, Inc. | 164,692 | 6,200,654 | ||||||
Weatherford International Ltd.(b) | 121,898 | 1,601,740 | ||||||
22,912,152 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Capital Appreciation Fund
Shares | Value | |||||||
Oil & Gas Exploration & Production–0.57% | ||||||||
Apache Corp. | 40,199 | $ | 3,384,354 | |||||
Other Diversified Financial Services–1.22% | ||||||||
JPMorgan Chase & Co. | 196,465 | 7,192,584 | ||||||
Pharmaceuticals–1.99% | ||||||||
Abbott Laboratories | 102,301 | 4,785,641 | ||||||
Johnson & Johnson | 54,282 | 3,205,895 | ||||||
Shire PLC (United Kingdom) | 182,973 | 3,718,397 | ||||||
11,709,933 | ||||||||
Railroads–1.07% | ||||||||
Union Pacific Corp. | 90,421 | 6,285,164 | ||||||
Regional Banks–0.54% | ||||||||
PNC Financial Services Group, Inc. | 56,486 | 3,191,459 | ||||||
Restaurants–0.62% | ||||||||
Krispy Kreme Doughnuts Inc.–Wts., expiring 03/02/12(e) | 1,194 | 95 | ||||||
McDonald’s Corp. | 55,133 | 3,631,611 | ||||||
3,631,706 | ||||||||
Semiconductor Equipment–0.49% | ||||||||
ASML Holding N.V. (Netherlands) | 106,068 | 2,913,377 | ||||||
Semiconductors–2.16% | ||||||||
Intel Corp. | 329,102 | 6,401,034 | ||||||
NVIDIA Corp.(b) | 177,447 | 1,811,734 | ||||||
PMC-Sierra, Inc.(b) | 278,322 | 2,092,981 | ||||||
Xilinx, Inc. | 97,214 | 2,455,626 | ||||||
12,761,375 | ||||||||
Soft Drinks–1.89% | ||||||||
PepsiCo, Inc. | 183,140 | 11,162,383 | ||||||
Specialized Consumer Services–0.29% | ||||||||
Coinstar, Inc.(b) | 40,429 | 1,737,234 | ||||||
Specialized Finance–1.52% | ||||||||
CBOE Holdings Inc.(b)(c) | 26,905 | 875,758 | ||||||
CME Group Inc. | 13,463 | 3,790,507 | ||||||
IntercontinentalExchange Inc.(b) | 38,231 | 4,321,250 | ||||||
8,987,515 | ||||||||
Specialty Stores–0.34% | ||||||||
Dick’s Sporting Goods, Inc.(b) | 81,274 | 2,022,910 | ||||||
Systems Software–4.70% | ||||||||
Check Point Software Technologies Ltd. (Israel)(b) | 614,824 | 18,125,011 | ||||||
Microsoft Corp. | 417,178 | 9,599,266 | ||||||
27,724,277 | ||||||||
Trading Companies & Distributors–1.13% | ||||||||
W.W. Grainger, Inc. | 66,751 | 6,638,387 | ||||||
Total Common Stocks & Other Equity Interests (Cost $535,096,885) | 565,065,418 | |||||||
Money Market Funds–4.32% | ||||||||
Liquid Assets Portfolio–Institutional Class(f) | 12,731,213 | 12,731,213 | ||||||
Premier Portfolio–Institutional Class(f) | 12,731,213 | 12,731,213 | ||||||
Total Money Market Funds (Cost $25,462,426) | 25,462,426 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.18% (Cost $560,559,311) | 590,527,844 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–1.45% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $8,577,380)(f)(g) | 8,577,380 | 8,577,380 | ||||||
TOTAL INVESTMENTS–101.63% (Cost $569,136,691) | 599,105,224 | |||||||
OTHER ASSETS LESS LIABILITIES–(1.63)% | (9,635,900 | ) | ||||||
NET ASSETS–100.00% | $ | 589,469,324 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt | |
Wts. | – Warrants |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | All or a portion of this security was out on loan at June 30, 2010. | |
(d) | Each unit represents one common share and one trust share. | |
(e) | Non-income producing security acquired through a corporate action. | |
(f) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(g) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1I. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Capital Appreciation Fund
By sector, based on Net Assets
as of June 30, 2010
Information Technology | 29.9 | % | ||
Health Care | 16.4 | |||
Consumer Discretionary | 15.4 | |||
Industrials | 12.6 | |||
Energy | 7.5 | |||
Financials | 7.0 | |||
Consumer Staples | 5.0 | |||
Materials | 1.8 | |||
Utilities | 0.3 | |||
Money Market Funds Plus Other Assets Less Liabilities | 4.1 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Capital Appreciation Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $535,096,885)* | $ | 565,065,418 | ||
Investments in affiliated money market funds, at value and cost | 34,039,806 | |||
Total investments, at value (Cost $569,136,691) | 599,105,224 | |||
Foreign currencies, at value (Cost $28,888) | 29,141 | |||
Receivables for: | ||||
Investments sold | 599 | |||
Fund shares sold | 237,496 | |||
Dividends | 469,285 | |||
Investment for trustee deferred compensation and retirement plans | 118,442 | |||
Other assets | 387 | |||
Total assets | 599,960,574 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 541,014 | |||
Fund shares reacquired | 564,525 | |||
Collateral upon return of securities loaned | 8,577,380 | |||
Accrued fees to affiliates | 502,701 | |||
Accrued other operating expenses | 37,993 | |||
Trustee deferred compensation and retirement plans | 267,637 | |||
Total liabilities | 10,491,250 | |||
Net assets applicable to shares outstanding | $ | 589,469,324 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 958,730,198 | ||
Undistributed net investment income | 4,403,603 | |||
Undistributed net realized gain (loss) | (403,633,263 | ) | ||
Unrealized appreciation | 29,968,786 | |||
$ | 589,469,324 | |||
Net Assets: | ||||
Series I | $ | 430,148,530 | ||
Series II | $ | 159,320,794 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 23,154,717 | |||
Series II | 8,726,557 | |||
Series I: | ||||
Net asset value per share | $ | 18.58 | ||
Series II: | ||||
Net asset value per share | $ | 18.26 | ||
* | At June 30, 2010, securities with an aggregate value of $8,467,081 were on loan to brokers. |
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends | $ | 3,543,062 | ||
Dividends from affiliated money market funds (includes securities lending income of $5,926) | 17,837 | |||
Total investment income | 3,560,899 | |||
Expenses: | ||||
Advisory fees | 2,092,271 | |||
Administrative services fees | 867,898 | |||
Custodian fees | 22,856 | |||
Distribution fees — Series II | 231,713 | |||
Transfer agent fees | 36,060 | |||
Trustees’ and officers’ fees and benefits | 19,195 | |||
Other | 41,715 | |||
Total expenses | 3,311,708 | |||
Less: Fees waived | (17,783 | ) | ||
Net expenses | 3,293,925 | |||
Net investment income | 266,974 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $9,647) | 26,991,076 | |||
Foreign currencies | (119,913 | ) | ||
26,871,163 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (82,646,693 | ) | ||
Foreign currencies | 253 | |||
(82,646,440 | ) | |||
Net realized and unrealized gain (loss) | (55,775,277 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (55,508,303 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Capital Appreciation Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 266,974 | $ | 4,829,676 | ||||
Net realized gain (loss) | 26,871,163 | (94,066,494 | ) | |||||
Change in net unrealized appreciation (depreciation) | (82,646,440 | ) | 214,294,752 | |||||
Net increase (decrease) in net assets resulting from operations | (55,508,303 | ) | 125,057,934 | |||||
Distributions to shareholders from net investment income: �� | ||||||||
Series I | — | (2,958,538 | ) | |||||
Series II | — | (485,149 | ) | |||||
Total distributions from net investment income | — | (3,443,687 | ) | |||||
Share transactions–net: | ||||||||
Series I | (42,007,757 | ) | (68,162,037 | ) | ||||
Series II | (18,601,896 | ) | (16,738,294 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (60,609,653 | ) | (84,900,331 | ) | ||||
Net increase (decrease) in net assets | (116,117,956 | ) | 36,713,916 | |||||
Net assets: | ||||||||
Beginning of period | 705,587,280 | 668,873,364 | ||||||
End of period (includes undistributed net investment income of $4,403,603 and $4,136,629, respectively) | $ | 589,469,324 | $ | 705,587,280 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Capital Appreciation Fund, formerly AIM V.I. Capital Appreciation Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. |
Invesco V.I. Capital Appreciation Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. Capital Appreciation Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. | |
J. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
K. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .65% | ||
Over $250 million | 0 | .60% | ||
Invesco V.I. Capital Appreciation Fund
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $17,783.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $82,787 for accounting and fund administrative services and reimbursed $785,111 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Invesco V.I. Capital Appreciation Fund
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 583,991,593 | $ | 15,113,631 | $ | — | $ | 599,105,224 | ||||||||
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2010, the Fund engaged in securities purchases of $932,281 and securities sales of $1,381,045, which resulted in net realized gains of $9,647.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $2,117 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—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, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2010 | $ | 140,535,268 | ||
December 31, 2011 | 56,312,951 | |||
December 31, 2017 | 228,377,814 | |||
Total capital loss carryforward | $ | 425,226,033 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
Invesco V.I. Capital Appreciation 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, 2010 was $204,687,970 and $268,061,888, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 61,229,145 | ||
Aggregate unrealized (depreciation) of investment securities | (36,539,005 | ) | ||
Net unrealized appreciation of investment securities | $ | 24,690,140 | ||
Cost of investments for tax purposes is $574,415,084. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Class A | 319,502 | $ | 6,571,117 | 1,264,061 | $ | 22,171,261 | ||||||||||
Series II | 291,328 | 5,846,519 | 874,710 | 15,048,701 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Class A | — | — | 149,045 | 2,958,538 | ||||||||||||
Series II | — | — | 24,828 | 485,149 | ||||||||||||
Reacquired: | ||||||||||||||||
Class A | (2,375,890 | ) | (48,578,874 | ) | (5,328,522 | ) | (93,291,836 | ) | ||||||||
Series II | (1,214,982 | ) | (24,448,415 | ) | (1,893,167 | ) | (32,272,144 | ) | ||||||||
Net increase (decrease) in share activity | (2,980,042 | ) | $ | (60,609,653 | ) | (4,909,045 | ) | $ | (84,900,331 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 51% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Capital Appreciation Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | securities | Dividends | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||
value, | investment | (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | |||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | (loss) | unrealized) | operations | income | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 20.33 | $ | 0.02 | (c) | $ | (1.77 | ) | $ | (1.75 | ) | $ | — | $ | 18.58 | (8.61 | )% | $ | 430,149 | 0.90 | %(d) | 0.91 | %(d) | 0.15 | %(d) | 31 | % | |||||||||||||||||||||
Year ended 12/31/09 | 16.89 | 0.14 | (c) | 3.42 | 3.56 | (0.12 | ) | 20.33 | 21.08 | 512,540 | 0.90 | 0.91 | 0.79 | 85 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 29.37 | 0.09 | (c) | (12.57 | ) | (12.48 | ) | — | 16.89 | (42.49 | ) | 492,079 | 0.91 | 0.91 | 0.37 | 103 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 26.22 | 0.01 | 3.14 | 3.15 | — | 29.37 | 12.01 | 1,086,677 | 0.88 | 0.88 | 0.03 | 71 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 24.67 | 0.01 | 1.55 | 1.56 | (0.01 | ) | 26.22 | 6.34 | 1,204,559 | 0.91 | 0.91 | 0.06 | 120 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 22.69 | 0.03 | 1.97 | 2.00 | (0.02 | ) | 24.67 | 8.79 | 822,899 | 0.89 | 0.89 | 0.11 | 97 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 20.00 | (0.01 | )(c) | (1.73 | ) | (1.74 | ) | — | 18.26 | (8.70 | ) | 159,321 | 1.15 | (d) | 1.16 | (d) | (0.10 | )(d) | 31 | |||||||||||||||||||||||||||||
Year ended 12/31/09 | 16.61 | 0.09 | (c) | 3.35 | 3.44 | (0.05 | ) | 20.00 | 20.72 | 193,047 | 1.15 | 1.16 | 0.54 | 85 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 28.95 | 0.03 | (c) | (12.37 | ) | (12.34 | ) | — | 16.61 | (42.63 | ) | 176,794 | 1.16 | 1.16 | 0.12 | 103 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 25.91 | (0.07 | ) | 3.11 | 3.04 | — | 28.95 | 11.73 | 349,294 | 1.13 | 1.13 | (0.22 | ) | 71 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 24.43 | (0.05 | ) | 1.53 | 1.48 | — | 25.91 | 6.06 | 371,316 | 1.16 | 1.16 | (0.19 | ) | 120 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 22.50 | (0.03 | ) | 1.96 | 1.93 | — | 24.43 | 8.58 | 339,190 | 1.14 | 1.14 | (0.14 | ) | 97 | ||||||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns 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) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $495,464 and $186,907 for Series I and Series II shares, respectively. |
Invesco 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, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 913.90 | $ | 4.27 | $ | 1,020.33 | $ | 4.51 | 0.90 | % | ||||||||||||||||||
Series II | 1,000.00 | 913.00 | 5.45 | 1,019.09 | 5.76 | 1.15 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Capital Appreciation Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Capital Appreciation Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in
Invesco V.I. Capital Appreciation Fund
considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser and against the Lipper VA Underlying Funds - Large-Cap Growth Index and the Lipper VA Underlying Funds — Multi-Cap Growth Index. The Board noted that the performance of Series I shares of the Fund was in the fifth quintile of its performance universe 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 performance of Series I shares of the Fund was below the performance of both Indexes for the one, three and five year periods. The Board noted that Invesco Advisers made changes to the Fund’s portfolio management team in 2008, and that the team has a conservative, quality bias that underperformed during the low-quality rally in 2009. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was at the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year.
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 mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including two mutual funds advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was below the effective fee rate for one mutual fund and the same as the effective fee rate for the other mutual fund. The Board also compared the Fund’s effective fee rate to the effective sub-advisory fee rate of three mutual funds sub-advised by Invesco Advisers and noted that the Fund’s rate was above the effective sub-advisory rates for the mutual funds.
Other than the mutual funds described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other client accounts with investment strategies comparable to those of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information and other relevant factors, the Board concluded that the Fund’s advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes one breakpoint and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Capital Appreciation Fund
Invesco V.I. Capital Development Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VICDV-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -6.38 | % | ||
Series II Shares | -6.55 | |||
S&P 500 Index▼ (Broad Market Index) | -6.64 | |||
Russell Midcap Growth Index▼ (Style-Specific Index) | -3.31 | |||
Lipper VUF Mid-Cap Growth Funds Index▼ (Peer Group Index) | -2.34 |
▼ | Lipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Russell Midcap® Growth Index is an unmanaged index considered representative of mid-cap growth stocks. The Russell Midcap Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Mid-Cap Growth Funds Index is an unmanaged index considered representative of mid-cap growth variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (5/1/98) | 3.24 | % | ||
10 Years | 1.00 | |||
5 Years | -0.16 | |||
1 Year | 18.50 | |||
Series II Shares | ||||
10 Years | 0.75 | % | ||
5 Years | -0.42 | |||
1 Year | 18.18 |
Series II shares incepted on August 21, 2001. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.11% and 1.36%, respectively.1,2 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.12% and 1.37%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Capital Development Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. | |
2 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2011. See current prospectus for more information. |
Invesco V.I. Capital Development Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–94.22% | ||||||||
Aerospace & Defense–1.42% | ||||||||
Goodrich Corp. | 33,092 | $ | 2,192,345 | |||||
Air Freight & Logistics–0.97% | ||||||||
C.H. Robinson Worldwide, Inc. | 26,971 | 1,501,206 | ||||||
Apparel Retail–0.88% | ||||||||
American Eagle Outfitters, Inc. | 114,972 | 1,350,921 | ||||||
Apparel, Accessories & Luxury Goods–3.68% | ||||||||
Carter’s, Inc.(b) | 69,169 | 1,815,686 | ||||||
Coach, Inc. | 48,206 | 1,761,930 | ||||||
Hanesbrands, Inc.(b) | 86,686 | 2,085,665 | ||||||
5,663,281 | ||||||||
Application Software–2.12% | ||||||||
Autodesk, Inc.(b) | 61,236 | 1,491,709 | ||||||
TIBCO Software Inc.(b) | 147,251 | 1,775,847 | ||||||
3,267,556 | ||||||||
Asset Management & Custody Banks–1.38% | ||||||||
Affiliated Managers Group, Inc.(b) | 34,901 | 2,120,934 | ||||||
Auto Parts & Equipment–1.20% | ||||||||
BorgWarner, Inc.(b) | 49,513 | 1,848,815 | ||||||
Biotechnology–2.50% | ||||||||
Genzyme Corp.(b) | 34,096 | 1,731,054 | ||||||
Human Genome Sciences, Inc.(b) | 33,205 | 752,425 | ||||||
United Therapeutics Corp.(b) | 27,993 | 1,366,339 | ||||||
3,849,818 | ||||||||
Casinos & Gaming–2.75% | ||||||||
International Game Technology | 94,681 | 1,486,492 | ||||||
Las Vegas Sands Corp.(b) | 69,844 | 1,546,346 | ||||||
MGM Resorts International(b) | 124,675 | 1,201,867 | ||||||
4,234,705 | ||||||||
Coal & Consumable Fuels–0.86% | ||||||||
Alpha Natural Resources, Inc.(b) | 38,951 | 1,319,270 | ||||||
Communications Equipment–1.12% | ||||||||
Finisar Corp.(b) | 115,985 | 1,728,176 | ||||||
Lantronix Inc.–Wts., expiring 02/09/11(c) | 576 | 0 | ||||||
1,728,176 | ||||||||
Computer Hardware–1.04% | ||||||||
Teradata Corp.(b) | 52,718 | 1,606,845 | ||||||
Shares | ||||||||
Computer Storage & Peripherals–2.18% | ||||||||
NetApp, Inc.(b) | 41,462 | 1,546,947 | ||||||
QLogic Corp.(b) | 108,774 | 1,807,824 | ||||||
3,354,771 | ||||||||
Construction & Engineering–0.96% | ||||||||
Foster Wheeler AG (Switzerland)(b) | 70,431 | 1,483,277 | ||||||
Construction, Farm Machinery & Heavy Trucks–0.71% | ||||||||
Bucyrus International, Inc. | 22,951 | 1,089,025 | ||||||
Consumer Finance–1.37% | ||||||||
Discover Financial Services | 151,467 | 2,117,509 | ||||||
Data Processing & Outsourced Services–1.57% | ||||||||
Alliance Data Systems Corp.(b) | 40,586 | 2,415,679 | ||||||
Department Stores–3.24% | ||||||||
J.C. Penney Co., Inc. | 60,040 | 1,289,659 | ||||||
Macy’s, Inc. | 115,315 | 2,064,138 | ||||||
Nordstrom, Inc. | 50,904 | 1,638,600 | ||||||
4,992,397 | ||||||||
Distributors–0.72% | ||||||||
LKQ Corp.(b) | 57,822 | 1,114,808 | ||||||
Diversified Support Services–1.06% | ||||||||
Copart, Inc.(b) | 45,473 | 1,628,388 | ||||||
Education Services–2.29% | ||||||||
Capella Education Co.(b) | 24,927 | 2,027,811 | ||||||
ITT Educational Services, Inc.(b) | 17,975 | 1,492,285 | ||||||
3,520,096 | ||||||||
Electrical Components & Equipment–1.99% | ||||||||
Cooper Industries PLC (Ireland) | 34,868 | 1,534,192 | ||||||
Regal-Beloit Corp. | 27,563 | 1,537,464 | ||||||
3,071,656 | ||||||||
Electronic Components–1.02% | ||||||||
Amphenol Corp.–Class A | 39,914 | 1,567,822 | ||||||
Electronic Manufacturing Services–0.52% | ||||||||
Jabil Circuit, Inc. | 60,093 | 799,237 | ||||||
Environmental & Facilities Services–1.34% | ||||||||
Republic Services, Inc. | 69,336 | 2,061,359 | ||||||
Health Care Equipment–3.96% | ||||||||
American Medical Systems Holdings, Inc.(b) | 70,504 | 1,559,548 | ||||||
CareFusion Corp.(b) | 66,308 | 1,505,192 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Capital Development Fund
Shares | Value | |||||||
Health Care Equipment–(continued) | ||||||||
Hologic, Inc.(b) | 125,086 | $ | 1,742,448 | |||||
NuVasive, Inc.(b) | 36,297 | 1,287,092 | ||||||
6,094,280 | ||||||||
Health Care Facilities–1.50% | ||||||||
Brookdale Senior Living Inc.(b) | 45,377 | 680,655 | ||||||
VCA Antech, Inc.(b) | 66,016 | 1,634,556 | ||||||
2,315,211 | ||||||||
Health Care Services–2.06% | ||||||||
Express Scripts, Inc.(b) | 42,488 | 1,997,786 | ||||||
Fresenius Medical Care AG & Co. KGaA–ADR (Germany) | 22,007 | 1,181,556 | ||||||
3,179,342 | ||||||||
Hotels, Resorts & Cruise Lines–2.40% | ||||||||
Ctrip.com International, Ltd.–ADR (China)(b) | 43,756 | 1,643,475 | ||||||
Marriott International, Inc.–Class A | 68,755 | 2,058,525 | ||||||
3,702,000 | ||||||||
Household Products–1.94% | ||||||||
Church & Dwight Co., Inc. | 25,788 | 1,617,166 | ||||||
Energizer Holdings, Inc.(b) | 27,133 | 1,364,247 | ||||||
2,981,413 | ||||||||
Human Resource & Employment Services–1.05% | ||||||||
Robert Half International, Inc. | 68,799 | 1,620,216 | ||||||
Independent Power Producers & Energy Traders–0.72% | ||||||||
KGEN Power Corp. (Acquired 01/12/07; Cost $2,219,196)(b)(d) | 158,514 | 1,109,598 | ||||||
Industrial Machinery–2.03% | ||||||||
Flowserve Corp. | 17,795 | 1,509,016 | ||||||
Kennametal Inc. | 63,330 | 1,610,482 | ||||||
3,119,498 | ||||||||
Internet Software & Services–2.08% | ||||||||
Akamai Technologies, Inc.(b) | 41,585 | 1,687,103 | ||||||
Baidu, Inc.–ADR (China)(b) | 22,283 | 1,517,027 | ||||||
3,204,130 | ||||||||
IT Consulting & Other Services–1.17% | ||||||||
Cognizant Technology Solutions Corp.–Class A(b) | 35,965 | 1,800,408 | ||||||
Life & Health Insurance–1.25% | ||||||||
Lincoln National Corp. | 79,025 | 1,919,517 | ||||||
Life Sciences Tools & Services–2.32% | ||||||||
Life Technologies Corp.(b) | 33,692 | 1,591,947 | ||||||
Pharmaceutical Product Development, Inc. | 77,718 | 1,974,814 | ||||||
3,566,761 | ||||||||
Managed Health Care–1.56% | ||||||||
Aetna, Inc. | 56,956 | 1,502,500 | ||||||
Aveta, Inc. (Acquired 12/21/05-02/21/06; Cost $2,162,718)(b)(d) | 157,251 | 904,193 | ||||||
2,406,693 | ||||||||
Metal & Glass Containers–1.07% | ||||||||
Owens-Illinois, Inc.(b) | 62,249 | 1,646,486 | ||||||
Multi-Line Insurance–1.42% | ||||||||
Genworth Financial Inc.–Class A(b) | 167,326 | 2,186,951 | ||||||
Oil & Gas Equipment & Services–2.53% | ||||||||
Baker Hughes Inc. | 45,794 | 1,903,657 | ||||||
Key Energy Services, Inc.(b) | 217,389 | 1,995,631 | ||||||
3,899,288 | ||||||||
Oil & Gas Exploration & Production–4.28% | ||||||||
Cabot Oil & Gas Corp. | 42,921 | 1,344,286 | ||||||
Concho Resources Inc.(b) | 37,153 | 2,055,676 | ||||||
Continental Resources, Inc.(b) | 49,841 | 2,223,905 | ||||||
Oasis Petroleum Inc.(b) | 66,642 | 966,309 | ||||||
6,590,176 | ||||||||
Packaged Foods & Meats–1.13% | ||||||||
Hershey Co. (The) | 36,479 | 1,748,438 | ||||||
Personal Products–1.00% | ||||||||
Estee Lauder Cos. Inc. (The)–Class A | 27,568 | 1,536,365 | ||||||
Pharmaceuticals–1.10% | ||||||||
Shire PLC–ADR (United Kingdom) | 27,721 | 1,701,515 | ||||||
Property & Casualty Insurance–0.45% | ||||||||
Assured Guaranty Ltd. | 52,607 | 698,095 | ||||||
Real Estate Services–1.44% | ||||||||
CB Richard Ellis Group, Inc.–Class A(b) | 163,432 | 2,224,309 | ||||||
Research & Consulting Services–1.23% | ||||||||
IHS Inc.–Class A(b) | 32,507 | 1,899,059 | ||||||
Restaurants–1.27% | ||||||||
Darden Restaurants, Inc. | 50,371 | 1,956,913 | ||||||
Security & Alarm Services–0.93% | ||||||||
Corrections Corp. of America(b) | 75,092 | 1,432,755 | ||||||
Semiconductors–4.21% | ||||||||
Altera Corp. | 37,149 | 921,667 | ||||||
Avago Technologies Ltd. (Singapore)(b) | 81,245 | 1,711,020 | ||||||
Broadcom Corp.–Class A | 45,491 | 1,499,838 | ||||||
Cavium Networks, Inc.(b) | 31,684 | 829,804 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Capital Development Fund
Shares | Value | |||||||
Semiconductors–(continued) | ||||||||
Marvell Technology Group Ltd.(b) | 34,607 | $ | 545,406 | |||||
Xilinx, Inc. | 38,604 | 975,137 | ||||||
6,482,872 | ||||||||
Specialty Chemicals–1.24% | ||||||||
Albemarle Corp. | 48,002 | 1,906,159 | ||||||
Specialty Stores–0.80% | ||||||||
Ulta Salon, Cosmetics & Fragrance, Inc.(b) | 52,184 | 1,234,673 | ||||||
Systems Software–2.14% | ||||||||
Check Point Software Technologies Ltd. (Israel)(b) | 53,786 | 1,585,611 | ||||||
Rovi Corp.(b) | 45,214 | 1,714,063 | ||||||
3,299,674 | ||||||||
Trading Companies & Distributors–2.46% | ||||||||
MSC Industrial Direct Co., Inc.–Class A | 37,957 | 1,922,902 | ||||||
W.W. Grainger, Inc. | 18,738 | 1,863,494 | ||||||
3,786,396 | ||||||||
Trucking–1.19% | ||||||||
J.B. Hunt Transport Services, Inc. | 56,071 | 1,831,840 | ||||||
Wireless Telecommunication Services–1.40% | ||||||||
American Tower Corp.–Class A(b) | 48,518 | 2,159,051 | ||||||
Total Common Stocks & Other Equity Interests (Cost $130,924,588) | 145,139,978 | |||||||
Money Market Funds–5.09% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 3,920,753 | 3,920,753 | ||||||
Premier Portfolio–Institutional Class(e) | 3,920,753 | 3,920,753 | ||||||
Total Money Market Funds (Cost $7,841,506) | 7,841,506 | |||||||
TOTAL INVESTMENTS–99.31% (Cost $138,766,094) | 152,981,484 | |||||||
OTHER ASSETS LESS LIABILITIES–0.69% | 1,055,936 | |||||||
NET ASSETS–100.00% | $ | 154,037,420 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt | |
Wts. | – Warrants |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | Non-income producing security acquired through a corporate action. | |
(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, 2010 was $2,013,791, which represented 1.31% of the Fund’s Net Assets. | |
(e) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
as of June 30, 2010
Consumer Discretionary | 19.2 | % | ||
Information Technology | 19.2 | |||
Industrials | 17.3 | |||
Health Care | 15.0 | |||
Energy | 7.7 | |||
Financials | 7.3 | |||
Consumer Staples | 4.1 | |||
Materials | 2.3 | |||
Telecommunication Services | 1.4 | |||
Utilities | 0.7 | |||
Money Market Funds Plus Other Assets Less Liabilities | 5.8 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Capital Development Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $130,924,588) | $ | 145,139,978 | ||
Investments in affiliated money market funds, at value and cost | 7,841,506 | |||
Total investments, at value (Cost $138,766,094) | 152,981,484 | |||
Receivables for: | ||||
Investments sold | 852,541 | |||
Investments sold to affiliates | 473,289 | |||
Fund shares sold | 40,550 | |||
Dividends | 92,313 | |||
Investment for trustee deferred compensation and retirement plans | 26,763 | |||
Other assets | 2,253 | |||
Total assets | 154,469,193 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 191,588 | |||
Accrued fees to affiliates | 165,803 | |||
Accrued other operating expenses | 26,209 | |||
Trustee deferred compensation and retirement plans | 48,173 | |||
Total liabilities | 431,773 | |||
Net assets applicable to shares outstanding | $ | 154,037,420 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 201,877,164 | ||
Undistributed net investment income (loss) | (296,246 | ) | ||
Undistributed net realized gain (loss) | (61,758,888 | ) | ||
Unrealized appreciation | 14,215,390 | |||
$ | 154,037,420 | |||
Net Assets: | ||||
Series I | $ | 71,551,852 | ||
Series II | $ | 82,485,568 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 6,769,813 | |||
Series II | 8,029,313 | |||
Series I: | ||||
Net asset value per share | $ | 10.57 | ||
Series II: | ||||
Net asset value per share | $ | 10.27 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $7,720) | $ | 789,645 | ||
Dividends from affiliated money market funds (includes securities lending income of $6,264) | 10,221 | |||
Total investment income | 799,866 | |||
Expenses: | ||||
Advisory fees | 652,664 | |||
Administrative services fees | 237,823 | |||
Custodian fees | 4,720 | |||
Distribution fees — Series II | 116,352 | |||
Transfer agent fees | 10,894 | |||
Trustees’ and officers’ fees and benefits | 11,426 | |||
Other | 22,431 | |||
Total expenses | 1,056,310 | |||
Less: Fees waived | (9,565 | ) | ||
Net expenses | 1,046,745 | |||
Net investment income (loss) | (246,879 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $94,311) | 14,808,768 | |||
Foreign currencies | 4,939 | |||
14,813,707 | ||||
Change in net unrealized appreciation (depreciation) of investment securities | (25,276,715 | ) | ||
Net realized and unrealized gain (loss) | (10,463,008 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (10,709,887 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Capital Development Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (246,879 | ) | $ | (859,030 | ) | ||
Net realized gain (loss) | 14,813,707 | (13,261,728 | ) | |||||
Change in net unrealized appreciation (depreciation) | (25,276,715 | ) | 69,400,458 | |||||
Net increase (decrease) in net assets resulting from operations | (10,709,887 | ) | 55,279,700 | |||||
Share transactions–net: | ||||||||
Series I | (5,374,935 | ) | (5,484,404 | ) | ||||
Series II | (5,984,481 | ) | (16,147,547 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (11,359,416 | ) | (21,631,951 | ) | ||||
Net increase (decrease) in net assets | (22,069,303 | ) | 33,647,749 | |||||
Net assets: | ||||||||
Beginning of period | 176,106,723 | 142,458,974 | ||||||
End of period (includes undistributed net investment income (loss) of $(296,246) and $(49,367), respectively) | $ | 154,037,420 | $ | 176,106,723 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Capital Development Fund, formerly AIM V.I. Capital Development Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity |
Invesco V.I. Capital Development Fund
are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual |
Invesco V.I. Capital Development Fund
results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | ||
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. | |
J. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
K. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $350 million | 0 | .75% | ||
Over $350 million | 0 | .625% | ||
Invesco V.I. Capital Development Fund
Through at least April 30, 2011, the Adviser has contractually agreed to waive advisory fees to the extent necessary so that the advisory fees payable by the Fund (based on the Fund’s average daily net assets) do not exceed the annual rate of:
Average Net Assets | Rate | |||
First $250 million | 0 | .745% | ||
Next $250 million | 0 | .73% | ||
Next $500 million | 0 | .715% | ||
Next $1.5 billion | 0 | .70% | ||
Next $2.5 billion | 0 | .685% | ||
Next $2.5 billion | 0 | .67% | ||
Next $2.5 billion | 0 | .655% | ||
Over $10 billion | 0 | .64% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $9,565.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $213,028 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation
Invesco V.I. Capital Development Fund
inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 150,967,693 | $ | — | $ | 2,013,791 | $ | 152,981,484 | ||||||||
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2010, the Fund engaged in securities purchases of $7,838,966 and securities sales of $3,024,129, which resulted in net realized gains of $94,311.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $1,484 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—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.
Invesco V.I. Capital Development Fund
The Fund had a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 49,840,811 | ||
December 31, 2017 | 26,458,756 | |||
Total capital loss carryforward | $ | 76,299,567 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2010 was $66,704,993 and $82,227,297, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 23,605,512 | ||
Aggregate unrealized (depreciation) of investment securities | (9,663,151 | ) | ||
Net unrealized appreciation of investment securities | $ | 13,942,361 | ||
Cost of investments for tax purposes is $139,039,123. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 572,506 | $ | 6,700,129 | 2,458,503 | $ | 21,351,970 | ||||||||||
Series II | 482,098 | 5,515,092 | 1,455,369 | 12,521,899 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,051,895 | ) | (12,075,064 | ) | (3,021,088 | ) | (26,836,374 | ) | ||||||||
Series II | (1,027,631 | ) | (11,499,573 | ) | (3,276,615 | ) | (28,669,446 | ) | ||||||||
Net increase (decrease) in share activity | (1,024,922 | ) | $ | (11,359,416 | ) | (2,383,831 | ) | $ | (21,631,951 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 60% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or advisor, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Capital Development Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | (losses) on | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||
value, | investment | securities (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | |||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | realized | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | (loss) | unrealized) | operations | gains | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 11.29 | $ | (0.01 | )(c) | $ | (0.71 | ) | $ | (0.72 | ) | $ | — | $ | 10.57 | (6.38 | )% | $ | 71,552 | 1.07 | %(d) | 1.08 | %(d) | (0.15 | )%(d) | 40 | % | |||||||||||||||||||||
Year ended 12/31/09 | 7.93 | (0.04 | )(c) | 3.40 | 3.36 | — | 11.29 | 42.37 | 81,866 | 1.10 | 1.11 | (0.41 | ) | 102 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 18.85 | (0.05 | )(c) | (8.88 | ) | (8.93 | ) | (1.99 | ) | 7.93 | (47.03 | ) | 61,986 | 1.10 | 1.11 | (0.38 | ) | 99 | ||||||||||||||||||||||||||||||
Year ended 12/31/07 | 18.43 | (0.10 | )(c) | 2.14 | 2.04 | (1.62 | ) | 18.85 | 10.84 | 149,776 | 1.05 | 1.06 | (0.47 | ) | 109 | |||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 16.09 | (0.07 | ) | 2.73 | 2.66 | (0.32 | ) | 18.43 | 16.52 | 148,668 | 1.08 | 1.09 | (0.48 | ) | 119 | |||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 14.68 | (0.04 | ) | 1.45 | 1.41 | — | 16.09 | 9.61 | 117,674 | 1.09 | 1.09 | (0.22 | ) | 125 | ||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 10.99 | (0.02 | )(c) | (0.70 | ) | (0.72 | ) | — | 10.27 | (6.55 | ) | 82,486 | 1.32 | (d) | 1.33 | (d) | (0.40 | )(d) | 40 | |||||||||||||||||||||||||||||
Year ended 12/31/09 | 7.74 | (0.06 | )(c) | 3.31 | 3.25 | — | 10.99 | 41.99 | 94,241 | 1.35 | 1.36 | (0.66 | ) | 102 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 18.53 | (0.09 | )(c) | (8.71 | ) | (8.80 | ) | (1.99 | ) | 7.74 | (47.13 | ) | 80,473 | 1.35 | 1.36 | (0.63 | ) | 99 | ||||||||||||||||||||||||||||||
Year ended 12/31/07 | 18.19 | (0.15 | )(c) | 2.11 | 1.96 | (1.62 | ) | 18.53 | 10.55 | 190,815 | 1.30 | 1.31 | (0.72 | ) | 109 | |||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 15.92 | (0.10 | ) | 2.69 | 2.59 | (0.32 | ) | 18.19 | 16.26 | 128,990 | 1.33 | 1.34 | (0.73 | ) | 119 | |||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 14.57 | (0.07 | ) | 1.42 | 1.35 | — | 15.92 | 9.27 | 83,388 | 1.34 | 1.34 | (0.47 | ) | 125 | ||||||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns 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) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $81,633 and $93,853 for Series I and Series II shares, respectively. |
Invesco V.I. Capital Development Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 936.20 | $ | 5.14 | $ | 1,019.49 | $ | 5.36 | 1.07 | % | ||||||||||||||||||
Series II | 1,000.00 | 934.50 | 6.33 | 1,018.25 | 6.61 | 1.32 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Capital Development Fund
Approval of Investment Advisory and Sub-advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Capital Development Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser and against the Lipper VA Underlying Funds — Mid-Cap
Invesco V.I. Capital Development Fund
Growth Index. The Board noted that the performance of Series I shares of the Fund was in the third quintile of its performance universe for the one year period, the fifth quintile for the three year period and the fourth quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that the performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. In response to an inquiry from the Board, Invesco Advisers indicated that much of the underperformance was concentrated in the second half of 2007 as a result of financial sector stock selection. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was at the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year.
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 mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including one mutual fund advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was above the effective fee rate for the other mutual fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients based upon policies reviewed with the Board. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts, including provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets managed for other client accounts and noted that advance notice of redemptions affecting management assets is often provided to Invesco Advisers by institutional clients. Although the Board noted that the fees charged to other client accounts were often lower than the advisory fee charged by Invesco Advisers to the Fund and other Invesco Funds, the Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts were more comparable. In light of this information, the Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from services provided to other client accounts and accordingly, the Board did not place significant weight on these fee comparisons.
The Board noted that Invesco Advisers contractually agreed to waive advisory fees of the Fund through at least April 30, 2011, and that this fee waiver includes breakpoints based on net asset levels. The Board also noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 noted that at the current expense ratio for the Fund, the expense waiver is not having any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information and the fee waivers/expense limitations discussed above and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes one breakpoint and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Capital Development Fund
Invesco V.I. Core Equity Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VICEQ-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | –7.18 | % | ||
Series II Shares | –7.31 | |||
S&P 500 Index▼ (Broad Market Index) | –6.64 | |||
Russell 1000 Index▼ (Style-Specific Index) | –6.40 | |||
Lipper VUF Large-Cap Core Funds Index▼ (Peer Group Index) | –7.62 |
▼ | Lipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Russell 1000® Index is an unmanaged index considered representative of large-cap stocks. The Russell 1000 Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Large-Cap Core Funds Index is an unmanaged index considered representative of large-cap core variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares
Inception (5/2/94) | 6.78 | % | ||
10 Years | –1.90 | |||
5 Years | 2.22 | |||
1 Year | 12.26 |
Series II Shares
10 Years | –2.15 | % | ||
5 Years | 1.97 | |||
1 Year | 12.00 |
Series II shares incepted on October 24, 2001. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.92% and 1.17%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Core Equity Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 by calling 800 451 4246.
As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Core Equity Fund
Schedule of Investments
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–84.94%(a) | ||||||||
Aerospace & Defense–3.94% | ||||||||
ITT Corp. | 223,761 | $ | 10,051,344 | |||||
Lockheed Martin Corp. | 173,815 | �� | 12,949,217 | |||||
Northrop Grumman Corp. | 384,234 | 20,917,699 | ||||||
United Technologies Corp. | 91,102 | 5,913,431 | ||||||
49,831,691 | ||||||||
Agricultural Products–0.29% | ||||||||
Archer-Daniels-Midland Co. | 144,655 | 3,734,992 | ||||||
Air Freight & Logistics–0.76% | ||||||||
United Parcel Service, Inc.–Class B | 169,483 | 9,641,888 | ||||||
Application Software–0.62% | ||||||||
Adobe Systems, Inc.(b) | 297,097 | 7,852,274 | ||||||
Asset Management & Custody Banks–2.77% | ||||||||
Legg Mason, Inc. | 760,314 | 21,311,601 | ||||||
Northern Trust Corp. | 295,000 | 13,776,500 | ||||||
35,088,101 | ||||||||
Biotechnology–2.44% | ||||||||
Genzyme Corp.(b) | 156,893 | 7,965,458 | ||||||
Gilead Sciences, Inc.(b) | 670,000 | 22,967,600 | ||||||
30,933,058 | ||||||||
Cable & Satellite–1.56% | ||||||||
Comcast Corp.–Class A | 1,136,959 | 19,748,978 | ||||||
Communications Equipment–5.92% | ||||||||
Cisco Systems, Inc.(b) | 484,648 | 10,327,849 | ||||||
Motorola, Inc.(b) | 2,983,934 | 19,455,250 | ||||||
Nokia Corp.–ADR (Finland) | 2,475,000 | 20,171,250 | ||||||
QUALCOMM, Inc. | 760,037 | 24,959,615 | ||||||
74,913,964 | ||||||||
Computer Storage & Peripherals–1.01% | ||||||||
EMC Corp.(b) | 695,342 | 12,724,759 | ||||||
Consumer Finance–2.81% | ||||||||
American Express Co. | 894,595 | 35,515,421 | ||||||
Data Processing & Outsourced Services–0.90% | ||||||||
Automatic Data Processing, Inc. | 281,587 | 11,336,693 | ||||||
Diversified Banks–0.66% | ||||||||
U.S. Bancorp | 374,728 | 8,375,171 | ||||||
Drug Retail–3.63% | ||||||||
CVS Caremark Corp. | 1,048,606 | 30,745,128 | ||||||
Walgreen Co. | 567,063 | 15,140,582 | ||||||
45,885,710 | ||||||||
Education Services–0.57% | ||||||||
Apollo Group, Inc.–Class A(b) | 168,865 | 7,171,697 | ||||||
Electric Utilities–0.62% | ||||||||
Edison International | 135,000 | 4,282,200 | ||||||
Exelon Corp. | 94,000 | 3,569,180 | ||||||
7,851,380 | ||||||||
Electronic Equipment Manufacturers–1.06% | ||||||||
Agilent Technologies, Inc.(b) | 471,727 | 13,411,199 | ||||||
Electronic Manufacturing Services–1.51% | ||||||||
Tyco Electronics Ltd. (Switzerland) | 751,015 | 19,060,761 | ||||||
Environmental & Facilities Services–1.21% | ||||||||
Waste Management, Inc. | 487,966 | 15,268,456 | ||||||
Food Retail–2.42% | ||||||||
Kroger Co. (The) | 1,557,128 | 30,659,850 | ||||||
Health Care Equipment–4.03% | ||||||||
Baxter International, Inc. | 315,000 | 12,801,600 | ||||||
Boston Scientific Corp.(b) | 4,947,615 | 28,696,167 | ||||||
Covidien PLC (Ireland) | 134,174 | 5,391,111 | ||||||
Medtronic, Inc. | 114,458 | 4,151,392 | ||||||
51,040,270 | ||||||||
Home Improvement Retail–1.76% | ||||||||
Lowe’s Cos., Inc. | 1,093,571 | 22,330,720 | ||||||
Hypermarkets & Super Centers–2.13% | ||||||||
Wal-Mart Stores, Inc. | 561,026 | 26,968,520 | ||||||
Industrial Conglomerates–4.06% | ||||||||
3M Co. | 295,723 | 23,359,159 | ||||||
Koninklijke (Royal) Philips Electronics N.V. (Netherlands) | 137,868 | 4,110,323 | ||||||
Tyco International Ltd. | 679,095 | 23,924,517 | ||||||
51,393,999 | ||||||||
Industrial Gases–1.60% | ||||||||
Air Products & Chemicals, Inc. | 312,815 | 20,273,540 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Equity Fund
Shares | Value | |||||||
Industrial Machinery–1.45% | ||||||||
Danaher Corp. | 253,426 | $ | 9,407,173 | |||||
Illinois Tool Works, Inc. | 216,147 | 8,922,548 | ||||||
18,329,721 | ||||||||
Insurance Brokers–0.94% | ||||||||
Marsh & McLennan Cos., Inc. | 529,649 | 11,943,585 | ||||||
Integrated Oil & Gas–0.43% | ||||||||
Exxon Mobil Corp. | 94,817 | 5,411,218 | ||||||
Life Sciences Tools & Services–1.99% | ||||||||
Thermo Fisher Scientific, Inc.(b) | 514,522 | 25,237,304 | ||||||
Managed Health Care–1.57% | ||||||||
WellPoint, Inc.(b) | 406,398 | 19,885,054 | ||||||
Oil & Gas Equipment & Services–3.06% | ||||||||
Baker Hughes Inc. | 675,000 | 28,059,750 | ||||||
Schlumberger Ltd. | 193,772 | 10,723,342 | ||||||
38,783,092 | ||||||||
Oil & Gas Exploration & Production–1.93% | ||||||||
Apache Corp. | 176,332 | 14,845,391 | ||||||
EOG Resources, Inc. | 97,142 | 9,555,859 | ||||||
24,401,250 | ||||||||
Oil & Gas Refining & Marketing–1.25% | ||||||||
Valero Energy Corp. | 878,097 | 15,788,184 | ||||||
Oil & Gas Storage & Transportation–1.51% | ||||||||
Williams Cos., Inc. (The) | 1,043,698 | 19,078,799 | ||||||
Packaged Foods & Meats–0.50% | ||||||||
Kraft Foods Inc.–Class A | 224,793 | 6,294,204 | ||||||
Pharmaceuticals–5.91% | ||||||||
Allergan, Inc. | 160,708 | 9,362,848 | ||||||
Johnson & Johnson | 178,835 | 10,561,995 | ||||||
Pfizer, Inc. | 1,188,808 | 16,952,402 | ||||||
Roche Holding AG (Switzerland) | 173,732 | 23,854,186 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 271,370 | 14,108,526 | ||||||
74,839,957 | ||||||||
Property & Casualty Insurance–5.75% | ||||||||
Berkshire Hathaway Inc.–Class A(b) | 272 | 32,640,000 | ||||||
Progressive Corp. (The) | 2,145,916 | 40,171,548 | ||||||
72,811,548 | ||||||||
Railroads–1.35% | ||||||||
Union Pacific Corp. | 246,639 | 17,143,877 | ||||||
Semiconductors–2.29% | ||||||||
Intel Corp. | 864,721 | 16,818,823 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan) | 6,485,823 | 12,127,280 | ||||||
28,946,103 | ||||||||
Systems Software–4.77% | ||||||||
Microsoft Corp. | 1,165,405 | 26,815,969 | ||||||
Symantec Corp.(b) | 2,419,219 | 33,578,760 | ||||||
60,394,729 | ||||||||
Wireless Telecommunication Services–1.96% | ||||||||
Vodafone Group PLC (United Kingdom) | 11,954,877 | 24,768,172 | ||||||
Total Common Stocks & Other Equity Interests (Cost $1,132,772,023) | 1,075,069,889 | |||||||
Money Market Funds–16.55% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 104,764,539 | 104,764,539 | ||||||
Premier Portfolio–Institutional Class(c) | 104,764,539 | 104,764,539 | ||||||
Total Money Market Funds (Cost $209,529,078) | 209,529,078 | |||||||
TOTAL INVESTMENTS–101.49% (Cost $1,342,301,101) | 1,284,598,967 | |||||||
OTHER ASSETS LESS LIABILITIES–(1.49)% | (18,882,746 | ) | ||||||
NET ASSETS–100.00% | $ | 1,265,716,221 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Equity Fund
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2010
Information Technology | 18.1 | % | ||
Health Care | 15.9 | |||
Financials | 12.9 | |||
Industrials | 12.8 | |||
Consumer Staples | 9.0 | |||
Energy | 8.2 | |||
Consumer Discretionary | 3.9 | |||
Telecommunication Services | 1.9 | |||
Materials | 1.6 | |||
Utilities | 0.6 | |||
Money Market Funds Plus Other Assets Less Liabilities | 15.1 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Equity Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $1,132,772,023) | $ | 1,075,069,889 | ||
Investments in affiliated money market funds, at value and cost | 209,529,078 | |||
Total investments, at value (Cost $1,342,301,101) | 1,284,598,967 | |||
Foreign currencies, at value (Cost $1,937) | 1,894 | |||
Receivables for: | ||||
Fund shares sold | 355,195 | |||
Dividends | 2,169,942 | |||
Investment for trustee deferred compensation and retirement plans | 118,010 | |||
Other assets | 1,940 | |||
Total assets | 1,287,245,948 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 6,049,537 | |||
Fund shares reacquired | 13,942,154 | |||
Foreign currency contracts outstanding | 213,998 | |||
Accrued fees to affiliates | 865,289 | |||
Accrued other operating expenses | 62,524 | |||
Trustee deferred compensation and retirement plans | 396,225 | |||
Total liabilities | 21,529,727 | |||
Net assets applicable to shares outstanding | $ | 1,265,716,221 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,628,363,612 | ||
Undistributed net investment income | 18,947,958 | |||
Undistributed net realized gain (loss) | (323,697,422 | ) | ||
Unrealized appreciation (depreciation) | (57,897,927 | ) | ||
$ | 1,265,716,221 | |||
Net Assets: | ||||
Series I | $ | 1,233,663,093 | ||
Series II | $ | 32,053,128 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 53,328,749 | |||
Series II | 1,396,985 | |||
Series I: | ||||
Net asset value per share | $ | 23.13 | ||
Series II: | ||||
Net asset value per share | $ | 22.94 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $394,837) | $ | 12,220,237 | ||
Dividends from affiliated money market funds (includes securities lending income of $85,961) | 200,336 | |||
Total investment income | 12,420,573 | |||
Expenses: | ||||
Advisory fees | 4,370,693 | |||
Administrative services fees | 1,878,378 | |||
Custodian fees | 33,057 | |||
Distribution fees — Series II | 43,790 | |||
Transfer agent fees | 22,947 | |||
Trustees’ and officers’ fees and benefits | 31,078 | |||
Other | 34,211 | |||
Total expenses | 6,414,154 | |||
Less: Fees waived | (167,008 | ) | ||
Net expenses | 6,247,146 | |||
Net investment income | 6,173,427 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains (losses) from securities sold to affiliates of $(2,573,609)) | 50,319,173 | |||
Foreign currencies | (476,450 | ) | ||
Foreign currency contracts | 2,293,315 | |||
52,136,038 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (154,706,174 | ) | ||
Foreign currencies | (37,419 | ) | ||
Foreign currency contracts | (893,269 | ) | ||
(155,636,862 | ) | |||
Net realized and unrealized gain (loss) | (103,500,824 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (97,327,397 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Equity Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 6,173,427 | $ | 12,984,133 | ||||
Net realized gain (loss) | 52,136,038 | (118,861,783 | ) | |||||
Change in net unrealized appreciation (depreciation) | (155,636,862 | ) | 445,880,351 | |||||
Net increase (decrease) in net assets resulting from operations | (97,327,397 | ) | 340,002,701 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (23,923,292 | ) | |||||
Series II | — | (459,176 | ) | |||||
Total distributions from net investment income | — | (24,382,468 | ) | |||||
Share transactions–net: | ||||||||
Series I | (128,418,177 | ) | (182,712,672 | ) | ||||
Series II | 364,126 | 4,143,838 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (128,054,051 | ) | (178,568,834 | ) | ||||
Net increase (decrease) in net assets | (225,381,448 | ) | 137,051,399 | |||||
Net assets: | ||||||||
Beginning of period | 1,491,097,669 | 1,354,046,270 | ||||||
End of period (includes undistributed net investment income of $18,947,958 and $12,774,531, respectively) | $ | 1,265,716,221 | $ | 1,491,097,669 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Core Equity Fund, formerly AIM V.I. Core Equity Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. |
Invesco V.I. Core Equity Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. Core Equity Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. | |
J. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
K. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .65% | ||
Over $250 million | 0 | .60% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Invesco V.I. Core Equity Fund
The Adviser has contractually agreed, through at least April 30, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $167,008.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $170,126 for accounting and fund administrative services and reimbursed $1,708,252 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Invesco V.I. Core Equity Fund
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 1,219,739,007 | $ | 64,859,960 | $ | — | $ | 1,284,598,967 | ||||||||
Foreign Currency Contracts* | (213,998 | ) | — | — | (213,998 | ) | ||||||||||
Total Investments | $ | 1,219,525,009 | $ | 64,859,960 | $ | — | $ | 1,284,384,969 | ||||||||
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure 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. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2010:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign Currency Contracts(a) | $ | — | $ | (213,998 | ) | |||
(a) | Values are disclosed on the Statement of Assets and Liabilities under Foreign currency contracts outstanding. |
Effect of Derivative Instruments for the six months ended June 30, 2010
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain on | ||||
Statement of Operations | ||||
Foreign Currency | ||||
Contracts* | ||||
Realized Gain | ||||
Currency risk | $ | 2,293,315 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Currency risk | (893,269 | ) | ||
Total | $ | 1,400,046 | ||
* | The average value of foreign currency contracts during the period was $13,026,834. |
Open Foreign Currency Contracts | ||||||||||||||||||||
Unrealized | ||||||||||||||||||||
Settlement | Contract to | Appreciation | ||||||||||||||||||
Date | Deliver | Receive | Value | (Depreciation) | ||||||||||||||||
09/03/10 | GBP | 8,021,700 | USD | 11,767,994 | $ | 11,981,992 | $ | (213,998 | ) | |||||||||||
Currency Abbreviations: | ||
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2010, the Fund engaged in securities purchases of $8,514,122 and securities sales of $33,752,163, which resulted in net realized gains (losses) of $(2,573,609).
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall
Invesco V.I. Core Equity Fund
be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $3,028 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 8—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 $367,472,040 of capital loss carryforward in the fiscal year ending December 31, 2010.
The Fund had a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2010 | $ | 157,184,467 | ||
December 31, 2011 | 21,217,854 | |||
December 31, 2017 | 189,069,719 | |||
Total capital loss carryforward | $ | 367,472,040 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. To the extent that unrealized gains as of May 1, 2006, the date of the reorganization of AIM V.I. Core Stock Fund and AIM V.I. Premier Equity Fund, into the Fund are realized on securities held in each Fund at such date, the capital loss carryforward may be further limited for up to five years from the date of the reorganization. |
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2010 was $369,647,561 and $471,053,500, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 99,770,477 | ||
Aggregate unrealized (depreciation) of investment securities | (165,154,759 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (65,384,282 | ) | |
Cost of investments for tax purposes is $1,349,983,249. |
Invesco V.I. Core Equity Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 844,036 | $ | 21,322,042 | 3,599,291 | $ | 75,638,826 | ||||||||||
Series II | 234,676 | 5,908,039 | 497,105 | 10,793,298 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 975,664 | 23,923,292 | ||||||||||||
Series II | — | — | 18,850 | 459,176 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (5,981,113 | ) | (149,740,219 | ) | (13,469,940 | ) | (282,274,790 | ) | ||||||||
Series II | (222,826 | ) | (5,543,913 | ) | (348,530 | ) | (7,108,636 | ) | ||||||||
Net increase (decrease) in share activity | (5,125,227 | ) | $ | (128,054,051 | ) | (8,727,560 | ) | $ | (178,568,834 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 55% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | securities | Dividends | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | |||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 24.92 | $ | 0.11 | $ | (1.90 | ) | $ | (1.79 | ) | $ | — | $ | 23.13 | (7.18 | )% | $ | 1,233,663 | 0.87 | %(d) | 0.89 | %(d) | 0.86 | %(d) | 30 | % | ||||||||||||||||||||||||||
Year ended 12/31/09 | 19.75 | 0.19 | 5.39 | 5.58 | (0.41 | ) | 24.92 | 28.30 | 1,456,822 | 0.88 | 0.90 | 0.96 | 21 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 29.11 | 0.33 | (9.11 | ) | (8.78 | ) | (0.58 | ) | 19.75 | (30.14 | ) | 1,330,161 | 0.89 | 0.90 | 1.26 | 36 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 27.22 | 0.42 | 1.80 | 2.22 | (0.33 | ) | 29.11 | 8.12 | 2,298,007 | 0.87 | 0.88 | 1.44 | 45 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 23.45 | 0.34 | 3.58 | 3.92 | (0.15 | ) | 27.22 | 16.70 | 2,699,252 | 0.89 | 0.89 | 1.35 | 45 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 22.60 | 0.24 | 0.96 | 1.20 | (0.35 | ) | 23.45 | 5.31 | 1,246,529 | 0.89 | 0.89 | 1.08 | 52 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 24.75 | 0.08 | (1.89 | ) | (1.81 | ) | — | 22.94 | (7.31 | ) | 32,053 | 1.12 | (d) | 1.14 | (d) | 0.61 | (d) | 30 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 19.62 | 0.14 | 5.34 | 5.48 | (0.35 | ) | 24.75 | 27.98 | 34,275 | 1.13 | 1.15 | 0.71 | 21 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 28.88 | 0.26 | (9.02 | ) | (8.76 | ) | (0.50 | ) | 19.62 | (30.32 | ) | 23,885 | 1.14 | 1.15 | 1.01 | 36 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 27.02 | 0.34 | 1.80 | 2.14 | (0.28 | ) | 28.88 | 7.88 | 34,772 | 1.12 | 1.13 | 1.19 | 45 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 23.33 | 0.28 | 3.55 | 3.83 | (0.14 | ) | 27.02 | 16.42 | 39,729 | 1.14 | 1.14 | 1.10 | 45 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 22.48 | 0.18 | 0.96 | 1.14 | (0.29 | ) | 23.33 | 5.08 | 3,858 | 1.14 | 1.14 | 0.83 | 52 | |||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $1,412,816 and $35,322 for Series I and Series II shares, respectively. |
Invesco V.I. Core Equity Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 928.20 | $ | 4.16 | $ | 1,020.48 | $ | 4.36 | 0.87 | % | ||||||||||||||||||
Series II | 1,000.00 | 926.90 | 5.35 | 1,019.24 | 5.61 | 1.12 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Core Equity Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Core Equity Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund.
Invesco V.I. Core Equity Fund
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser and against the Lipper VA Underlying Funds — Large-Cap Core Index. The Board noted that the performance of Series I shares of the Fund was in the third quintile of its performance universe for the one year period and the first quintile for the 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 performance of Series I shares of the Fund was below the performance of the Index for the one year period and above the performance of the Index for the three and five year periods. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was at the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including two mutual funds advised by Invesco Advisers. The Board noted that the Fund’s rate was: (i) below the effective fee rate for one of the mutual funds and (ii) above the effective fee rate for the other mutual fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients based upon policies reviewed with the Board. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts, including provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets managed for other client accounts and noted that advance notice of redemptions affecting management assets is often provided to Invesco Advisers by institutional clients. Although the Board noted that the fees charged to other client accounts were often lower than the advisory fee charged by Invesco Advisers to the Fund and other Invesco Funds, the Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts were more comparable. In light of this information, the Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from services provided to other client accounts and accordingly, the Board did not place significant weight on these fee comparisons.
The Board also noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes one breakpoint, and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoint. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for the research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending
Invesco V.I. Core Equity Fund
arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Core Equity Fund
Invesco V.I. Diversified Income Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIDIN-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 5.44 | % | ||
Series II Shares | 5.30 | |||
Barclays Capital U.S. Aggregate Index▼ (Broad Market Index) | 5.33 | |||
Barclays Capital U.S. Credit Index▼ (Style-Specific Index) | 5.62 | |||
Lipper VUF Corporate Debt BBB-Rated Funds Index▼ (Peer Group Index) | 5.53 |
▼ | Lipper Inc. |
The Barclays Capital U.S. Aggregate Index is an unmanaged index considered representative of the U.S. investment-grade, fixed-rate bond market.
The Barclays Capital U.S. Credit Index is an unmanaged index considered representative of publicly issued, SEC-registered U.S. corporate and specified foreign debentures and secured notes.
The Lipper VUF Corporate Debt BBB-Rated Funds Index is an unmanaged index considered representative of corporate debt BBB-rated variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (5/5/93) | 3.94 | % | ||
10 Years | 2.93 | |||
5 Years | 0.97 | |||
1 Year | 15.16 | |||
Series II Shares | ||||
10 Years | 2.68 | % | ||
5 Years | 0.73 | |||
1 Year | 14.99 |
Series II shares incepted on March 14, 2002. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.75% and 1.00%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.48% and 1.73%, 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.
Invesco V.I. Diversified Income Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246.
As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. |
Invesco V.I. Diversified Income Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Principal | ||||||||
Amount | Value | |||||||
Bonds & Notes–88.26% | ||||||||
Advertising–0.10% | ||||||||
Lamar Media Corp., Sr. Gtd. Sub. Notes, 7.88%, 04/15/18(b) | $ | 25,000 | $ | 25,250 | ||||
Aerospace & Defense–0.22% | ||||||||
BE Aerospace, Inc., Sr. Unsec. Notes, 8.50%, 07/01/18 | 25,000 | 26,500 | ||||||
Bombardier Inc. (Canada), Sr. Notes, 7.50%, 03/15/18(b) | 10,000 | 10,325 | ||||||
7.75%, 03/15/20(b) | 15,000 | 15,600 | ||||||
52,425 | ||||||||
Agricultural Products–0.69% | ||||||||
Bunge Limited Finance Corp., Sr. Unsec. Gtd. Notes, 8.50%, 06/15/19 | 140,000 | 166,987 | ||||||
Airlines–1.99% | ||||||||
American Airlines Pass Through Trust, Series 2009-1A, Sec. Pass Through Ctfs., 10.38%, 07/02/19 | 44,690 | 50,109 | ||||||
Continental Airlines Inc., Series 2009-1, Class A, Pass Through Ctfs., 9.00%, 07/08/16 | 205,755 | 224,787 | ||||||
Series 2009-1, Class B, Global Pass Through Ctfs., 9.25%, 05/10/17 | 15,000 | 15,684 | ||||||
Delta Air Lines, Inc., Sr. Sec. Notes, 9.50%, 09/15/14(b) | 10,000 | 10,550 | ||||||
Series 2002-1, Class C, Sec. Pass Through Ctfs., 7.78%, 01/02/12 | 6,025 | 6,040 | ||||||
Series 2009-1, Class A, Sr. Sec. Pass Through Ctfs., 7.75%, 12/17/19 | 44,262 | 47,859 | ||||||
Series 2010-1, Class A, Sec. Pass Through Ctfs., 6.20%, 07/02/18 | 40,000 | 40,550 | ||||||
UAL Corp., Series 2009-1, Sr. Sec. Gtd. Global Pass Through Ctfs., 10.40%, 11/01/16 | 48,726 | 52,868 | ||||||
Series 2009-2A, Sec. Gtd. Global Pass Through Ctfs., 9.75%, 01/15/17 | 30,000 | 32,250 | ||||||
480,697 | ||||||||
Alternative Carriers–0.32% | ||||||||
Intelsat Intermediate Holding Co. S.A. (Bermuda), Sr. Unsec. Gtd. Disc. Global Notes, 9.50%, 02/01/15(c) | 35,000 | 35,875 | ||||||
Level 3 Financing Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 11/01/14 | 45,000 | 41,062 | ||||||
76,937 | ||||||||
Aluminum–0.20% | ||||||||
Century Aluminum Co., Sr. Sec. Notes, 8.00%, 05/15/14 | 25,000 | 23,625 | ||||||
Novelis Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 7.25%, 02/15/15 | 25,000 | 24,375 | ||||||
48,000 | ||||||||
Apparel Retail–0.41% | ||||||||
Collective Brands, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 8.25%, 08/01/13 | 44,000 | 44,550 | ||||||
Limited Brands Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 06/15/19 | 50,000 | 54,062 | ||||||
98,612 | ||||||||
Auto Parts & Equipment–0.21% | ||||||||
Allison Transmission Inc., Sr. Unsec. Gtd. Notes, 11.00%, 11/01/15(b) | 25,000 | 26,187 | ||||||
Tenneco Inc., Sr. Unsec. Gtd. Global Notes, 8.13%, 11/15/15 | 25,000 | 25,313 | ||||||
51,500 | ||||||||
Automobile Manufacturers–0.09% | ||||||||
Ford Motor Co., Sr. Unsec. Global Notes, 7.45%, 07/16/31 | 25,000 | 22,625 | ||||||
Automotive Retail–1.39% | ||||||||
Advance Auto Parts Inc., Sr. Unsec. Gtd. Notes, 5.75%, 05/01/20 | 100,000 | 101,625 | ||||||
AutoZone Inc., Sr. Unsec. Notes, 5.75%, 01/15/15 | 210,000 | 233,142 | ||||||
334,767 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Brewers–0.39% | ||||||||
Anheuser-Busch InBev Worldwide Inc., Sr. Unsec. Gtd. Global Notes, 4.13%, 01/15/15 | $ | 90,000 | $ | 94,454 | ||||
Broadcasting–3.18% | ||||||||
Belo Corp., Sr. Unsec. Notes, 6.75%, 05/30/13 | 15,000 | 15,263 | ||||||
8.00%, 11/15/16 | 25,000 | 25,781 | ||||||
Clear Channel Worldwide Holdings Inc., Sr. Unsec. Gtd. Notes, 9.25%, 12/15/17(b) | 25,000 | 25,219 | ||||||
COX Communications Inc., Sr. Unsec. Bonds, 8.38%, 03/01/39(b) | 75,000 | 98,781 | ||||||
Sr. Unsec. Global Notes, 5.45%, 12/15/14 | 95,000 | 104,739 | ||||||
Sr. Unsec. Notes, 9.38%, 01/15/19(b) | 140,000 | 185,322 | ||||||
COX Enterprises Inc., Sr. Unsec. Notes, 7.88%, 09/15/10(b) | 120,000 | 121,350 | ||||||
Discovery Communications LLC, Sr. Unsec. Gtd. Global Notes, 6.35%, 06/01/40 | 165,000 | 175,838 | ||||||
LIN Television Corp., Sr. Unsec. Gtd. Notes, 8.38%, 04/15/18(b) | 15,000 | 15,038 | ||||||
767,331 | ||||||||
Building Products–0.47% | ||||||||
Building Materials Corp. of America, Sr. Gtd. Notes, 7.50%, 03/15/20(b) | 25,000 | 24,375 | ||||||
Gibraltar Industries Inc., Series B, Sr. Unsec. Gtd. Sub. Global Notes, 8.00%, 12/01/15 | 15,000 | 14,700 | ||||||
Goodman Global Group Inc., Sr. Disc. Notes, 11.70%, 12/15/14(b)(d) | 20,000 | 12,200 | ||||||
Ply Gem Industries Inc., Sr. Sec. Gtd. First & Second Lien Global Notes, 11.75%, 06/15/13 | 45,000 | 47,137 | ||||||
USG Corp., Sr. Unsec. Gtd. Notes, 9.75%, 08/01/14(b) | 15,000 | 15,450 | ||||||
113,862 | ||||||||
Cable & Satellite–2.04% | ||||||||
Cablevision Systems Corp., Sr. Unsec. Notes, 8.63%, 09/15/17(b) | 25,000 | 25,625 | ||||||
DirecTV Holdings LLC/DirecTV Financing Co. Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 05/15/16 | 350,000 | 381,500 | ||||||
Sirius XM Radio Inc., Sr. Unsec. Gtd. Notes, 8.75%, 04/01/15(b) | 25,000 | 24,969 | ||||||
Time Warner Cable Inc., Sr. Unsec. Gtd. Notes, 5.00%, 02/01/20 | 60,000 | 61,336 | ||||||
493,430 | ||||||||
Casinos & Gaming–0.66% | ||||||||
Great Canadian Gaming Corp. (Canada), Sr. Unsec. Gtd. Sub. Notes, 7.25%, 02/15/15(b) | 25,000 | 24,875 | ||||||
International Game Technology, Sr. Unsec. Global Notes, 5.50%, 06/15/20 | 35,000 | 36,056 | ||||||
MGM Resorts International, Sr. Sec. Global Notes, 11.13%, 11/15/17 | 15,000 | 16,575 | ||||||
Pinnacle Entertainment, Inc., Sr. Unsec. Gtd. Notes, 8.63%, 08/01/17(b) | 30,000 | 30,750 | ||||||
Wynn Las Vegas Capital LLC/Corp., Sec. First Mortgage Notes, 7.88%, 11/01/17(b) | 50,000 | 50,250 | ||||||
158,506 | ||||||||
Coal & Consumable Fuels–0.13% | ||||||||
Consol Energy Inc., Sr. Unsec. Gtd. Notes, 8.00%, 04/01/17(b) | 15,000 | 15,637 | ||||||
8.25%, 04/01/20(b) | 15,000 | 15,769 | ||||||
31,406 | ||||||||
Computer Hardware–0.25% | ||||||||
Hewlett-Packard Co., Sr. Unsec. Global Notes, 4.75%, 06/02/14 | 55,000 | 60,930 | ||||||
Construction Materials–0.53% | ||||||||
Holcim U.S. Finance Sarl & Cie SCS (Switzerland), Unsec. Gtd. Unsub. Notes, 6.00%, 12/30/19(b) | 110,000 | 119,016 | ||||||
Texas Industries, Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 07/15/13 | 10,000 | 9,750 | ||||||
128,766 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Construction, Farm Machinery & Heavy Trucks–0.32% | ||||||||
Case New Holland Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 09/01/13 | $ | 25,000 | $ | 25,750 | ||||
CNH America LLC, Sr. Unsec. Gtd. Notes, 7.25%, 01/15/16 | 25,000 | 25,188 | ||||||
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | 25,000 | 25,437 | ||||||
76,375 | ||||||||
Consumer Finance–0.68% | ||||||||
Ally Financial Inc., Sr. Unsec. Gtd. Global Notes, 8.00%, 11/01/31 | 50,000 | 47,000 | ||||||
Sr. Unsec. Gtd. Notes, 8.00%, 03/15/20(b) | 25,000 | 24,688 | ||||||
Ford Motor Credit Co. LLC, Sr. Unsec. Notes, 8.00%, 12/15/16 | 65,000 | 66,462 | ||||||
National Money Mart Co. (Canada), Sr. Gtd. Notes, 10.38%, 12/15/16(b) | 25,000 | 25,500 | ||||||
163,650 | ||||||||
Data Processing & Outsourced Services–0.19% | ||||||||
First Data Corp., Sr. Unsec. Gtd. Global Notes, 9.88%, 09/24/15 | 25,000 | 19,000 | ||||||
SunGard Data Systems Inc., Sr. Unsec. Gtd. Sub. Global Notes, 10.25%, 08/15/15 | 25,000 | 25,813 | ||||||
44,813 | ||||||||
Diversified Banks–3.05% | ||||||||
Bank of Nova Scotia (Canada), Sr. Unsec. Global Notes, 2.38%, 12/17/13 | 70,000 | 71,678 | ||||||
Barclays Bank PLC (United Kingdom), Sr. Unsec. Global Notes, 6.75%, 05/22/19 | 155,000 | 172,894 | ||||||
ING Bank N.V. (Netherlands), Unsec. Sub. Bonds, 5.13%, 05/01/15(b) | 100,000 | 106,776 | ||||||
Lloyds TSB Bank PLC (United Kingdom), Sr. Unsec. Gtd. Bonds, 4.38%, 01/12/15(b) | 145,000 | 139,880 | ||||||
Royal Bank of Scotland PLC (The) (United Kingdom), Sr. Unsec. Gtd. Global Notes, 4.88%, 03/16/15 | 130,000 | 129,500 | ||||||
Standard Chartered PLC (United Kingdom), Sr. Unsec. Notes, 5.50%, 11/18/14(b) | 55,000 | 60,994 | ||||||
Wachovia Corp.–Series G, Sr. Unsec. Medium-Term Notes, 5.50%, 05/01/13 | 50,000 | 53,975 | ||||||
735,697 | ||||||||
Diversified Capital Markets–0.91% | ||||||||
Credit Suisse AG (Switzerland), Sub. Global Notes, 5.40%, 01/14/20 | 115,000 | 114,787 | ||||||
UBS AG (Switzerland), Sr. Unsec. Medium-Term Notes, 5.75%, 04/25/18 | 100,000 | 105,027 | ||||||
219,814 | ||||||||
Diversified Metals & Mining–0.46% | ||||||||
Freeport-McMoRan Copper & Gold Inc., Sr. Unsec. Notes, 8.38%, 04/01/17 | 35,000 | 38,577 | ||||||
Rio Tinto Finance USA Ltd. (Australia), Sr. Unsec. Gtd. Global Notes, 8.95%, 05/01/14 | 60,000 | 72,874 | ||||||
111,451 | ||||||||
Diversified Support Services–0.11% | ||||||||
Travelport LLC, Sr. Unsec. Gtd. Global Notes, 9.88%, 09/01/14 | 25,000 | 25,375 | ||||||
Drug Retail–0.92% | ||||||||
CVS Caremark Corp., Unsec. Notes, 6.60%, 03/15/19 | 190,000 | 221,153 | ||||||
Electric Utilities–4.26% | ||||||||
Carolina Power & Light Co., Sec. First Mortgage Bonds, 5.30%, 01/15/19 | 40,000 | 45,059 | ||||||
DCP Midstream LLC, Notes, 9.70%, 12/01/13(b) | 100,000 | 120,118 | ||||||
Sr. Unsec. Notes, 7.88%, 08/16/10 | 200,000 | 201,525 | ||||||
9.75%, 03/15/19(b) | 55,000 | 70,895 | ||||||
Enel Finance International S.A. (Luxembourg), Sr. Unsec. Gtd. Notes, 3.88%, 10/07/14(b) | 100,000 | 100,818 | ||||||
Indiana Michigan Power Co., Sr. Unsec. Notes, 7.00%, 03/15/19 | 140,000 | 165,306 | ||||||
LSP Energy L.P./LSP Batesville Funding Corp. Series D, Sr. Sec. Bonds, 8.16%, 07/15/25 | 25,000 | 18,562 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Electric Utilities–(continued) | ||||||||
Ohio Power Co., Series M, Sr. Unsec. Notes, 5.38%, 10/01/21 | $ | 180,000 | $ | 194,445 | ||||
PPL Electric Utilities Corp., Sec. First Mortgage Bonds, 6.25%, 05/15/39 | 45,000 | 52,508 | ||||||
Virginia Electric & Power Co., Sr. Unsec. Notes, 5.00%, 06/30/19 | 55,000 | 60,250 | ||||||
1,029,486 | ||||||||
Electrical Components & Equipment–0.11% | ||||||||
Belden Inc., Sr. Gtd. Notes, 9.25%, 06/15/19(b) | 25,000 | 26,219 | ||||||
Electronic Manufacturing Services–0.07% | ||||||||
Jabil Circuit, Inc., Sr. Unsec. Notes, 7.75%, 07/15/16 | 15,000 | 15,750 | ||||||
Environmental & Facilities Services–0.06% | ||||||||
Clean Habors Inc., Sr. Sec. Gtd. Global Notes, 7.63%, 08/15/16 | 15,000 | 15,413 | ||||||
Food Retail–0.31% | ||||||||
Wrigley WM Jr. Co., Sr. Sec. Gtd. Floating Rate Notes, 1.91%, 06/28/11(b)(e) | 45,000 | 45,141 | ||||||
Sr. Sec. Gtd. Notes, 3.05%, 06/28/13(b) | 30,000 | 30,173 | ||||||
75,314 | ||||||||
Gas Utilities–0.04% | ||||||||
Suburban Propane Partners, L.P./Suburban Energy Finance Corp., Sr. Unsec. Notes, 7.38%, 03/15/20 | 10,000 | 10,150 | ||||||
Gold–1.14% | ||||||||
Newmont Mining Corp., Sr. Unsec. Gtd. Notes, 5.13%, 10/01/19 | 145,000 | 155,073 | ||||||
6.25%, 10/01/39 | 110,000 | 120,523 | ||||||
275,596 | ||||||||
Health Care Equipment–0.55% | ||||||||
Boston Scientific Corp., Sr. Unsec. Notes, 4.50%, 01/15/15 | 50,000 | 49,168 | ||||||
6.00%, 01/15/20 | 85,000 | 84,672 | ||||||
133,840 | ||||||||
Health Care Facilities–0.43% | ||||||||
Community Health Systems Inc., Sr. Unsec. Gtd. Global Notes, 8.88%, 07/15/15 | 25,000 | 26,000 | ||||||
HCA, Inc., Sr. Sec. Gtd. Global Notes, 7.88%, 02/15/20 | 50,000 | 51,750 | ||||||
Tenet Healthcare Corp., Sr. Unsec. Notes, 7.38%, 02/01/13 | 25,000 | 25,187 | ||||||
102,937 | ||||||||
Health Care Services–1.67% | ||||||||
Express Scripts Inc., Sr. Unsec. Gtd. Global Notes, 5.25%, 06/15/12 | 45,000 | 48,064 | ||||||
6.25%, 06/15/14 | 125,000 | 141,614 | ||||||
7.25%, 06/15/19 | 40,000 | 48,786 | ||||||
Multiplan Inc., Sr. Unsec. Sub. Notes, 10.38%, 04/15/16(b) | 25,000 | 25,813 | ||||||
Orlando Lutheran Towers Inc., Putable Bonds, 7.75%, 07/01/11 | 15,000 | 15,014 | ||||||
8.00%, 07/01/17 | 125,000 | 123,654 | ||||||
402,945 | ||||||||
Hotels, Resorts & Cruise Lines–1.61% | ||||||||
Hyatt Hotels Corp., Sr. Unsec. Notes, 5.75%, 08/15/15(b) | 165,000 | 174,916 | ||||||
Royal Caribbean Cruises Ltd. (Trinidad), Sr. Unsec. Yankee Notes, 7.50%, 10/15/27 | 25,000 | 22,063 | ||||||
Starwood Hotels & Resorts Worldwide, Inc., Sr. Unsec. Notes, 7.15%, 12/01/19 | 35,000 | 35,700 | ||||||
Wyndham Worldwide Corp., Sr. Unsec. Notes, 7.38%, 03/01/20 | 155,000 | 156,356 | ||||||
389,035 | ||||||||
Household Products–0.10% | ||||||||
Central Garden and Pet Co., Sr. Gtd. Sub. Notes, 8.25%, 03/01/18 | 25,000 | 24,906 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Independent Power Producers & Energy Traders–0.43% | ||||||||
AES Corp. (The), Sr. Unsec. Notes, 9.75%, 04/15/16(b) | $ | 50,000 | $ | 53,937 | ||||
NRG Energy, Inc., Sr. Unsec. Gtd. Notes, 7.38%, 02/01/16 | 25,000 | 25,062 | ||||||
7.38%, 01/15/17 | 25,000 | 24,813 | ||||||
103,812 | ||||||||
Industrial Conglomerates–1.09% | ||||||||
Hutchison Whampoa International Ltd. (Cayman Islands), Gtd. Notes, 5.75%, 09/11/19(b) | 100,000 | 106,925 | ||||||
Sr. Unsec. Gtd. Notes, 7.63%, 04/09/19(b) | 130,000 | 155,642 | ||||||
262,567 | ||||||||
Industrial REIT’s–1.00% | ||||||||
ProLogis, Sr. Unsec. Notes, 6.25%, 03/15/17 | 255,000 | 241,784 | ||||||
Insurance Brokers–0.84% | ||||||||
Marsh & McLennan Cos. Inc., Sr. Unsec. Notes, 5.15%, 09/15/10 | 75,000 | 75,559 | ||||||
9.25%, 04/15/19 | 100,000 | 126,395 | ||||||
201,954 | ||||||||
Integrated Telecommunication Services–3.53% | ||||||||
British Telecommunications PLC (United Kingdom), Sr. Unsec. Global Notes, 9.38%, 12/15/10 | 250,000 | 258,810 | ||||||
Cellco Partnership/Verizon Wireless Capital LLC, Sr. Unsec. Global Notes, 7.38%, 11/15/13 | 140,000 | 165,829 | ||||||
Qwest Communications International Inc., Sr. Unsec. Gtd. Notes, 7.13%, 04/01/18(b) | 25,000 | 24,938 | ||||||
Telefonica Europe B.V. (Netherlands), Unsec. Gtd. Unsub. Global Notes, 7.75%, 09/15/10 | 200,000 | 202,242 | ||||||
Telemar Norte Leste S.A. (Brazil), Sr. Unsec. Notes, 9.50%, 04/23/19(b) | 125,000 | 149,909 | ||||||
Wind Acquisition Finance S.A. (Luxembourg), Sr. Sec. Gtd. Sub. Notes, 11.75%, 07/15/17(b) | 50,000 | 52,125 | ||||||
853,853 | ||||||||
Internet Software & Services–0.06% | ||||||||
Equinix Inc., Sr. Unsec. Notes, 8.13%, 03/01/18 | 15,000 | 15,413 | ||||||
Investment Banking & Brokerage–6.21% | ||||||||
E*Trade Financial Corp., Sr. Unsec Global Notes, 7.38%, 09/15/13 | 10,000 | 8,850 | ||||||
Goldman Sachs Group Inc. (The), Sr. Unsec. Global Notes, 5.13%, 01/15/15 | 50,000 | 52,587 | ||||||
Sr. Unsec. Medium-Term Global Notes, 5.38%, 03/15/20 | 175,000 | 173,288 | ||||||
Unsec. Sub. Global Notes, 6.75%, 10/01/37 | 140,000 | 138,041 | ||||||
Jefferies Group Inc., Sr. Unsec. Notes, 6.45%, 06/08/27 | 375,000 | 352,902 | ||||||
Macquarie Group Ltd. (Australia), Sr. Unsec. Notes, 7.30%, 08/01/14(b) | 110,000 | 121,446 | ||||||
6.00%, 01/14/20(b) | 105,000 | 112,809 | ||||||
Morgan Stanley, Sr. Unsec. Medium-Term Global Notes, 6.00%, 05/13/14 | 230,000 | 242,737 | ||||||
Series F, Sr. Unsec. Medium-Term Global Notes, 5.63%, 09/23/19 | 130,000 | 126,027 | ||||||
Schwab Capital Trust I, Jr. Unsec. Gtd. Sub. Variable Rate Notes, 7.50%, 11/15/37(e) | 50,000 | 49,810 | ||||||
TD Ameritrade Holding Corp., Sr. Unsec. Gtd. Notes, 5.60%, 12/01/19 | 115,000 | 121,467 | ||||||
1,499,964 | ||||||||
Leisure Facilities–0.15% | ||||||||
Universal City Development Partners Ltd., Sr. Notes, 8.88%, 11/15/15(b) | 25,000 | 25,313 | ||||||
Sr. Sub. Notes, 10.88%, 11/15/16(b) | 10,000 | 10,425 | ||||||
35,738 | ||||||||
Life & Health Insurance–3.50% | ||||||||
MetLife Inc., Sr. Unsec. Global Notes, 7.72%, 02/15/19 | 180,000 | 213,645 | ||||||
Sr. Unsec. Notes, 6.75%, 06/01/16 | 155,000 | 176,089 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Life & Health Insurance–(continued) | ||||||||
Prudential Financial Inc., Jr. Unsec. Sub. Variable Rate Global Notes, 8.88%, 06/15/38(e) | $ | 130,000 | $ | 140,738 | ||||
Series D, Sr. Unsec. Medium-Term Notes, 2.75%, 01/14/13 | 105,000 | 105,665 | ||||||
Series D, Sr. Unsec. Medium-Term Notes, 3.88%, 01/14/15 | 105,000 | 106,035 | ||||||
7.38%, 06/15/19 | 90,000 | 103,398 | ||||||
845,570 | ||||||||
Life Sciences Tools & Services–0.64% | ||||||||
Life Technologies Corp., Sr. Notes, 6.00%, 03/01/20 | 120,000 | 130,245 | ||||||
Patheon Inc. (Canada), Sr. Sec. Notes, 8.63%, 04/15/17(b) | 25,000 | 24,812 | ||||||
155,057 | ||||||||
Mortgage Backed Securities–0.53% | ||||||||
U.S. Bank N.A., Sr. Unsec. Medium-Term Global Notes, 5.92%, 05/25/12 | 123,102 | 128,729 | ||||||
Movies & Entertainment–0.37% | ||||||||
Cinemark USA Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 06/15/19 | 25,000 | 25,250 | ||||||
Time Warner Cable Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 07/01/18 | 55,000 | 63,055 | ||||||
88,305 | ||||||||
Multi-Line Insurance–1.65% | ||||||||
American Financial Group Inc., Sr. Unsec. Notes, 9.88%, 06/15/19 | 180,000 | 217,770 | ||||||
American International Group, Inc., Jr. Sub. Variable Rate Global Notes, 8.18%, 05/15/58(e) | 15,000 | 11,925 | ||||||
Genworth Financial Inc., Sr. Unsec. Notes, 7.70%, 06/15/20 | 55,000 | 55,070 | ||||||
Hartford Financial Services Group Inc. (The), Jr. Unsec. Sub. Variable Rate Deb., 8.13%, 06/15/38(e) | 10,000 | 9,187 | ||||||
Liberty Mutual Group Inc., Sr. Unsec. Notes, 5.75%, 03/15/14(b) | 100,000 | 104,414 | ||||||
398,366 | ||||||||
Multi-Utilities–1.33% | ||||||||
Nisource Finance Corp., Sr. Unsec. Gtd. Notes, 7.88%, 11/15/10 | 250,000 | 255,364 | ||||||
Pacific Gas & Electric Co., Sr. Unsec. Notes, 5.40%, 01/15/40 | 65,000 | 67,130 | ||||||
322,494 | ||||||||
Office REIT’s–1.41% | ||||||||
Boston Properties L.P., Sr. Unsec. Notes, 5.88%, 10/15/19 | 140,000 | 150,416 | ||||||
Digital Realty Trust L.P., Unsec. Gtd. Unsub. Bonds, 5.88%, 02/01/20(b) | 185,000 | 190,155 | ||||||
340,571 | ||||||||
Office Services & Supplies–0.21% | ||||||||
IKON Office Solutions, Inc., Sr. Unsec. Notes, 6.75%, 12/01/25 | 25,000 | 24,625 | ||||||
7.30%, 11/01/27 | 25,000 | 25,781 | ||||||
50,406 | ||||||||
Oil & Gas Equipment & Services–0.08% | ||||||||
Bristow Group, Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/17 | 10,000 | 9,575 | ||||||
Key Energy Services Inc., Sr. Unsec. Gtd. Global Notes, 8.38%, 12/01/14 | 10,000 | 9,950 | ||||||
19,525 | ||||||||
Oil & Gas Exploration & Production–2.87% | ||||||||
Anadarko Petroleum Corp., Sr. Unsec. Global Notes, 5.75%, 06/15/14 | 250,000 | 225,375 | ||||||
Sr. Unsec. Notes, 7.63%, 03/15/14 | 15,000 | 14,272 | ||||||
Chesapeake Energy Corp., Sr. Unsec. Gtd. Global Notes, 6.25%, 01/15/18 | 25,000 | 25,000 | ||||||
Cimarex Energy Co., Sr. Unsec. Gtd. Notes, 7.13%, 05/01/17 | 50,000 | 50,500 | ||||||
Continental Resources Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 10/01/19 | 15,000 | 15,787 | ||||||
Encore Acquisition Co., Sr. Gtd. Sub. Notes, 9.50%, 05/01/16 | 10,000 | 10,588 | ||||||
McMoRan Exploration Co., Sr. Unsec. Gtd. Notes, 11.88%, 11/15/14 | 40,000 | 41,050 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
Motiva Enterprises LLC, Sr. Unsec. Notes, 6.85%, 01/15/40(b) | $ | 100,000 | $ | 116,604 | ||||
Petrobras International Finance Co. (Cayman Islands), Sr. Unsec. Gtd. Global Notes, 5.75%, 01/20/20 | 40,000 | 40,239 | ||||||
6.88%, 01/20/40 | 45,000 | 45,563 | ||||||
Petrohawk Energy Corp., Sr. Unsec. Gtd. Global Notes, 7.88%, 06/01/15 | 15,000 | 15,112 | ||||||
Plains Exploration & Production Co., Sr. Unsec. Gtd. Notes, 8.63%, 10/15/19 | 15,000 | 15,150 | ||||||
Range Resources Corp., Sr. Unsec. Gtd. Sub. Notes, 7.50%, 10/01/17 | 25,000 | 25,344 | ||||||
Southwestern Energy Co., Sr. Gtd. Global Notes, 7.50%, 02/01/18 | 50,000 | 53,375 | ||||||
693,959 | ||||||||
Oil & Gas Refining & Marketing–0.76% | ||||||||
Petronas Capital Ltd. (Malaysia), Unsec. Gtd. Unsub. Notes, 5.25%, 08/12/19(b) | 100,000 | 105,873 | ||||||
Tesoro Corp., Sr. Unsec. Gtd. Global Notes, 6.63%, 11/01/15 | 10,000 | 9,400 | ||||||
United Refining Co., Series 2, Sr. Unsec. Gtd. Global Notes, 10.50%, 08/15/12 | 75,000 | 68,813 | ||||||
184,086 | ||||||||
Oil & Gas Storage & Transportation–2.72% | ||||||||
Enterprise Products Operating LLC, Sr. Unsec. Gtd. Notes, 5.20%, 09/01/20 | 70,000 | 72,175 | ||||||
6.45%, 09/01/40 | 70,000 | 73,568 | ||||||
Inergy L.P./Inergy Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.25%, 03/01/16 | 25,000 | 25,500 | ||||||
Overseas Shipholding Group, Inc., Sr. Unsec. Notes, 8.13%, 03/30/18 | 25,000 | 24,688 | ||||||
Spectra Energy Capital LLC, Sr. Unsec. Gtd. Notes, 5.65%, 03/01/20 | 155,000 | 163,378 | ||||||
Williams Partners L.P., Sr. Unsec. Notes, 3.80%, 02/15/15(b) | 210,000 | 212,992 | ||||||
6.30%, 04/15/40(b) | 85,000 | 85,803 | ||||||
658,104 | ||||||||
Other Diversified Financial Services–11.83% | ||||||||
Bank of America Corp., Sr. Unsec. Global Notes, 4.50%, 04/01/15 | 240,000 | 243,168 | ||||||
6.50%, 08/01/16 | 130,000 | 141,003 | ||||||
Bear Stearns Cos. LLC (The), Sr. Unsec. Floating Rate Notes, 0.70%, 07/19/10(e) | 260,000 | 260,077 | ||||||
Cantor Fitzgerald L.P., Bonds, 7.88%, 10/15/19(b) | 315,000 | 326,976 | ||||||
Citigroup Inc., Sr. Unsec. Global Notes, 6.01%, 01/15/15 | 250,000 | 262,419 | ||||||
Sr. Unsec. Notes, 6.38%, 08/12/14 | 505,000 | 536,519 | ||||||
Countrywide Financial Corp., Sr. Unsec. Gtd. Medium-Term Global Notes, 5.80%, 06/07/12 | 40,000 | 42,121 | ||||||
ERAC USA Finance LLC, Sr. Gtd. Notes, 5.25%, 10/01/20(b) | 30,000 | 30,455 | ||||||
Football Trust V, Pass Through Ctfs., 5.35%, 10/05/20(b) | 100,000 | 103,953 | ||||||
General Electric Capital Corp., Sr. Unsec. Medium-Term Global Notes, 5.50%, 01/08/20 | 75,000 | 79,508 | ||||||
Series A, Sr. Unsec. Medium-Term Global Notes, 6.88%, 01/10/39 | 380,000 | 417,938 | ||||||
International Lease Finance Corp., Sr. Unsec. Notes, 8.63%, 09/15/15(b) | 10,000 | 9,550 | ||||||
8.75%, 03/15/17(b) | 15,000 | 14,325 | ||||||
JPMorgan Chase & Co., Sr. Unsec. Global Notes, 4.75%, 05/01/13 | 15,000 | 16,024 | ||||||
JPMorgan Chase Capital XXVII, Series AA, Jr. Unsec. Gtd. Sub. Notes, 7.00%, 11/01/39 | 160,000 | 165,557 | ||||||
Merrill Lynch & Co. Inc. Series C, Sr. Unsec. Medium-Term Global Notes, 5.45%, 02/05/13 | 200,000 | 208,822 | ||||||
Twin Reefs Pass-Through Trust, Floating Rate Pass Through Ctfs., 1.39%, (Acquired 12/07/04-04/03/06; Cost $130,332)(b)(e)(f)(g) | 130,000 | 422 | ||||||
2,858,837 | ||||||||
Packaged Foods & Meats–0.74% | ||||||||
Del Monte Corp., Sr. Unsec. Gtd. Sub. Notes, 7.50%, 10/15/19(b) | 10,000 | 10,275 | ||||||
Dole Food Co. Inc., Sr. Sec. Notes, 8.00%, 10/01/16(b) | 25,000 | 25,125 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Packaged Foods & Meats–(continued) | ||||||||
Kraft Foods Inc., Sr. Unsec. Global Notes, 2.63%, 05/08/13 | $ | 70,000 | $ | 71,401 | ||||
4.13%, 02/09/16 | 15,000 | 15,802 | ||||||
6.50%, 02/09/40 | 50,000 | 55,669 | ||||||
178,272 | ||||||||
Paper Packaging–0.14% | ||||||||
Cascades Inc., Sr. Unsec. Gtd. Global Notes, 7.88%, 01/15/20 | 10,000 | 9,800 | ||||||
Graham Packaging Co. L.P./GPC Capital Corp. I, Sr. Unsec. Gtd. Notes, 8.25%, 01/01/17(b) | 25,000 | 24,625 | ||||||
34,425 | ||||||||
Paper Products–0.89% | ||||||||
International Paper Co., Sr. Unsec. Global Bonds, 7.50%, 08/15/21 | 110,000 | 128,518 | ||||||
Mercer International Inc., Sr. Unsec. Global Notes, 9.25%, 02/15/13 | 75,000 | 72,937 | ||||||
Neenah Paper, Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 11/15/14 | 15,000 | 14,775 | ||||||
216,230 | ||||||||
Pharmaceuticals–0.12% | ||||||||
Valeant Pharmaceuticals International, Sr. Unsec. Gtd. Global Notes, 8.38%, 06/15/16 | 25,000 | 28,406 | ||||||
Property & Casualty Insurance–0.71% | ||||||||
CNA Financial Corp., Sr. Unsec. Notes, 7.35%, 11/15/19 | 160,000 | 171,670 | ||||||
Publishing–0.32% | ||||||||
Gannett Co. Inc., Sr. Unsec. Gtd. Notes, 9.38%, 11/15/17(b) | 25,000 | 26,562 | ||||||
Nielsen Finance LLC/Co., Sr. Unsec. Gtd. Sub. Disc. Global Notes, 12.50%, 08/01/16(c) | 25,000 | 23,813 | ||||||
Reed Elsevier Capital Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 08/01/11 | 25,000 | 26,430 | ||||||
76,805 | ||||||||
Railroads–0.15% | ||||||||
Kansas City Southern de Mexico S.A. de C.V. (Mexico), Sr. Unsec. Notes, 8.00%, 02/01/18(b) | 35,000 | 35,991 | ||||||
Regional Banks–1.41% | ||||||||
CIT Group Inc., Sr. Sec. Bonds, 7.00%, 05/01/14 | 25,000 | 23,688 | ||||||
PNC Funding Corp., Sr. Unsec. Gtd. Global Notes, 3.63%, 02/08/15 | 110,000 | 113,028 | ||||||
PNC Preferred Funding Trust III, Jr. Sub. Variable Rate Notes, 8.70%, 12/31/49(b)(e) | 200,000 | 203,000 | ||||||
339,716 | ||||||||
Research & Consulting Services–0.47% | ||||||||
ERAC USA Finance LLC, Unsec. Gtd. Notes, 5.80%, 10/15/12(b) | 105,000 | 114,076 | ||||||
Restaurants–0.89% | ||||||||
Yum! Brands Inc., Sr. Unsec. Notes, 5.30%, 09/15/19 | 200,000 | 215,694 | ||||||
Semiconductor Equipment–0.10% | ||||||||
Amkor Technology Inc., Sr. Unsec. Notes, 7.38%, 05/01/18(b) | 25,000 | 24,500 | ||||||
Semiconductors–0.53% | ||||||||
Freescale Semiconductor Inc., Sr. Sec. Gtd. Notes, 9.25%, 04/15/18(b) | 25,000 | 24,750 | ||||||
National Semiconductor Corp., Sr. Unsec. Notes, 3.95%, 04/15/15 | 80,000 | 81,499 | ||||||
NXP BV/NXP Funding LLC (Netherlands), Sr. Sec. Gtd. Global Notes, 7.88%, 10/15/14 | 25,000 | 23,000 | ||||||
129,249 | ||||||||
Sovereign Debt–2.97% | ||||||||
Brazilian Government International Bond (Brazil), Sr. Unsec. Global Bonds, 5.88%, 01/15/19 | 120,000 | 131,775 | ||||||
Russia Foreign Bond (Russia), Sr. Unsec. Notes, 3.63%, 04/29/15(b) | 100,000 | 96,937 | ||||||
Russian Foreign Bond (Russia), Sr. Unsec. Bonds, 5.00%, 04/29/20(b) | 100,000 | 96,875 | ||||||
United Mexican States (Mexico), Sr. Unsec. Global Notes, 5.88%, 02/17/14 | 300,000 | 329,250 | ||||||
6.05%, 01/11/40 | 60,000 | 63,120 | ||||||
717,957 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Specialized Finance–1.73% | ||||||||
NASDAQ OMX Group Inc. (The), Sr. Unsec. Notes, 4.00%, 01/15/15 | $ | 350,000 | $ | 356,135 | ||||
National Rural Utilities Cooperative Finance Corp., Sr. Sec. Notes, 2.63%, 09/16/12 | 60,000 | 61,493 | ||||||
417,628 | ||||||||
Specialty Chemicals–0.12% | ||||||||
Huntsman International LLC, Sr. Gtd. Sub. Notes, | ||||||||
8.63%, 03/15/20(b) | 15,000 | 13,856 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 7.88%, 11/15/14 | 15,000 | 14,475 | ||||||
28,331 | ||||||||
Specialty Properties–1.74% | ||||||||
Entertainment Properties Trust, 7.75%, 07/15/20(b) | 245,000 | 244,422 | ||||||
Healthcare Realty Trust Inc., Sr. Unsec. Notes, 6.50%, 01/17/17 | 140,000 | 147,378 | ||||||
Senior Housing Properties Trust, Sr. Unsec. Notes, 6.75%, 04/15/20 | 30,000 | 29,738 | ||||||
421,538 | ||||||||
Specialty Stores–0.78% | ||||||||
Staples Inc., Sr. Unsec. Gtd. Global Notes, 9.75%, 01/15/14 | 25,000 | 30,600 | ||||||
Sr. Unsec. Gtd. Notes, 7.75%, 04/01/11 | 150,000 | 157,358 | ||||||
187,958 | ||||||||
Steel–0.84% | ||||||||
ArcelorMittal (Luxembourg), Sr. Unsec. Global Bonds, 9.00%, 02/15/15 | 55,000 | 65,016 | ||||||
Sr. Unsec. Global Notes, 7.00%, 10/15/39 | 130,000 | 137,081 | ||||||
202,097 | ||||||||
Technology Distributors–0.69% | ||||||||
Avnet Inc., Sr. Unsec. Notes, 5.88%, 06/15/20 | 165,000 | 167,086 | ||||||
Textiles–0.10% | ||||||||
Invista, Sr. Unsec. Notes, 9.25%, 05/01/12(b) | 24,000 | 24,330 | ||||||
Thrifts & Mortgage Finance–0.28% | ||||||||
First Niagara Financial Group Inc., Sr. Unsec. Notes, 6.75%, 03/19/20 | 65,000 | 68,558 | ||||||
Tires & Rubber–0.20% | ||||||||
Cooper Tire & Rubber Co., Sr. Unsec. Notes, 7.63%, 03/15/27 | 25,000 | 22,563 | ||||||
Goodyear Tire & Rubber Co. (The), Sr. Unsec. Gtd. Notes, 8.75%, 08/15/20 | 25,000 | 25,687 | ||||||
48,250 | ||||||||
Trading Companies & Distributors–0.10% | ||||||||
H&E Equipment Services Inc., Sr. Unsec. Gtd. Global Notes, 8.38%, 07/15/16 | 25,000 | 23,625 | ||||||
Wireless Telecommunication Services–0.77% | ||||||||
American Tower Corp., Sr. Unsec. Global Notes, 4.63%, 04/01/15 | 90,000 | 93,506 | ||||||
Clearwire Communications LLC/Clearwire Finance Inc., Sr. Sec. Gtd. Notes, 12.00%, 12/01/15(b) | 35,000 | 35,437 | ||||||
SBA Telecommunications Inc., Sr. Unsec. Gtd. Notes, 8.25%, 08/15/19(b) | 25,000 | 26,219 | ||||||
Sprint Capital Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 11/15/28 | 25,000 | 20,813 | ||||||
Sprint Nextel Corp., Sr. Unsec. Notes, 8.38%, 08/15/17 | 10,000 | 10,025 | ||||||
186,000 | ||||||||
Total Bonds & Notes (Cost $20,273,553) | 21,323,890 | |||||||
U.S. Treasury Securities–7.82% | ||||||||
U.S. Treasury Notes–3.65% | ||||||||
1.50%, 12/31/13 | 875,000 | 882,246 | ||||||
U.S. Treasury Bonds–4.17% | ||||||||
5.38%, 02/15/31(h) | 415,000 | 510,385 | ||||||
3.50%, 02/15/39 | 65,000 | 60,379 | ||||||
4.25%, 05/15/39 | 100,000 | 105,734 | ||||||
4.50%, 08/15/39 | 300,000 | 330,422 | ||||||
1,006,920 | ||||||||
Total U.S. Treasury Securities (Cost $1,812,909) | 1,889,166 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Asset-Backed Securities–2.25% | ||||||||
Countrywide Asset-Backed Ctfs. Series 2007-4, Class A1B, Pass Through Ctfs., 5.81%, 09/25/37 | $ | 77,573 | $ | 75,494 | ||||
Credit Suisse Mortgage Capital Ctfs. Series 2009-2R, Class 1A11, Floating Rate Pass Through Ctfs., 3.08%, 09/26/34(b)(e) | 135,814 | 129,731 | ||||||
TIAA Seasoned Commercial Mortgage Trust, Series 2007-C4, Class A2, Variable Rate Pass Through Ctfs., 5.79%, 08/15/39(e) | 45,000 | 47,354 | ||||||
Wachovia Bank Commercial Mortgage Trust, Series 2005-C21, Class AJ, Variable Rate Pass Through Ctfs., 5.38%, 10/15/44(e) | 110,000 | 98,821 | ||||||
Wells Fargo Mortgage Backed Securities Trust, Series 2004-Z, Class 2A1, Floating Rate Pass Through Ctfs., 2.97%, 12/25/34(e) | 205,915 | 192,527 | ||||||
Total Asset-Backed Securities (Cost $525,664) | 543,927 | |||||||
U.S. Government Sponsored Mortgage-Backed Securities–1.90% | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.90% | ||||||||
Pass Through Ctfs., 6.50%, 05/01/16 to 08/01/32 | 12,163 | 13,473 | ||||||
6.00%, 05/01/17 to 12/01/31 | 65,698 | 72,257 | ||||||
5.50%, 09/01/17 | 41,405 | 44,953 | ||||||
7.00%, 08/01/21 | 78,490 | 87,609 | ||||||
218,292 | ||||||||
Federal National Mortgage Association (FNMA)–0.85% | ||||||||
Pass Through Ctfs., 7.00%, 02/01/16 to 09/01/32 | 26,523 | 29,832 | ||||||
6.50%, 05/01/16 to 10/01/35 | 18,646 | 20,764 | ||||||
5.00%, 11/01/18 | 40,181 | 43,223 | ||||||
7.50%, 04/01/29 to 10/01/29 | 91,650 | 104,416 | ||||||
8.00%, 04/01/32 | 6,013 | 6,973 | ||||||
205,208 | ||||||||
Government National Mortgage Association (GNMA)–0.15% | ||||||||
Pass Through Ctfs., 7.50%, 06/15/23 | 11,465 | 13,028 | ||||||
8.50%, 11/15/24 | 6,169 | 7,163 | ||||||
7.00%, 07/15/31 to 08/15/31 | 2,463 | 2,800 | ||||||
6.50%, 11/15/31 to 03/15/32 | 5,575 | 6,243 | ||||||
6.00%, 11/15/32 | 5,528 | 6,119 | ||||||
35,353 | ||||||||
Total U.S. Government Sponsored Mortgage-Backed Securities (Cost $420,461) | 458,853 | |||||||
Municipal Obligations–0.68% | ||||||||
Florida (State of) Development Finance Corp. (Palm Bay Academy Inc.); Series 2006 B, Taxable RB, 7.50%, 05/15/17 | 65,000 | 55,493 | ||||||
Georgia (State of) Municipal Electric Authority (Build America Bonds); Series 2010 A, Taxable RB, 6.64%, 04/01/57 | 110,000 | 108,952 | ||||||
Total Municipal Obligations (Cost $174,523) | 164,445 | |||||||
Common Stocks & Other Equity Interests–0.02% | ||||||||
Broadcasting–0.02% | ||||||||
Adelphia Communications Corp.,(i) | 900 | 1,125 | ||||||
Adelphia Recovery Trust, Series ACC-1(i) | 87,412 | 2,360 | ||||||
Total Common Stocks & Other Equity Interests (Cost $22,181) | 3,485 | |||||||
TOTAL INVESTMENTS–100.93% (Cost $23,229,291) | 24,383,766 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.93)% | (223,833 | ) | ||||||
NET ASSETS–100.00% | $ | 24,159,933 | ||||||
Investment Abbreviations:
Ctfs. | – Certificates | |
Deb. | – Debentures | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
RB | – Revenue Bonds | |
REIT | – Real Estate Investment Trust | |
Sec. | – Secured | |
Sr. | – Senior | |
Sub. | – Subordinated | |
Unsec. | – Unsecured | |
Unsub. | – Unsubordinated |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income 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, 2010 was $5,140,983, which represented 21.29% of the Fund’s Net Assets. | |
(c) | Step coupon bond issued at discount. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. | |
(d) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. | |
(e) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2010. | |
(f) | Perpetual bond with no specified maturity date. | |
(g) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The value of this security at June 30, 2010 represented less than 0.01% of the Fund’s Net Assets. | |
(h) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1J and Note 4. | |
(i) | Non-income producing security acquired as part of the Adelphia Communications bankruptcy reorganization. |
By industry, based on Net Assets
as of June 30, 2010
Other Diversified Financial Services | 11.8 | % | ||
U.S. Treasury Securities | 7.9 | |||
Investment Banking & Brokerage | 6.2 | |||
Electric Utilities | 4.3 | |||
Integrated Telecommunication Services | 3.5 | |||
Life & Health Insurance | 3.5 | |||
Broadcasting | 3.2 | |||
Diversified Banks | 3.0 | |||
Sovereign Debt | 3.0 | |||
Other Industries, Each with Less Than 3% of Total Net Assets | 54.5 | |||
Other Assets Less Liabilities | (0.9 | ) | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $23,229,291) | $ | 24,383,766 | ||
Receivables for: | ||||
Investments sold | 112,362 | |||
Variation margin | 2,297 | |||
Fund shares sold | 8,071 | |||
Dividends and interest | 364,442 | |||
Investment for trustee deferred compensation and retirement plans | 34,725 | |||
Other assets | 2,482 | |||
Total assets | 24,908,145 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 252,585 | |||
Fund shares reacquired | 44,003 | |||
Amount due custodian | 367,910 | |||
Accrued fees to affiliates | 11,215 | |||
Accrued other operating expenses | 30,217 | |||
Trustee deferred compensation and retirement plans | 42,282 | |||
Total liabilities | 748,212 | |||
Net assets applicable to shares outstanding | $ | 24,159,933 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 37,726,248 | ||
Undistributed net investment income | 1,973,326 | |||
Undistributed net realized gain (loss) | (16,704,669 | ) | ||
Unrealized appreciation | 1,165,028 | |||
$ | 24,159,933 | |||
Net Assets: | ||||
Series I | $ | 23,898,730 | ||
Series II | $ | 261,203 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 3,852,168 | |||
Series II | 42,413 | |||
Series I: | ||||
Net asset value per share | $ | 6.20 | ||
Series II: | ||||
Net asset value per share | $ | 6.16 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Interest | $ | 707,606 | ||
Dividends from affiliated money market funds | 176 | |||
Total investment income | 707,782 | |||
Expenses: | ||||
Advisory fees | 72,698 | |||
Administrative services fees | 45,811 | |||
Custodian fees | 5,466 | |||
Distribution fees — Series II | 355 | |||
Transfer agent fees | 4,192 | |||
Trustees’ and officers’ fees and benefits | 9,177 | |||
Professional services fees | 21,791 | |||
Other | 7,678 | |||
Total expenses | 167,168 | |||
Less: Fees waived and expenses reimbursed | (76,419 | ) | ||
Net expenses | 90,749 | |||
Net investment income | 617,033 | |||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities | 206,916 | |||
Futures contracts | 58,732 | |||
265,648 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 355,295 | |||
Futures contracts | 53,353 | |||
408,648 | ||||
Net realized and unrealized gain | 674,296 | |||
Net increase in net assets resulting from operations | $ | 1,291,329 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 617,033 | $ | 1,404,443 | ||||
Net realized gain (loss) | 265,648 | (7,052,675 | ) | |||||
Change in net unrealized appreciation | 408,648 | 8,107,358 | ||||||
Net increase in net assets resulting from operations | 1,291,329 | 2,459,126 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (2,398,080 | ) | |||||
Series II | — | (27,960 | ) | |||||
Total distributions from net investment income | — | (2,426,040 | ) | |||||
Share transactions–net: | ||||||||
Series I | (1,677,145 | ) | 201,049 | |||||
Series II | (44,117 | ) | (122,516 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (1,721,262 | ) | 78,533 | |||||
Net increase (decrease) in net assets | (429,933 | ) | 111,619 | |||||
Net assets: | ||||||||
Beginning of period | 24,589,866 | 24,478,247 | ||||||
End of period (includes undistributed net investment income of $1,973,326 and $1,356,293, respectively) | $ | 24,159,933 | $ | 24,589,866 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Diversified Income Fund, formerly AIM V.I. Diversified Income Fund (the “Fund”), is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is total return comprised of current income and capital appreciation.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean |
Invesco V.I. Diversified Income Fund
between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
Invesco V.I. Diversified Income Fund
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Lower-Rated Securities — The Fund may invest in lower-quality debt securities, i.e., “junk bonds”. Investments in lower-rated securities or unrated securities of comparable quality tend to be more sensitive to economic conditions than higher rated securities. Junk bonds involve a greater risk of default by the issuer because such securities are generally unsecured and are often subordinated to other creditors’ claims. | |
J. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. | |
K. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .60% | ||
Over $250 million | 0 | .55% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver [and/or expense reimbursement] (excluding certain items discussed below) of Series I shares to 0.75% and Series II shares to 1.00% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver [and/or expense reimbursement] to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Invesco V.I. Diversified Income Fund
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $72,698 and reimbursed Fund expenses of $3,721.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $24,794 for accounting and fund administrative services and reimbursed $21,017 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 2,360 | $ | 1,125 | $ | — | $ | 3,485 | ||||||||
U.S. Treasury Securities | — | 1,889,166 | — | 1,889,166 | ||||||||||||
U.S. Government Sponsored Securities | — | 458,853 | — | 458,853 | ||||||||||||
Corporate Debt Securities | — | 21,323,890 | — | 21,323,890 | ||||||||||||
Asset Backed Securities | — | 543,927 | — | 543,927 | ||||||||||||
Municipal Obligations | — | 164,445 | — | 164,445 | ||||||||||||
$ | 2,360 | $ | 24,381,406 | $ | — | $ | 24,383,766 | |||||||||
Futures* | 10,553 | — | — | 10,553 | ||||||||||||
Total Investments | $ | 12,913 | $ | 24,381,406 | $ | — | $ | 24,394,319 | ||||||||
* | Unrealized appreciation. |
Invesco V.I. Diversified Income Fund
NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. GAAP has intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position and financial performance. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2010:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Interest rate risk | ||||||||
Futures contracts(a) | $ | 81,904 | $ | (71,351 | ) | |||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets & Liabilities. |
Effect of Derivative Instruments for the six months ended June 30, 2010
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Futures* | ||||
Realized Gain | ||||
Interest rate risk | $ | 58,732 | ||
Change in Unrealized Appreciation | ||||
Interest rate risk | 53,353 | |||
Total | $ | 112,085 | ||
* | The average value of futures outstanding during the period was $8,641,832. |
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Month/ | Appreciation | ||||||||||||||
Contract | Contracts | Commitment | Value | (Depreciation) | ||||||||||||
U.S. Treasury Ultra Bonds | 2 | September-2010/Long | $ | 271,625 | $ | 14,124 | ||||||||||
U.S. Treasury 2 Year Notes | 8 | September-2010/Long | 1,750,625 | 5,483 | ||||||||||||
U.S. Treasury Long Bonds | 9 | September-2010/Long | 1,147,500 | 20,724 | ||||||||||||
U.S. Treasury 5 Year Notes | 24 | September-2010/Long | 2,840,438 | 41,573 | ||||||||||||
Subtotal | 43 | $ | 6,010,188 | $ | 81,904 | |||||||||||
U.S. Treasury 10 Year Notes | 29 | September-2010/Short | (3,553,859 | ) | (71,351 | ) | ||||||||||
Total | $ | 2,456,329 | $ | 10,553 | ||||||||||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $1,327 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 6—Cash Balances
The Fund may borrow for leveraging in an amount up to 5% of the Fund’s total assets (excluding the amount borrowed) at the time the borrowing is made. In doing so, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon
Invesco V.I. Diversified Income Fund
by the custodian bank and Invesco, not to exceed the contractually agreed upon rate. A Fund may not purchase additional securities when any borrowings from banks exceeds 5% of the Fund’s total assets.
NOTE 7—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, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2010 | $ | 6,879,052 | ||
December 31, 2014 | 341,884 | |||
December 31, 2015 | 221,396 | |||
December 31, 2016 | 2,197,944 | |||
December 31, 2017 | 7,359,091 | |||
Total capital loss carryforward | $ | 16,999,367 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2010 was $11,927,231 and $10,118,345, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 1,426,785 | ||
Aggregate unrealized (depreciation) of investment securities | (272,310 | ) | ||
Net unrealized appreciation of investment securities | $ | 1,154,475 | ||
Investments have the same cost for tax and financial statement purposes. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 146,304 | $ | 884,859 | 503,808 | $ | 3,031,480 | ||||||||||
Series II | 44 | 262 | 961 | 5,848 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 406,455 | 2,398,080 | ||||||||||||
Series II | — | — | 4,771 | 27,960 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (423,634 | ) | (2,562,004 | ) | (882,462 | ) | (5,228,511 | ) | ||||||||
Series II | (7,307 | ) | (44,379 | ) | (26,192 | ) | (156,324 | ) | ||||||||
Net increase (decrease) in share activity | (284,593 | ) | $ | (1,721,262 | ) | 7,341 | $ | 78,533 | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 77% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Diversified Income Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | |||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 5.88 | $ | 0.15 | $ | 0.17 | $ | 0.32 | $ | — | $ | 6.20 | 5.44 | % | $ | 23,899 | 0.75 | %(d) | 1.38 | %(d) | 5.10 | %(d) | 45 | % | ||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 5.87 | 0.35 | 0.29 | 0.64 | (0.63 | ) | 5.88 | 10.89 | 24,299 | 0.74 | 1.48 | 5.91 | 200 | |||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 7.80 | 0.50 | (1.74 | ) | (1.24 | ) | (0.69 | ) | 5.87 | (15.59 | ) | 24,070 | 0.75 | 1.31 | 6.83 | 35 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 8.28 | 0.51 | (0.37 | ) | 0.14 | (0.62 | ) | 7.80 | 1.72 | 38,336 | 0.75 | 1.17 | 6.04 | 67 | ||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 8.43 | 0.46 | (0.08 | ) | 0.38 | (0.53 | ) | 8.28 | 4.48 | 46,743 | 0.75 | 1.10 | 5.47 | 78 | ||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 8.74 | 0.40 | (0.15 | ) | 0.25 | (0.56 | ) | 8.43 | 2.90 | 55,065 | 0.89 | 1.08 | 4.54 | 92 | ||||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 5.85 | 0.14 | 0.17 | 0.31 | — | 6.16 | 5.30 | 261 | 1.00 | (d) | 1.63 | (d) | 4.85 | (d) | 45 | |||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 5.83 | 0.34 | 0.29 | 0.63 | (0.61 | ) | 5.85 | 10.70 | 291 | 0.99 | 1.73 | 5.66 | 200 | |||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 7.74 | 0.48 | (1.72 | ) | (1.24 | ) | (0.67 | ) | 5.83 | (15.78 | ) | 409 | 1.00 | 1.56 | 6.58 | 35 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 8.21 | 0.48 | (0.36 | ) | 0.12 | (0.59 | ) | 7.74 | 1.51 | 606 | 1.00 | 1.42 | 5.79 | 67 | ||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 8.36 | 0.44 | (0.09 | ) | 0.35 | (0.50 | ) | 8.21 | 4.17 | 713 | 1.00 | 1.35 | 5.22 | 78 | ||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 8.67 | 0.38 | (0.15 | ) | 0.23 | (0.54 | ) | 8.36 | 2.67 | 902 | 1.14 | 1.33 | 4.29 | 92 | ||||||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns 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) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $24,147 and $287 for Series I and Series II shares, respectively. |
Invesco V.I. Diversified Income Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,054.40 | $ | 3.82 | $ | 1,021.08 | $ | 3.76 | 0.75 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,053.00 | 5.09 | 1,019.84 | 5.01 | 1.00 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Diversified Income Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Diversified Income Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses, and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investment Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the quality and efficiency of the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the additional resources and talents of the Affiliated Sub-Advisers in managing the Fund.
Invesco V.I. Diversified Income Fund
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, and against the Lipper VA Underlying Funds — Corporate Debt BBB-Rated Index. The Board noted that the performance of Series I shares of the Fund was in the fourth quintile of its performance universe for the one year period and the fifth quintile for the 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 performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. The Board also noted that Invesco Advisers made manager and process changes in 2008 and early 2009. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was at the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year.
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 mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including one mutual fund advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was above the effective fee rate for the other mutual fund.
Other than the mutual fund described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other client accounts with investment strategies comparable to those of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 also considered the effect this expense limitation would have on the Fund’s estimated total expenses.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above, the expense limitations and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes one breakpoint, and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoint. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Diversified Income Fund
Semiannual Report to Shareholders ■ June 30, 2010 | ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
MS-VIDGR-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary | ||||
Fund vs. Indexes | ||||
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | ||||
Series I Shares | -7.13 | % | ||
Series II Shares | -7.18 | |||
S&P 500 Index▼ (Broad Market /Style-Specific Index) | -6.64 | |||
▼Lipper Inc. | ||||
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market. | ||||
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | ||||
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Average Annual Total Returns | ||||
As of 6/30/10 | ||||
Series I Shares | ||||
Inception (3/1/90) | 6.21 | % | ||
10 Years | 1.15 | |||
5 Years | -1.85 | |||
1 Year | 13.01 | |||
Series II Shares | ||||
Inception (6/5/00) | 0.18 | % | ||
10 Years | 0.91 | |||
5 Years | -2.08 | |||
1 Year | 12.81 |
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund advised by Morgan Stanley Investment Advisors Inc. were reorganized into Series I and Series II shares, respectively, of Invesco V.I. Dividend Growth Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. Dividend Growth Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.67% and 0.92%, respectively.1 The total annual Fund operating expense ratio set forth in the most
recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.87% and 1.12%, 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.
Invesco V.I. Dividend Growth Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
Invesco V.I. Dividend Growth Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks–92.0% | ||||||||
Aerospace & Defense–4.2% | ||||||||
General Dynamics Corp. | 38,186 | $ | 2,236,172 | |||||
Raytheon Co. | 45,400 | 2,196,906 | ||||||
United Technologies Corp. | 66,699 | 4,329,432 | ||||||
8,762,510 | ||||||||
Apparel Retail–1.5% | ||||||||
Ross Stores, Inc. | 59,590 | 3,175,551 | ||||||
Apparel, Accessories & Luxury Goods–2.7% | ||||||||
Guess?, Inc. | 96,290 | 3,008,100 | ||||||
VF Corp. | 37,969 | 2,702,633 | ||||||
5,710,733 | ||||||||
Asset Management & Custody Banks–1.0% | ||||||||
Federated Investors, Inc.–Class B | 103,914 | 2,152,059 | ||||||
Auto Parts & Equipment–1.3% | ||||||||
Johnson Controls, Inc. | 104,500 | 2,807,915 | ||||||
Brewers–1.2% | ||||||||
Heineken N.V. (Netherlands) | 58,947 | 2,498,732 | ||||||
Building Products–1.0% | ||||||||
Masco Corp. | 199,995 | 2,151,946 | ||||||
Casinos & Gaming–1.0% | ||||||||
International Game Technology | 131,009 | 2,056,841 | ||||||
Communications Equipment–1.4% | ||||||||
Corning, Inc. | 176,810 | 2,855,482 | ||||||
Computer & Electronics Retail–1.6% | ||||||||
Best Buy Co., Inc. | 98,860 | 3,347,400 | ||||||
Computer Hardware–4.8% | ||||||||
Apple, Inc.(b)(c) | 8,162 | 2,052,988 | ||||||
Hewlett-Packard Co. | 92,620 | 4,008,594 | ||||||
International Business Machines Corp. | 33,538 | 4,141,272 | ||||||
10,202,854 | ||||||||
Construction & Farm Machinery & Heavy Trucks–1.5% | ||||||||
Caterpillar, Inc. | 51,430 | 3,089,400 | ||||||
Consumer Finance–3.1% | ||||||||
American Express Co. | 95,290 | 3,783,013 | ||||||
Capital One Financial Corp. | 66,739 | 2,689,582 | ||||||
6,472,595 | ||||||||
Data Processing & Outsourced Services–2.5% | ||||||||
Automatic Data Processing, Inc. | 70,340 | 2,831,888 | ||||||
Computer Sciences Corp. | 53,830 | 2,435,808 | ||||||
5,267,696 | ||||||||
Electric Utilities–1.0% | ||||||||
Entergy Corp. | 30,041 | 2,151,536 | ||||||
Food Distributors–1.2% | ||||||||
Sysco Corp. | 88,034 | 2,515,131 | ||||||
Gas Utilities–1.5% | ||||||||
Questar Corp. | 70,660 | 3,214,323 | ||||||
General Merchandise Stores–1.8% | ||||||||
Target Corp. | 78,870 | 3,878,038 | ||||||
Health Care Equipment–1.0% | ||||||||
Stryker Corp. | 43,739 | 2,189,574 | ||||||
Household Appliances–2.3% | ||||||||
Snap-On, Inc. | 46,016 | 1,882,514 | ||||||
Whirlpool Corp.(c) | 32,630 | 2,865,567 | ||||||
4,748,081 | ||||||||
Household Products–3.8% | ||||||||
Kimberly-Clark Corp. | 91,390 | 5,540,976 | ||||||
Procter & Gamble Co. (The) | 41,234 | 2,473,215 | ||||||
8,014,191 | ||||||||
Industrial Machinery–1.2% | ||||||||
Pentair, Inc. | 80,923 | 2,605,721 | ||||||
Insurance Brokers–1.2% | ||||||||
Marsh & McLennan Cos., Inc. | 115,009 | 2,593,453 | ||||||
Integrated Oil & Gas–5.6% | ||||||||
Chevron Corp. | 62,710 | 4,255,501 | ||||||
Exxon Mobil Corp. | 77,243 | 4,408,258 | ||||||
Marathon Oil Corp. | 98,780 | 3,071,070 | ||||||
11,734,829 | ||||||||
Integrated Telecommunication Services–1.7% | ||||||||
AT&T, Inc. | 145,650 | 3,523,274 | ||||||
Leisure Products–1.9% | ||||||||
Mattel, Inc. | 192,470 | 4,072,665 | ||||||
Life & Health Insurance–1.7% | ||||||||
MetLife, Inc. | 92,865 | 3,506,582 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Dividend Growth Fund
Shares | Value | |||||||
Multi-Utilities–3.1% | ||||||||
DTE Energy Co. | 66,920 | $ | 3,052,221 | |||||
Public Service Enterprise Group, Inc. | 110,850 | 3,472,931 | ||||||
6,525,152 | ||||||||
Office Services & Supplies–1.1% | ||||||||
Pitney Bowes, Inc. | 108,936 | 2,392,235 | ||||||
Oil & Gas Equipment & Services–1.0% | ||||||||
Baker Hughes, Inc. | 52,896 | 2,198,887 | ||||||
Other Diversified Financial Services–1.6% | ||||||||
JPMorgan Chase & Co. | 90,352 | 3,307,787 | ||||||
Paper Products–1.5% | ||||||||
International Paper Co. | 144,570 | �� | 3,271,619 | |||||
Pharmaceuticals–8.0% | ||||||||
Bristol-Myers Squibb Co. | 112,600 | 2,808,244 | ||||||
Johnson & Johnson | 55,261 | 3,263,714 | ||||||
Merck & Co., Inc. | 155,670 | 5,443,780 | ||||||
Pfizer, Inc. | 374,357 | 5,338,331 | ||||||
16,854,069 | ||||||||
Property & Casualty Insurance–2.9% | ||||||||
ACE Ltd. (Switzerland) | 48,130 | 2,477,732 | ||||||
Travelers Cos., Inc. (The) | 74,000 | 3,644,500 | ||||||
6,122,232 | ||||||||
Railroads–2.3% | ||||||||
CSX Corp. | 96,990 | 4,813,614 | ||||||
Regional Banks–1.2% | ||||||||
SunTrust Banks, Inc. | 108,118 | 2,519,149 | ||||||
Semiconductors–2.4% | ||||||||
Intel Corp. | 260,950 | 5,075,477 | ||||||
Soft Drinks–1.2% | ||||||||
Coca-Cola Co. (The) | 50,866 | 2,549,404 | ||||||
Specialty Chemicals–1.8% | ||||||||
Lubrizol Corp. (The) | 46,760 | 3,755,296 | ||||||
Systems Software–3.8% | ||||||||
Microsoft Corp. | 254,197 | 5,849,073 | ||||||
Oracle Corp. | 101,270 | 2,173,254 | ||||||
8,022,327 | ||||||||
Thrifts & Mortgage Finance–1.1% | ||||||||
Hudson City Bancorp, Inc. | 184,942 | 2,263,690 | ||||||
Tobacco–4.3% | ||||||||
Altria Group, Inc. | 171,308 | 3,433,012 | ||||||
Philip Morris International, Inc. | 121,798 | 5,583,220 | ||||||
9,016,232 | ||||||||
Total Common Stocks (Cost $200,525,937) | 193,986,282 | |||||||
Money Market Funds–1.6% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 1,665,353 | 1,665,353 | ||||||
Premier Portfolio–Institutional Class(d) | 1,665,353 | 1,665,353 | ||||||
Total Money Market Funds (Cost $3,330,706) | 3,330,706 | |||||||
TOTAL INVESTMENTS (Cost $203,856,643)–93.6% | 197,316,988 | |||||||
OTHER ASSETS LESS LIABILITIES–6.4% | 13,520,604 | |||||||
NET ASSETS–100.0% | $ | 210,837,592 | ||||||
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) | A portion of this security is subject to call options written. See Note 1K and Note 4. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on net assets
as of June 30, 2010
Information Technology | 14.9 | % | ||
Financials | 13.7 | |||
Consumer Discretionary | 13.2 | |||
Industrials | 12.2 | |||
Consumer Staples | 11.7 | |||
Health Care | 9.0 | |||
Energy | 6.6 | |||
Utilities | 5.6 | |||
Materials | 3.4 | |||
Telecommunication Services | 1.7 | |||
Money Market Funds Plus Other Assets Less Liabilities | 8.0 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Dividend Growth Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
(Unaudited)
Assets: | ||||
Investments, at value (Cost $200,525,937) | $ | 193,986,282 | ||
Investments in affiliated money market funds, at value and cost | 3,330,706 | |||
Total investments, at value ($203,856,643) | 197,316,988 | |||
Receivable for: | ||||
Investments sold | 57,063,921 | |||
Dividends | 485,286 | |||
Fund shares sold | 182,894 | |||
Other Assets | 7,955 | |||
Total assets | 255,057,044 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 44,005,900 | |||
Fund shares reacquired | 85,334 | |||
Written options outstanding, at value (premium received $34,669) | 4,960 | |||
Accrued fees to affiliates | 73,346 | |||
Trustee deferred compensation and retirement plan | 9,986 | |||
Accrued other operating expenses | 39,926 | |||
Total liabilities | 44,219,452 | |||
Net assets applicable to shares outstanding | $ | 210,837,592 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 431,793,146 | ||
Undistributed net investment income | 1,601,481 | |||
Undistributed net realized gain (loss) | (216,065,499 | ) | ||
Unrealized appreciation (depreciation) | (6,491,536 | ) | ||
$ | 210,837,592 | |||
Net Assets: | ||||
Series I | $ | 163,339,265 | ||
Series II | $ | 47,498,327 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 13,640,500 | |||
Series II | 3,972,672 | |||
Series I: | ||||
Net asset value and offering price per share | $ | 11.97 | ||
Series II: | ||||
Net asset value and offering price per share | $ | 11.96 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
(Unaudited)
Investment Income: | ||||
Dividends | $ | 2,514,669 | ||
Dividends from affiliated money market funds | 1,414 | |||
Total investment income | 2,516,083 | |||
Expenses | ||||
Advisory fees | 659,774 | |||
Administrative services fees | 133,059 | |||
Custodian fees | 7,110 | |||
Distribution fees — Series II | 71,176 | |||
Transfer agent fees | 250 | |||
Trustees’ and officers’ fees and benefits | 5,401 | |||
Other | 38,727 | |||
Total expenses | 915,497 | |||
Less: Fees waived | (11,003 | ) | ||
Net expenses | 904,494 | |||
Net investment income | 1,611,589 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains (losses) from securities sold to affiliated of $(7,560,205)) | (2,869,919 | ) | ||
Options written | 21,998 | |||
(2,847,921 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (14,411,300 | ) | ||
Foreign currencies | 18,410 | |||
Options written | 21,474 | |||
(14,371,416 | ) | |||
Net realized and unrealized gain (losses) | (17,219,337 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (15,607,748 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Dividend Growth Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,611,589 | 4,066,768 | |||||
Net realized gain (loss) | (2,847,921 | ) | (15,201,281 | ) | ||||
Change in net unrealized appreciation (depreciation) | (14,371,416 | ) | 62,262,637 | |||||
Net increase (decrease) in net assets resulting from operations | (15,607,748 | ) | 51,128,124 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I shares | (3,255,974 | ) | (3,466,136 | ) | ||||
Series II shares | (803,719 | ) | (986,235 | ) | ||||
Total distributions from net investment income | (4,059,693 | ) | (4,452,371 | ) | ||||
Net increase (decrease) from in net assets resulting from share transactions | (26,236,408 | ) | (33,543,934 | ) | ||||
Net increase (decrease) in net assets | (45,903,849 | ) | 13,131,819 | |||||
Net Assets: | ||||||||
Beginning of year | 256,741,441 | 243,609,622 | ||||||
End of year (Including undistributed net investment income of $1,601,481 and $4,049,585, respectively) | $ | 210,837,592 | 256,741,441 | |||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Dividend Growth Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
Prior to June 1, 2010, the Fund operated as Morgan Stanley Variable Investment Series Dividend Growth Portfolio (the “Acquired Fund”), an investment portfolio of Morgan Stanley Variable Investment Series. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class X and Class Y shares received Series I and Series II shares, respectively of the Fund.
Information for the Acquired Fund’s — Class X and Class Y shares prior to the Reorganization are included with Series I and Series II shares, respectively, of the Fund throughout this report.
The Fund’s investment objective is to provide reasonable current income and long-term growth of income and capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
Invesco V.I. Dividend Growth Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the 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. |
Invesco V.I. Dividend Growth Fund
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
J. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. | |
K. | Call Options Written — The Fund may write call options. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. Written call options are recorded as a liability in the Statement of Assets and Liabilities. The amount of the liability is subsequently “marked-to-market” to reflect the current market value of the option written. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. Realized gains and losses on these contracts are included in the Statement of Operations. A risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. | |
L. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .545% | ||
Over $750 million | 0 | .42% | ||
Next $1 billion | 0 | .395% | ||
Over $2 billion | 0 | .37% | ||
Invesco V.I. Dividend Growth Fund
Prior to the Reorganization, the Acquired Fund paid an advisory fee to Morgan Stanley Investment Advisors Inc. (“MSIA”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 0.67% and Series II shares to 0.92% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds. Prior to the Reorganization, investment advisory fees paid by the Acquired Fund were reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class shares.
For the six months ended June 30, 2010, the Adviser and MSIA waived advisory fees of $10,132 and $871, respectively.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for period ended June 30, 2010, Invesco was paid $5,039 for accounting and fund administrative services and reimbursed $45,840 for services provided by insurance companies. Prior to the Reorganization, the Acquired Fund paid an administration fee of $82,180 to Morgan Stanley Services Company, Inc.
Also, the Trust has entered into service agreements whereby State Street Bank & Trust Company (“SSB”) serves as custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. Prior to the Reorganization, the Acquired Fund paid $207 to Morgan Stanley Trust, which served as the Acquired Fund’s transfer agent. For the six months ended June 30, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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. Prior to the Reorganization, the Acquired Fund paid distribution fees of $60,866 to Morgan Stanley Distributors Inc. based on the annual rate of 0.25% of the Acquired Fund’s average daily net assets of Class Y shares. For the six months ended June 30, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities 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. |
Invesco V.I. Dividend Growth Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 194,818,257 | $ | 2,498,731 | $ | — | $ | 197,316,988 | ||||||||
Options written | (4,960 | ) | — | — | (4,960 | ) | ||||||||||
Total Investments | $ | 194,813,297 | $ | 2,498,731 | $ | — | $ | 197,312,028 | ||||||||
NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure 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. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2010:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Equity risk/options written | — | $ | (4,960 | ) | ||||
Effect of Derivative Instruments for the six months ended June 30, 2010
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain on | ||||
Statement of Operations | ||||
Options* | ||||
Realized Gain | ||||
Equity risk | $ | 21,998 | ||
Change in Unrealized Appreciation | ||||
Equity risk | 21,474 | |||
Total | $ | 43,472 | ||
The average value of options outstanding during the period was $7,214.
Open Options Written Contracts | ||||||||||||||||||||
Number of | ||||||||||||||||||||
Contract | Strike Price | Expiration Date | Contracts | Premium | Value | |||||||||||||||
Apple, Inc. | $ | 280 | July 2010 | 40 | $ | 21,280 | $ | 3,760 | ||||||||||||
Whirlpool Corp. | 110 | July 2010 | 80 | $ | 13,389 | 1,200 | ||||||||||||||
Total | $ | 34,669 | $ | 4,960 | ||||||||||||||||
Transactions in options for the six months ended June 30, 2010, were as follows:
Number of | ||||||||
Contracts | Premium | |||||||
Options written, outstanding at beginning of period | 58 | $ | 11,657 | |||||
Options written | 498 | 111,121 | ||||||
Options expired | (303 | ) | (70,142 | ) | ||||
Options closed | (133 | ) | (17,967 | ) | ||||
Options written, outstanding at end of period | 120 | $ | 34,669 | |||||
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or
Invesco V.I. Dividend Growth Fund
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, 2010, the Fund engaged in securities purchases of $2,187,444 and securities sales of $13,480,207, which resulted in net realized gains (losses) of $(7,560,205).
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 8—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, 2009 which expires as follows:
Capital Loss* | ||||
Expiration | Carryforward | |||
December 31, 2010 | $ | 106,916,000 | ||
December 31, 2011 | 48,222,000 | |||
December 31, 2016 | 19,117,000 | |||
December 31, 2017 | 37,214,000 | |||
Total capital loss carryforward | $ | 211,469,000 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2010 was $83,469,208 and $125,123,060, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 10,650,717 | ||
Aggregate unrealized (depreciation) of investment securities | (17,474,363 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (6,823,646 | ) | |
Cost of investments for tax purposes is $204,140,634. |
Invesco V.I. Dividend Growth Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Series I Shares | ||||||||||||||||
Sold | 18,180 | $ | 246,176 | 40,020 | $ | 445,763 | ||||||||||
Reinvestment of dividends and distributions | 254,971 | 3,255,974 | 321,236 | 3,466,136 | ||||||||||||
Redeemed | (1,278,686 | ) | (16,967,849 | ) | (2,833,291 | ) | (31,203,978 | ) | ||||||||
Net increase (decrease) — Series I | (1,005,535 | ) | (13,465,699 | ) | (2,472,035 | ) | (27,292,079 | ) | ||||||||
Series II Shares | ||||||||||||||||
Sold | 30,034 | 376,489 | 64,575 | 656,925 | ||||||||||||
Reinvestment of dividends and distributions | 63,037 | 803,719 | 91,572 | 986,235 | ||||||||||||
Redeemed | (1,045,506 | ) | (13,950,917 | ) | (723,234 | ) | (7,895,015 | ) | ||||||||
Net increase (decrease) — Series II | (952,435 | ) | (12,770,709 | ) | (567,087 | ) | (6,251,855 | ) | ||||||||
Net increase (decrease) in share activity | (1,957,970 | ) | $ | (26,236,408 | ) | (3,039,122 | ) | $ | (33,543,934 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate 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, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Six months | ||||||||||||||||||||||||
ended | ||||||||||||||||||||||||
June 30, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Series I | ||||||||||||||||||||||||
Selected Per Share Data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 13.13 | $ | 10.78 | $ | 17.01 | $ | 16.53 | $ | 15.09 | $ | 14.48 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.09 | 0.20 | 0.25 | 0.22 | 0.21 | 0.19 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (1.01 | ) | 2.37 | (6.41 | ) | 0.48 | 1.45 | 0.61 | ||||||||||||||||
Total income (loss) from investment operations | (0.92 | ) | 2.57 | (6.16 | ) | 0.70 | 1.66 | 0.80 | ||||||||||||||||
Less dividends from net investment income | (0.24 | ) | (0.22 | ) | (0.07 | ) | (0.22 | ) | (0.22 | ) | (0.19 | ) | ||||||||||||
Net asset value, end of period | $ | 11.97 | $ | 13.13 | $ | 10.78 | $ | 17.01 | $ | 16.53 | $ | 15.09 | ||||||||||||
Total return(b) | (7.13 | )% | 24.30 | % | (36.35 | )% | 4.22 | % | 11.09 | % | 5.61 | % | ||||||||||||
Net assets, end of period, (000’s omitted) | $ | 163,339 | $ | 192,279 | $ | 184,579 | $ | 368,737 | $ | 471,931 | $ | 582,259 | ||||||||||||
Ratio to Average Net Assets | ||||||||||||||||||||||||
Total expenses: | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 0.69 | %(c) | 0.67 | %(d) | 0.63 | %(d) | 0.58 | % | 0.59 | % | 0.57 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 0.70 | %(c) | 0.67 | %(d) | 0.63 | %(d) | 0.58 | % | 0.59 | % | 0.57 | % | ||||||||||||
Net investment income | 1.39 | %(c) | 1.80 | %(d) | 1.72 | %(d) | 1.27 | % | 1.37 | % | 1.30 | % | ||||||||||||
Rebate from affiliates | — | 0.00 | %(e) | 0.00 | %(e) | — | — | — | ||||||||||||||||
Supplemental Data: | ||||||||||||||||||||||||
Portfolio turnover rate(f) | 35 | % | 44 | % | 61 | % | 48 | % | 114 | % | 38 | % | ||||||||||||
(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 return. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $186,713. | |
(d) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(e) | Amount is less than 0.005%. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
Invesco V.I. Dividend Growth Fund
NOTE 11—Financial Highlights—(continued)
Six months | ||||||||||||||||||||||||
ended | ||||||||||||||||||||||||
June 30, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Series II | ||||||||||||||||||||||||
Selected Per Share Data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 13.09 | $ | 10.75 | $ | 16.98 | $ | 16.51 | $ | 15.07 | $ | 14.46 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.07 | 0.17 | 0.21 | 0.17 | 0.17 | 0.15 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (1.00 | ) | 2.36 | (6.38 | ) | 0.48 | 1.45 | 0.62 | ||||||||||||||||
Total income (loss) from investment operations | (0.93 | ) | 2.53 | (6.17 | ) | 0.65 | 1.62 | 0.77 | ||||||||||||||||
Less dividends from net investment income | (0.20 | ) | (0.19 | ) | (0.06 | ) | (0.18 | ) | (0.18 | ) | (0.16 | ) | ||||||||||||
Net asset value, end of period | $ | 11.96 | $ | 13.09 | $ | 10.75 | $ | 16.98 | $ | 16.51 | $ | 15.07 | ||||||||||||
Total return(b) | (7.18 | )% | 23.94 | % | (36.46 | )% | 3.90 | % | 10.83 | % | 5.35 | % | ||||||||||||
Net assets, end of period, (000’s omitted) | $ | 47,498 | $ | 64,463 | $ | 59,030 | $ | 116,271 | $ | 136,660 | $ | 143,577 | ||||||||||||
Ratio to Average Net Assets | ||||||||||||||||||||||||
Total expenses: | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 0.94 | %(c) | 0.92 | %(d) | 0.88 | %(d) | 0.83 | % | 0.84 | % | 0.82 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 0.95 | %(c) | 0.92 | %(d) | 0.88 | %(d) | 0.83 | % | 0.84 | % | 0.82 | % | ||||||||||||
Net investment income | 1.14 | %(c) | 1.55 | %(d) | 1.47 | %(d) | 1.02 | % | 1.12 | % | 1.05 | % | ||||||||||||
Rebate from affiliates | — | 0.00 | %(e) | 0.00 | %(e) | — | — | — | ||||||||||||||||
Supplemental Data: | ||||||||||||||||||||||||
Portfolio turnover rate(f) | 35 | % | 44 | % | 61 | % | 48 | % | 114 | % | 38 | % | ||||||||||||
(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 return. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $57,413. | |
(d) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(e) | Amount is less than 0.005%. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
NOTE 12—Change in Independent Registered Public Accounting Firm
The Fund is a new fund that was formed to acquire the assets and liabilities of a predecessor fund in a shell fund reorganization (the “Reorganization”). In connection with the organization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
Invesco V.I. Dividend 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 (12b-1) fees; 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, 2010 through June 30, 2010.
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 only, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2,3 | (06/30/10) | Period2,4 | Ratio2 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 928.70 | $ | 3.30 | $ | 1,021.37 | $ | 3.46 | 0.69 | % | ||||||||||||||||||
Series II | 1,000.00 | 928.20 | 4.49 | 1,020.13 | 4.71 | 0.94 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Effective June 1, 2010, the Fund’s adviser has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses of Series I and Series II shares to 0.67% and 0.92% of average daily net assets, respectively. The annualized expense ratios restated as if these agreements had been in effect throughout the entire most recent fiscal half year are 0.67% and 0.92% for Series I and Series II shares, respectively.
3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $3.20 and $4.40 for the Series I and Series II shares, respectively. |
4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $3.36 and $4.61 for the Series I and Series II shares, respectively. |
Invesco V.I. Dividend Growth Fund
Approval of Investment Advisory and Sub-Advisory Agreements With Invesco Advisers, Inc. and Its Affiliates |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco V.I. Dividend Growth Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Morgan Stanley retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-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 the 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. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board
Invesco V.I. Dividend Growth Fund
concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are 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 Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Dividend Growth Fund
Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Morgan Stanley Variable Investment Series — Dividend Growth Portfolio was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 17,337,708 | 500,364 | 1,393,829 | 0 |
Invesco V.I. Dividend Growth Fund
Invesco V.I. Dynamics Fund Semiannual Report to Shareholders ■ June 30, 2010 | ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
I-VIDYN-SAR-1
Fund Performance
Performance summary
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -4.71 | % | ||
Series II Shares | -4.76 | |||
S&P500 Index▼(Broad Market Index) | -6.64 | |||
Russell Midcap Growth Index▼(Style-Specific Index) | -3.31 | |||
Lipper VUF Mid-Cap Growth Funds Index▼(Peer Group Index) | -2.34 | |||
▼ Lipper Inc.
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Russell Midcap® Growth Index is an unmanaged index considered representative of mid-cap growth stocks. The Russell Midcap Growth Index is a trademark/ service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Mid-Cap Growth Funds Index is an unmanaged index considered representative of mid-cap growth variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (8/22/97) | 2.53 | % | ||
10 Years | -4.49 | |||
5 Years | 0.09 | |||
1 Year | 22.27 | |||
Series II Shares | ||||
10 Years | -4.70 | % | ||
5 Years | -0.10 | |||
1 Year | 22.17 |
excluding variable product charges, is available at 800 451 4246.
As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. |
Series II shares incepted on April 30, 2004. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.31% and 1.46%,
respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.34% and 1.59%, 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.
Invesco V.I. Dynamics Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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,
Invesco V.I. Dynamics Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.15% | ||||||||
Aerospace & Defense–1.22% | ||||||||
BE Aerospace, Inc.(b) | 21,010 | $ | 534,284 | |||||
Air Freight & Logistics–0.91% | ||||||||
UTI Worldwide, Inc. | 32,156 | 398,091 | ||||||
Apparel Retail–1.76% | ||||||||
American Eagle Outfitters, Inc. | 37,758 | 443,656 | ||||||
Rue21, Inc.(b) | 10,755 | 326,307 | ||||||
769,963 | ||||||||
Apparel, Accessories & Luxury Goods–3.14% | ||||||||
Carter’s, Inc.(b) | 15,347 | 402,859 | ||||||
Coach, Inc. | 12,695 | 464,002 | ||||||
Hanesbrands, Inc.(b) | 20,937 | 503,744 | ||||||
1,370,605 | ||||||||
Application Software–2.19% | ||||||||
Autodesk, Inc.(b) | 17,515 | 426,665 | ||||||
TIBCO Software Inc.(b) | 43,749 | 527,613 | ||||||
954,278 | ||||||||
Asset Management & Custody Banks–1.44% | ||||||||
Affiliated Managers Group, Inc.(b) | 10,329 | 627,693 | ||||||
Auto Parts & Equipment–1.02% | ||||||||
BorgWarner, Inc.(b) | 11,867 | 443,114 | ||||||
Automotive Retail–1.04% | ||||||||
O’Reilly Automotive, Inc.(b) | 9,569 | 455,102 | ||||||
Biotechnology–3.09% | ||||||||
Genzyme Corp.(b) | 14,361 | 729,108 | ||||||
Human Genome Sciences, Inc.(b) | 10,142 | 229,818 | ||||||
United Therapeutics Corp.(b) | 8,012 | 391,065 | ||||||
1,349,991 | ||||||||
Casinos & Gaming–3.03% | ||||||||
International Game Technology | 25,582 | 401,638 | ||||||
Las Vegas Sands Corp.(b) | 20,330 | 450,106 | ||||||
MGM Resorts International(b) | 48,802 | 470,451 | ||||||
1,322,195 | ||||||||
Coal & Consumable Fuels–0.68% | ||||||||
Massey Energy Co. | 10,901 | 298,142 | ||||||
Communications Equipment–1.18% | ||||||||
Finisar Corp.(b) | 34,459 | 513,439 | ||||||
Computer Hardware–1.08% | ||||||||
Teradata Corp.(b) | 15,400 | 469,392 | ||||||
Computer Storage & Peripherals–1.54% | ||||||||
NetApp, Inc.(b) | 12,026 | 448,690 | ||||||
QLogic Corp.(b) | 13,404 | 222,775 | ||||||
671,465 | ||||||||
Construction & Engineering–2.49% | ||||||||
Foster Wheeler AG (Switzerland)(b) | 18,494 | 389,484 | ||||||
Shaw Group Inc. (The)(b) | 20,350 | 696,377 | ||||||
1,085,861 | ||||||||
Construction, Farm Machinery & Heavy Trucks–0.71% | ||||||||
Bucyrus International, Inc. | 6,564 | 311,462 | ||||||
Consumer Finance–1.77% | ||||||||
Discover Financial Services | 55,183 | 771,458 | ||||||
Data Processing & Outsourced Services–1.79% | ||||||||
Alliance Data Systems Corp.(b) | 13,123 | 781,081 | ||||||
Department Stores–2.27% | ||||||||
J.C. Penney Co., Inc. | 18,138 | 389,604 | ||||||
Macy’s, Inc. | 33,461 | 598,952 | ||||||
988,556 | ||||||||
Distributors–0.73% | ||||||||
LKQ Corp.(b) | 16,504 | 318,197 | ||||||
Diversified Support Services–2.14% | ||||||||
Copart, Inc.(b) | 13,136 | 470,400 | ||||||
KAR Auction Services Inc.(b) | 37,517 | 464,086 | ||||||
934,486 | ||||||||
Education Services–2.15% | ||||||||
Grand Canyon Education, Inc.(b) | 18,270 | 428,066 | ||||||
ITT Educational Services, Inc.(b) | 6,133 | 509,162 | ||||||
937,228 | ||||||||
Electrical Components & Equipment–2.45% | ||||||||
Baldor Electric Co. | 17,448 | 629,524 | ||||||
Cooper Industries PLC (Ireland) | 9,973 | 438,812 | ||||||
1,068,336 | ||||||||
Electronic Components–1.05% | ||||||||
Amphenol Corp.–Class A | 11,632 | 456,905 | ||||||
Electronic Manufacturing Services–0.55% | ||||||||
Jabil Circuit, Inc. | 18,033 | 239,839 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Dynamics Fund
Shares | Value | |||||||
Environmental & Facilities Services–1.22% | ||||||||
Republic Services, Inc. | 17,832 | $ | 530,145 | |||||
Health Care Equipment–3.95% | ||||||||
American Medical Systems Holdings, Inc.(b) | 20,546 | 454,478 | ||||||
CareFusion Corp.(b) | 19,357 | 439,404 | ||||||
Hologic, Inc.(b) | 33,151 | 461,793 | ||||||
NuVasive, Inc.(b) | 10,389 | 368,394 | ||||||
1,724,069 | ||||||||
Health Care Facilities–0.47% | ||||||||
Brookdale Senior Living Inc.(b) | 13,618 | 204,270 | ||||||
Health Care Services–2.36% | ||||||||
Express Scripts, Inc.(b) | 10,103 | 475,043 | ||||||
Fresenius Medical Care AG & Co. KGaA (Germany) | 10,229 | 553,499 | ||||||
1,028,542 | ||||||||
Hotels, Resorts & Cruise Lines–1.99% | ||||||||
Ctrip.com International, Ltd.–ADR (China)(b) | 12,690 | 476,637 | ||||||
Orient-Express Hotels Ltd.–Class A (Bermuda)(b) | 52,623 | 389,410 | ||||||
866,047 | ||||||||
Household Products–1.35% | ||||||||
Church & Dwight Co., Inc. | 3,850 | 241,433 | ||||||
Energizer Holdings, Inc.(b) | 6,953 | 349,597 | ||||||
591,030 | ||||||||
Human Resource & Employment Services–1.00% | ||||||||
Robert Half International, Inc. | 18,471 | 434,992 | ||||||
Independent Power Producers & Energy Traders–0.70% | ||||||||
KGEN Power Corp. (Acquired 01/12/07; Cost $613,032)(b)(c) | 43,788 | 306,516 | ||||||
Industrial Machinery–2.60% | ||||||||
Flowserve Corp. | 6,368 | 540,006 | ||||||
Kennametal Inc. | 23,386 | 594,706 | ||||||
1,134,712 | ||||||||
Internet Software & Services–2.14% | ||||||||
Akamai Technologies, Inc.(b) | 12,130 | 492,114 | ||||||
Baidu, Inc.–ADR (China)(b) | 6,486 | 441,567 | ||||||
933,681 | ||||||||
IT Consulting & Other Services–1.25% | ||||||||
Cognizant Technology Solutions Corp.–Class A(b) | 10,889 | 545,103 | ||||||
Life & Health Insurance–1.20% | ||||||||
Lincoln National Corp. | 21,468 | 521,458 | ||||||
Life Sciences Tools & Services–2.25% | ||||||||
Life Technologies Corp.(b) | 9,836 | 464,751 | ||||||
Pharmaceutical Product Development, Inc. | 20,401 | 518,389 | ||||||
983,140 | ||||||||
Managed Health Care–1.98% | ||||||||
AMERIGROUP Corp.(b) | 12,428 | 403,661 | ||||||
Aveta, Inc. (Acquired 12/21/05-05/22/06; Cost $1,165,095)(b)(c) | 80,000 | 460,000 | ||||||
863,661 | ||||||||
Multi-Line Insurance–1.48% | ||||||||
Genworth Financial Inc.–Class A(b) | 49,560 | 647,749 | ||||||
Oil & Gas Equipment & Services–1.51% | ||||||||
Key Energy Services, Inc.(b) | 71,625 | 657,518 | ||||||
Oil & Gas Exploration & Production–4.94% | ||||||||
Atlas Energy, Inc.(b) | 17,955 | 486,042 | ||||||
Concho Resources Inc.(b) | 7,368 | 407,671 | ||||||
Continental Resources, Inc.(b) | 13,270 | 592,107 | ||||||
Oasis Petroleum Inc.(b) | 18,984 | 275,268 | ||||||
Plains Exploration & Production Co.(b) | 19,050 | 392,621 | ||||||
2,153,709 | ||||||||
Packaged Foods & Meats–1.20% | ||||||||
Hershey Co. (The) | 10,947 | 524,690 | ||||||
Personal Products–1.11% | ||||||||
Estee Lauder Cos. Inc. (The)–Class A | 8,683 | 483,904 | ||||||
Pharmaceuticals–1.13% | ||||||||
Shire PLC (United Kingdom) | 24,342 | 494,681 | ||||||
Property & Casualty Insurance–0.49% | ||||||||
Assured Guaranty Ltd. | 15,972 | 211,948 | ||||||
Real Estate Services–1.89% | ||||||||
Jones Lang LaSalle Inc. | 12,536 | 822,863 | ||||||
Research & Consulting Services–1.24% | ||||||||
IHS Inc.–Class A(b) | 9,235 | 539,509 | ||||||
Restaurants–1.16% | ||||||||
Texas Roadhouse, Inc.(b) | 40,188 | 507,173 | ||||||
Security & Alarm Services–0.90% | ||||||||
Corrections Corp. of America(b) | 20,653 | 394,059 | ||||||
Semiconductors–4.86% | ||||||||
Altera Corp. | 11,184 | 277,475 | ||||||
Avago Technologies Ltd. (Singapore)(b) | 36,208 | 762,541 | ||||||
Broadcom Corp.–Class A | 11,818 | 389,639 | ||||||
Cavium Networks, Inc.(b) | 9,256 | 242,415 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Dynamics Fund
Shares | Value | |||||||
Semiconductors–(continued) | ||||||||
Marvell Technology Group Ltd.(b) | 9,719 | $ | 153,171 | |||||
Xilinx, Inc. | 11,622 | 293,572 | ||||||
2,118,813 | ||||||||
Specialty Chemicals–2.43% | ||||||||
Albemarle Corp. | 13,810 | 548,395 | ||||||
Lubrizol Corp. (The) | 6,362 | 510,932 | ||||||
1,059,327 | ||||||||
Specialty Stores–1.24% | ||||||||
Ulta Salon, Cosmetics & Fragrance, Inc.(b) | 22,784 | 539,069 | ||||||
Systems Software–2.20% | ||||||||
Check Point Software Technologies Ltd. (Israel)(b) | 15,674 | 462,070 | ||||||
Rovi Corp.(b) | 13,161 | 498,933 | ||||||
961,003 | ||||||||
Trading Companies & Distributors–1.17% | ||||||||
Fastenal Co. | 10,166 | 510,232 | ||||||
Trucking–2.08% | ||||||||
J.B. Hunt Transport Services, Inc. | 15,526 | 507,234 | ||||||
Knight Transportation, Inc. | 19,779 | 400,327 | ||||||
907,561 | ||||||||
Wireless Telecommunication Services–1.24% | ||||||||
Crown Castle International Corp.(b) | 14,556 | 542,357 | ||||||
Total Common Stocks & Other Equity Interests (Cost $43,732,750) | 42,814,694 | |||||||
Money Market Funds–0.46% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 99,422 | 99,422 | ||||||
Premier Portfolio–Institutional Class(d) | 99,422 | 99,422 | ||||||
Total Money Market Funds (Cost $198,844) | 198,844 | |||||||
TOTAL INVESTMENTS–98.61% (Cost $43,931,594) | 43,013,538 | |||||||
OTHER ASSETS LESS LIABILITIES–1.39% | 607,679 | |||||||
NET ASSETS–100.00% | $ | 43,621,217 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | 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, 2010 was $766,516, which represented 1.76% of the Fund’s Net Assets. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
as of June 30, 2010
Industrials | 20.1 | % | ||
Information Technology | 19.8 | |||
Consumer Discretionary | 19.5 | |||
Health Care | 15.2 | |||
Financials | 8.3 | |||
Energy | 7.1 | |||
Consumer Staples | 3.7 | |||
Materials | 2.4 | |||
Telecommunication Services | 1.3 | |||
Utilities | 0.7 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.9 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Dynamics Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $43,732,750) | $ | 42,814,694 | ||
Investments in affiliated money market funds, at value and cost | 198,844 | |||
Total investments, at value (Cost $43,931,594) | 43,013,538 | |||
Receivables for: | ||||
Investments sold | 579,644 | |||
Investments sold to affiliates | 169,619 | |||
Fund shares sold | 2,227 | |||
Dividends | 27,710 | |||
Investment for trustee deferred compensation and retirement plans | 11,361 | |||
Other assets | 2,134 | |||
Total assets | 43,806,233 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 105,466 | |||
Accrued fees to affiliates | 33,502 | |||
Accrued other operating expenses | 24,576 | |||
Trustee deferred compensation and retirement plans | 21,472 | |||
Total liabilities | 185,016 | |||
Net assets applicable to shares outstanding | $ | 43,621,217 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 121,673,840 | ||
Undistributed net investment income (loss) | (62,968 | ) | ||
Undistributed net realized gain (loss) | (77,071,498 | ) | ||
Unrealized appreciation (depreciation) | (918,157 | ) | ||
$ | 43,621,217 | |||
Net Assets: | ||||
Series I | $ | 43,614,407 | ||
Series II | $ | 6,810 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 3,215,757 | |||
Series II | 508.7 | |||
Series I: | ||||
Net asset value per share | $ | 13.56 | ||
Series II: | ||||
Net asset value per share | $ | 13.39 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $1,895) | $ | 278,898 | ||
Dividends from affiliated money market funds (includes securities lending income of $2,123) | 2,710 | |||
Total investment income | 281,608 | |||
Expenses: | ||||
Advisory fees | 190,874 | |||
Administrative services fees | 88,734 | |||
Custodian fees | 4,511 | |||
Distribution fees — Series II | 9 | |||
Transfer agent fees | 8,262 | |||
Trustees’ and officers’ fees and benefits | 9,689 | |||
Professional services fees | 18,284 | |||
Other | 4,395 | |||
Total expenses | 324,758 | |||
Less: Fees waived | (1,018 | ) | ||
Net expenses | 323,740 | |||
Net investment income (loss) | (42,132 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $300,066) | 4,307,963 | |||
Foreign currencies | (2,935 | ) | ||
4,305,028 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (6,525,042 | ) | ||
Foreign currencies | (156 | ) | ||
(6,525,198 | ) | |||
Net realized and unrealized gain (loss) | (2,220,170 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (2,262,302 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Dynamics Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (42,132 | ) | $ | (307,133 | ) | ||
Net realized gain (loss) | 4,305,028 | (5,129,510 | ) | |||||
Change in net unrealized appreciation (depreciation) | (6,525,198 | ) | 21,019,261 | |||||
Net increase (decrease) in net assets resulting from operations | (2,262,302 | ) | 15,582,618 | |||||
Share transactions–net: | ||||||||
Series I | (4,651,781 | ) | (6,716,157 | ) | ||||
Series II | — | — | ||||||
Net increase (decrease) in net assets resulting from share transactions | (4,651,781 | ) | (6,716,157 | ) | ||||
Net increase (decrease) in net assets | (6,914,083 | ) | 8,866,461 | |||||
Net assets: | ||||||||
Beginning of period | 50,535,300 | 41,668,839 | ||||||
End of period (includes undistributed net investment income (loss) of $(62,968) and $(20,836), respectively) | $ | 43,621,217 | $ | 50,535,300 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Dynamics Fund, formerly AIM V.I. Dynamics Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity |
Invesco V.I. Dynamics Fund
are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual |
Invesco V.I. Dynamics Fund
results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | ||
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. | |
J. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
K. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .745% | ||
Next $250 million | 0 | .73% | ||
Next $500 million | 0 | .715% | ||
Next $1.5 billion | 0 | .70% | ||
Next $2.5 billion | 0 | .685% | ||
Next $2.5 billion | 0 | .67% | ||
Next $2.5 billion | 0 | .655% | ||
Over $10 billion | 0 | .64% | ||
Invesco V.I. Dynamics Fund
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $1,016 and class level expenses of $2 for Series II shares.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $63,939 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Invesco V.I. Dynamics Fund
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 41,198,842 | $ | 1,048,180 | $ | 766,516 | $ | 43,013,538 | ||||||||
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2010, the Fund engaged in securities purchases of $2,283,914 and securities sales of $998,647, which resulted in net realized gains of $300,066.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $1,355 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—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, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2010 | $ | 55,297,523 | ||
December 31, 2016 | 15,509,594 | |||
December 31, 2017 | 10,534,011 | |||
Total capital loss carryforward | $ | 81,341,128 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
Invesco V.I. Dynamics Fund
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2010 was $23,238,623 and $28,157,501, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 3,972,283 | ||
Aggregate unrealized (depreciation) of investment securities | (4,925,737 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (953,454 | ) | |
Cost of investments for tax purposes is $43,966,992. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 486,677 | $ | 7,435,591 | 838,528 | $ | 9,769,860 | ||||||||||
Series II | — | — | — | — | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (821,758 | ) | (12,087,372 | ) | (1,457,783 | ) | (16,486,017 | ) | ||||||||
Series II | — | — | — | — | ||||||||||||
Net increase (decrease) in share activity | (335,081 | ) | $ | (4,651,781 | ) | (619,255 | ) | $ | (6,716,157 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 71% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco 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.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||
Net asset | Net | (losses) on | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||
value, | investment | securities (both | Total from | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | ||||||||||||||||||||||||||||||||||
of period | (loss) | unrealized) | operations | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | ||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 14.23 | $ | (0.01 | )(c) | $ | (0.66 | ) | $ | (0.67 | ) | $ | 13.56 | (4.71 | )% | $ | 43,614 | 1.27 | %(d) | 1.27 | %(d) | (0.16 | )%(d) | 47 | % | |||||||||||||||||||
Year ended 12/31/09 | 9.99 | (0.08 | )(c) | 4.32 | 4.24 | 14.23 | 42.44 | 50,528 | 1.30 | 1.33 | (0.70 | ) | 97 | |||||||||||||||||||||||||||||||
Year ended 12/31/08 | 19.24 | (0.10 | )(c) | (9.15 | ) | (9.25 | ) | 9.99 | (48.08 | ) | 41,664 | 1.22 | 1.22 | (0.62 | ) | 106 | ||||||||||||||||||||||||||||
Year ended 12/31/07 | 17.15 | (0.11 | )(c) | 2.20 | 2.09 | 19.24 | 12.19 | 122,184 | 1.11 | 1.11 | (0.58 | ) | 115 | |||||||||||||||||||||||||||||||
Year ended 12/31/06 | 14.77 | (0.09 | ) | 2.47 | 2.38 | 17.15 | 16.11 | 120,792 | 1.12 | 1.13 | (0.51 | ) | 142 | |||||||||||||||||||||||||||||||
Year ended 12/31/05 | 13.34 | (0.04 | ) | 1.47 | 1.43 | 14.77 | 10.72 | 111,655 | 1.16 | 1.17 | (0.29 | ) | 110 | |||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 14.06 | (0.03 | )(c) | (0.64 | ) | (0.67 | ) | 13.39 | (4.76 | ) | 7 | 1.45 | (d) | 1.52 | (d) | (0.34 | )(d) | 47 | ||||||||||||||||||||||||||
Year ended 12/31/09 | 9.88 | (0.09 | )(c) | 4.27 | 4.18 | 14.06 | 42.31 | 7 | 1.45 | 1.58 | (0.85 | ) | 97 | |||||||||||||||||||||||||||||||
Year ended 12/31/08 | 19.06 | (0.12 | )(c) | (9.06 | ) | (9.18 | ) | 9.88 | (48.16 | ) | 5 | 1.45 | 1.47 | (0.85 | ) | 106 | ||||||||||||||||||||||||||||
Year ended 12/31/07 | 17.04 | (0.15 | )(c) | 2.17 | 2.02 | 19.06 | 11.85 | 10 | 1.36 | 1.36 | (0.83 | ) | 115 | |||||||||||||||||||||||||||||||
Year ended 12/31/06 | 14.71 | (0.12 | ) | 2.45 | 2.33 | 17.04 | 15.84 | 14 | 1.37 | 1.38 | (0.76 | ) | 142 | |||||||||||||||||||||||||||||||
Year ended 12/31/05 | 13.32 | (0.07 | ) | 1.46 | 1.39 | 14.71 | 10.44 | 12 | 1.41 | 1.42 | (0.54 | ) | 110 | |||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns 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) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $51,659 and $7 for Series I and Series II, respectively. |
Invesco 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, 2010, through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 952.90 | $ | 6.15 | $ | 1,018.50 | $ | 6.36 | 1.27 | % | ||||||||||||||||||
Series II | 1,000.00 | 952.40 | 7.02 | 1,017.60 | 7.25 | 1.45 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Dynamics Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Dynamics Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund.
Invesco V.I. Dynamics Fund
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser and against the Lipper VA Underlying Funds — Mid-Cap Growth Index. The Board noted that the performance of Series I shares of the Fund was in the third quintile of its performance universe for the one year period, the fifth quintile for the three year period and the fourth quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that the performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. The Board noted that Invesco Advisers indicated that much of the underperformance was concentrated in the second half of 2007 as a result of financial sector stock selection. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year.
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 mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including one mutual fund advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was above the effective fee rate for the other mutual fund. The Board also noted that the Fund’s effective fee rate was above the effective sub-advisor fee rate of another mutual fund sub-advised by Invesco Advisers.
Other than the mutual funds described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other client accounts with investment strategies comparable to those of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes seven breakpoints and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Dynamics Fund
Semiannual Report to Shareholders ■ June 30, 2010 | ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
I-VIFSE-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary | ||||
Fund vs. Indexes | ||||
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | ||||
Series I Shares | -4.71 | % | ||
Series II Shares | -4.95 | |||
S&P 500 Index▼(Broad Market Index) | -6.64 | |||
S&P 500 Financials Index▼(Style-Specific Index) | -3.67 | |||
Lipper VUF Financial Services Funds Category Average▼(Peer Group) | -4.93 | |||
▼Lipper Inc. | ||||
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market. | ||||
The S&P 500 Financials Index is an unmanaged index considered representative of the financial market. | ||||
The Lipper VUF Financial Services Funds Category Average represents an average of all of the variable insurance underlying funds in the Lipper Financial Services Funds category. | ||||
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | ||||
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Average Annual Total Returns | ||||
As of 6/30/10 | ||||
Series I Shares | ||||
Inception (9/20/99) | -3.17 | % | ||
10 Years | -4.40 | |||
5 Years | -13.42 | |||
1 Year | 19.41 | |||
Series II Shares | ||||
10 Years | -4.63 | % | ||
5 Years | -13.63 | |||
1 Year | 18.96 |
Series II shares incepted on April 30, 2004. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.29% and 1.46%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and
Series II shares was 1.29% and 1.54%, 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.
Invesco V.I. Financial Services Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. |
Invesco V.I. Financial Services Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Stocks–97.00% | ||||||||
Asset Management & Custody Banks–12.20% | ||||||||
Federated Investors, Inc.–Class B | 79,245 | $ | 1,641,164 | |||||
Legg Mason, Inc. | 90,545 | 2,537,976 | ||||||
State Street Corp. | 84,898 | 2,871,251 | ||||||
7,050,391 | ||||||||
Consumer Finance–14.77% | ||||||||
American Express Co. | 79,663 | 3,162,621 | ||||||
Capital One Financial Corp. | 99,104 | 3,993,891 | ||||||
SLM Corp.(b) | 132,598 | 1,377,694 | ||||||
8,534,206 | ||||||||
Data Processing & Outsourced Services–8.19% | ||||||||
Alliance Data Systems Corp.(b) | 25,999 | 1,547,460 | ||||||
Automatic Data Processing, Inc. | 39,762 | 1,600,818 | ||||||
Heartland Payment Systems, Inc. | 61,017 | 905,492 | ||||||
Western Union Co. | 45,416 | 677,153 | ||||||
4,730,923 | ||||||||
Diversified Banks–1.82% | ||||||||
U.S. Bancorp | 47,128 | 1,053,311 | ||||||
Diversified Capital Markets–2.77% | ||||||||
UBS AG (Switzerland)(b) | 121,087 | 1,600,770 | ||||||
Insurance Brokers–5.62% | ||||||||
Marsh & McLennan Cos., Inc. | 92,195 | 2,078,997 | ||||||
Willis Group Holdings PLC (Ireland) | 38,783 | 1,165,429 | ||||||
3,244,426 | ||||||||
Investment Banking & Brokerage–5.67% | ||||||||
FBR Capital Markets Corp.(b) | 369,791 | 1,231,404 | ||||||
Morgan Stanley | 88,192 | 2,046,936 | ||||||
3,278,340 | ||||||||
Life & Health Insurance–2.85% | ||||||||
Prudential Financial, Inc. | 9,384 | 503,545 | ||||||
StanCorp Financial Group, Inc. | 28,131 | 1,140,431 | ||||||
1,643,976 | ||||||||
Other Diversified Financial Services–15.29% | ||||||||
Bank of America Corp. | 206,581 | 2,968,569 | ||||||
Citigroup Inc.(b) | 594,794 | 2,236,426 | ||||||
JPMorgan Chase & Co. | 99,228 | 3,632,737 | ||||||
8,837,732 | ||||||||
Property & Casualty Insurance–3.67% | ||||||||
Allstate Corp. (The) | 8,686 | 249,549 | ||||||
XL Capital Ltd.–Class A(b) | 116,887 | 1,871,361 | ||||||
2,120,910 | ||||||||
Regional Banks–14.09% | ||||||||
Fifth Third Bancorp | 211,875 | 2,603,944 | ||||||
First Horizon National Corp.(b) | 10,707 | 122,599 | ||||||
First Midwest Bancorp, Inc. | 32,764 | 398,410 | ||||||
SunTrust Banks, Inc. | 89,947 | 2,095,765 | ||||||
Wilmington Trust Corp. | 54,704 | 606,667 | ||||||
Zions Bancorp. | 107,398 | 2,316,575 | ||||||
8,143,960 | ||||||||
Reinsurance–1.83% | ||||||||
Transatlantic Holdings, Inc. | 22,020 | 1,056,079 | ||||||
Specialized Consumer Services–1.74% | ||||||||
H&R Block, Inc. | 64,020 | 1,004,474 | ||||||
Specialized Finance–3.64% | ||||||||
Moody’s Corp. | 105,554 | 2,102,636 | ||||||
Thrifts & Mortgage Finance–2.85% | ||||||||
Hudson City Bancorp, Inc. | 88,836 | 1,087,353 | ||||||
Ocwen Financial Corp.(b) | 55,103 | 561,499 | ||||||
1,648,852 | ||||||||
Total Stocks (Cost $68,635,504) | 56,050,986 | |||||||
Money Market Funds–0.97% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 280,223 | 280,223 | ||||||
Premier Portfolio–Institutional Class(c) | 280,223 | 280,223 | ||||||
Total Money Market Funds (Cost $560,446) | 560,446 | |||||||
TOTAL INVESTMENTS–97.97% (Cost $69,195,950) | 56,611,432 | |||||||
OTHER ASSETS LESS LIABILITIES–2.03% | 1,175,107 | |||||||
NET ASSETS–100.00% | $ | 57,786,539 | ||||||
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Financial Services Fund
By industry, based on Net Assets
as of June 30, 2010
Financials | 87 | % | ||
Information Technology | 8 | |||
Consumer Discretionary | 2 | |||
Money Market Funds Plus Other Assets Less Liabilities | 3 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Financial Services Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $68,635,504) | $ | 56,050,986 | ||
Investments in affiliated money market funds, at value and cost | 560,446 | |||
Total investments, at value (Cost $69,195,950) | 56,611,432 | |||
Receivables for: | ||||
Investments sold | 3,728,839 | |||
Fund shares sold | 70,441 | |||
Dividends | 54,675 | |||
Investment for trustee deferred compensation and retirement plans | 11,681 | |||
Other assets | 2,038 | |||
Total assets | 60,479,106 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 2,485,864 | |||
Fund shares reacquired | 108,069 | |||
Accrued fees to affiliates | 50,485 | |||
Accrued other operating expenses | 24,081 | |||
Trustee deferred compensation and retirement plans | 24,068 | |||
Total liabilities | 2,692,567 | |||
Net assets applicable to shares outstanding | $ | 57,786,539 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 111,056,533 | ||
Undistributed net investment income | 85,188 | |||
Undistributed net realized gain (loss) | (40,770,664 | ) | ||
Unrealized appreciation (depreciation) | (12,584,518 | ) | ||
$ | 57,786,539 | |||
Net Assets: | ||||
Series I | $ | 49,648,499 | ||
Series II | $ | 8,138,040 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 10,224,712 | |||
Series II | 1,695,058 | |||
Series I: | ||||
Net asset value per share | $ | 4.86 | ||
Series II: | ||||
Net asset value per share | $ | 4.80 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends | $ | 441,752 | ||
Dividends from affiliated money market funds | 1,092 | |||
Total investment income | 442,844 | |||
Expenses: | ||||
Advisory fees | 256,180 | |||
Administrative services fees | 108,922 | |||
Custodian fees | 3,189 | |||
Distribution fees — Series II | 10,655 | |||
Transfer agent fees | 8,298 | |||
Trustees’ and officers’ fees and benefits | 10,034 | |||
Other | 20,263 | |||
Total expenses | 417,541 | |||
Less: Fees waived | (1,937 | ) | ||
Net expenses | 415,604 | |||
Net investment income | 27,240 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from investment securities | (7,065,333 | ) | ||
Change in net unrealized appreciation of investment securities | 3,552,745 | |||
Net realized and unrealized gain (loss) | (3,512,588 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (3,485,348 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Financial Services Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 27,240 | $ | 83,899 | ||||
Net realized gain (loss) | (7,065,333 | ) | (7,426,734 | ) | ||||
Change in net unrealized appreciation | 3,552,745 | 22,907,979 | ||||||
Net increase (decrease) in net assets resulting from operations | (3,485,348 | ) | 15,565,144 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (1,643,368 | ) | |||||
Series II | — | (217,704 | ) | |||||
Total distributions from net investment income | — | (1,861,072 | ) | |||||
Share transactions–net: | ||||||||
Series I | (4,981,676 | ) | 6,150,080 | |||||
Series II | 772,692 | 2,336,966 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (4,208,984 | ) | 8,487,046 | |||||
Net increase (decrease) in net assets | (7,694,332 | ) | 22,191,118 | |||||
Net assets: | ||||||||
Beginning of period | 65,480,871 | 43,289,753 | ||||||
End of period (includes undistributed net investment income of $85,188 and $57,948, respectively) | $ | 57,786,539 | $ | 65,480,871 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Financial Services Fund, formerly AIM V.I. Financial Services Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. |
Invesco V.I. Financial Services Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. Financial Services Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Other Risks — The Fund’s investments are concentrated in a comparatively narrow segment of the economy. Consequently, the Fund may tend to be more volatile than other mutual funds, and the value of the Fund’s investments may tend to rise and fall more rapidly. | |
The financial services sector is subject to extensive government regulation, which may change frequently. The profitability of businesses in this sector depends heavily on the availability and cost of money and may fluctuate significantly in response to changes to interest rates and general economic conditions. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .75% | ||
Next $250 million | 0 | .74% | ||
Next $500 million | 0 | .73% | ||
Next $1.5 billion | 0 | .72% | ||
Next $2.5 billion | 0 | .71% | ||
Next $2.5 billion | 0 | .70% | ||
Next $2.5 billion | 0 | .69% | ||
Over $10 billion | 0 | .68% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver [and/or expense reimbursement] to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. The Adviser did not waive fees and/or reimburse expenses under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $1,937.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $84,127 for services provided by insurance companies.
Invesco V.I. Financial Services Fund
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 56,611,432 | $ | — | $ | — | $ | 56,611,432 | ||||||||
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $1,371 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
Invesco V.I. Financial Services 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.
The Fund had a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 22,458,450 | ||
December 31, 2017 | 7,805,524 | |||
Total capital loss carryforward | $ | 30,263,974 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2010 was $13,635,433 and $17,713,713, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 4,517,429 | ||
Aggregate unrealized (depreciation) of investment securities | (20,539,838 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (16,022,409 | ) | |
Cost of investments for tax purposes is $72,633,841. |
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 2,513,712 | $ | 14,058,348 | 6,175,150 | $ | 25,003,515 | ||||||||||
Series II | 305,373 | 1,656,063 | 825,270 | 3,236,356 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 324,776 | 1,643,368 | ||||||||||||
Series II | — | — | 43,454 | 217,704 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (3,578,433 | ) | (19,040,024 | ) | (4,778,335 | ) | (20,496,803 | ) | ||||||||
Series II | (166,310 | ) | (883,371 | ) | (260,764 | ) | (1,117,094 | ) | ||||||||
Net increase (decrease) in share activity | (925,658 | ) | $ | (4,208,984 | ) | 2,329,551 | $ | 8,487,046 | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 78% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Financial Services Fund
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | securities | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 5.10 | $ | 0.00 | $ | (0.24 | ) | $ | (0.24 | ) | $ | — | $ | — | $ | — | $ | 4.86 | (4.71 | )% | $ | 49,648 | 1.18 | %(d) | 1.19 | %(d) | 0.12 | %(d) | 21 | % | ||||||||||||||||||||||||||
Year ended 12/31/09 | 4.12 | 0.01 | 1.12 | 1.13 | (0.15 | ) | — | (0.15 | ) | 5.10 | 27.43 | 57,620 | 1.27 | 1.28 | 0.18 | 22 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 12.26 | 0.24 | (7.46 | ) | (7.22 | ) | (0.24 | ) | (0.68 | ) | (0.92 | ) | 4.12 | (59.44 | ) | 39,421 | 1.22 | 1.23 | 2.71 | 47 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 17.41 | 0.27 | (4.04 | ) | (3.77 | ) | (0.29 | ) | (1.09 | ) | (1.38 | ) | 12.26 | (22.22 | ) | 85,144 | 1.11 | 1.11 | 1.61 | 9 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 15.26 | 0.23 | 2.28 | 2.51 | (0.26 | ) | (0.10 | ) | (0.36 | ) | 17.41 | 16.52 | 146,092 | 1.12 | 1.12 | 1.44 | 14 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 14.61 | 0.19 | 0.66 | 0.85 | (0.20 | ) | — | (0.20 | ) | 15.26 | 5.84 | 141,241 | 1.12 | 1.12 | 1.30 | 22 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 5.05 | 0.00 | (0.25 | ) | (0.25 | ) | — | — | — | 4.80 | (4.95 | ) | 8,138 | 1.43 | (d) | 1.44 | (d) | (0.13 | )(d) | 21 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 4.08 | 0.00 | 1.11 | 1.11 | (0.14 | ) | — | (0.14 | ) | 5.05 | 27.30 | 7,861 | 1.44 | 1.53 | 0.01 | 22 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 12.17 | 0.21 | (7.39 | ) | (7.18 | ) | (0.23 | ) | (0.68 | ) | (0.91 | ) | 4.08 | (59.56 | ) | 3,869 | 1.44 | 1.48 | 2.49 | 47 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 17.33 | 0.22 | (4.00 | ) | (3.78 | ) | (0.29 | ) | (1.09 | ) | (1.38 | ) | 12.17 | (22.39 | ) | 3,688 | 1.36 | 1.36 | 1.36 | 9 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 15.23 | 0.20 | 2.26 | 2.46 | (0.26 | ) | (0.10 | ) | (0.36 | ) | 17.33 | 16.22 | 1,664 | 1.37 | 1.37 | 1.19 | 14 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 14.59 | 0.15 | 0.67 | 0.82 | (0.18 | ) | — | (0.18 | ) | 15.23 | 5.61 | 11 | 1.37 | 1.37 | 1.05 | 22 | ||||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are based on average daily net assets (000’s omitted) of $60,286 and $8,595 for Series I and Series II shares, respectively. |
Invesco V.I. Financial Services Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2010, through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 952.90 | $ | 5.71 | $ | 1,018.94 | $ | 5.91 | 1.18 | % | ||||||||||||||||||
Series II | 1,000.00 | 950.50 | 6.92 | 1,017.70 | 7.15 | 1.43 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Financial Services Fund
Approval of Investment Advisory and Sub-advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Financial Services Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund.
Invesco V.I. Financial Services Fund
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser. The Board noted that the performance of Series I shares of the Fund was in the third quintile of its performance universe for the one year period, the fifth quintile for the three year period and the fourth quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year.
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 mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including one mutual fund advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was the same as the effective fee rate of the other mutual fund.
Other than the mutual fund described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other client accounts with investment strategies comparable to those of the Fund.
The Board noted that Invesco Advisers contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes seven breakpoints, and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for the research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Financial Services Fund
Semiannual Report to Shareholders ■ June 30, 2010 | ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
MS-VIGDG-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary | ||||
Fund vs. Indexes | ||||
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | ||||
Series I Shares | -9.22 | % | ||
Series II Shares | -9.31 | |||
MSCI World Index▼(Broad Market/Style-Specific Index) | -9.84 | |||
▼Lipper Inc. | ||||
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries. | ||||
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | ||||
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Average Annual Total Returns | ||||
As of 6/30/10 | ||||
Series I Shares | ||||
Inception (2/23/94) | 4.90 | % | ||
10 Years | 1.09 | |||
5 Years | -2.61 | |||
1 Year | 6.66 | |||
Series II Shares | ||||
Inception (6/5/00) | 0.53 | % | ||
10 Years | 0.84 | |||
5 Years | -2.85 | |||
1 Year | 6.43 |
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund advised by Morgan Stanley Investment Advisors Inc. were reorganized into Series I and Series II shares, respectively, of Invesco V.I. Global Dividend Growth Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. Global Dividend Growth Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that
you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.94% and 1.19%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.16% and 1.41%, 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.
Invesco V.I. Global Dividend Growth Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246.
As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
Invesco V.I. Global Dividend Growth Fund
Schedule of Investments
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–96.4% | ||||||||
Australia–2.7% | ||||||||
Australia & New Zealand Banking Group Ltd. | 36,038 | $ | 646,959 | |||||
Macquarie Group Ltd. | 19,272 | 593,076 | ||||||
Telstra Corp. Ltd. | 288,146 | 784,045 | ||||||
2,024,080 | ||||||||
Austria–0.1% | ||||||||
Telekom Austria AG | 2,592 | 28,812 | ||||||
Bermuda–0.8% | ||||||||
Partnerre Ltd. | 8,773 | 615,338 | ||||||
Brazil–0.5% | ||||||||
Cia Energetica de Minas Gerais (ADR) | 7,055 | 103,497 | ||||||
Petroleo Brasileiro SA (ADR) | 4,834 | 165,903 | ||||||
Vale SA | 5,465 | 133,072 | ||||||
402,472 | ||||||||
Canada–3.8% | ||||||||
Agrium, Inc. | 12,661 | 618,451 | ||||||
EnCana Corp. | 16,549 | 501,188 | ||||||
Intact Financial Corp. | 13,821 | 582,934 | ||||||
Nexen, Inc. | 24,603 | 483,948 | ||||||
Toronto-Dominion Bank (The) | 10,357 | 680,835 | ||||||
2,867,356 | ||||||||
Finland–0.7% | ||||||||
Nokia OYJ (ADR) | 66,784 | 544,290 | ||||||
France–6.1% | ||||||||
BNP Paribas | 11,563 | 617,401 | ||||||
Bouygues SA | 24,076 | 922,186 | ||||||
GDF Suez | 34,167 | 966,675 | ||||||
ICADE | 5,737 | 483,975 | ||||||
Sanofi-Aventis SA | 15,934 | 960,869 | ||||||
Total SA | 14,586 | 649,144 | ||||||
Vallourec SA | 166 | 28,112 | ||||||
4,628,362 | ||||||||
Germany–2.9% | ||||||||
Bayerische Motoren Werke AG | 18,649 | 903,822 | ||||||
Porsche Automobil Holding SE | 17,235 | 733,095 | ||||||
Salzgitter AG | 8,799 | 526,544 | ||||||
2,163,461 | ||||||||
Greece–0.5% | ||||||||
National Bank of Greece SA(a) | 34,051 | 371,007 | ||||||
India–0.1% | ||||||||
State Bank of India | 458 | 45,282 | ||||||
Ireland–0.1% | ||||||||
Dragon Oil PLC(a) | 16,427 | 98,854 | ||||||
Israel–0.4% | ||||||||
Bezeq Israeli Telecommunication Corp. Ltd. | 145,502 | 318,314 | ||||||
Italy–1.1% | ||||||||
Eni SpA | 44,900 | 824,237 | ||||||
Japan–14.4% | ||||||||
Canon, Inc. | 18,300 | 682,280 | ||||||
Daifuku Co., Ltd. | 87,490 | 536,062 | ||||||
FUJIFILM Holdings Corp. | 26,500 | 762,300 | ||||||
Mitsubishi Corp. | 30,200 | 629,302 | ||||||
Mitsubishi UFJ Financial Group, Inc. | 267,400 | 1,212,167 | ||||||
Murata Manufacturing Co., Ltd. | 13,300 | 633,451 | ||||||
Nippon Telegraph & Telephone Corp. | 14,600 | 596,104 | ||||||
Nippon Yusen KK | 285,000 | 1,034,978 | ||||||
Nissan Motor Co., Ltd.(a) | 114,600 | 794,433 | ||||||
NTT DoCoMo, Inc. | 459 | 694,113 | ||||||
Seven & I Holdings Co., Ltd. | 32,200 | 738,806 | ||||||
Sumitomo Chemical Co., Ltd. | 242,000 | 934,353 | ||||||
Sumitomo Osaka Cement Co., Ltd. | 179,000 | 341,232 | ||||||
Takeda Pharmaceutical Co., Ltd. | 17,100 | 731,830 | ||||||
Tokyo Tomin Bank Ltd. (The) | 51,800 | 589,533 | ||||||
10,910,944 | ||||||||
Mexico–0.1% | ||||||||
Desarrolladora Homex SAB de CV (ADR)(a) | 3,839 | 96,896 | ||||||
Netherlands–2.0% | ||||||||
TNT N.V. | 33,977 | 856,367 | ||||||
Unilever N.V. | 24,343 | 663,721 | ||||||
1,520,088 | ||||||||
Norway–0.9% | ||||||||
Statoil ASA | 34,997 | 674,984 | ||||||
Republic of Korea–1.2% | ||||||||
Hyundai Mipo Dockyard | 1,259 | 132,239 | ||||||
Hyundai Mobis | 1,036 | 173,506 | ||||||
LG Electronics, Inc. | 829 | 63,306 | ||||||
Lotte Shopping Co. Ltd. | 229 | 65,584 | ||||||
POSCO | 361 | 137,013 | ||||||
Samsung Electronics Co., Ltd. | 290 | 182,087 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Dividend Growth Fund
Shares | Value | |||||||
Republic of Korea–(continued) | ||||||||
Shinhan Financial Group Co., Ltd. | 2,960 | $ | 109,013 | |||||
SK Telecom Co. Ltd. (ADR) | 4,605 | 67,832 | ||||||
930,580 | ||||||||
Russia–0.2% | ||||||||
Gazprom OAO | 5,407 | 101,697 | ||||||
Rosneft Oil Co.(a) | 12,548 | 77,370 | ||||||
179,067 | ||||||||
Singapore–1.8% | ||||||||
ComfortDelgro Corp., Ltd. | 693,140 | 717,932 | ||||||
Singapore Post Ltd. | 808,000 | 650,721 | ||||||
1,368,653 | ||||||||
Spain–2.9% | ||||||||
Banco Santander SA | 96,777 | 1,016,934 | ||||||
Iberdrola SA | 81,854 | 459,107 | ||||||
Telefonica SA | 39,669 | 732,549 | ||||||
2,208,590 | ||||||||
Switzerland–5.4% | ||||||||
ACE Ltd. | 17,300 | 890,604 | ||||||
Holcim Ltd. | 14,451 | 967,308 | ||||||
Kuoni Reisen Holding AG (Registered Shares) | 1,326 | 370,474 | ||||||
Swisscom AG (Registered Shares) | 2,743 | 929,287 | ||||||
Zurich Financial Services AG | 4,035 | 885,727 | ||||||
4,043,400 | ||||||||
Taiwan–0.7% | ||||||||
Acer, Inc. | 31,000 | 71,892 | ||||||
AU Optronics Corp. (ADR) | 9,933 | 88,205 | ||||||
HTC Corp. | 12,000 | 159,206 | ||||||
Powertech Technology, Inc. | 50,000 | 138,590 | ||||||
U-Ming Marine Transport Corp. | 22,000 | 41,952 | ||||||
499,845 | ||||||||
United Kingdom–10.4% | ||||||||
BHP Billiton PLC | 49,837 | 1,289,623 | ||||||
BP PLC | 123,318 | 592,354 | ||||||
GlaxoSmithKline PLC | 42,668 | 723,101 | ||||||
Imperial Tobacco Group PLC | 54,133 | 1,509,350 | ||||||
Informa PLC | 83,940 | 441,762 | ||||||
National Grid PLC | 90,463 | 666,529 | ||||||
Royal Dutch Shell PLC (Class A) | 65,821 | 1,662,206 | ||||||
Vodafone Group PLC | 482,580 | 1,000,011 | ||||||
7,884,936 | ||||||||
United States–36.6% | ||||||||
3M Co. | 15,798 | 1,247,884 | ||||||
Aflac, Inc. | 16,957 | 723,555 | ||||||
Allete, Inc. | 16,266 | 556,948 | ||||||
Apache Corp. | 7,988 | 672,510 | ||||||
Apollo Group, Inc. (Class A)(a) | 11,664 | 495,370 | ||||||
Archer-Daniels-Midland Co. | 25,828 | 666,879 | ||||||
Avon Products, Inc. | 22,871 | 606,082 | ||||||
Bank of America Corp. | 59,940 | 861,338 | ||||||
Bank of New York Mellon Corp. (The) | 34,802 | 859,261 | ||||||
Best Buy Co., Inc. | 16,909 | 572,539 | ||||||
Chevron Corp. | 20,306 | 1,377,965 | ||||||
Coach, Inc. | 28,556 | 1,043,722 | ||||||
ConocoPhillips | 22,414 | 1,100,303 | ||||||
DaVita, Inc.(a) | 13,216 | 825,207 | ||||||
Diebold, Inc. | 23,158 | 631,055 | ||||||
DTE Energy Co. | 20,421 | 931,402 | ||||||
Energen Corp. | 17,840 | 790,847 | ||||||
GameStop Corp. (Class A)(a) | 40,547 | 761,878 | ||||||
International Business Machines Corp. | 4,982 | 615,177 | ||||||
Johnson & Johnson | 24,113 | 1,424,114 | ||||||
Kroger Co. (The) | 52,081 | 1,025,475 | ||||||
Merck & Co., Inc. | 41,919 | 1,465,907 | ||||||
Microsoft Corp. | 36,089 | 830,408 | ||||||
Morgan Stanley | 36,316 | 842,894 | ||||||
Oracle Corp. | 59,163 | 1,269,638 | ||||||
Pfizer, Inc. | 49,283 | 702,776 | ||||||
Philip Morris International, Inc. | 14,694 | 673,573 | ||||||
Potlatch Corp. | 12,655 | 452,163 | ||||||
Sonoco Products Co. | 9,911 | 302,087 | ||||||
Stryker Corp. | 14,294 | 715,558 | ||||||
Valero Energy Corp. | 42,164 | 758,109 | ||||||
WellPoint, Inc.(a) | 25,974 | 1,270,908 | ||||||
WR Berkley Corp. | 23,754 | 628,531 | ||||||
27,702,063 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $72,376,760) | 72,951,911 | |||||||
Money Market Funds–2.6% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 986,436 | 986,436 | ||||||
Premier Portfolio–Institutional Class(b) | 986,436 | 986,436 | ||||||
Total Money Market funds (Cost $1,972,872) | 1,972,872 | |||||||
TOTAL INVESTMENTS (Cost $74,349,632)–99.0% | 74,924,783 | |||||||
OTHER ASSETS LESS LIABILITIES–1.0% | 777,301 | |||||||
NET ASSETS–100.0% | $ | 75,702,084 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Dividend Growth Fund
Investment Abbreviations:
ADR | – American Depositary Receipt. |
Notes to Schedule of Investments:
(a) | Non-income producing security. | |
(b) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on net assets
as of June 30, 2010
Financials | 18.2 | % | ||
Energy | 12.9 | |||
Health Care | 11.7 | |||
Industrials | 8.9 | |||
Consumer Discretionary | 8.6 | |||
Information Technology | 8.7 | |||
Consumer Staples | 7.8 | |||
Telecommunication Services | 6.8 | |||
Materials | 6.9 | |||
Utilities | 5.9 | |||
Money Market Funds Plus Other Assets Less Liabilities | 3.6 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Dividend Growth Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $72,376,760) | $ | 72,951,911 | ||
Investments in affiliated money market funds, at value and cost | 1,972,872 | |||
Total investments, at value (Cost $74,349,632) | 74,924,783 | |||
Foreign currencies, at value (Cost $398,874) | 296,528 | |||
Receivable for: | ||||
Investments sold | 55,462,167 | |||
Dividends | 248,277 | |||
Fund shares sold | 27,857 | |||
Other Assets | 7,881 | |||
Total assets | 130,967,493 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 55,137,863 | |||
Fund shares reacquired | 62,480 | |||
Accrued fees to affiliates | 28,905 | |||
Accrued other operating expenses | 32,667 | |||
Trustee retirement | 3,494 | |||
Total liabilities | 55,265,409 | |||
Net assets applicable to shares outstanding | $ | 75,702,084 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 89,991,443 | ||
Undistributed net investment income | 931,582 | |||
Undistributed net realized gain (loss) | (15,697,494 | ) | ||
Unrealized appreciation | 476,553 | |||
$ | 75,702,084 | |||
Net Assets: | ||||
Series I | $ | 50,333,997 | ||
Series II | $ | 25,368,087 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 6,634,515 | |||
Series II | 3,371,075 | |||
Series I: | ||||
Net asset value per share | $ | 7.59 | ||
Series II: | ||||
Net asset value per share | $ | 7.53 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment Income: | ||||
Dividends (net of $109,663 foreign withholding tax) | $ | 1,785,369 | ||
Dividends from affiliated money market funds | 905 | |||
Income from securities loaned | 12,705 | |||
Total investment income | 1,798,979 | |||
Expenses | ||||
Advisory fees | 286,937 | |||
Administrative services fees | 49,414 | |||
Custodian fees | 21,714 | |||
Distribution fees-Series II | 35,727 | |||
Transfer agent fees | 250 | |||
Trustees’ and officers’ fees and benefits | 2,457 | |||
Shareholder reports and notices | 23,971 | |||
Other | 26,251 | |||
Total expenses | 446,721 | |||
Less: Fees waived | (4,370 | ) | ||
Net expenses | 442,351 | |||
Net investment income | 1,356,628 | |||
Realized and unrealized gain (loss) from: | ||||
Realized Gain (Loss) on: | ||||
Investment securities | 3,408,488 | |||
Foreign currencies | (143,897 | ) | ||
Foreign currency contracts | 1,570,387 | |||
4,834,978 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (13,570,110 | ) | ||
Foreign currencies | (94,629 | ) | ||
Foreign currency contracts | (421,445 | ) | ||
(14,086,184 | ) | |||
Net realized and unrealized gain (loss) | (9,251,206 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (7,894,578 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Dividend Growth Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
For the six | For the | |||||||
months ended | year ended | |||||||
June 30, 2010 | December 31, 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,356,628 | $ | 3,048,064 | ||||
Net realized gain | 4,834,978 | 3,073,323 | ||||||
Change in net unrealized appreciation (depreciation) | (14,086,184 | ) | 6,730,620 | |||||
Net increase (decrease) in net assets resulting from operations | (7,894,578 | ) | 12,852,007 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (1,056,638 | ) | (2,992,150 | ) | ||||
Series II | (465,368 | ) | (1,372,445 | ) | ||||
Total Dividends | (1,522,006 | ) | (4,364,595 | ) | ||||
Net increase (decrease) from transactions in shares of beneficial interest | (5,641,602 | ) | (9,583,791 | ) | ||||
Net increase (decrease) in net assets | (15,058,186 | ) | (1,096,379 | ) | ||||
Net Assets: | ||||||||
Beginning of period | 90,760,270 | 91,856,649 | ||||||
End of period (includes undistributed net investment income of $931,582 and $1,096,960, respectively) | $ | 75,702,084 | $ | 90,760,270 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Global Dividend Growth Fund (the “Fund”), is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
Prior to June 1, 2010, the Fund operated as Morgan Stanley Variable Investment Series Global Dividend Growth Portfolio (the “Acquired Fund”), an investment portfolio of Morgan Stanley Variable Investment Series. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class X and Class Y shares received Series I and Series II shares, respectively, of the Fund.
Information for the Acquired Fund’s — Class X and Class Y shares prior to the Reorganization are included with Series I and Series II shares, respectively, of the Fund throughout this report.
The Fund’s investment objective is to provide reasonable current income and long-term growth of income and capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
Invesco V.I. Global Dividend Growth Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities and Corporate Loans. The mean between the last bid and asked prices may be used to value debt obligations other than Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
Invesco V.I. Global Dividend Growth Fund
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
J. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $1 billion | 0 | .67% | ||
Next $500 million | 0 | .645% | ||
Next $1 billion | 0 | .62% | ||
Next $1 billion | 0 | .595% | ||
Next $1 billion | 0 | .57% | ||
Over $4.5 billion | 0 | .545% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee to Morgan Stanley Investment Advisors Inc. (“MSIA”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s). Prior to the Reorganization, Morgan Stanley Investment Management Limited served as sub-adviser to the Acquired Fund.
Effective on the Reorganization date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 0.94% and Series II shares to 1.19% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the
Invesco V.I. Global Dividend Growth Fund
following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds. Prior to the Reorganization, investment advisory fees paid by the Acquired Fund were reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class shares.
For the six months ended June 30, 2010, the Adviser and MSIA waived advisory fees of $3,631 and $739, respectively.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the period ended June 30, 2010, Invesco was paid $4,110 for accounting and fund administrative services and reimbursed $16,229 for services provided by insurance companies. Prior to the Reorganization, the Acquired Fund paid an administration fee of $29,075 to Morgan Stanley Services Company, Inc.
Also, the Trust has entered into service agreements whereby State Street Bank & Trust Company (“SSB”) serves as custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. Prior to the Reorganization, the Acquired Fund paid $207 to Morgan Stanley Trust, which served as the Acquired Fund’s transfer agent. For the six months ended June 30, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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. Prior to the Reorganization, the Acquired Fund paid distribution fees of $30,425 to Morgan Stanley Distributors Inc. based on the annual rate of 0.25% of the Acquired Fund’s average daily net assets of Class Y shares. For the six months ended June 30, 2010, expenses incurred under the Plans are detailed in the Statement of Operations as distribution fees.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Invesco V.I. Global Dividend Growth Fund
Level 1* | Level 2* | Level 3 | Total | |||||||||||||
Australia | $ | 2,024,080 | $ | — | $ | — | $ | 2,024,080 | ||||||||
Austria | — | 28,812 | — | 28,812 | ||||||||||||
Bermuda | 615,338 | — | — | 615,338 | ||||||||||||
Brazil | 402,472 | — | — | 402,472 | ||||||||||||
Canada | 2,867,356 | — | — | 2,867,356 | ||||||||||||
Finland | 544,290 | — | — | 544,290 | ||||||||||||
France | 1,883,055 | 2,745,307 | — | 4,628,362 | ||||||||||||
Germany | 2,163,461 | — | — | 2,163,461 | ||||||||||||
Greece | 371,007 | — | — | 371,007 | ||||||||||||
India | 45,282 | — | — | 45,282 | ||||||||||||
Ireland | 98,854 | — | — | 98,854 | ||||||||||||
Israel | — | 318,314 | — | 318,314 | ||||||||||||
Italy | — | 824,237 | — | 824,237 | ||||||||||||
Japan | 8,761,837 | 2,149,107 | — | 10,910,944 | ||||||||||||
Mexico | 96,896 | — | — | 96,896 | ||||||||||||
Netherlands | 856,367 | 663,721 | — | 1,520,088 | ||||||||||||
Norway | 674,984 | — | — | 674,984 | ||||||||||||
Republic of Korea | 930,580 | — | — | 930,580 | ||||||||||||
Russia | — | 179,067 | — | 179,067 | ||||||||||||
Singapore | — | 1,368,653 | — | 1,368,653 | ||||||||||||
Spain | 1,191,656 | 1,016,934 | — | 2,208,590 | ||||||||||||
Switzerland | 3,672,926 | 370,474 | — | 4,043,400 | ||||||||||||
Taiwan | 427,953 | 71,892 | — | 499,845 | ||||||||||||
United Kingdom | 2,768,232 | 5,116,704 | — | 7,884,936 | ||||||||||||
United States | 29,674,935 | — | — | 29,674,935 | ||||||||||||
$ | 60,071,562 | $ | 14,853,221 | $ | — | $ | 74,924,783 | |||||||||
* | Transfers occurred between Level 1 and Level 2 due to foreign fair value adjustments. |
NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure 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. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
As of June 30, 2010, the Fund did not hold any derivative instruments.
Effect of Derivative Instruments for the six months ended June 30, 2010
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Foreign Currency Contracts* | ||||
Realized Gain | ||||
Currency risk | $ | 1,570,387 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Currency risk | $ | (421,445 | ) | |
Total | $ | 1,148,942 | ||
* | The average value of foreign currency contracts outstanding during the period was $13,435,968. |
Invesco V.I. Global Dividend Growth Fund
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—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, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward (000’s)* | |||
2016 | $ | 3,068 | ||
2017 | 16,976 | |||
Total capital loss carryforward | $ | 20,044 | ||
* | 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, 2010 was $88,473,819 and $90,912,417, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 1,791,932 | ||
Aggregate unrealized (depreciation) of investment securities | (1,623,122 | ) | ||
Net unrealized appreciation of investment securities | $ | 168,810 | ||
Cost of investments for tax purposes is $74,755,973. |
Invesco V.I. Global Dividend Growth Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
For the six months ended | For the year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Series I | ||||||||||||||||
Sold | 31,466 | $ | 260,977 | 39,028 | $ | 300,376 | ||||||||||
Reinvestment of dividends and distributions | 134,262 | 1,056,638 | 412,142 | 2,992,150 | ||||||||||||
Redeemed | (623,599 | ) | (5,226,498 | ) | (1,414,208 | ) | (10,681,016 | ) | ||||||||
Net increase (decrease) — Series I | (457,871 | ) | (3,908,883 | ) | (963,038 | ) | (7,388,490 | ) | ||||||||
Series II | ||||||||||||||||
Sold | 12,807 | 105,596 | 120,372 | 854,130 | ||||||||||||
Reinvestment of dividends and distributions | 59,586 | 465,368 | 190,617 | 1,372,445 | ||||||||||||
Redeemed | (278,389 | ) | (2,303,683 | ) | (590,289 | ) | (4,421,876 | ) | ||||||||
Net increase (decrease) — Series II | (205,996 | ) | (1,732,719 | ) | (279,300 | ) | (2,195,301 | ) | ||||||||
Net increase (decrease) in share activity | (663,867 | ) | $ | (5,641,602 | ) | (1,242,338 | ) | $ | (9,583,791 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 94% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Global Dividend Growth Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Series I | ||||||||||||||||||||||||
For the six months | ||||||||||||||||||||||||
ended June 30, | For the year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 8.53 | $ | 7.74 | $ | 16.87 | $ | 17.81 | $ | 15.12 | $ | 14.46 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.14 | 0.28 | 0.00 | 0.31 | 0.29 | 0.27 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.92 | ) | 0.92 | (5.94 | ) | 1.01 | 2.94 | 0.63 | ||||||||||||||||
Total income (loss) from investment operations | (0.78 | ) | 1.20 | (5.94 | ) | 1.32 | 3.23 | 0.90 | ||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.16 | ) | (0.41 | ) | (0.40 | ) | (0.36 | ) | (0.33 | ) | (0.24 | ) | ||||||||||||
Net realized gain | — | — | (2.79 | ) | (1.90 | ) | (0.21 | ) | — | |||||||||||||||
Total dividends and distributions | (0.16 | ) | (0.41 | ) | (3.19 | ) | (2.26 | ) | (0.54 | ) | (0.24 | ) | ||||||||||||
Net asset value, end of period | $ | 7.59 | $ | 8.53 | $ | 7.74 | $ | 16.87 | $ | 17.81 | $ | 15.12 | ||||||||||||
Total return(b) | (9.22 | )% | 16.44 | % | (40.94 | )% | 7.02 | % | 21.94 | % | 6.34 | % | ||||||||||||
Net assets, end of period, (000’s) | $ | 50,334 | $ | 60,521 | $ | 62,333 | $ | 136,495 | $ | 165,864 | $ | 181,475 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 0.95 | %(c) | 0.93 | %(d) | 0.86 | %(d) | 0.82 | % | 0.83 | % | 0.82 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 0.96 | %(c) | ||||||||||||||||||||||
Net investment income | 3.25 | %(c) | 3.64 | %(d) | 3.04 | %(d) | 1.72 | % | 1.80 | % | 1.88 | % | ||||||||||||
Rebate from affiliates | — | 0.00 | %(e) | 0.00 | %(e) | — | — | — | ||||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(f) | 106 | % | 79 | % | 88 | % | 38 | % | 24 | % | 20 | % | ||||||||||||
(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 return. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $57,447. | |
(d) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(e) | Amount is less than 0.005%. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
Invesco V.I. Global Dividend Growth Fund
NOTE 10—Financial Highlights—(continued)
Series II | ||||||||||||||||||||||||
For the six months | ||||||||||||||||||||||||
ended June 30, | For the year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 8.45 | $ | 7.66 | $ | 16.70 | $ | 17.66 | $ | 15.00 | $ | 14.34 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.12 | 0.26 | 0.00 | 0.26 | 0.25 | 0.23 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.90 | ) | 0.91 | (5.90 | ) | 1.00 | 2.91 | 0.64 | ||||||||||||||||
Total income (loss) from investment operations | (0.78 | ) | 1.17 | (5.90 | ) | 1.26 | 3.16 | 0.87 | ||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.14 | ) | (0.38 | ) | (0.35 | ) | (0.32 | ) | (0.29 | ) | (0.21 | ) | ||||||||||||
Net realized gain | — | — | (2.79 | ) | (1.90 | ) | (0.21 | ) | — | |||||||||||||||
Total dividends and distributions | (0.14 | ) | (0.38 | ) | (3.14 | ) | (2.22 | ) | (0.50 | ) | (0.21 | ) | ||||||||||||
Net asset value, end of period | $ | 7.53 | $ | 8.45 | $ | 7.66 | $ | 16.70 | $ | 17.66 | $ | 15.00 | ||||||||||||
Total return(b) | (9.31 | )% | 16.11 | % | (41.09 | )% | 6.77 | % | 21.60 | % | 6.17 | % | ||||||||||||
Net assets, end of period, (000’s) | $ | 25,368 | $ | 30,239 | $ | 29,524 | $ | 65,364 | $ | 74,749 | $ | 71,123 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 1.20 | %(c) | 1.18 | %(d) | 1.11 | %(d) | 1.07 | % | 1.08 | % | 1.07 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 1.21 | %(c) | ||||||||||||||||||||||
Net investment income | 3.00 | %(c) | 3.39 | %(d) | 2.79 | %(d) | 1.47 | % | 1.55 | % | 1.63 | % | ||||||||||||
Rebate from affiliates | — | 0.00 | %(e) | 0.00 | %(e) | — | — | — | ||||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(f) | 106 | % | 79 | % | 88 | % | 38 | % | 24 | % | 20 | % | ||||||||||||
(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 return. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $28,916. | |
(d) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(e) | Amount is less than 0.005%. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
Invesco V.I. Global Dividend Growth Fund
NOTE 11—Change in Independent Registered Public Accounting Firm
The Fund is a new fund that was formed to acquire the assets and liabilities of a predecessor fund in a shell fund reorganization (the “Reorganization”). In connection with the organization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
Invesco V.I. Global Dividend 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 (12b-1) fees; 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, 2010 through June 30, 2010.
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 only, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2,3 | (06/30/10) | Period2,4 | Ratio2 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 907.80 | $ | 4.49 | $ | 1,020.08 | $ | 4.76 | 0.95 | % | ||||||||||||||||||
Series II | 1,000.00 | 906.90 | 5.67 | 1,018.84 | 6.01 | 1.20 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. Effective June 1, 2010, the Fund’s adviser has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit Total Annual Fund Operating Expense of Series I, and Series II shares to 0.94% and 1.19% of average daily net assets, respectively. The annualized expense ratios restated as if these agreements had been in effect throughout the entire most recent fiscal half year are 0.94% and 1.19% for Series I and Series II shares, respectively. |
3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.45 and $5.63 for Series I and Series II shares, respectively. |
4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.71 and $5.96 for Series I and Series II shares, respectively. |
Invesco V.I. Global Dividend Growth Fund
Approval of Investment Advisory and Sub-Advisory Agreements With Invesco Advisers, Inc. And Its Affiliates |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco V.I. Global Dividend Growth Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund, (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund, and (iii) a Temporary Investment Services Agreement (TISA) by and among Invesco Advisers and Morgan Stanley Investment Management Limited (the MS Sub-Adviser) for the possible provision of temporary investment services to the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers, the Affiliated Sub-Advisers and the MS Sub-Adviser under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Morgan Stanley retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers and MS Sub-Adviser |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
The Board considered that the TISA is necessary because certain portfolio managers cannot be migrated to the Invesco Advisers front-end compliance system immediately upon reorganization with the Acquired Fund. The TISA permits those portfolio managers, who will remain employed by the MS Sub-Adviser for a temporary period following the reorganization with the Acquired Fund, to continue to be primarily responsible for the day-to-day management of the Fund. The Board considered that the MS Sub-Adviser had managed the Acquired Fund and that the board of the Acquired Fund had approved an investment advisory agreement with the MS Sub-Adviser. The Board concluded that the nature, extent and quality of the services to be provided by the MS Sub-Adviser are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates. The Board also noted that the sub-advisory fees paid under the TISA have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rates, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-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 the 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. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates
Invesco V.I. Global Dividend Growth Fund
provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations. Given the temporary nature of the TISA, the Board did not consider the profitability of the MS Sub-Adviser.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are 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 Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Global Dividend Growth Fund
Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Morgan Stanley Variable Investment Series — Global Dividend Growth Portfolio was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 9,313,476 | 571,294 | 624,113 | 0 |
Invesco V.I. Global Dividend Growth Fund
Semiannual Report to Shareholders ■ June 30, 2010 | ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
I-VIGHC-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary | ||||
Fund vs. Indexes | ||||
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | ||||
Series I Shares | -7.56 | % | ||
Series II Shares | -7.69 | |||
MSCI World Index▼(Broad Market Index) | -9.84 | |||
MSCI World Health Care Index▼(Style-Specific Index) | -9.57 | |||
Lipper VUF Health/Biotechnology Funds Category Average▼(Peer Group) | -6.07 | |||
▼Lipper Inc. | ||||
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries. | ||||
The MSCI World Health Care Index is an unmanaged index considered representative of health care stocks of developed countries. | ||||
The Lipper VUF Health/Biotechnology Funds Category Average represents an average of all of the variable insurance underlying funds in the Lipper Health/ Biotechnology Funds category. | ||||
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | ||||
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Average Annual Total Returns | ||||
As of 6/30/10 | ||||
Series I Shares | ||||
Inception (5/21/97) | 5.83 | % | ||
10 Years | 0.67 | |||
5 Years | 1.65 | |||
1 Year | 8.69 | |||
Series II Shares | ||||
10 Years | 0.41 | % | ||
5 Years | 1.39 | |||
1 Year | 8.40 |
Series II shares incepted on April 30, 2004. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.15% and 1.40%, 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.
Invesco V.I. Global Health Care Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Global Health Care Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–97.57% | ||||||||
Biotechnology–22.14% | ||||||||
AMAG Pharmaceuticals, Inc.(b) | 19,472 | $ | 668,863 | |||||
Amgen Inc.(b) | 110,398 | 5,806,935 | ||||||
Biogen Idec Inc.(b) | 45,966 | 2,181,087 | ||||||
BioMarin Pharmaceutical Inc.(b) | 124,174 | 2,354,339 | ||||||
Celgene Corp.(b) | 40,563 | 2,061,412 | ||||||
Genzyme Corp.(b) | 76,240 | 3,870,705 | ||||||
Gilead Sciences, Inc.(b) | 199,218 | 6,829,193 | ||||||
Human Genome Sciences, Inc.(b) | 57,275 | 1,297,851 | ||||||
Incyte Corp.(b) | 63,690 | 705,048 | ||||||
Myriad Genetics, Inc.(b) | 52,578 | 786,041 | ||||||
Pharmasset, Inc.(b) | 19,764 | 540,348 | ||||||
Savient Pharmaceuticals Inc.(b) | 103,539 | 1,304,591 | ||||||
United Therapeutics Corp.(b) | 44,944 | 2,193,717 | ||||||
Vertex Pharmaceuticals Inc.(b) | 42,420 | 1,395,618 | ||||||
31,995,748 | ||||||||
Drug Retail–5.62% | ||||||||
CVS Caremark Corp. | 208,709 | 6,119,348 | ||||||
Drogasil S.A. (Brazil) | 104,820 | 2,003,263 | ||||||
8,122,611 | ||||||||
Health Care Distributors–1.95% | ||||||||
McKesson Corp. | 41,892 | 2,813,467 | ||||||
Health Care Equipment–12.86% | ||||||||
Baxter International Inc. | 69,269 | 2,815,092 | ||||||
Boston Scientific Corp.(b) | 467,836 | 2,713,449 | ||||||
CareFusion Corp.(b) | 61,075 | 1,386,402 | ||||||
Covidien PLC (Ireland) | 53,507 | 2,149,911 | ||||||
Dexcom Inc.(b) | 48,428 | 559,828 | ||||||
Hologic, Inc.(b) | 104,356 | 1,453,679 | ||||||
Hospira, Inc.(b) | 44,422 | 2,552,044 | ||||||
St. Jude Medical, Inc.(b) | 41,755 | 1,506,938 | ||||||
Wright Medical Group, Inc.(b) | 67,893 | 1,127,703 | ||||||
Zimmer Holdings, Inc.(b) | 43,003 | 2,324,312 | ||||||
18,589,358 | ||||||||
Health Care Facilities–2.69% | ||||||||
Assisted Living Concepts Inc.–Class A(b) | 31,460 | 930,901 | ||||||
Rhoen-Klinikum AG (Germany) | 133,140 | 2,957,809 | ||||||
3,888,710 | ||||||||
Health Care Services–8.83% | ||||||||
DaVita, Inc.(b) | 56,085 | 3,501,948 | ||||||
Express Scripts, Inc.(b) | 75,836 | 3,565,809 | ||||||
Medco Health Solutions, Inc.(b) | 39,089 | 2,153,022 | ||||||
Omnicare, Inc. | 57,542 | 1,363,745 | ||||||
Quest Diagnostics Inc. | 43,855 | 2,182,663 | ||||||
12,767,187 | ||||||||
Health Care Supplies–2.56% | ||||||||
Alcon, Inc. | 16,285 | 2,413,274 | ||||||
Immucor, Inc.(b) | 67,457 | 1,285,056 | ||||||
3,698,330 | ||||||||
Health Care Technology–0.70% | ||||||||
Allscripts-Misys Healthcare Solutions, Inc.(b)(c) | 62,810 | 1,011,241 | ||||||
Life & Health Insurance–1.19% | ||||||||
Amil Participacoes S.A. (Brazil)(d) | 211,100 | 1,713,170 | ||||||
Life Sciences Tools & Services–9.66% | ||||||||
Gerresheimer AG (Germany)(b) | 74,157 | 2,360,959 | ||||||
Life Technologies Corp.(b) | 76,098 | 3,595,630 | ||||||
Pharmaceutical Product Development, Inc. | 78,722 | 2,000,326 | ||||||
Thermo Fisher Scientific, Inc.(b) | 122,418 | 6,004,603 | ||||||
13,961,518 | ||||||||
Managed Health Care–9.97% | ||||||||
Aetna Inc. | 125,839 | 3,319,633 | ||||||
AMERIGROUP Corp.(b) | 44,144 | 1,433,797 | ||||||
Aveta, Inc. (Acquired 12/21/05; Cost $1,655,802)(b)(d) | 122,652 | 705,249 | ||||||
CIGNA Corp. | 40,036 | 1,243,518 | ||||||
Health Net Inc.(b) | 89,937 | 2,191,765 | ||||||
UnitedHealth Group Inc. | 74,099 | 2,104,411 | ||||||
WellPoint Inc.(b) | 69,819 | 3,416,244 | ||||||
14,414,617 | ||||||||
Pharmaceuticals–19.40% | ||||||||
Abbott Laboratories | 105,877 | 4,952,926 | ||||||
Allergan, Inc. | 40,758 | 2,374,561 | ||||||
Bayer AG (Germany) | 22,993 | 1,283,158 | ||||||
EastPharma Ltd.–GDR (Turkey)(d) | 114,132 | 159,785 | ||||||
Hikma Pharmaceuticals PLC (United Kingdom) | 119,052 | 1,261,937 | ||||||
Ipsen S.A. (France) | 32,981 | 1,008,476 | ||||||
Johnson & Johnson | 65,483 | 3,867,426 | ||||||
Novartis AG–ADR (Switzerland) | 52,410 | 2,532,451 | ||||||
Pharmstandard–GDR (Russia)(d) | 23,450 | 511,552 | ||||||
Roche Holding AG (Switzerland) | 41,608 | 5,712,966 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Health Care Fund
Shares | Value | |||||||
Pharmaceuticals–(continued) | ||||||||
Shire PLC–ADR (United Kingdom) | 43,278 | $ | 2,656,404 | |||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 33,100 | 1,720,869 | ||||||
28,042,511 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $146,868,616) | 141,018,468 | |||||||
Money Market Funds–2.52% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 1,820,737 | 1,820,737 | ||||||
Premier Portfolio–Institutional Class(e) | 1,820,737 | 1,820,737 | ||||||
Total Money Market Funds (Cost $3,641,474) | 3,641,474 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.09% (Cost $150,510,090) | 144,659,942 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–0.18% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $261,405)(e)(f) | 261,405 | 261,405 | ||||||
TOTAL INVESTMENTS–100.27% (Cost $150,771,495) | 144,921,347 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.27)% | (386,932 | ) | ||||||
NET ASSETS–100.00% | $ | 144,534,415 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt | |
GDR | – Global Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | All or a portion of this security was out on loan at June 30, 2010. | |
(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, 2010 was $3,089,756, which represented 2.14% of the Fund’s Net Assets. | |
(e) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(f) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1J. |
By country, based on Net Assets
as of June 30, 2010
United States | 78.2 | % | ||
Switzerland | 5.7 | |||
Germany | 4.6 | |||
United Kingdom | 2.7 | |||
Brazil | 2.6 | |||
Countries Each Less Than 2.0% of Portfolio | 3.8 | |||
Money Market Funds Plus Other Assets Less Liabilities | 2.4 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Health Care Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $146,868,616)* | $ | 141,018,468 | ||
Investments in affiliated money market funds, at value and cost | 3,902,879 | |||
Total investments, at value (Cost $150,771,495) | 144,921,347 | |||
Receivables for: | ||||
Fund shares sold | 73,932 | |||
Dividends | 98,591 | |||
Foreign currency contracts outstanding | 57,157 | |||
Investment for trustee deferred compensation and retirement plans | 14,695 | |||
Other assets | 1,884 | |||
Total assets | 145,167,606 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 176,572 | |||
Collateral upon return of securities loaned | 261,405 | |||
Accrued fees to affiliates | 118,270 | |||
Accrued other operating expenses | 36,161 | |||
Trustee deferred compensation and retirement plans | 40,783 | |||
Total liabilities | 633,191 | |||
Net assets applicable to shares outstanding | $ | 144,534,415 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 173,197,967 | ||
Undistributed net investment income | 88,863 | |||
Undistributed net realized gain (loss) | (22,942,193 | ) | ||
Unrealized appreciation (depreciation) | (5,810,222 | ) | ||
$ | 144,534,415 | |||
Net Assets: | ||||
Series I | $ | 119,568,131 | ||
Series II | $ | 24,966,284 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 8,150,998 | |||
Series II | 1,733,977 | |||
Series I: | ||||
Net asset value per share | $ | 14.67 | ||
Series II: | ||||
Net asset value per share | $ | 14.40 | ||
* | At June 30, 2010, securities with an aggregate value of $252,770 were on loan to brokers. |
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $95,904) | $ | 1,060,548 | ||
Dividends from affiliated money market funds (includes securities lending income of $6,472) | 10,994 | |||
Total investment income | 1,071,542 | |||
Expenses: | ||||
Advisory fees | 616,081 | |||
Administrative services fees | 226,736 | |||
Custodian fees | 10,270 | |||
Distribution fees — Series II | 33,986 | |||
Transfer agent fees | 19,768 | |||
Trustees’ and officers’ fees and benefits | 11,524 | |||
Other | 32,397 | |||
Total expenses | 950,762 | |||
Less: Fees waived | (7,447 | ) | ||
Net expenses | 943,315 | |||
Net investment income | 128,227 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 4,654,189 | |||
Foreign currencies | 732 | |||
Foreign currency contracts | 867,657 | |||
5,522,578 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (17,692,463 | ) | ||
Foreign currencies | (5,906 | ) | ||
Foreign currency contracts | (170,934 | ) | ||
(17,869,303 | ) | |||
Net realized and unrealized gain (loss) | (12,346,725 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (12,218,498 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Health Care Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | 128,227 | $ | (131,082 | ) | |||
Net realized gain (loss) | 5,522,578 | (14,305,912 | ) | |||||
Change in net unrealized appreciation (depreciation) | (17,869,303 | ) | 50,968,906 | |||||
Net increase (decrease) in net assets resulting from operations | (12,218,498 | ) | 36,531,912 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (447,208 | ) | |||||
Series II | — | (30,590 | ) | |||||
Total distributions from net investment income | — | (477,798 | ) | |||||
Share transactions-net: | ||||||||
Series I | (13,962,873 | ) | (15,173,536 | ) | ||||
Series II | 346,242 | 1,039,283 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (13,616,631 | ) | (14,134,253 | ) | ||||
Net increase (decrease) in net assets | (25,835,129 | ) | 21,919,861 | |||||
Net assets: | ||||||||
Beginning of period | 170,369,544 | 148,449,683 | ||||||
End of period (includes undistributed net investment income (loss) of $88,863 and $(39,364), respectively) | $ | 144,534,415 | $ | 170,369,544 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Global Health Care Fund, formerly AIM V.I. Global Health Care Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. |
Invesco V.I. Global Health Care Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. | ||
Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. Global Health Care Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Other Risks — The Fund may invest a large percentage of assets in securities of a limited number of companies, such that each investment may have a greater effect on the Fund’s overall performance, and any change in the value of those securities could significantly affect the value of your investment in the Fund. | |
The Fund has invested in non-publicly traded companies, some of which are in the startup or development stages. These investments are inherently risky, as the market for the technologies or products these companies are developing are typically in the early stages and may never materialize. The Fund could lose its entire investment in these companies. These investments are valued at fair value as determined in good faith in accordance with procedures approved by the Board of Trustees. Investments in privately held venture capital securities are illiquid. | ||
J. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. | |
K. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
L. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
Invesco V.I. Global Health Care Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .75% | ||
Next $250 million | 0 | .74% | ||
Next $500 million | 0 | .73% | ||
Next $1.5 billion | 0 | .72% | ||
Next $2.5 billion | 0 | .71% | ||
Next $2.5 billion | 0 | .70% | ||
Next $2.5 billion | 0 | .69% | ||
Over $10 billion | 0 | .68% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets, through at least. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $7,447.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $24,794 for accounting and fund administrative services and reimbursed $201,942 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation
Invesco V.I. Global Health Care Fund
inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Biotechnology | $ | 31,995,748 | $ | — | $ | — | $ | 31,995,748 | ||||||||
Drug Retail | 8,122,611 | — | — | 8,122,611 | ||||||||||||
Health Care Distributors | 2,813,467 | — | — | 2,813,467 | ||||||||||||
Health Care Equipment | 18,589,358 | — | — | 18,589,358 | ||||||||||||
Health Care Facilities | 930,901 | 2,957,809 | — | 3,888,710 | ||||||||||||
Health Care Services | 12,767,187 | — | — | 12,767,187 | ||||||||||||
Health Care Supplies | 3,698,330 | — | — | 3,698,330 | ||||||||||||
Health Care Technology | 1,011,241 | — | — | 1,011,241 | ||||||||||||
Life & Health Insurance | 1,713,170 | — | — | 1,713,170 | ||||||||||||
Life Sciences Tools & Services | 11,600,559 | 2,360,959 | — | 13,961,518 | ||||||||||||
Managed Health Care | 13,709,368 | — | 705,249 | 14,414,617 | ||||||||||||
Money Market Funds | 3,902,879 | — | — | 3,902,879 | ||||||||||||
Pharmaceuticals | 19,272,898 | 8,769,613 | — | 28,042,511 | ||||||||||||
$ | 130,127,717 | $ | 14,088,381 | $ | 705,249 | $ | 144,921,347 | |||||||||
Foreign Currency Contracts* | — | 40,003 | — | 40,003 | ||||||||||||
Total Investments | $ | 130,127,717 | $ | 14,128,384 | $ | 705,249 | $ | 144,961,350 | ||||||||
* | Unrealized appreciation. |
NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure has intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position and financial performance. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2010:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign Currency Contracts(a) | $ | 115,967 | $ | (75,964 | ) | |||
(a) | Values are disclosed on the Statement of Assets and Liabilities under Foreign currency contracts outstanding. |
Invesco V.I. Global Health Care Fund
Effect of Derivative Instruments for the six months ended June 30, 2010
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Foreign Currency | ||||
Contracts* | ||||
Realized Gain | ||||
Currency risk | $ | 867,657 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Currency risk | $ | (170,934 | ) | |
Total | $ | 696,723 | ||
* | The average value of foreign currency contracts outstanding during the period was $6,081,645. |
Open Foreign Currency Contracts | ||||||||||||||||||||
Unrealized | ||||||||||||||||||||
Settlement | Contract to | Appreciation | ||||||||||||||||||
Date | Deliver | Receive | Value | (Depreciation) | ||||||||||||||||
08/10/10 | CHF | 2,931,600 | USD | 2,645,538 | $ | 2,721,502 | $ | (75,964 | ) | |||||||||||
08/10/10 | EUR | 2,286,200 | USD | 2,912,710 | 2,796,743 | 115,967 | ||||||||||||||
Total open foreign currency contracts | $ | 40,003 | ||||||||||||||||||
Closed Foreign Currency Contracts | ||||||||||||||||||||
Closed | Contract to | Realized | ||||||||||||||||||
Date | Deliver | Receive | Value | Gain | ||||||||||||||||
05/25/10 | USD | 428,760 | EUR | 350,000 | $ | 445,914 | $ | 17,154 | ||||||||||||
Total foreign currency contracts | $ | 57,157 | ||||||||||||||||||
Currency Abbreviations: | ||
CHF | – Swiss Fran | |
EUR | – Euro | |
USD | – U.S. Dollar |
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2010, the Fund engaged in securities purchases of $352,186.
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $1,478 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
Invesco V.I. Global Health Care 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.
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, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 12,235,817 | ||
December 31, 2017 | 15,956,934 | |||
Total capital loss carryforward | $ | 28,192,751 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2010 was $16,186,944 and $22,905,487, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 12,991,323 | ||
Aggregate unrealized (depreciation) of investment securities | (18,902,554 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (5,911,231 | ) | |
Cost of investments for tax purposes is $150,832,578. |
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 871,590 | $ | 14,177,005 | 1,972,429 | $ | 27,454,826 | ||||||||||
Series II | 160,817 | 2,538,704 | 341,255 | 4,410,301 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 28,759 | 447,208 | ||||||||||||
Series II | — | — | 2,002 | 30,590 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,772,477 | ) | (28,139,878 | ) | (3,260,825 | ) | (43,075,570 | ) | ||||||||
Series II | (140,165 | ) | (2,192,462 | ) | (252,057 | ) | (3,401,608 | ) | ||||||||
Net increase (decrease) in share activity | (880,235 | ) | $ | (13,616,631 | ) | (1,168,437 | ) | $ | (14,134,253 | ) | ||||||
(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 adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Global Health Care Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | on securities | Dividends | Distributions | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||||
value, | investment | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | (loss) | unrealized) | operations | income | gains | Distributions | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 15.87 | $ | 0.02 | (c) | $ | (1.22 | ) | $ | (1.20 | ) | $ | — | $ | — | $ | — | $ | 14.67 | (7.56 | )% | $ | 119,568 | 1.11 | %(d) | 1.12 | %(d) | 0.20 | %(d) | 10 | % | |||||||||||||||||||||||||
Year ended 12/31/09 | 12.47 | (0.01 | )(c) | 3.46 | 3.45 | (0.05 | ) | — | (0.05 | ) | 15.87 | 27.67 | 143,648 | 1.13 | 1.14 | (0.05 | ) | 45 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 24.06 | 0.07 | (c)(e) | (7.16 | ) | (7.09 | ) | — | (4.50 | ) | (4.50 | ) | 12.47 | (28.62 | ) | 128,563 | 1.12 | 1.13 | 0.34 | (e) | 67 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 21.51 | (0.01 | )(c) | 2.56 | 2.55 | — | — | — | 24.06 | 11.85 | 223,448 | 1.06 | 1.07 | (0.06 | ) | 66 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 20.44 | (0.04 | )(c) | 1.11 | 1.07 | — | — | — | 21.51 | 5.24 | 235,509 | 1.10 | 1.10 | (0.19 | ) | 79 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 18.90 | (0.06 | ) | 1.60 | 1.54 | — | — | — | 20.44 | 8.15 | 257,736 | 1.08 | 1.09 | (0.24 | ) | 82 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 15.60 | 0.00 | (c) | (1.20 | ) | (1.20 | ) | — | — | — | 14.40 | (7.69 | ) | 24,966 | 1.36 | (d) | 1.37 | (d) | (0.05 | )(d) | 10 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 12.26 | (0.04 | )(c) | 3.40 | 3.36 | (0.02 | ) | — | (0.02 | ) | 15.60 | 27.39 | 26,722 | 1.38 | 1.39 | (0.30 | ) | 45 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 23.82 | 0.02 | (c)(e) | (7.08 | ) | (7.06 | ) | — | (4.50 | ) | (4.50 | ) | 12.26 | (28.78 | ) | 19,886 | 1.37 | 1.38 | 0.09 | (e) | 67 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 21.36 | (0.07 | )(c) | 2.53 | 2.46 | — | — | — | 23.82 | 11.52 | 20,817 | 1.31 | 1.32 | (0.31 | ) | 66 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 20.34 | (0.09 | )(c) | 1.11 | 1.02 | — | — | — | 21.36 | 5.01 | 97,646 | 1.35 | 1.35 | (0.44 | ) | 79 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 18.86 | (0.09 | ) | 1.57 | 1.48 | — | — | — | 20.34 | 7.85 | 11 | 1.33 | 1.34 | (0.49 | ) | 82 | ||||||||||||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $138,236 and $27,414 for Series I and Series II shares, respectively. | |
(e) | Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets include a special cash dividend received of $5.23 per share owned of All-scripts-Misys Healthcare Solutions, Inc. on October 13, 2008. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $0.02 and 0.08% and $(0.03) and (0.17)% for Series I and Series II shares, respectively. |
Invesco 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, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 924.40 | $ | 5.30 | $ | 1,019.29 | $ | 5.56 | 1.11 | % | ||||||||||||||||||
Series II | 1,000.00 | 923.10 | 6.48 | 1,018.05 | 6.80 | 1.36 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Global Health Care Fund
Approval of Investment Advisory and Sub-advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Global Health Care Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund.
Invesco V.I. Global Health Care Fund
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser and against the Lipper VA Underlying Funds — Health/Biotechnology Index. The Board noted that the performance of Series I shares of the Fund was in the second quintile of its performance universe for the one year period, the third quintile for the three year period and the fourth quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that the performance of Series I shares of the Fund was above the performance of the Index for the one year period and below the performance of the Index for the three and five year periods. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which included using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including one mutual fund advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was above the effective fee rate for the other mutual fund.
The Board noted that Affiliated Sub-Advisers and other Invesco Advisers affiliated investment advisers advise funds with comparable investment strategies in other jurisdictions; however, the Board did not consider comparisons of fees charged to those funds to be apt, as those fees may include more than investment management services. The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other client accounts with investment strategies comparable to those of the Fund.
The Board noted that Invesco Advisers contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 noted that at the current expense ratio for the Fund, the expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services provided by Invesco Advisers pursuant to the Fund’s advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes seven breakpoints, and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for the research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Global Health Care Fund
Invesco V.I. Global Multi-Asset Fund Semiannual Report to Shareholders § June 30, 2010 Effective April 30, 2010, Invesco V.I. PowerShares ETF Allocation Fund was renamed Invesco V.I. Global Multi-Asset Fund. |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIGMA-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -1.31 | % | ||
Series II Shares | -1.46 | |||
MSCI World Index▼ (Broad Market Index) | -9.84 | |||
Custom V.I. Global Multi-Asset Fund Indexn (Style-Specific Index) | -2.94 | |||
Lipper VUF Global Flexible Portfolio Funds Category Average▼ (Peer Group) | -4.23 | |||
Lipper VUF Global Core Funds Index▼ (Former Peer Group Index) | -8.59 |
▼ | Lipper Inc.; n Invesco, Lipper, Inc. |
During the reporting period, the Fund elected to use the Lipper VUF Global Flexible Portfolio Funds Category Average as its peer group rather than the Lipper VUF Global Core Funds Index because it more closely reflects the performance of the securities in which the Fund invests.
The MSCI World Index is an unmanaged index considered representative of stocks of developed countries.
The Custom V.I. Global Multi-Asset Fund Index, created by Invesco to serve as a benchmark for Invesco V.I. Global Multi-Asset Fund, is composed of the following indexes: MSCI World (54%) and Barclays Capital U.S. Universal (46%).
The Lipper VUF Global Flexible Portfolio Funds Category Average is an average of all the variable insurance underlying funds tracked by the Lipper Global Flexible Portfolio Funds category.
The Lipper VUF Global Core Funds Index is an unmanaged index considered representative of global core variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
Series I Shares | ||||
Inception (10/24/08) | 21.92 | % | ||
1 Year | 15.32 | |||
Series II Shares | ||||
Inception (10/24/08) | 21.52 | % | ||
1 Year | 15.00 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.74% and 0.99%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 2.37% and 2.62%, 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.
Invesco V.I. Global Multi-Asset Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. |
Invesco V.I. Global Multi-Asset Fund
Schedule of Investments
June 30, 2010
(Unaudited)
Schedule of Investments in Affiliated Issuers — 100.18%(a)
Change in | ||||||||||||||||||||||||||||||||||||
% of | Unrealized | |||||||||||||||||||||||||||||||||||
Net | Value | Purchases | Proceeds | Appreciation | Realized | Dividend | Shares | Value | ||||||||||||||||||||||||||||
Assets | 12/31/09 | at Cost | from Sales | (Depreciation) | Gain (Loss) | Income | 6/30/10 | 6/30/10 | ||||||||||||||||||||||||||||
Domestic Equity ETFs–22.00% | ||||||||||||||||||||||||||||||||||||
iShares MSCI EAFE Small Cap Index Fund(b) | 6.59 | % | $ | — | $ | 5,700,274 | $ | (1,347,740 | ) | $ | (601,188 | ) | $ | (215,771 | ) | $ | 31,480 | 108,720 | $ | 3,535,575 | ||||||||||||||||
PowerShares FTSE RAFI US 1000 Portfolio | 9.19 | % | 5,362,923 | 1,722,143 | (1,859,979 | ) | (212,084 | ) | (77,899 | ) | 28,427 | 108,440 | 4,935,104 | |||||||||||||||||||||||
PowerShares FTSE RAFI US 1500 Small-Mid Portfolio | 6.22 | % | 3,507,833 | 1,247,351 | (1,399,331 | ) | (284,027 | ) | 270,100 | 6,498 | 67,080 | 3,341,926 | ||||||||||||||||||||||||
Total Domestic Equity ETFs | 8,870,756 | 8,669,768 | (4,607,050 | ) | (1,097,299 | ) | (23,570 | ) | 66,405 | 284,240 | 11,812,605 | |||||||||||||||||||||||||
Fixed-Income ETFs–52.21% | ||||||||||||||||||||||||||||||||||||
iShares Barclays 20+ Year Treasury Bond Fund(b) | 36.27 | % | — | 19,980,758 | (2,110,759 | ) | 1,590,218 | 18,294 | 43,148 | 191,435 | 19,478,511 | |||||||||||||||||||||||||
PowerShares 1-30 Laddered Treasury Portfolio | — | % | 10,598,640 | 3,867,178 | (14,559,010 | ) | 340,565 | (247,373 | ) | 166,375 | — | — | ||||||||||||||||||||||||
PowerShares Emerging Markets Sovereign Debt Portfolio | 9.99 | % | 4,617,101 | 2,278,172 | (1,616,817 | ) | 119,308 | (34,509 | ) | 179,255 | 205,410 | 5,363,255 | ||||||||||||||||||||||||
PowerShares High Yield Corporate Bond Portfolio | 5.95 | % | 3,273,858 | 940,789 | (855,464 | ) | (117,680 | ) | (46,934 | ) | 143,157 | 184,125 | 3,194,569 | |||||||||||||||||||||||
Total Fixed-Income ETFs | 18,489,599 | 27,066,897 | (19,142,050 | ) | 1,932,411 | (310,522 | ) | 531,935 | 580,970 | 28,036,335 | ||||||||||||||||||||||||||
Foreign Equity ETFs–23.63% | ||||||||||||||||||||||||||||||||||||
iShares MSCI Japan Index Fund(b) | 6.45 | % | 3,690,486 | 1,682,058 | (1,586,771 | ) | (195,762 | ) | (125,475 | ) | 26,289 | 376,580 | 3,464,536 | |||||||||||||||||||||||
iShares MSCI Pacific ex-Japan Index Fund(b) | 5.64 | % | — | 4,965,482 | (1,149,289 | ) | (599,128 | ) | (191,317 | ) | 48,557 | 84,660 | 3,025,748 | |||||||||||||||||||||||
PowerShares FTSE RAFI Asia Pacific ex-Japan Portfolio | — | % | 3,590,795 | 1,149,328 | (4,838,534 | ) | (605,007 | ) | 703,418 | 12,566 | — | — | ||||||||||||||||||||||||
PowerShares FTSE RAFI Developed Markets ex-US Small-Mid Portfolio | — | % | 4,108,289 | 1,488,183 | (5,797,380 | ) | (457,066 | ) | 657,974 | 4,561 | — | — | ||||||||||||||||||||||||
PowerShares FTSE RAFI Emerging Markets Portfolio | 4.97 | % | 3,262,704 | 1,229,220 | (1,348,762 | ) | (311,679 | ) | (161,283 | ) | 4,370 | 130,000 | 2,670,200 | |||||||||||||||||||||||
PowerShares FTSE RAFI Europe Portfolio | — | % | 3,618,122 | 2,089,801 | (5,406,507 | ) | (508,290 | ) | 206,874 | 1,709 | — | — | ||||||||||||||||||||||||
Vanguard European ETF(b) | 6.57 | % | — | 4,951,746 | (745,002 | ) | (572,328 | ) | (109,150 | ) | — | 87,715 | 3,525,266 | |||||||||||||||||||||||
Total Foreign Equity ETFs | 18,270,396 | 17,555,818 | (20,872,245 | ) | (3,249,260 | ) | 981,041 | 98,052 | 678,955 | 12,685,750 | ||||||||||||||||||||||||||
Money Market Funds–2.34% | ||||||||||||||||||||||||||||||||||||
Liquid Assets Portfolio–Institutional Class | 1.17 | % | 1,183,493 | 8,576,664 | (9,130,413 | ) | — | — | 413 | 629,744 | 629,744 | |||||||||||||||||||||||||
Premier Portfolio–Institutional Class | 1.17 | % | 1,183,493 | 8,576,664 | (9,130,413 | ) | — | — | 170 | 629,744 | 629,744 | |||||||||||||||||||||||||
Total Money Market Funds | 2,366,986 | 17,153,328 | (18,260,826 | ) | — | — | 583 | 1,259,488 | 1,259,488 | |||||||||||||||||||||||||||
TOTAL INVESTMENTS IN AFFILIATED ISSUERS (Cost $52,541,979) | 100.18 | % | 47,997,737 | 70,445,811 | (62,882,171 | ) | (2,414,148 | ) | 646,949 | 696,975 | 53,794,178 | |||||||||||||||||||||||||
OTHER ASSETS LESS LIABILITIES | (0.18 | )% | (99,006 | ) | ||||||||||||||||||||||||||||||||
NET ASSETS | 100.00 | % | $ | 53,695,172 | ||||||||||||||||||||||||||||||||
Investment Abbreviations:
ETF | – Exchange-Traded Fund |
Notes to Schedule of Investments:
(a) | Unless otherwise indicated, each exchange-traded fund or mutual fund and the Fund are affiliated by either having the same investment adviser or an investment adviser under common control with the Fund’s investment adviser. | |
(b) | Non-affiliate of the Fund or its investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Multi-Asset Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments — non affiliates at value (Cost $33,373,456) | $ | 33,029,636 | ||
Investments — affiliates, at value (Cost $19,168,523) | 20,764,542 | |||
Total investments, at value (Cost $52,541,979) | 53,794,178 | |||
Receivables for: | ||||
Fund shares sold | 1,819 | |||
Dividends from affiliates | 119 | |||
Investment for trustee deferred compensation and retirement plans | 2,917 | |||
Other assets | 2,427 | |||
Total assets | 53,801,460 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 8,679 | |||
Accrued fees to affiliates | 68,309 | |||
Accrued other operating expenses | 26,087 | |||
Trustee deferred compensation and retirement plans | 3,213 | |||
Total liabilities | 106,288 | |||
Net assets applicable to shares outstanding | $ | 53,695,172 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 51,185,488 | ||
Undistributed net investment income | 802,648 | |||
Undistributed net realized gain | 454,837 | |||
Unrealized appreciation | 1,252,199 | |||
$ | 53,695,172 | |||
Net Assets: | ||||
Series I | $ | 1,170,941 | ||
Series II | $ | 52,524,231 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 86,636 | |||
Series II | 3,903,105 | |||
Series I: | ||||
Net asset value per share | $ | 13.52 | ||
Series II: | ||||
Net asset value per share | $ | 13.46 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends — non affiliates | $ | 149,474 | ||
Dividends — affiliates | 547,501 | |||
Total investment income | 696,975 | |||
Expenses: | ||||
Advisory fees | 179,676 | |||
Administrative services fees | 91,953 | |||
Custodian fees | 3,590 | |||
Distribution fees — Series II | 65,921 | |||
Transfer agent fees | 1,585 | |||
Trustees’ and officers’ fees and benefits | 9,946 | |||
Other | 22,809 | |||
Total expenses | 375,480 | |||
Less: Fees waived and expenses reimbursed | (269,893 | ) | ||
Net expenses | 105,587 | |||
Net investment income | 591,388 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities — non affiliates | (623,419 | ) | ||
Investment securities — affiliates | 1,270,368 | |||
646,949 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities — non affiliates | (378,188 | ) | ||
Investment securities — affiliates | (2,035,960 | ) | ||
(2,414,148 | ) | |||
Net realized and unrealized gain (loss) | (1,767,199 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (1,175,811 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Multi-Asset Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 591,388 | $ | 656,894 | ||||
Net realized gain (loss) | 646,949 | (107,864 | ) | |||||
Change in net unrealized appreciation (depreciation) | (2,414,148 | ) | 3,623,261 | |||||
Net increase (decrease) in net assets resulting from operations | (1,175,811 | ) | 4,172,291 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (10,312 | ) | |||||
Series II | — | (452,703 | ) | |||||
Total distributions from net investment income | — | (463,015 | ) | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | — | (1,782 | ) | |||||
Series II | — | (84,532 | ) | |||||
Total distributions from net realized gains | — | (86,314 | ) | |||||
Share transactions–net: | ||||||||
Series I | 282,928 | 690,765 | ||||||
Series II | 7,727,460 | 42,009,701 | ||||||
Net increase in net assets resulting from share transactions | 8,010,388 | 42,700,466 | ||||||
Net increase in net assets | 6,834,577 | 46,323,428 | ||||||
Net assets: | ||||||||
Beginning of period | 46,860,595 | 537,167 | ||||||
End of period (includes undistributed net investment income of $802,648 and $211,260, respectively) | $ | 53,695,172 | $ | 46,860,595 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Global Multi-Asset Fund, formerly AIM V.I. PowerShares ETF Allocation Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to provide total return consistent with a moderate level of risk relative to the broad stock market. The Fund primarily invests in exchange-traded funds (“underlying funds”) advised by Invesco PowerShares Capital Management LLC (“Invesco PowerShares”). The Fund may also invest in affiliated mutual funds advised by Invesco Advisers, Inc (“Invesco”); in unaffiliated mutual funds and exchange-traded funds and in other securities. Invesco and Invesco PowerShares (collectively the “Advisers”) are affiliates of each other as they are indirect wholly owned subsidiaries of Invesco Ltd. Invesco may change the Fund’s asset class allocations, the underlying funds or the target weightings in the underlying funds without shareholder approval. The underlying funds may engage in a number of investment techniques and practices, which involve certain risks. Each underlying fund’s accounting policies are outlined in the underlying fund’s financial statements and the affiliated underlying funds are available upon request.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
Invesco V.I. Global Multi-Asset Fund
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Distributions from income from underlying funds, if any, are recorded as dividend income on ex-dividend date. Distributions from net realized capital gains from underlying funds, if any, are recorded as realized gains on the ex-dividend date. Interest income is recorded on the accrual basis from settlement date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. |
Invesco V.I. Global Multi-Asset Fund
D. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
E. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
F. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
G. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .67% | ||
Next $250 million | 0 | .655% | ||
Next $500 million | 0 | .64% | ||
Next $1.5 billion | 0 | .625% | ||
Next $2.5 billion | 0 | .61% | ||
Next $2.5 billion | 0 | .595% | ||
Next $2.5 billion | 0 | .58% | ||
Over $10 billion | 0 | .565% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective April 30, 2010, the Adviser has contractually agreed, through at least April 30, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.10% and Series II shares to 0.35% of average daily net assets. Prior to April 30, 2010, the Adviser had contractually agreed to limit total amount fund operating expense of Series I to 0.18% and Series II shares to 0.43% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and/or expense reimbursement” and (5) expenses of the underlying funds that are paid indirectly as a result of share ownership of the underlying funds; and (6) expenses that the Funds have incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $179,676 and reimbursed Fund expenses of $90,217.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance
Invesco V.I. Global Multi-Asset Fund
companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $67,158 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 53,794,178 | $ | — | $ | — | $ | 53,794,178 | ||||||||
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $1,353 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
Invesco V.I. Global Multi-Asset 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.
The Fund did not have a capital loss carryforward as of December 31, 2009.
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, 2010 was $53,292,483 and $44,621,345, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 2,994,125 | ||
Aggregate unrealized (depreciation) of investment securities | (1,934,038 | ) | ||
Net unrealized appreciation of investment securities | $ | 1,060,087 | ||
Cost of investments for tax purposes is $52,734,091. |
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 39,373 | $ | 531,419 | 56,401 | $ | 738,272 | ||||||||||
Series II | 1,249,472 | 17,327,614 | 3,459,519 | 43,759,281 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 880 | 12,094 | ||||||||||||
Series II | — | — | 39,214 | 537,235 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (18,361 | ) | (248,491 | ) | (4,381 | ) | (59,601 | ) | ||||||||
Series II | (712,637 | ) | (9,600,154 | ) | (168,256 | ) | (2,286,815 | ) | ||||||||
Net increase in share activity | 557,847 | $ | 8,010,388 | 3,383,377 | $ | 42,700,466 | ||||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 94% 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. |
Invesco V.I. Global Multi-Asset Fund
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 13.69 | $ | 0.17 | $ | (0.34 | ) | $ | (0.17 | ) | $ | — | $ | — | $ | — | $ | 13.52 | (1.24 | )% | $ | 1,171 | 0.14 | %(d) | 1.15 | %(d) | 2.45 | %(d) | 85 | % | ||||||||||||||||||||||||||
Year ended 12/31/09 | 11.09 | 0.53 | 2.27 | 2.80 | (0.17 | ) | (0.03 | ) | (0.20 | ) | 13.69 | 25.19 | 899 | 0.22 | 1.78 | 4.03 | 32 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08(e) | 10.00 | 0.11 | 1.17 | 1.28 | (0.19 | ) | — | (0.19 | ) | 11.09 | 12.88 | 141 | 0.17 | (f) | 79.26 | (f) | 5.72 | (f) | 6 | |||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 13.65 | 0.15 | (0.34 | ) | (0.19 | ) | — | — | — | 13.46 | (1.39 | ) | 52,524 | 0.39 | (d) | 1.40 | (d) | 2.20 | (d) | 85 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 11.07 | 0.49 | 2.27 | 2.76 | (0.15 | ) | (0.03 | ) | (0.18 | ) | 13.65 | 24.95 | 45,962 | 0.47 | 2.03 | 3.78 | 32 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08(e) | 10.00 | 0.11 | 1.15 | 1.26 | (0.19 | ) | — | (0.19 | ) | 11.07 | 12.66 | 396 | 0.42 | (f) | 79.51 | (f) | 5.47 | (f) | 6 | |||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $905 and $53,174 for Series I and Series II shares, respectively. | |
(e) | Commencement date of October 24, 2008. | |
(f) | Annualized. |
Invesco V.I. Global Multi-Asset 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, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2,3 | (06/30/10) | Period2,4 | Ratio2 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 986.90 | $ | 0.69 | $ | 1,024.10 | $ | 0.70 | 0.14 | % | ||||||||||||||||||
Series II | 1,000.00 | 985.40 | 1.92 | 1,022.86 | 1.96 | 0.39 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Effective April 30, 2010, the Fund’s adviser has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses of Series I and Series II shares to 0.10% and 0.35% of average daily net assets, respectively. The annualized expense ratios restated as if these agreements had been in effect throughout the entire most recent fiscal half year are 0.10% and 0.35% for Series I and Series II shares, respectively.
3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $0.49 and $1.72 for the Series I and Series II shares, respectively. |
4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $0.50 and $1.76 for the Series I and Series II shares, respectively. |
Invesco V.I. Global Multi-Asset Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve the Invesco V.I. Global Multi-Asset Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses, and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investment Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the quality and efficiency of the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts 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 provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the additional resources and talents of the Affiliated Sub-Advisers in managing the Fund.
Invesco V.I. Global Multi-Asset Fund
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board noted that the Fund recently began operations and that only one calendar year of comparative performance data was available. The Board compared the Fund’s performance during the past calendar year to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser. The Board noted that the performance of Series I shares of the Fund was in the second quintile of its performance universe for the one year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board noted that the Fund is a fund of funds and invests its assets principally in underlying funds rather than directly in individual securities. The Board considered the tactical asset allocation provided for the Fund, which is in contrast to the more static allocation models utilized by the Invesco Balanced-Risk and Asset Allocation funds.
The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other mutual funds or client accounts with investment strategies comparable to those of the Fund.
The Board also noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 effect this fee waiver would have on the fund’s total estimated expenses.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the underlying funds fees, the advisory fee after fee waivers and fee and expense limitations and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes seven breakpoints, and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. It is not anticipated that the Fund will execute brokerage transactions through “soft dollar” arrangements to any significant degree.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Global Multi-Asset Fund
Invesco V.I. Global Real Estate Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIGRE-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -6.01 | % | ||
Series II Shares | -6.12 | |||
MSCI World Index▼ (Broad Market Index) | -9.84 | |||
FTSE EPRA/NAREIT Developed Real Estate Indexn (Style-Specific Index) | -4.23 | |||
Lipper VUF Real Estate Funds Category Average▼ (Peer Group) | 1.18 |
▼ | Lipper Inc.; n Invesco, Bloomberg L.P. |
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries.
The FTSE EPRA/NAREIT Developed Real Estate Index is an unmanaged index considered representative of global real estate companies and REITs.
The Lipper VUF Real Estate Funds Category Average represents an average of all of the variable insurance underlying funds in the Lipper Real Estate Funds category.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (3/31/98) | 6.99 | % | ||
10 Years | 8.89 | |||
5 Years | -0.03 | |||
1 Year | 19.60 | |||
Series II Shares | ||||
10 Years | 8.63 | % | ||
5 Years | -0.27 | |||
1 Year | 19.40 |
Series II shares incepted on April 30, 2004. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.26% and 1.45%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.26% and 1.51%, 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.
Invesco V.I. Global Real Estate Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246.
As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/ or reimbursed expenses in the past, performance would have been lower.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2011. See current prospectus for more information. |
Invesco V.I. Global Real Estate Fund
Schedule of Investments
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Real Estate Investment Trusts, Common Stocks & Other Equity Interests–98.54% | ||||||||
Australia–9.15% | ||||||||
CFS Retail Property Trust | 862,750 | $ | 1,366,362 | |||||
Dexus Property Group | 1,150,754 | 740,518 | ||||||
Goodman Group | 2,955,626 | 1,557,498 | ||||||
ING Office Fund | 2,050,171 | 991,719 | ||||||
Stockland | 584,942 | 1,816,470 | ||||||
Westfield Group | 527,143 | 5,362,495 | ||||||
11,835,062 | ||||||||
Austria–0.31% | ||||||||
Conwert Immobilien Invest S.E. | 38,693 | 404,592 | ||||||
Brazil–0.73% | ||||||||
Aliansce Shopping Centers S.A. | 23,300 | 146,496 | ||||||
BR Properties S.A.(a) | 23,100 | 161,234 | ||||||
BR Properties S.A. | 29,100 | 203,113 | ||||||
Multiplan Empreendimentos Imobiliarios S.A. | 24,200 | 430,994 | ||||||
941,837 | ||||||||
Canada–2.92% | ||||||||
Boardwalk REIT | 4,900 | 184,417 | ||||||
Canadian REIT | 57,000 | 1,492,475 | ||||||
Cominar REIT | 38,400 | 669,944 | ||||||
Morguard REIT | 38,600 | 476,154 | ||||||
Primaris Retail REIT | 58,000 | 950,864 | ||||||
3,773,854 | ||||||||
China–0.71% | ||||||||
Agile Property Holdings Ltd. | 524,000 | 534,707 | ||||||
KWG Property Holding Ltd. | 206,500 | 127,160 | ||||||
Renhe Commercial Holdings | 624,000 | 129,324 | ||||||
Shimao Property Holdings Ltd. | 82,000 | 127,248 | ||||||
918,439 | ||||||||
Finland–0.45% | ||||||||
Citycon Oyj | 103,548 | 305,208 | ||||||
Sponda Oyj | 92,930 | 279,527 | ||||||
584,735 | ||||||||
France–4.97% | ||||||||
Gecina S.A. | 5,959 | 532,447 | ||||||
Klepierre | 42,120 | 1,156,622 | ||||||
Mercialys | 20,186 | 572,689 | ||||||
Societe Immobiliere de Location pour I’Industrie et le Commerce | 7,105 | 701,393 | ||||||
Unibail-Rodamco S.E. | 21,382 | 3,471,010 | ||||||
6,434,161 | ||||||||
Germany–0.16% | ||||||||
Deutsche Euroshop AG | 7,691 | 208,934 | ||||||
Hong Kong–15.50% | ||||||||
China Overseas Land & Investment Ltd. | 1,004,301 | 1,870,697 | ||||||
China Resources Land Ltd. | 375,800 | 705,583 | ||||||
Hang Lung Properties Ltd. | 575,000 | 2,205,289 | ||||||
Henderson Land Development Co. Ltd. | 132,000 | 768,991 | ||||||
Hongkong Land Holdings Ltd. | 479,000 | 2,368,073 | ||||||
Kerry Properties Ltd. | 262,400 | 1,126,221 | ||||||
Link REIT (The) | 305,500 | 755,820 | ||||||
New World Development Co., Ltd. | 210,000 | 339,226 | ||||||
Sino Land Co. Ltd. | 454,000 | 806,319 | ||||||
Sun Hung Kai Properties Ltd. | 522,000 | 7,096,992 | ||||||
Wharf (Holdings) Ltd. (The) | 416,000 | 2,013,673 | ||||||
20,056,884 | ||||||||
Japan–10.12% | ||||||||
AEON Mall Co., Ltd. | 34,400 | 682,772 | ||||||
Japan Prime Realty Investment Corp. | 276 | 580,156 | ||||||
Japan Real Estate Investment Corp. | 131 | 1,068,682 | ||||||
Japan Retail Fund Investment Corp. | 484 | 588,607 | ||||||
Kenedix Realty Investment Corp. | 164 | �� | 455,002 | |||||
Mitsubishi Estate Co. Ltd. | 290,000 | 4,027,529 | ||||||
Mitsui Fudosan Co., Ltd. | 244,000 | 3,412,175 | ||||||
NTT Urban Development Corp. | 659 | 520,907 | ||||||
Sumitomo Realty & Development Co., Ltd. | 103,000 | 1,757,179 | ||||||
13,093,009 | ||||||||
Luxembourg–0.27% | ||||||||
ProLogis European Properties(b) | 68,581 | 344,801 | ||||||
Malta–0.00% | ||||||||
BGP Holdings PLC(b) | 3,053,090 | 0 | ||||||
Netherlands–1.39% | ||||||||
Corio N.V. | 25,822 | 1,254,574 | ||||||
Eurocommercial Properties N.V. | 16,895 | 539,689 | ||||||
1,794,263 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
Shares | Value | |||||||
Singapore–4.45% | ||||||||
Ascendas REIT | 506,779 | $ | 654,093 | |||||
CapitaCommercial Trust | 794,000 | 686,944 | ||||||
Capitaland Ltd. | 730,000 | 1,861,204 | ||||||
CapitaMall Trust | 814,550 | 1,060,046 | ||||||
Keppel Land Ltd. | 362,000 | 995,885 | ||||||
Suntec REIT | 532,000 | 499,471 | ||||||
5,757,643 | ||||||||
Sweden–0.53% | ||||||||
Castellum A.B. | 75,512 | 685,260 | ||||||
Switzerland–1.03% | ||||||||
Swiss Prime Site AG(b) | 21,939 | 1,327,562 | ||||||
United Kingdom–5.09% | ||||||||
Big Yellow Group PLC | 121,181 | 529,227 | ||||||
British Land Co. PLC | 132,083 | 844,165 | ||||||
Derwent London PLC | 29,997 | 557,152 | ||||||
Hammerson PLC | 231,257 | 1,168,085 | ||||||
Hansteen Holdings PLC | 410,412 | 406,549 | ||||||
Land Securities Group PLC | 196,136 | 1,608,505 | ||||||
Segro PLC | 132,467 | 498,859 | ||||||
Shaftesbury PLC | 108,538 | 580,160 | ||||||
Unite Group PLC(b) | 149,884 | 387,619 | ||||||
6,580,321 | ||||||||
United States–40.76% | ||||||||
Acadia Realty Trust | 32,798 | 551,662 | ||||||
Alexandria Real Estate Equities, Inc. | 25,683 | 1,627,532 | ||||||
AMB Property Corp. | 36,575 | 867,193 | ||||||
AvalonBay Communities, Inc. | 19,342 | 1,805,963 | ||||||
Boston Properties, Inc. | 32,265 | 2,301,785 | ||||||
Brookfield Properties Corp. | 90,625 | 1,273,722 | ||||||
Camden Property Trust | 51,582 | 2,107,125 | ||||||
Corporate Office Properties Trust | 6,934 | 261,828 | ||||||
DCT Industrial Trust Inc. | 116,093 | 524,740 | ||||||
DiamondRock Hospitality Co.(b) | 55,400 | 455,388 | ||||||
Digital Realty Trust, Inc. | 46,741 | 2,696,021 | ||||||
Equity Residential | 67,977 | 2,830,562 | ||||||
Essex Property Trust, Inc. | 19,910 | 1,942,021 | ||||||
Federal Realty Investment Trust | 4,300 | 302,161 | ||||||
HCP, Inc. | 28,275 | 911,869 | ||||||
Health Care REIT, Inc. | 50,130 | 2,111,476 | ||||||
Highwoods Properties, Inc. | 15,088 | 418,843 | ||||||
Host Hotels & Resorts Inc. | 170,682 | 2,300,793 | ||||||
Kilroy Realty Corp. | 35,162 | 1,045,366 | ||||||
LaSalle Hotel Properties | 18,800 | 386,716 | ||||||
Liberty Property Trust | 62,296 | 1,797,240 | ||||||
Macerich Co. (The) | 41,123 | 1,534,710 | ||||||
Marriott International, Inc.–Class A | 30,609 | 916,434 | ||||||
Mid-America Apartment Communities, Inc. | 5,100 | 262,497 | ||||||
Nationwide Health Properties, Inc. | 32,134 | 1,149,433 | ||||||
OMEGA Healthcare Investors, Inc. | 7,926 | 157,965 | ||||||
Piedmont Office Realty Trust Inc.–Class A | 39,403 | 738,018 | ||||||
Post Properties, Inc. | 3,003 | 68,258 | ||||||
ProLogis | 129,998 | 1,316,880 | ||||||
Public Storage | 24,086 | 2,117,400 | ||||||
Regency Centers Corp. | 54,632 | 1,879,341 | ||||||
Retail Opportunity Investments Corp. | 34,779 | 335,617 | ||||||
Senior Housing Properties Trust | 70,598 | 1,419,726 | ||||||
Simon Property Group, Inc. | 68,749 | 5,551,482 | ||||||
SL Green Realty Corp. | 11,686 | 643,198 | ||||||
Sovran Self Storage, Inc. | 8,600 | 296,098 | ||||||
Tanger Factory Outlet Centers, Inc. | 14,578 | 603,238 | ||||||
Taubman Centers, Inc. | 479 | 18,025 | ||||||
Ventas, Inc. | 40,665 | 1,909,222 | ||||||
Vornado Realty Trust | 36,493 | 2,662,164 | ||||||
Washington REIT | 3,209 | 88,536 | ||||||
Weingarten Realty Investors | 28,300 | 539,115 | ||||||
52,727,363 | ||||||||
Total Real Estate Investment Trusts, Common Stocks & Other Equity Interests (Cost $115,148,579) | 127,468,720 | |||||||
Money Market Funds–0.93% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 604,142 | 604,142 | ||||||
Premier Portfolio–Institutional Class(c) | 604,142 | 604,142 | ||||||
Total Money Market Funds (Cost $1,208,284) | 1,208,284 | |||||||
TOTAL INVESTMENTS–99.47% (Cost $116,356,863) | 128,677,004 | |||||||
OTHER ASSETS LESS LIABILITIES–0.53% | 680,152 | |||||||
NET ASSETS–100.00% | $ | 129,357,156 | ||||||
Investment Abbreviations:
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) | 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, 2010 was $161,234, which represented 0.12% of the Fund’s Net Assets. | |
(b) | Non-income producing security. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
By country, based on Net Assets
as of June 30, 2010
United States | 40.8 | % | ||
Hong Kong | 15.5 | |||
Japan | 10.1 | |||
Australia | 9.1 | |||
United Kingdom | 5.1 | |||
France | 5.0 | |||
Singapore | 4.4 | |||
Canada | 2.9 | |||
Countries each less than 2.0% of portfolio | 5.6 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.5 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $115,148,579) | $ | 127,468,720 | ||
Investments in affiliated money market funds, at value and cost | 1,208,284 | |||
Total investments, at value (Cost $116,356,863) | 128,677,004 | |||
Foreign currencies, at value (Cost $1,579,425) | 1,582,888 | |||
Receivables for: | ||||
Investments sold | 1,526,004 | |||
Fund shares sold | 100,874 | |||
Dividends | 501,743 | |||
Investment for trustee deferred compensation and retirement plans | 9,698 | |||
Other assets | 2,198 | |||
Total assets | 132,400,409 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 2,637,607 | |||
Fund shares reacquired | 237,300 | |||
Accrued fees to affiliates | 95,214 | |||
Accrued other operating expenses | 52,948 | |||
Trustee deferred compensation and retirement plans | 20,184 | |||
Total liabilities | 3,043,253 | |||
Net assets applicable to shares outstanding | $ | 129,357,156 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 161,447,206 | ||
Undistributed net investment income | 5,175,238 | |||
Undistributed net realized gain (loss) | (49,582,494 | ) | ||
Unrealized appreciation | 12,317,206 | |||
$ | 129,357,156 | |||
Net Assets: | ||||
Series I | $ | 114,841,525 | ||
Series II | $ | 14,515,631 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 10,063,943 | |||
Series II | 1,295,593 | |||
Series I: | ||||
Net asset value per share | $ | 11.41 | ||
Series II: | ||||
Net asset value per share | $ | 11.20 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $123,760) | $ | 2,713,843 | ||
Dividends from affiliated money market funds | 836 | |||
Total investment income | 2,714,679 | |||
Expenses: | ||||
Advisory fees | 521,400 | |||
Administrative services fees | 191,343 | |||
Custodian fees | 57,650 | |||
Distribution fees — Series II | 16,313 | |||
Transfer agent fees | 13,521 | |||
Trustees’ and officers’ fees and benefits | 11,009 | |||
Other | 30,842 | |||
Total expenses | 842,078 | |||
Less: Fees waived | (1,463 | ) | ||
Net expenses | 840,615 | |||
Net investment income | 1,874,064 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 486,497 | |||
Foreign currencies | (114,491 | ) | ||
372,006 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (10,748,302 | ) | ||
Foreign currencies | (3,334 | ) | ||
(10,751,636 | ) | |||
Net realized and unrealized gain (loss) | (10,379,630 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (8,505,566 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,874,064 | $ | 2,709,902 | ||||
Net realized gain (loss) | 372,006 | (20,336,177 | ) | |||||
Change in net unrealized appreciation (depreciation) | (10,751,636 | ) | 50,498,502 | |||||
Net increase (decrease) in net assets resulting from operations | (8,505,566 | ) | 32,872,227 | |||||
Share transactions–net: | ||||||||
Series I | (5,811,117 | ) | 15,146,597 | |||||
Series II | 3,663,655 | 5,205,429 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (2,147,462 | ) | 20,352,026 | |||||
Net increase (decrease) in net assets | (10,653,028 | ) | 53,224,253 | |||||
Net assets: | ||||||||
Beginning of period | 140,010,184 | 86,785,931 | ||||||
End of period (includes undistributed net investment income of $5,175,238 and $3,301,174, respectively) | $ | 129,357,156 | $ | 140,010,184 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Global Real Estate Fund, formerly AIM V.I. Global Real Estate Fund, (the “Fund”), is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is total return through growth of capital and current income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
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 |
Invesco V.I. Global Real Estate Fund
are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
The Fund recharacterizes distributions received from REIT investments based on information provided by the REIT into the following categories: ordinary income, long-term and short-term capital gains, and return of capital. If information is not available on a timely basis from the REIT, the recharacterization will be based on available information which may include the previous year’s allocation. If new or additional information becomes available from the REIT at a later date, a recharacterization will be made in the following year. The Fund records as dividend income the amount recharacterized as ordinary income and as realized gain the amount recharacterized as capital gain in the Statement of Operations, and the amount recharacterized as return of capital as a reduction to the cost of investments in the Statement of Assets and Liabilities. These recharacterizations are reflected in the accompanying financial statements. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
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. |
Invesco V.I. Global Real Estate Fund
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Other Risks — The Fund’s investments are concentrated in a comparatively narrow segment of the economy. Consequently, the Fund may tend to be more volatile than other mutual funds, and the value of the Fund’s investments may tend to rise and fall more rapidly. | |
The Fund concentrates its assets in the real estate industry, an investment in the fund will be closely linked to the performance of the real estate markets. Property values may fall due to increasing vacancies or declining rents resulting from economic, legal, cultural or technological developments. | ||
J. | 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 (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
K. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .75% | ||
Next $250 million | 0 | .74% | ||
Next $500 million | 0 | .73% | ||
Next $1.5 billion | 0 | .72% | ||
Next $2.5 billion | 0 | .71% | ||
Next $2.5 billion | 0 | .70% | ||
Next $2.5 billion | 0 | .69% | ||
Over $10 billion | 0 | .68% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such
Invesco V.I. Global Real Estate Fund
Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $1,463.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $24,794 for accounting and fund administrative services and reimbursed $166,549 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities 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. |
Invesco V.I. Global Real Estate Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1* | Level 2* | Level 3 | Total | |||||||||||||
Australia | $ | — | $ | 11,835,062 | $ | — | $ | 11,835,062 | ||||||||
Austria | — | 404,592 | — | 404,592 | ||||||||||||
Brazil | 941,837 | — | — | 941,837 | ||||||||||||
Canada | 3,773,854 | — | — | 3,773,854 | ||||||||||||
China | — | 918,439 | — | 918,439 | ||||||||||||
Finland | — | 584,735 | — | 584,735 | ||||||||||||
France | — | 6,434,161 | — | 6,434,161 | ||||||||||||
Germany | — | 208,934 | — | 208,934 | ||||||||||||
Hong Kong | — | 20,056,884 | — | 20,056,884 | ||||||||||||
Japan | — | 13,093,009 | — | 13,093,009 | ||||||||||||
Luxembourg | — | 344,801 | — | 344,801 | ||||||||||||
Malta | — | — | 0 | 0 | ||||||||||||
Netherlands | — | 1,794,263 | — | 1,794,263 | ||||||||||||
Singapore | — | 5,757,643 | — | 5,757,643 | ||||||||||||
Sweden | — | 685,260 | — | 685,260 | ||||||||||||
Switzerland | — | 1,327,562 | — | 1,327,562 | ||||||||||||
United Kingdom | — | 6,580,321 | — | 6,580,321 | ||||||||||||
United States | 53,935,647 | — | — | 53,935,647 | ||||||||||||
Total Investments | $ | 58,651,338 | $ | 70,025,666 | $ | 0 | $ | 128,677,004 | ||||||||
* | Transfers occurred between Level 1 and Level 2 due to foreign fair value adjustments. |
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $1,446 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—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.
Invesco V.I. Global Real Estate Fund
The Fund had a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 18,695,360 | ||
December 31, 2017 | 22,621,345 | |||
Total capital loss carryforward | $ | 41,316,705 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2010 was $67,347,536 and $66,586,246, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 6,120,109 | ||
Aggregate unrealized (depreciation) of investment securities | (5,993,446 | ) | ||
Net unrealized appreciation of investment securities | $ | 126,663 | ||
Cost of investments for tax purposes is $128,550,341. |
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,811,092 | $ | 21,834,737 | 4,597,449 | $ | 43,715,169 | ||||||||||
Series II | 406,060 | 4,803,468 | 617,087 | 6,098,786 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,311,276 | ) | (27,645,854 | ) | (2,977,162 | ) | (28,568,572 | ) | ||||||||
Series II | (98,203 | ) | (1,139,813 | ) | (91,409 | ) | (893,357 | ) | ||||||||
Net increase (decrease) in share activity | (192,327 | ) | $ | (2,147,462 | ) | 2,145,965 | $ | 20,352,026 | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 50% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Global Real Estate Fund
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | on securities | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 12.14 | $ | 0.16 | $ | (0.89 | ) | $ | (0.73 | ) | $ | — | $ | — | $ | — | $ | 11.41 | (6.01 | )% | $ | 114,842 | 1.19 | %(d) | 1.19 | %(d) | 2.71 | %(d) | 49 | % | ||||||||||||||||||||||||||
Year ended 12/31/09 | 9.23 | 0.26 | 2.65 | 2.91 | — | — | — | 12.14 | 31.53 | 128,224 | 1.26 | 1.26 | 2.59 | 72 | ||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 21.88 | 0.44 | (10.35 | ) | (9.91 | ) | (1.08 | ) | (1.66 | ) | (2.74 | ) | 9.23 | (44.65 | ) | 82,582 | 1.17 | 1.17 | 2.51 | 62 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 28.74 | 0.38 | (1.52 | ) | (1.14 | ) | (1.69 | ) | (4.03 | ) | (5.72 | ) | 21.88 | (5.54 | ) | 143,773 | 1.13 | 1.22 | 1.31 | 57 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 21.06 | 0.33 | 8.61 | 8.94 | (0.28 | ) | (0.98 | ) | (1.26 | ) | 28.74 | 42.60 | 192,617 | 1.15 | 1.30 | 1.32 | 84 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 19.13 | 0.38 | 2.34 | 2.72 | (0.22 | ) | (0.57 | ) | (0.79 | ) | 21.06 | 14.24 | 99,977 | 1.21 | 1.36 | 1.91 | 51 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 11.93 | 0.15 | (0.88 | ) | (0.73 | ) | — | — | — | 11.20 | (6.12 | ) | 14,516 | 1.44 | (d) | 1.44 | (d) | 2.46 | (d) | 49 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 9.10 | 0.24 | 2.59 | 2.83 | — | — | — | 11.93 | 31.10 | 11,786 | 1.45 | 1.51 | 2.40 | 72 | ||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 21.66 | 0.36 | (10.19 | ) | (9.83 | ) | (1.07 | ) | (1.66 | ) | (2.73 | ) | 9.10 | (44.72 | ) | 4,203 | 1.42 | 1.42 | 2.26 | 62 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 28.57 | 0.29 | (1.49 | ) | (1.20 | ) | (1.68 | ) | (4.03 | ) | (5.71 | ) | 21.66 | (5.76 | ) | 2,646 | 1.38 | 1.47 | 1.06 | 57 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 20.98 | 0.27 | 8.58 | 8.85 | (0.28 | ) | (0.98 | ) | (1.26 | ) | 28.57 | 42.30 | 311 | 1.40 | 1.55 | 1.07 | 84 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 19.12 | 0.34 | 2.31 | 2.65 | (0.22 | ) | (0.57 | ) | (0.79 | ) | 20.98 | 13.85 | 62 | 1.45 | 1.61 | 1.67 | 51 | |||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $127,034, and $13,159 for Series I and Series II shares, respectively. |
Invesco V.I. Global Real Estate Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 939.90 | $ | 5.72 | $ | 1,018.89 | $ | 5.96 | 1.19 | % | ||||||||||||||||||
Series II | 1,000.00 | 938.80 | 6.92 | 1,017.65 | 7.20 | 1.44 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Global Real Estate Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Global Real Estate Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement as well as the sub-advisory contracts for the Fund, as Invesco Asset Management Limited currently manages certain assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper
Invesco V.I. Global Real Estate Fund
performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser and against the Lipper VA Underlying Funds — Real Estate Index. The Board noted that the performance of Series I shares of the Fund was in the third quintile of its performance universe for the one year period, the second quintile for the three year period and the first quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that the performance of the Series I shares of the Fund was below the performance of the Index for the one year period and above the performance of the Index for the three and five year periods. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including one mutual fund advised by Invesco Advisers and two domestic mutual funds sub-advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was above the effective fee rate for the mutual fund advised by Invesco Advisers and at or below the total account fee for the two mutual funds subadvised by Invesco Advisers.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients based upon policies reviewed with the Board. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts, including provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets managed for other client accounts and noted that advance notice of redemptions affecting management assets is often provided to Invesco Advisers by institutional clients. Although the Board noted that the fees charged to other client accounts were often lower than the advisory fee charged by Invesco Advisers to the Fund and other Invesco Funds, the Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts were more comparable. In light of this information, the Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from services provided to other client accounts and accordingly, the Board did not place significant weight on these fee comparisons.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes seven breakpoints, and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for the research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Global Real Estate Fund
Invesco V.I. Government Securities Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIGOV-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 5.19 | % | ||
Series II Shares | 5.05 | |||
Barclays Capital U.S. Aggregate Index▼ (Broad Market Index) | 5.33 | |||
Barclays Capital U.S. Government Index▼ (Style-Specific Index) | 5.40 | |||
Lipper VUF U.S. Government Funds Index▼ (Peer Group Index) | 5.39 |
▼ | Lipper Inc. |
The Barclays Capital U.S. Aggregate Index is an unmanaged index considered representative of the U.S. investment-grade, fixed-rate bond market.
The Barclays Capital U.S. Government Index is an unmanaged index considered representative of fixed-income obligations issued by the U.S. Treasury, government agencies and quasi-federal corporations.
The Lipper VUF General U.S. Government Funds Index is an unmanaged index considered representative of general U.S. government variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
Series I Shares | ||||
Inception (5/5/93) | 5.20 | % | ||
10 Years | 5.46 | |||
5 Years | 5.50 | |||
1 Year | 7.23 | |||
Series II Shares | ||||
10 Years | 5.19 | % | ||
5 Years | 5.24 | |||
1 Year | 6.92 |
Series II shares incepted on September 19, 2001. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.73% and 0.98%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.75% and 1.00%, 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.
Invesco V.I. Government Securities Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 by calling 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. |
Invesco V.I. Government Securities Fund
Schedule of Investments
June 30, 2010
(Unaudited)
Principal | ||||||||
Amount | Value | |||||||
U.S. Government Sponsored Agency Mortgage-Backed Securities–73.42% | ||||||||
Collateralized Mortgage Obligations–47.53% | ||||||||
Fannie Mae Grantor Trust, 5.34%, 04/25/12 | $ | 4,500,000 | $ | 4,830,539 | ||||
Fannie Mae REMICs, 4.50%, 01/25/12 to 07/25/28 | 13,186,684 | 13,750,627 | ||||||
5.00%, 12/25/15 to 05/25/30 | 18,548,510 | 19,158,743 | ||||||
4.00%, 09/25/16 to 02/25/40 | 11,948,483 | 12,428,131 | ||||||
5.50%, 01/25/26 to 03/25/28 | 5,796,867 | 5,902,528 | ||||||
6.00%, 05/25/26 to 10/25/33 | 16,383,446 | 16,551,436 | ||||||
4.57%, 06/25/30 | 729,472 | 730,800 | ||||||
4.25%, 06/25/33 | 1,220,385 | 1,250,088 | ||||||
0.65%, 05/25/36(a) | 13,009,880 | 12,962,813 | ||||||
Fannie Mae Whole Loans 5.50%, 07/25/34 | 1,989,343 | 1,990,762 | ||||||
Federal Home Loan Bank, 4.55%, 04/27/12 | 1,430,855 | 1,511,590 | ||||||
5.27%, 12/28/12 | 16,854,162 | 18,054,918 | ||||||
5.46%, 11/27/15 | 48,218,570 | 53,134,588 | ||||||
Freddie Mac REMICs, 6.75%, 06/15/11 | 84,137 | 84,228 | ||||||
5.25%, 08/15/11 to 08/15/32 | 15,648,344 | 16,404,587 | ||||||
5.38%, 08/15/11 to 09/15/11 | 5,218,337 | 5,369,941 | ||||||
3.88%, 12/15/12 | 672,519 | 685,217 | ||||||
4.50%, 12/15/15 to 04/15/30 | 33,075,891 | 34,009,134 | ||||||
7.50%, 01/15/16 | 482,571 | 486,758 | ||||||
6.00%, 09/15/16 to 09/15/29 | 38,581,426 | 39,098,719 | ||||||
3.50%, 10/15/16 to 05/15/22 | 3,713,508 | 3,820,209 | ||||||
4.00%, 11/15/16 to 02/15/30 | 33,967,541 | 35,436,871 | ||||||
5.00%, 05/15/18 to 03/15/31 | 30,381,084 | 31,181,202 | ||||||
5.75%, 12/15/18 | 2,548,916 | 2,549,112 | ||||||
4.75%, 05/15/23 to 04/15/31 | 12,004,343 | 12,291,688 | ||||||
5.50%, 07/15/24 to 09/15/30 | 53,830,086 | 54,682,176 | ||||||
0.61%, 04/15/28(a) | 6,675,833 | 6,681,049 | ||||||
0.65%, 03/15/36(a) | 13,586,860 | 13,592,737 | ||||||
0.70%, 11/15/36(a) | 16,500,000 | 16,500,000 | ||||||
0.75%, 06/15/37(a) | 17,419,181 | 17,341,545 | ||||||
1.21%, 11/15/39(a) | 8,691,324 | 8,797,667 | ||||||
Ginnie Mae REMICs, 3.13%, 04/16/16 | 4,021,436 | 4,064,237 | ||||||
2.17%, 02/16/24 | 22,355,981 | 22,495,999 | ||||||
5.00%, 09/16/27 to 02/20/30 | 10,246,872 | 10,537,907 | ||||||
4.21%, 01/16/28 | 5,825,807 | 5,947,170 | ||||||
4.75%, 12/20/29 | 3,397,286 | 3,408,510 | ||||||
4.50%, 01/20/31 to 08/20/35 | 34,058,958 | 35,372,306 | ||||||
5.50%, 04/16/31 | 5,868,209 | 6,020,464 | ||||||
4.00%, 03/20/36 | 40,561,578 | 41,895,190 | ||||||
591,012,186 | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–5.97% | ||||||||
Pass Through Ctfs., 6.00%, 08/01/10 to 02/01/34 | 4,814,706 | 5,258,004 | ||||||
7.00%, 11/01/10 to 12/01/37 | 16,619,270 | 18,764,700 | ||||||
6.50%, 10/01/12 to 12/01/35 | 7,685,854 | 8,462,091 | ||||||
8.00%, 07/01/15 to 09/01/36 | 14,451,100 | 16,757,226 | ||||||
7.50%, 03/01/16 to 08/01/36 | 5,517,790 | 6,219,748 | ||||||
5.00%, 07/01/18 | 1,965,513 | 2,109,180 | ||||||
10.50%, 08/01/19 | 5,529 | 6,277 | ||||||
4.50%, 09/01/20 | 11,213,925 | 11,912,459 | ||||||
8.50%, 09/01/20 to 08/01/31 | 958,015 | 1,112,396 | ||||||
10.00%, 03/01/21 | 79,683 | 91,041 | ||||||
9.00%, 06/01/21 to 06/01/22 | 647,702 | 725,054 | ||||||
7.05%, 05/20/27 | 366,929 | 409,595 | ||||||
6.03%, 10/20/30 | 2,204,929 | 2,389,280 | ||||||
74,217,051 | ||||||||
Federal National Mortgage Association (FNMA)–15.51% | ||||||||
Pass Through Ctfs., 6.50%, 10/01/10 to 11/01/37 | 16,833,112 | 18,439,631 | ||||||
7.00%, 12/01/10 to 06/01/36 | 25,638,233 | 28,334,474 | ||||||
7.50%, 08/01/11 to 07/01/37 | 17,032,891 | 19,327,377 | ||||||
8.00%, 06/01/12 to 11/01/37 | 15,195,339 | 17,307,197 | ||||||
8.50%, 06/01/12 to 08/01/37 | 5,927,942 | 6,806,452 | ||||||
10.00%, 09/01/13 | 15,250 | 16,093 | ||||||
6.00%, 09/01/17 to 03/01/37 | 5,229,261 | 5,690,857 | ||||||
5.00%, 11/01/17 to 12/01/33 | 29,098,639 | 31,301,807 | ||||||
4.50%, 09/01/18 to 11/01/21 | 59,937,290 | 64,062,883 | ||||||
5.50%, 03/01/21 | 573 | 620 | ||||||
6.75%, 07/01/24 | 1,236,454 | 1,389,046 | ||||||
6.95%, 10/01/25 to 09/01/26 | 196,408 | 222,264 | ||||||
192,898,701 | ||||||||
Government National Mortgage Association (GNMA)–4.41% | ||||||||
Pass Through Ctfs., 6.50%, 02/20/12 to 01/15/37 | 15,253,519 | 16,997,704 | ||||||
8.00%, 07/15/12 to 01/15/37 | 4,404,379 | 5,100,912 | ||||||
6.75%, 08/15/13 | 40,064 | 42,638 | ||||||
7.50%, 10/15/14 to 10/15/35 | 7,562,643 | 8,612,798 | ||||||
11.00%, 10/15/15 | 2,017 | 2,281 | ||||||
9.00%, 10/20/16 to 12/20/16 | 97,515 | 107,671 | ||||||
7.00%, 04/15/17 to 01/15/37 | 6,315,314 | 7,122,284 | ||||||
10.50%, 09/15/17 to 11/15/19 | 3,652 | 3,987 | ||||||
8.50%, 12/15/17 to 01/15/37 | 941,247 | 1,039,938 | ||||||
10.00%, 06/15/19 | 38,841 | 43,259 | ||||||
6.00%, 09/15/20 to 08/15/33 | 3,267,237 | 3,602,703 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Principal | ||||||||
Amount | Value | |||||||
Government National Mortgage Association (GNMA)–(continued) | ||||||||
6.95%, 08/20/25 to 08/20/27 | $ | 1,010,593 | $ | 1,128,174 | ||||
6.25%, 06/15/27 | 137,929 | 153,183 | ||||||
6.38%, 10/20/27 to 09/20/28 | 774,580 | 872,801 | ||||||
Pass Through Ctfs., TBA, 6.00%, 07/01/40(b) | 9,134,658 | 9,960,979 | ||||||
54,791,312 | ||||||||
Total U.S. Government Sponsored Agency Mortgage-Backed Securities (Cost $894,049,809) | 912,919,250 | |||||||
U.S. Government Sponsored Agency Securities–25.23% | ||||||||
Federal Agricultural Mortgage Corp.–8.66% | ||||||||
Bonds, 2.11%, 03/15/12 | 70,000,000 | 71,219,890 | ||||||
Medium-Term Notes, 5.60%, 01/19/17 | 11,000,000 | 11,062,749 | ||||||
Unsec. Medium-Term Notes, 2.20%, 11/09/11 | 25,000,000 | 25,416,981 | ||||||
107,699,620 | ||||||||
Federal Farm Credit Bank (FFCB)–3.26% | ||||||||
Bonds, 3.00%, 09/22/14 | 12,500,000 | 13,135,436 | ||||||
5.59%, 10/04/21 | 10,075,000 | 10,721,832 | ||||||
5.75%, 01/18/22 | 2,775,000 | 2,979,450 | ||||||
Global Bonds, 1.38%, 06/25/13 | 10,000,000 | 10,059,896 | ||||||
Medium-Term Notes, 5.75%, 12/07/28 | 3,100,000 | 3,636,482 | ||||||
40,533,096 | ||||||||
Federal Home Loan Bank (FHLB)–6.02% | ||||||||
Unsec. Bonds, 5.45%, 04/15/11 | 8,439,283 | 8,734,157 | ||||||
4.72%, 09/20/12 | 1,367,313 | 1,443,509 | ||||||
Unsec. Global Bonds, 1.75%, 08/22/12 | 5,000,000 | 5,107,432 | ||||||
1.63%, 11/21/12 | 13,000,000 | 13,230,723 | ||||||
1.63%, 03/20/13 | 37,000,000 | 37,634,388 | ||||||
Series 1, Unsec. Bonds, 5.77%, 03/23/18 | 7,895,740 | 8,690,250 | ||||||
74,840,459 | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–2.90% | ||||||||
Unsec. Global Notes, 2.13%, 09/21/12 | 35,000,000 | 36,019,942 | ||||||
Federal National Mortgage Association (FNMA)–3.94% | ||||||||
Unsec. Global Notes, 1.00%, 11/23/11 | 4,250,000 | 4,277,080 | ||||||
1.75%, 05/07/13 | 34,000,000 | 34,639,219 | ||||||
1.50%, 06/26/13 | 10,000,000 | 10,110,172 | ||||||
49,026,471 | ||||||||
Tennessee Valley Authority (TVA)–0.45% | ||||||||
Series A, Bonds, 6.79%, 05/23/12 | 5,000,000 | 5,555,896 | ||||||
Total U.S. Government Sponsored Agency Securities (Cost $306,279,212) | 313,675,484 | |||||||
U.S. Treasury Securities–0.83% | ||||||||
U.S. Treasury Notes–0.49% | ||||||||
3.13%, 05/15/19(c) | 6,000,000 | 6,125,625 | ||||||
U.S. Treasury Bonds–0.34% | ||||||||
7.63%, 02/15/25(c) | 550,000 | 807,641 | ||||||
6.88%, 08/15/25(c) | 500,000 | 693,594 | ||||||
4.25%, 05/15/39(c) | 2,500,000 | 2,643,359 | ||||||
4,144,594 | ||||||||
Total U.S. Treasury Securities (Cost $9,300,443) | 10,270,219 | |||||||
Foreign Sovereign Bonds–0.34% | ||||||||
Sovereign Debt–0.34% | ||||||||
Israel Government Agency for International Development (AID) Bond (Israel), Gtd. Bonds, 5.13%, 11/01/24 (Cost $3,830,674) | 3,800,000 | 4,294,711 | ||||||
Shares | ||||||||
Money Market Funds–1.54% | ||||||||
Government & Agency Portfolio–Institutional Class (Cost $19,100,219)(d) | 19,100,219 | 19,100,219 | ||||||
TOTAL INVESTMENTS–101.36% (Cost $1,232,560,357) | 1,260,259,883 | |||||||
OTHER ASSETS LESS LIABILITIES–(1.36)% | (16,883,856 | ) | ||||||
NET ASSETS–100.00% | $ | 1,243,376,027 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Investment Abbreviations:
Ctfs. | – Certificates | |
Gtd. | – Guaranteed | |
REMICs | – Real Estate Mortgage Investment Conduits | |
TBA | – To Be Announced | |
Unsec. | – Unsecured |
Notes to Schedule of Investments:
(a) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2010. | |
(b) | Security purchased on a forward commitment basis. | |
(c) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1L and Note 4. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By security type, based on Net Assets
as of June 30, 2010
U.S. Government Sponsored Agency Mortgage-Backed Securities | 73.4 | % | ||
U.S. Government Sponsored Agency Securities | 25.2 | |||
U.S. Treasury Securities | 0.8 | |||
Foreign Sovereign Debt | 0.4 | |||
Money Market Funds Plus Other Assets Less Liabilities | 0.2 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $1,213,460,138) | $ | 1,241,159,664 | ||
Investments in affiliated money market funds, at value and cost | 19,100,219 | |||
Total investments, at value (Cost $1,232,560,357) | 1,260,259,883 | |||
Receivables for: | ||||
Investments sold | 5,037,078 | |||
Variation margin | 776,631 | |||
Fund shares sold | 3,024,692 | |||
Dividends and interest | 5,078,270 | |||
Fund expenses absorbed | 24,330 | |||
Principal paydowns | 8,674 | |||
Investment for trustee deferred compensation and retirement plans | 43,185 | |||
Other assets | 1,817 | |||
Total assets | 1,274,254,560 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 29,594,145 | |||
Fund shares reacquired | 164,199 | |||
Amount due custodian | 164,767 | |||
Accrued fees to affiliates | 755,578 | |||
Accrued other operating expenses | 66,353 | |||
Trustee deferred compensation and retirement plans | 133,491 | |||
Total liabilities | 30,878,533 | |||
Net assets applicable to shares outstanding | $ | 1,243,376,027 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,175,041,120 | ||
Undistributed net investment income | 68,477,403 | |||
Undistributed net realized gain (loss) | (37,597,391 | ) | ||
Unrealized appreciation | 37,454,895 | |||
$ | 1,243,376,027 | |||
Net Assets: | ||||
Series I | $ | 1,227,714,061 | ||
Series II | $ | 15,661,966 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 97,696,079 | |||
Series II | 1,255,016 | |||
Series I: | ||||
Net asset value per share | $ | 12.57 | ||
Series II: | ||||
Net asset value per share | $ | 12.48 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Interest | $ | 17,267,791 | ||
Dividends from affiliated money market funds | 9,961 | |||
Total investment income | 17,277,752 | |||
Expenses: | ||||
Advisory fees | 2,792,488 | |||
Administrative services fees | 1,641,561 | |||
Custodian fees | 35,756 | |||
Distribution fees — Series II | 17,564 | |||
Transfer agent fees | 8,672 | |||
Trustees’ and officers’ fees and benefits | 29,465 | |||
Other | 86,881 | |||
Total expenses | 4,612,387 | |||
Less: Fees waived | (178,250 | ) | ||
Net expenses | 4,434,137 | |||
Net investment income | 12,843,615 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 916,897 | |||
Futures contracts | 15,835,472 | |||
16,752,369 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 7,377,069 | |||
Futures contracts | 23,850,574 | |||
31,227,643 | ||||
Net realized and unrealized gain | 47,980,012 | |||
Net increase in net assets resulting from operations | $ | 60,823,627 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 12,843,615 | $ | 46,745,306 | ||||
Net realized gain | 16,752,369 | 6,396,776 | ||||||
Change in net unrealized appreciation (depreciation) | 31,227,643 | (58,197,138 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 60,823,627 | (5,055,056 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (60,184,129 | ) | |||||
Series II | — | (678,455 | ) | |||||
Total distributions from net investment income | — | (60,862,584 | ) | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | — | (43,257,923 | ) | |||||
Series II | — | (522,035 | ) | |||||
Total distributions from net realized gains | — | (43,779,958 | ) | |||||
Share transactions–net: | ||||||||
Series I | (25,378,481 | ) | (290,464,747 | ) | ||||
Series II | 502,170 | (4,570,136 | ) | |||||
Net increase (decrease) in net assets resulting from share transactions | (24,876,311 | ) | (295,034,883 | ) | ||||
Net increase (decrease) in net assets | 35,947,316 | (404,732,481 | ) | |||||
Net assets: | ||||||||
Beginning of period | 1,207,428,711 | 1,612,161,192 | ||||||
End of period (includes undistributed net investment income of $68,477,403 and $55,633,788, respectively) | $ | 1,243,376,027 | $ | 1,207,428,711 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Government Securities Fund, formerly AIM V.I. Government Securities Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is total return, comprised of current income and capital appreciation.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. |
Invesco V.I. Government Securities Fund
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. | ||
Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to |
Invesco V.I. Government Securities Fund
federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | ||
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Other Risks — The Funds may invest in obligations issued by agencies and instrumentalities of the U.S. Government that may vary in the level of support they receive from the government. The government may choose not to provide financial support to government sponsored agencies or instrumentalities if it is not legally obligated to do so. In this case, if the issuer defaulted, the underlying fund holding securities of such issuer might not be able to recover its investment from the U.S. Government. Many securities purchased by the Fund are not guaranteed by the U.S. Government. | |
J. | Dollar Roll and Forward Commitment Transactions — The Fund may engage in dollar roll and forward commitment transactions with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC. These transactions are often conducted on a to be announced (“TBA”) basis. In a TBA mortgage-backed transaction, the seller does not specify the particular securities to be delivered. Rather, a Fund agrees to accept any security that meets specified terms, such as an agreed upon issuer, coupon rate and terms of the underlying mortgages. TBA mortgage-backed transactions generally settle once a month on a specific date. | |
In a dollar roll transaction, the Fund sells a mortgage-backed security held in the Fund to a financial institution such as a bank or broker-dealer, and simultaneously agrees to purchase a substantially similar security (same type, coupon and maturity) from the institution at an agreed upon price and future date. The mortgage-backed securities to be purchased will bear the same coupon as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. Based on the typical structure of dollar roll transactions by the Fund, the dollar roll transactions are accounted for as financing transactions in which the Fund receives compensation as either a “fee” or a “drop”. “Fee” income which is agreed upon amongst the parties at the commencement of the dollar roll and the “drop” which is the difference between the selling price and the repurchase price of the mortgage-backed securities are amortized to income. During the period between the sale and purchase settlement dates, the Fund will not be entitled to receive interest and principal payments on securities purchased and not yet settled. Proceeds of the sale may be invested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, could generate income for the Fund exceeding the yield on the security sold. Dollar roll transactions are considered borrowings under the 1940 Act. | ||
Forward commitment transactions involve commitments by the Fund to acquire or sell TBA mortgage-backed securities from/to a financial institution, such as a bank or broker-dealer at a specified future date and amount. The TBA mortgage-backed security is marked to market until settlement and the unrealized appreciation or depreciation is recorded in the statement of operations. | ||
At the time the Fund enters into the dollar roll or forward commitment transaction, mortgage-backed securities or other liquid assets held by the Fund having a dollar value equal to the purchase price or in an amount sufficient to honor the forward commitment will be segregated. | ||
Dollar roll transactions involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to purchase under the agreement. In the event that the buyer of securities in a dollar roll transaction files for bankruptcy or becomes insolvent, the Fund’s use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund’s obligation to purchase the securities. The return earned by the Fund with the proceeds of the dollar roll transaction may not exceed the return on the securities sold. | ||
Forward commitment transactions involve the risk that a counter-party to the transaction may fail to complete the transaction. If this occurs, the Fund may lose the opportunity to purchase or sell the security at the agreed upon price. Settlement dates of forward commitment transactions may be a month or more after entering into these transactions and as a result the market values of the securities may vary from the purchase or sale prices. Therefore, forward commitment transactions may increase the Fund’s overall interest rate exposure. | ||
K. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) 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 |
Invesco V.I. Government Securities Fund
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. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. | |
M. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .50% | ||
Over $250 million | 0 | .45% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 0.73% and Series II shares to 0.98% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $178,250.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $144,518 for accounting and fund administrative services and reimbursed $1,497,043 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of
Invesco V.I. Government Securities Fund
providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 19,100,219 | $ | — | $ | — | $ | 19,100,219 | ||||||||
U.S. Treasury Securities | — | 10,270,219 | — | 10,270,219 | ||||||||||||
U.S. Government Sponsored Agency Securities | — | 1,226,594,734 | — | 1,226,594,734 | ||||||||||||
Foreign Government Debt Securities | — | 4,294,711 | — | 4,294,711 | ||||||||||||
$ | 19,100,219 | $ | 1,241,159,664 | $ | — | $ | 1,260,259,883 | |||||||||
Futures* | 9,755,369 | — | — | 9,755,369 | ||||||||||||
Total Investments | $ | 28,855,588 | $ | 1,241,159,664 | $ | — | $ | 1,270,015,252 | ||||||||
* | Unrealized appreciation. |
NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure 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. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2010:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Interest rate risk | ||||||||
Futures contracts(a) | $ | 9,803,583 | $ | (48,214 | ) | |||
(a) | Includes cumulative appreciation of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets & Liabilities. |
Invesco V.I. Government Securities Fund
Effect of Derivative Instruments for the six months ended June 30, 2010
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Futures* | ||||
Realized Gain | ||||
Interest rate risk | $ | 15,835,472 | ||
Change in Unrealized Appreciation | ||||
Interest rate risk | $ | 23,850,574 | ||
Total | $ | 39,686,046 | ||
* | The average value of futures outstanding during the period was $504,048,353. |
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Month/ | Appreciation | ||||||||||||||
Contract | Contracts | Commitment | Value | (Depreciation) | ||||||||||||
U.S. Treasury 5 Year Notes | 1,725 | September-2010/Long | $ | 204,156,446 | $ | 2,747,737 | ||||||||||
U.S. Treasury 10 Year Notes | 918 | September-2010/Long | 112,498,031 | 1,479,925 | ||||||||||||
U.S. Treasury 30 Year Bonds | 676 | September-2010/Long | 86,190,000 | 1,556,515 | ||||||||||||
Ultra U.S. Treasury Bonds | 792 | September-2010/Long | 107,563,500 | 4,018,036 | ||||||||||||
Subtotal | $ | 510,407,977 | $ | 9,802,213 | ||||||||||||
U.S. Treasury 2 Year Notes | 44 | September-2010/Short | (9,628,437 | ) | (46,844 | ) | ||||||||||
Total | $ | 500,779,540 | $ | 9,755,369 | ||||||||||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $2,743 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6—Cash Balances
The Fund may borrow for leveraging in an amount up to 5% of the Fund’s total assets (excluding the amount borrowed) at the time the borrowing is made. In doing so, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate. A Fund may not purchase additional securities when any borrowings from banks exceeds 5% of the Fund’s total assets.
NOTE 7—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.
Invesco V.I. Government Securities Fund
The Fund had a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2017 | $ | 56,450,047 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 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, 2010 was $438,827,278 and $390,526,481, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $0 and $13,497,604, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 29,445,135 | ||
Aggregate unrealized (depreciation) of investment securities | (1,876,898 | ) | ||
Net unrealized appreciation of investment securities | $ | 27,568,237 | ||
Cost of investments for tax purposes is $1,232,691,646. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 10,138,954 | $ | 123,673,332 | 13,378,824 | $ | 173,338,232 | ||||||||||
Series II | 238,247 | 2,928,612 | 368,564 | 4,730,767 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 8,534,823 | 103,442,051 | ||||||||||||
Series II | — | — | 99,626 | 1,200,490 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (12,253,111 | ) | (149,051,813 | ) | (44,095,427 | ) | (567,245,030 | ) | ||||||||
Series II | (200,144 | ) | (2,426,442 | ) | (821,161 | ) | (10,501,393 | ) | ||||||||
Net increase (decrease) in share activity | (2,076,054 | ) | $ | (24,876,311 | ) | (22,534,751 | ) | $ | (295,034,883 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 94% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Government Securities Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 11.95 | $ | 0.13 | $ | 0.49 | $ | 0.62 | $ | — | $ | — | $ | — | $ | 12.57 | 5.19 | % | $ | 1,227,714 | 0.73 | %(d) | 0.76 | %(d) | 2.12 | %(d) | 34 | % | ||||||||||||||||||||||||||||
Year ended 12/31/09 | 13.05 | 0.45 | (0.43 | ) | 0.02 | (0.65 | ) | (0.47 | ) | (1.12 | ) | 11.95 | (0.01 | ) | 1,192,967 | 0.73 | 0.75 | 3.47 | 55 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 12.06 | 0.50 | 0.96 | 1.46 | (0.47 | ) | — | (0.47 | ) | 13.05 | 12.22 | 1,591,799 | 0.73 | 0.76 | 3.96 | 109 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 11.80 | 0.59 | 0.16 | 0.75 | (0.49 | ) | — | (0.49 | ) | 12.06 | 6.43 | 1,169,985 | 0.73 | 0.76 | 4.93 | 106 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 11.87 | 0.55 | (0.13 | ) | 0.42 | (0.49 | ) | — | (0.49 | ) | 11.80 | 3.55 | 907,403 | 0.71 | 0.77 | 4.62 | 89 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 12.07 | 0.45 | (0.25 | ) | 0.20 | (0.40 | ) | — | (0.40 | ) | 11.87 | 1.66 | 812,824 | 0.85 | 0.88 | 3.68 | 174 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 11.88 | 0.11 | 0.49 | 0.60 | — | — | — | 12.48 | 5.05 | 15,662 | 0.98 | (d) | 1.01 | (d) | 1.87 | (d) | 34 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 12.97 | 0.41 | (0.43 | ) | (0.02 | ) | (0.60 | ) | (0.47 | ) | (1.07 | ) | 11.88 | (0.26 | ) | 14,462 | 0.98 | 1.00 | 3.22 | 55 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 11.99 | 0.46 | 0.97 | 1.43 | (0.45 | ) | — | (0.45 | ) | 12.97 | 11.98 | 20,362 | 0.98 | 1.01 | 3.71 | 109 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 11.74 | 0.56 | 0.15 | 0.71 | (0.46 | ) | — | (0.46 | ) | 11.99 | 6.11 | 18,770 | 0.98 | 1.01 | 4.68 | 106 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 11.81 | 0.52 | (0.13 | ) | 0.39 | (0.46 | ) | — | (0.46 | ) | 11.74 | 3.28 | 16,218 | 0.96 | 1.02 | 4.37 | 89 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 12.01 | 0.41 | (0.24 | ) | 0.17 | (0.37 | ) | — | (0.37 | ) | 11.81 | 1.41 | 18,863 | 1.10 | 1.13 | 3.43 | 174 | |||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $1,209,446 and $14,167 for Series I and Series II shares, respectively. |
Invesco 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, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,051.90 | $ | 3.71 | $ | 1,021.17 | $ | 3.66 | 0.73 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,050.50 | 4.98 | 1,019.93 | 4.91 | 0.98 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Government Securities Fund
Approval of Investment Advisory and Sub-advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Government Securities Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses, and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investment Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the quality and efficiency of the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the additional resources and talents of the Affiliated Sub-Advisers in managing the Fund.
Invesco V.I. Government Securities Fund
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, and against the Lipper VA Underlying Funds — General U.S. Government Index. The Board noted that the performance of Series I shares of the Fund was in the fifth quintile of its performance universe for the one year period and the second quintile for the 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 performance of Series I shares of the fun was below the performance of the Index for the one year period and above for the three and five year periods. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other mutual funds or client accounts with investment strategies comparable to those of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 also considered the effect this expense limitation would have on the Fund’s estimated total expenses.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above, the advisory fee after fee waivers and expense limitations and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes one breakpoint, and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Government Securities Fund
Invesco V.I. High Yield Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIHYI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 3.64 | %* | ||
Series II Shares | 3.65 | * | ||
Barclays Capital U.S. Aggregate Index6 (Broad Market Index) | 5.33 | |||
Barclays Capital U.S. Corporate High Yield 2% Issuer Cap Index6 (Style-Specific Index) | 4.45 | |||
Barclays Capital U.S. Corporate High Yield Index6 (Former Style-Specific Index) | 4.51 | |||
Lipper VUF High Current Yield Bond Funds Category Average6 (Peer Group) | 3.38 |
6 | Lipper Inc. | |
* | Performance includes litigation proceeds. Had these proceeds not been received, total return would have been lower. |
During the reporting period, the Fund elected to use the Barclays Capital U.S. Corporate High Yield 2% Issuer Cap Index as its style-specific index rather than the Barclays Capital U.S. Corporate High Yield Index because it will better align the Fund’s style-specific index with the Fund’s investment process and restrictions.
The Barclays Capital U.S. Aggregate Index is an unmanaged index considered representative of the U.S. investment-grade, fixed-rate bond market.
The Barclays Capital U.S. Corporate High Yield 2% Issuer Cap Index is an unmanaged index that covers U.S. corporate, fixed-rate, non-investment grade debt with at least one year to maturity and at least $150 million in par outstanding. Index weights for each issuer are capped at 2%.
The Barclays Capital U.S. Corporate High Yield Index is an unmanaged index that covers the universe of fixed-rate, noninvestment-grade debt.
The Lipper VUF High Current Yield Bond Funds Category Average represents an average of all of the variable insurance underlying funds in the Lipper High Current Yield Bond Funds category.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (5/1/98) | 2.97 | % | ||
10 Years | 3.75 | |||
5 Years | 5.97 | |||
1 Year | 25.93 | |||
Series II Shares | ||||
10 Years | 3.51 | % | ||
5 Years | 5.70 | |||
1 Year | 25.61 |
Performance includes litigation proceeds. Had these proceeds not been received, total return would have been lower.
Series II shares incepted on March 26, 2002. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.95% and 1.20%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.22% and 1.47%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. High Yield Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. |
Invesco V.I. High Yield Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Principal | ||||||||
Amount | Value | |||||||
U.S. Dollar Denominated Bonds & Notes–91.29% | ||||||||
Advertising–0.21% | ||||||||
Lamar Media Corp., Sr. Gtd. Sub. Notes, 7.88%, 04/15/18(b) | $ | 105,000 | $ | 106,050 | ||||
Aerospace & Defense–1.73% | ||||||||
BE Aerospace, Inc., Sr. Unsec. Notes, 8.50%, 07/01/18 | 180,000 | 190,800 | ||||||
Bombardier Inc. (Canada), Sr. Notes, 7.50%, 03/15/18(b) | 30,000 | 30,975 | ||||||
7.75%, 03/15/20(b) | 120,000 | 124,800 | ||||||
Hexcel Corp., Sr. Unsec. Sub. Global Notes, 6.75%, 02/01/15 | 275,000 | 270,875 | ||||||
Triumph Group, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 8.00%, 11/15/17 | 275,000 | 264,687 | ||||||
882,137 | ||||||||
Airlines–3.48% | ||||||||
American Airlines Pass Through Trust, Series 2009-1A, Sec. Pass Through Ctfs., 10.38%, 07/02/19 | 69,518 | 77,947 | ||||||
Continental Airlines Inc., Sr. Unsec. Notes, 8.75%, 12/01/11 | 185,000 | 187,322 | ||||||
Series 2000-1, Class C-1, Sec. Sub. Pass Through Ctfs., 8.50%, 05/01/11 | 37,855 | 37,855 | ||||||
Series 2000-2, Class B, Sec. Sub. Pass Through Ctfs., 8.31%, 04/02/18 | 127,052 | 124,193 | ||||||
Series 2001-1, Class B, Sec. Sub. Pass Through Ctfs., 7.37%, 12/15/15 | 109,422 | 104,498 | ||||||
Series 2007-1, Class C, Sec. Sub. Global Pass Through Ctfs., 7.34%, 04/19/14 | 207,992 | 200,192 | ||||||
Series 2009-1, Class A, Pass Through Ctfs., 9.00%, 07/08/16 | 58,787 | 64,225 | ||||||
Series 2009-1, Class B, Global Pass Through Ctfs., 9.25%, 05/10/17 | 140,000 | 146,388 | ||||||
Delta Air Lines, Inc., Sr. Sec. Notes, 9.50%, 09/15/14(b) | 45,000 | 47,475 | ||||||
Series 2002-1, Class C, Sec. Pass Through Ctfs., 7.78%, 01/02/12 | 124,468 | 124,779 | ||||||
Series 2007-1, Class C, Sec. Global Pass Through Ctfs., 8.95%, 08/10/14 | 143,139 | 143,497 | ||||||
UAL Corp., Series 2007-1, Class B, Sr. Sec. Gtd. Global Pass Through Ctfs., 7.34%, 07/02/19(b) | 123,992 | 105,083 | ||||||
Series 2009-1, Sr. Sec. Gtd. Global Pass Through Ctfs., 10.40%, 11/01/16 | 180,287 | 195,611 | ||||||
Series 2009-2A, Sec. Gtd. Global Pass Through Ctfs., 9.75%, 01/15/17 | 150,000 | 161,250 | ||||||
United Air Lines Inc., Sr. Sec. Gtd. Notes, 9.88%, 08/01/13(b) | 50,000 | 51,750 | ||||||
1,772,065 | ||||||||
Alternative Carriers–2.04% | ||||||||
Global Crossing UK Finance PLC (United Kingdom), Sr. Sec. Gtd. Global Notes, 10.75%, 12/15/14 | 75,000 | 77,250 | ||||||
Intelsat Intermediate Holding Co. S.A. (Bermuda), Sr. Unsec. Gtd. Global Notes, 9.50%, 02/01/15 | 315,000 | 322,875 | ||||||
Intelsat Jackson Holdings S.A. (Bermuda), Sr. Unsec. Gtd. Global Notes, 11.25%, 06/15/16 | 315,000 | 338,625 | ||||||
Level 3 Financing Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 11/01/14 | 330,000 | 301,125 | ||||||
1,039,875 | ||||||||
Aluminum–1.49% | ||||||||
Century Aluminum Co., Sr. Sec. Notes, 8.00%, 05/15/14 | 430,630 | 406,945 | ||||||
Novelis Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 7.25%, 02/15/15 | 359,000 | 350,025 | ||||||
756,970 | ||||||||
Apparel Retail–1.04% | ||||||||
Collective Brands, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 8.25%, 08/01/13 | 350,000 | 354,375 | ||||||
Limited Brands Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 06/15/19 | 140,000 | 151,375 | ||||||
Sr. Unsec. Gtd. Notes, 7.00%, 05/01/20 | 25,000 | 25,281 | ||||||
531,031 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Apparel, Accessories & Luxury Goods–1.96% | ||||||||
Hanesbrands, Inc., Series B, Sr. Unsec. Gtd. Floating Rate Global Notes, 4.12%, 12/15/14(c) | $ | 225,000 | $ | 213,750 | ||||
Levi Strauss & Co., Sr. Unsec. Global Notes, 8.88%, 04/01/16 | 225,000 | 234,563 | ||||||
Perry Ellis International, Inc., Series B, Sr. Unsec. Gtd. Sub. Global Notes, 8.88%, 09/15/13 | 265,000 | 269,637 | ||||||
Quiksilver Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 04/15/15 | 305,000 | 278,312 | ||||||
996,262 | ||||||||
Auto Parts & Equipment–1.06% | ||||||||
Allison Transmission Inc., Sr. Unsec. Gtd. Notes, 11.00%, 11/01/15(b) | 255,000 | 267,113 | ||||||
Tenneco Inc., Sr. Unsec. Gtd. Global Notes, 8.13%, 11/15/15 | 270,000 | 273,375 | ||||||
540,488 | ||||||||
Automobile Manufacturers–1.58% | ||||||||
Ford Motor Co., Sr. Unsec. Conv. Notes, 4.25%, 11/15/16 | 165,000 | 206,456 | ||||||
Sr. Unsec. Global Notes, 7.45%, 07/16/31 | 375,000 | 339,375 | ||||||
Motors Liquidation Co., Sr. Unsec. Global Notes, 7.20%, 01/15/11(d) | 445,000 | 136,837 | ||||||
Sr. Unsec. Notes, 8.38%, 07/15/33(d) | 375,000 | 120,938 | ||||||
803,606 | ||||||||
Broadcasting–1.27% | ||||||||
Allbritton Communications Co., Sr. Unsec. Notes, 8.00%, 05/15/18(b) | 150,000 | 148,875 | ||||||
Belo Corp., Sr. Unsec. Notes, 6.75%, 05/30/13 | 160,000 | 162,800 | ||||||
8.00%, 11/15/16 | 30,000 | 30,938 | ||||||
Clear Channel Worldwide Holdings Inc., Sr. Unsec. Gtd. Notes, 9.25%, 12/15/17(b) | 170,000 | 171,487 | ||||||
LIN Television Corp., Sr. Unsec. Gtd. Notes, 8.38%, 04/15/18(b) | 130,000 | 130,325 | ||||||
644,425 | ||||||||
Building Products–4.38% | ||||||||
AMH Holdings Inc., Sr. Unsec. Global Notes, 11.25%, 03/01/14 | 505,000 | 517,941 | ||||||
Building Materials Corp. of America, Sr. Gtd. Notes, 7.50%, 03/15/20(b) | 130,000 | 126,750 | ||||||
Sr. Sec. Notes, 7.00%, 02/15/20(b) | 160,000 | 159,200 | ||||||
Gibraltar Industries Inc., Series B, Sr. Unsec. Gtd. Sub. Global Notes, 8.00%, 12/01/15 | 200,000 | 196,000 | ||||||
Goodman Global Group Inc., Sr. Disc. Notes, 12.48%, 12/15/14(b)(e) | 500,000 | 305,000 | ||||||
Nortek Inc., Sr. Sec. Global Notes, 11.00%, 12/01/13 | 255,955 | 268,113 | ||||||
Ply Gem Industries Inc., Sr. Gtd. Sub. Notes, 13.13%, 07/15/14(b) | 210,000 | 217,087 | ||||||
Sr. Sec. Gtd. First & Second Lien Global Notes, 11.75%, 06/15/13 | 335,000 | 350,912 | ||||||
USG Corp., Sr. Unsec. Gtd. Notes, 9.75%, 08/01/14(b) | 85,000 | 87,550 | ||||||
2,228,553 | ||||||||
Cable & Satellite–1.89% | ||||||||
Cablevision Systems Corp., Sr. Unsec. Notes, 8.63%, 09/15/17(b) | 135,000 | 138,375 | ||||||
7.75%, 04/15/18 | 30,000 | 30,075 | ||||||
8.00%, 04/15/20 | 20,000 | 20,275 | ||||||
Hughes Network Systems LLC/HNS Finance Corp., Sr. Unsec. Gtd. Global Notes, 9.50%, 04/15/14 | 205,000 | 207,050 | ||||||
Sirius XM Radio Inc., Sr. Unsec. Gtd. Notes, 8.75%, 04/01/15(b) | 275,000 | 274,656 | ||||||
Virgin Media Finance PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 8.38%, 10/15/19 | 100,000 | 102,750 | ||||||
Series 1, Sr. Unsec. Gtd. Global Notes, 9.50%, 08/15/16 | 180,000 | 190,575 | ||||||
963,756 | ||||||||
Casinos & Gaming–4.60% | ||||||||
Great Canadian Gaming Corp. (Canada), Sr. Unsec. Gtd. Sub. Notes, 7.25%, 02/15/15(b) | 110,000 | 109,450 | ||||||
Harrah’s Operating Co. Inc., Sr. Sec. Gtd. Global Notes, 11.25%, 06/01/17 | 175,000 | 184,187 | ||||||
Sr. Sec. Notes, 12.75%, 04/15/18(b) | 45,000 | 42,750 | ||||||
Sr. Unsec. Gtd. Global Bonds, 5.63%, 06/01/15 | 275,000 | 178,750 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Casinos & Gaming–(continued) | ||||||||
MGM Resorts International, Sr. Sec. Global Notes, 10.38%, 05/15/14 | $ | 65,000 | $ | 70,525 | ||||
11.13%, 11/15/17 | 65,000 | 71,825 | ||||||
Sr. Sec. Gtd. Notes, 13.00%, 11/15/13 | 130,000 | 149,825 | ||||||
9.00%, 03/15/20(b) | 50,000 | 51,250 | ||||||
Sr. Unsec. Gtd. Conv. Notes, 4.25%, 04/15/15(b) | 95,000 | 75,644 | ||||||
Sr. Unsec. Gtd. Global Notes, 6.75%, 09/01/12 | 190,000 | 177,175 | ||||||
6.63%, 07/15/15 | 223,000 | 177,285 | ||||||
Sr. Unsec. Gtd. Notes, 5.88%, 02/27/14 | 10,000 | 8,350 | ||||||
Midwest Gaming Borrower LLC/Midwest Finance Corp., Sr. Sec. Notes, 11.63%, 04/15/16(b) | 45,000 | 44,550 | ||||||
Pinnacle Entertainment, Inc., Sr. Unsec. Gtd. Notes, 8.63%, 08/01/17(b) | 175,000 | 179,375 | ||||||
Scientific Games International Inc., Sr. Unsec. Gtd. Sub. Global Notes, 9.25%, 06/15/19 | 45,000 | 46,350 | ||||||
Seneca Gaming Corp., Sr. Unsec. Global Notes, 7.25%, 05/01/12 | 60,000 | 59,175 | ||||||
Series B, Sr. Unsec. Global Notes, 7.25%, 05/01/12 | 215,000 | 212,044 | ||||||
Snoqualmie Entertainment Authority, Sr. Sec. Floating Rate Notes, 4.14%, 02/01/14(b)(c) | 155,000 | 124,387 | ||||||
Sr. Sec. Notes, 9.13%, 02/01/15(b) | 220,000 | 186,450 | ||||||
Wynn Las Vegas Capital LLC/Corp., Sec. First Mortgage Notes, 7.88%, 11/01/17(b) | 130,000 | 130,650 | ||||||
Sr. Sec. Gtd. First Mortgage Global Notes, 6.63%, 12/01/14 | 60,000 | 60,450 | ||||||
2,340,447 | ||||||||
Coal & Consumable Fuels–0.14% | ||||||||
CONSOL Energy Inc., Sr. Unsec. Gtd. Notes, 8.00%, 04/01/17(b) | 35,000 | 36,487 | ||||||
8.25%, 04/01/20(b) | 35,000 | 36,794 | ||||||
73,281 | ||||||||
Commodity Chemicals–0.02% | ||||||||
Westlake Chemical Corp., Sr. Unsec. Gtd. Notes, 6.63%, 01/15/16 | 10,000 | 9,638 | ||||||
Computer Storage & Peripherals–0.17% | ||||||||
Seagate HDD Cayman (Cayman Islands), Sr. Unsec. Gtd. Notes, 6.88%, 05/01/20(b) | 90,000 | 85,725 | ||||||
Construction & Engineering–0.86% | ||||||||
American Residential Services LLC, Sr. Sec. Notes, 12.00%, 04/15/15(b) | 95,000 | 96,900 | ||||||
MasTec, Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 02/01/17 | 350,000 | 341,250 | ||||||
438,150 | ||||||||
Construction Materials–1.79% | ||||||||
Cemex Finance LLC, Sr. Sec. Gtd. Bonds, 9.50%, 12/14/16(b) | 195,000 | 189,126 | ||||||
Cemex S.A.B. de C.V. (Mexico), Unsec. Sub. Conv. Notes, 4.88%, 03/15/15(b) | 100,000 | 99,375 | ||||||
Texas Industries, Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 07/15/13 | 125,000 | 121,875 | ||||||
7.25%, 07/15/13 | 255,000 | 248,625 | ||||||
U.S. Concrete, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 8.38%, 04/01/14(d) | 475,000 | 251,750 | ||||||
910,751 | ||||||||
Construction, Farm Machinery & Heavy Trucks–1.77% | ||||||||
Case New Holland Inc., Sr. Notes, 7.88%, 12/01/17(b) | 260,000 | 265,200 | ||||||
Sr. Unsec. Gtd. Global Notes, 7.75%, 09/01/13 | 75,000 | 77,250 | ||||||
CNH America LLC, Sr. Unsec. Gtd. Notes, 7.25%, 01/15/16 | 60,000 | 60,450 | ||||||
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | 290,000 | 295,075 | ||||||
Oshkosh Corp., Sr. Unsec. Gtd. Global Notes, 8.50%, 03/01/20 | 150,000 | 156,375 | ||||||
Terex Corp., Sr. Unsec. Global Notes, 10.88%, 06/01/16 | 45,000 | 48,600 | ||||||
902,950 | ||||||||
Consumer Finance–3.31% | ||||||||
Ally Financial Inc., Sr. Unsec. Gtd. Global Notes, 8.00%, 11/01/31 | 431,000 | 405,140 | ||||||
Sr. Unsec. Gtd. Notes, 8.00%, 03/15/20(b) | 345,000 | 340,687 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Consumer Finance–(continued) | ||||||||
Capital One Capital VI, Jr. Ltd. Gtd. Sub. Cum. Trust Pfd. Securities, 8.88%, 05/15/40 | $ | 205,000 | $ | 211,150 | ||||
Ford Motor Credit Co. LLC, Sr. Unsec. Notes, 7.00%, 04/15/15 | 100,000 | 99,500 | ||||||
8.00%, 12/15/16 | 150,000 | 153,375 | ||||||
8.13%, 01/15/20 | 355,000 | 363,875 | ||||||
National Money Mart Co. (Canada), Sr. Gtd. Notes, 10.38%, 12/15/16(b) | 110,000 | 112,200 | ||||||
1,685,927 | ||||||||
Data Processing & Outsourced Services–1.51% | ||||||||
First Data Corp., Sr. Unsec. Gtd. Global Notes, 9.88%, 09/24/15 | 210,000 | 159,600 | ||||||
9.88%, 09/24/15 | 155,000 | 117,800 | ||||||
SunGard Data Systems Inc., Sr. Unsec. Gtd. Global Notes, 9.13%, 08/15/13 | 391,000 | 400,286 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 10.25%, 08/15/15 | 90,000 | 92,925 | ||||||
770,611 | ||||||||
Distillers & Vintners–0.22% | ||||||||
Constellation Brands Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 05/15/17 | 110,000 | 112,200 | ||||||
Diversified Banks–0.20% | ||||||||
Royal Bank of Scotland Group PLC (United Kingdom), Sr. Unsec. Global Notes, 6.40%, 10/21/19 | 100,000 | 101,506 | ||||||
Diversified Metals & Mining–1.00% | ||||||||
FMG Finance Pty. Ltd. (Australia), Sr. Sec. Gtd. Notes, 10.63%, 09/01/16(b) | 270,000 | 300,375 | ||||||
Vedanta Resources PLC (United Kingdom), Sr. Unsec. Notes, 9.50%, 07/18/18(b) | 195,000 | 209,497 | ||||||
509,872 | ||||||||
Diversified Support Services–1.46% | ||||||||
Education Management LLC/Education Management Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.75%, 06/01/14 | 105,000 | 104,737 | ||||||
Mobile Mini, Inc., Sr. Unsec. Gtd. Global Notes, 9.75%, 08/01/14 | 60,000 | 61,650 | ||||||
Travelport LLC, Sr. Unsec. Gtd. Global Notes, 9.88%, 09/01/14 | 375,000 | 380,625 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 11.88%, 09/01/16 | 190,000 | 198,075 | ||||||
745,087 | ||||||||
Drug Retail–0.36% | ||||||||
General Nutrition Centers Inc., Sr. Unsec. Gtd. PIK Floating Rate Global Notes, 5.75%, 03/15/14(c) | 200,000 | 184,500 | ||||||
Electric Utilities–0.81% | ||||||||
Elwood Energy LLC, Sr. Sec. Global Notes, 8.16%, 07/05/26 | 126,262 | 119,633 | ||||||
LSP Energy L.P./LSP Batesville Funding Corp., Series C, Sr. Sec. Mortgage Bonds, 7.16%, 01/15/14 | 99,036 | 86,778 | ||||||
Series D, Sr. Sec. Bonds, 8.16%, 07/15/25 | 275,000 | 204,188 | ||||||
410,599 | ||||||||
Electronic Manufacturing Services–0.07% | ||||||||
Jabil Circuit, Inc., Sr. Unsec. Notes, 7.75%, 07/15/16 | 35,000 | 36,750 | ||||||
Food Retail–0.35% | ||||||||
New Albertsons Inc., Sr. Unsec. Bonds, 8.00%, 05/01/31 | 205,000 | 178,094 | ||||||
Forest Products–0.10% | ||||||||
Weyerhaeuser Co., Sr. Unsec. Deb., 6.88%, 12/15/33 | 55,000 | 51,707 | ||||||
Gas Utilities–0.58% | ||||||||
Ferrellgas Escrow LLC/Ferrellgas Finance Escrow Corp., Sr. Unsec. Global Notes, 6.75%, 05/01/14 | 175,000 | 172,813 | ||||||
Suburban Propane Partners, L.P./Suburban Energy Finance Corp., Sr. Unsec. Notes, 7.38%, 03/15/20 | 120,000 | 121,800 | ||||||
294,613 | ||||||||
Health Care Equipment–0.54% | ||||||||
DJO Finance LLC/DJO Finance Corp., Sr. Unsec. Gtd. Global Notes, 10.88%, 11/15/14 | 260,000 | 274,300 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Health Care Facilities–2.94% | ||||||||
Community Health Systems Inc., Sr. Unsec. Gtd. Global Notes, 8.88%, 07/15/15 | $ | 250,000 | $ | 260,000 | ||||
HCA, Inc., Sr. Sec. Gtd. Global Notes, 7.88%, 02/15/20 | 195,000 | 201,825 | ||||||
Sr. Unsec. Global Notes, 6.38%, 01/15/15 | 195,000 | 182,325 | ||||||
Sr. Unsec. Notes, 6.75%, 07/15/13 | 185,000 | 182,225 | ||||||
7.19%, 11/15/15 | 155,000 | 141,825 | ||||||
Healthsouth Corp., Sr. Unsec. Gtd. Notes, 8.13%, 02/15/20 | 90,000 | 88,650 | ||||||
Psychiatric Solutions, Inc., Series 1, Sr. Unsec. Gtd. Sub. Global Notes, 7.75%, 07/15/15 | 95,000 | 98,444 | ||||||
Tenet Healthcare Corp., Sr. Unsec. Notes, 7.38%, 02/01/13 | 340,000 | 342,550 | ||||||
1,497,844 | ||||||||
Health Care Services–1.52% | ||||||||
DaVita Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 03/15/13 | 7,781 | 7,819 | ||||||
Multiplan Inc., Sr. Unsec. Sub. Notes, 10.38%, 04/15/16(b) | 285,000 | 294,262 | ||||||
Universal Hospital Services Inc., Sr. Sec. PIK Global Notes, 8.50%, 06/01/15 | 225,000 | 222,188 | ||||||
Viant Holdings Inc., Sr. Unsec. Gtd. Sub. Notes, 10.13%, 07/15/17(b) | 247,000 | 251,323 | ||||||
775,592 | ||||||||
Health Care Supplies–0.27% | ||||||||
Inverness Medical Innovations Inc., Sr. Unsec. Gtd. Sub. Notes, 9.00%, 05/15/16 | 135,000 | 136,013 | ||||||
Homebuilding–0.57% | ||||||||
M/I Homes, Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 04/01/12 | 145,000 | 144,275 | ||||||
TOUSA, Inc., Sr. Unsec. Gtd. Global Notes, 9.00%, 07/01/10(d) | 60,000 | 38,550 | ||||||
9.00%, 07/01/10(d) | 163,000 | 104,728 | ||||||
287,553 | ||||||||
Hotels, Resorts & Cruise Lines–0.81% | ||||||||
Royal Caribbean Cruises Ltd., Sr. Unsec. Global Notes, 6.88%, 12/01/13 | 40,000 | 39,100 | ||||||
Sr. Unsec. Notes, | ||||||||
7.25%, 03/15/18 | 85,000 | 82,025 | ||||||
Royal Caribbean Cruises Ltd. (Trinidad), Sr. Unsec. Notes, 7.50%, 10/15/27 | 140,000 | 123,550 | ||||||
Starwood Hotels & Resorts Worldwide, Inc., Sr. Unsec. Notes, 7.15%, 12/01/19 | 165,000 | 168,300 | ||||||
412,975 | ||||||||
Household Products–0.48% | ||||||||
Central Garden and Pet Co., Sr. Gtd. Sub. Notes, 8.25%, 03/01/18 | 245,000 | 244,081 | ||||||
Housewares & Specialties–0.56% | ||||||||
Yankee Acquisition Corp., Series B, Sr. Gtd. Global Notes, 8.50%, 02/15/15 | 280,000 | 282,800 | ||||||
Independent Power Producers & Energy Traders–1.45% | ||||||||
AES Corp. (The), Sr. Unsec. Global Notes, 8.00%, 10/15/17 | 65,000 | 65,975 | ||||||
Sr. Unsec. Notes, 9.75%, 04/15/16(b) | 75,000 | 80,906 | ||||||
AES Red Oak LLC, Series A, Sr. Sec. Bonds, 8.54%, 11/30/19 | 237,829 | 236,045 | ||||||
NRG Energy, Inc., Sr. Unsec. Gtd. Notes, 7.38%, 02/01/16 | 200,000 | 200,500 | ||||||
7.38%, 01/15/17 | 155,000 | 153,838 | ||||||
737,264 | ||||||||
Industrial Conglomerates–0.01% | ||||||||
Aleris International Inc., Sr. Unsec. Gtd. PIK Global Notes, 9.00%, 12/15/14(d) | 215,000 | 2,145 | ||||||
Indalex Holding Corp., Series B, Sr. Sec. Gtd. Global Notes, 11.50%, 02/01/14(d) | 230,000 | 2,300 | ||||||
4,445 | ||||||||
Industrial Machinery–0.27% | ||||||||
Cleaver-Brooks Inc., Sr. Sec. Notes, 12.25%, 05/01/16(b) | 75,000 | 74,062 | ||||||
Columbus McKinnon Corp., Sr. Unsec. Gtd. Sub. Global Notes, 8.88%, 11/01/13 | 63,000 | 63,788 | ||||||
137,850 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Integrated Oil & Gas–0.23% | ||||||||
Lukoil International Finance B.V. (Netherlands), Sr. Unsec. Gtd. Notes, 7.25%, 11/05/19(b) | $ | 115,000 | $ | 118,726 | ||||
Integrated Telecommunication Services–0.67% | ||||||||
Hawaiian Telcom Communications Inc., Series B, Sr. Unsec. Gtd. Global Notes, 9.75%, 05/01/13(d) | 360,000 | 6,525 | ||||||
Qwest Communications International Inc., Sr. Unsec. Gtd. Notes, 7.13%, 04/01/18(b) | 190,000 | 189,525 | ||||||
Wind Acquisition Finance S.A. (Luxembourg), Sr. Sec. Gtd. Sub. Notes, 11.75%, 07/15/17(b) | 140,000 | 145,950 | ||||||
342,000 | ||||||||
Internet Software & Services–0.25% | ||||||||
Equinix Inc., Sr. Unsec. Notes, 8.13%, 03/01/18 | 125,000 | 128,438 | ||||||
Investment Banking & Brokerage–0.90% | ||||||||
Cantor Fitzgerald L.P., Bonds, 7.88%, 10/15/19(b) | 220,000 | 228,364 | ||||||
E*Trade Financial Corp., Sr. Unsec Global Notes, 7.38%, 09/15/13 | 95,000 | 84,075 | ||||||
Sr. Unsec. Notes, 7.88%, 12/01/15 | 165,000 | 146,850 | ||||||
459,289 | ||||||||
Leisure Facilities–0.58% | ||||||||
Universal City Development Partners Ltd., Sr. Notes, 8.88%, 11/15/15(b) | 265,000 | 268,312 | ||||||
Sr. Sub. Notes, 10.88%, 11/15/16(b) | 25,000 | 26,063 | ||||||
294,375 | ||||||||
Life & Health Insurance–0.63% | ||||||||
Aflac Inc., Sr. Unsec. Notes, 6.90%, 12/17/39 | 185,000 | 191,505 | ||||||
Pacific Life Insurance Co., Sub. Notes, 9.25%, 06/15/39(b) | 105,000 | 129,084 | ||||||
320,589 | ||||||||
Life Sciences Tools & Services–0.24% | ||||||||
Patheon Inc. (Canada), Sr. Sec. Notes, 8.63%, 04/15/17(b) | 125,000 | 124,063 | ||||||
Movies & Entertainment–0.76% | ||||||||
AMC Entertainment Inc., Sr. Unsec. Global Notes, 8.75%, 06/01/19 | 10,000 | 10,100 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 8.00%, 03/01/14 | 275,000 | 265,031 | ||||||
Cinemark USA Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 06/15/19 | 95,000 | 95,950 | ||||||
Live Nation Entertainment Inc., Sr. Unsec. Notes, 8.13%, 05/15/18(b) | 15,000 | 14,513 | ||||||
385,594 | ||||||||
Multi-Line Insurance–2.77% | ||||||||
American International Group, Inc., Jr. Sub. Variable Rate Global Notes, 8.18%, 05/15/58(c) | 405,000 | 321,975 | ||||||
Sr. Unsec. Global Notes, 6.25%, 05/01/36 | 100,000 | 79,625 | ||||||
Hartford Financial Services Group Inc. (The), Jr. Unsec. Sub. Variable Rate Deb., 8.13%, 06/15/38(c) | 175,000 | 160,780 | ||||||
Sr. Unsec. Global Notes, 5.95%, 10/15/36 | 90,000 | 78,723 | ||||||
Liberty Mutual Group Inc., Sr. Unsec. Bonds, 7.50%, 08/15/36(b) | 95,000 | 92,670 | ||||||
Sr. Unsec. Notes, 6.70%, 08/15/16(b) | 70,000 | 75,843 | ||||||
Liberty Mutual Insurance Co., Unsec. Sub. Notes, 8.50%, 05/15/25(b) | 135,000 | 153,981 | ||||||
Nationwide Mutual Insurance Co., Sub. Notes, 9.38%, 08/15/39(b) | 385,000 | 445,585 | ||||||
1,409,182 | ||||||||
Office Services & Supplies–0.91% | ||||||||
IKON Office Solutions, Inc., Sr. Unsec. Notes, 6.75%, 12/01/25 | 230,000 | 226,550 | ||||||
7.30%, 11/01/27 | 230,000 | 237,188 | ||||||
463,738 | ||||||||
Oil & Gas Drilling–0.16% | ||||||||
Pride International Inc., Sr. Unsec. Global Notes, 7.38%, 07/15/14 | 80,000 | 79,500 | ||||||
Oil & Gas Equipment & Services–0.89% | ||||||||
Bristow Group, Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/17 | 220,000 | 210,650 | ||||||
Key Energy Services Inc., Sr. Unsec. Gtd. Global Notes, 8.38%, 12/01/14 | 245,000 | 243,775 | ||||||
454,425 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Oil & Gas Exploration & Production–6.97% | ||||||||
Chaparral Energy Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 12/01/15 | $ | 105,000 | $ | 98,438 | ||||
8.88%, 02/01/17 | 155,000 | 144,538 | ||||||
Chesapeake Energy Corp., Sr. Unsec. Gtd. Global Notes, 6.38%, 06/15/15 | 174,000 | 179,812 | ||||||
6.88%, 11/15/20 | 300,000 | 305,250 | ||||||
Cimarex Energy Co., Sr. Unsec. Gtd. Notes, 7.13%, 05/01/17 | 160,000 | 161,600 | ||||||
Continental Resources Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 10/01/19 | 80,000 | 84,200 | ||||||
Sr. Unsec. Gtd. Notes, 7.38%, 10/01/20(b) | 100,000 | 99,500 | ||||||
Delta Petroleum Corp., Sr. Unsec. Gtd. Global Notes, 7.00%, 04/01/15 | 400,000 | 304,000 | ||||||
Encore Acquisition Co., Sr. Gtd. Sub. Notes, 9.50%, 05/01/16 | 185,000 | 195,869 | ||||||
Forest Oil Corp., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/15/19 | 175,000 | 170,188 | ||||||
McMoRan Exploration Co., Sr. Unsec. Gtd. Notes, 11.88%, 11/15/14 | 350,000 | 359,187 | ||||||
Newfield Exploration Co., Sr. Unsec. Sub. Global Notes, 7.13%, 05/15/18 | 220,000 | 218,900 | ||||||
Petrohawk Energy Corp., Sr. Unsec. Gtd. Global Notes, 7.88%, 06/01/15 | 325,000 | 327,437 | ||||||
Plains Exploration & Production Co., Sr. Unsec. Gtd. Notes, 7.75%, 06/15/15 | 90,000 | 89,325 | ||||||
7.63%, 06/01/18 | 95,000 | 93,456 | ||||||
8.63%, 10/15/19 | 100,000 | 101,000 | ||||||
Range Resources Corp., Sr. Unsec. Gtd. Sub. Notes, 7.50%, 05/15/16 | 80,000 | 81,400 | ||||||
7.50%, 10/01/17 | 215,000 | 217,956 | ||||||
Southwestern Energy Co., Sr. Gtd. Global Notes, 7.50%, 02/01/18 | 295,000 | 314,912 | ||||||
3,546,968 | ||||||||
Oil & Gas Refining & Marketing–1.41% | ||||||||
Coffeyville Resources LLC, Sr. Sec. Gtd. Notes, 9.00%, 04/01/15(b) | 40,000 | 39,800 | ||||||
Petroplus Finance Ltd. (Switzerland), Sr. Sec. Gtd. Notes, 6.75%, 05/01/14(b) | 75,000 | 65,625 | ||||||
Tesoro Corp., Sr. Unsec. Gtd. Global Bonds, 6.50%, 06/01/17 | 175,000 | 161,875 | ||||||
Sr. Unsec. Gtd. Global Notes, 6.63%, 11/01/15 | 110,000 | 103,400 | ||||||
United Refining Co., Series 2, Sr. Unsec. Gtd. Global Notes, 10.50%, 08/15/12 | 380,000 | 348,650 | ||||||
719,350 | ||||||||
Oil & Gas Storage & Transportation–2.48% | ||||||||
Copano Energy LLC/ Capano Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.13%, 03/01/16 | 255,000 | 253,725 | ||||||
Inergy L.P./Inergy Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.75%, 03/01/15 | 135,000 | 139,050 | ||||||
8.25%, 03/01/16 | 100,000 | 102,000 | ||||||
MarkWest Energy Partners L.P./MarkWest Energy Finance Corp., Series B, Sr. Unsec. Gtd. Global Notes, 8.75%, 04/15/18 | 215,000 | 219,838 | ||||||
Overseas Shipholding Group, Inc., Sr. Unsec. Notes, 8.13%, 03/30/18 | 180,000 | 177,750 | ||||||
Regency Energy Partners L.P./Regency Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.38%, 12/15/13 | 255,000 | 264,562 | ||||||
Teekay Corp. (Canada), Sr. Unsec. Global Notes, 8.50%, 01/15/20 | 105,000 | 105,000 | ||||||
1,261,925 | ||||||||
Other Diversified Financial Services–0.71% | ||||||||
International Lease Finance Corp., Sr. Unsec. Notes, 8.63%, 09/15/15(b) | 105,000 | 100,275 | ||||||
8.75%, 03/15/17(b) | 220,000 | 210,100 | ||||||
Series R, Sr. Unsec. Medium-Term Notes, 5.65%, 06/01/14 | 60,000 | 53,550 | ||||||
363,925 | ||||||||
Packaged Foods & Meats–0.30% | ||||||||
Chiquita Brands International, Inc., Sr. Unsec. Global Notes, 8.88%, 12/01/15 | 60,000 | 60,375 | ||||||
Del Monte Corp., Sr. Unsec. Gtd. Sub. Notes, 7.50%, 10/15/19(b) | 30,000 | 30,825 | ||||||
Dole Food Co. Inc., Sr. Sec. Notes, 8.00%, 10/01/16(b) | 60,000 | 60,300 | ||||||
151,500 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Paper Packaging–0.60% | ||||||||
Cascades Inc., Sr. Unsec. Gtd. Global Notes, 7.88%, 01/15/20 | $ | 85,000 | $ | 83,300 | ||||
Graham Packaging Co. L.P./GPC Capital Corp. I, Sr. Unsec. Gtd. Notes, 8.25%, 01/01/17(b) | 90,000 | 88,650 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 9.88%, 10/15/14 | 130,000 | 132,600 | ||||||
304,550 | ||||||||
Paper Products–2.03% | ||||||||
Exopack Holding Corp., Sr. Unsec. Gtd. Global Notes, 11.25%, 02/01/14 | 210,000 | 211,838 | ||||||
Mercer International Inc., Sr. Unsec. Global Notes, 9.25%, 02/15/13 | 457,000 | 444,432 | ||||||
Neenah Paper, Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 11/15/14 | 179,000 | 176,315 | ||||||
P.H. Glatfelter Co., Sr. Unsec. Gtd. Notes, 7.13%, 05/01/16(b) | 90,000 | 88,614 | ||||||
PE Paper Escrow GmbH (Austria), Sr. Sec. Gtd. Notes, 12.00%, 08/01/14(b) | 100,000 | 109,750 | ||||||
1,030,949 | ||||||||
Personal Products–0.51% | ||||||||
NBTY, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 7.13%, 10/01/15 | 259,000 | 259,000 | ||||||
Pharmaceuticals–0.34% | ||||||||
Elan Finance PLC/Elan Finance Corp. (Ireland), Sr. Unsec. Gtd. Notes, 8.75%, 10/15/16(b) | 105,000 | 103,031 | ||||||
Valeant Pharmaceuticals International, Sr. Unsec. Notes, 7.63%, 03/15/20(b) | 60,000 | 72,000 | ||||||
175,031 | ||||||||
Property & Casualty Insurance–0.30% | ||||||||
Crum & Forster Holdings Corp., Sr. Unsec. Global Notes, 7.75%, 05/01/17 | 150,000 | 152,250 | ||||||
Publishing–1.89% | ||||||||
Gannett Co. Inc., Sr. Unsec. Gtd. Notes, 8.75%, 11/15/14(b) | 90,000 | 94,725 | ||||||
9.38%, 11/15/17(b) | 275,000 | 292,188 | ||||||
MediMedia USA Inc., Sr. Sub. Notes, 11.38%, 11/15/14(b) | 30,000 | 27,600 | ||||||
Nielsen Finance LLC/Co., Sr. Global Notes, 11.63%, 02/01/14 | 85,000 | 93,075 | ||||||
Sr. Unsec. Gtd. Sub. Disc. Global Notes, 12.50%, 08/01/16(f) | 475,000 | 452,437 | ||||||
Reader’s Digest Association Inc. (The), Sr. Unsec. Gtd. Sub. Global Notes, 9.00%, 02/15/17(d) | 210,000 | 0 | ||||||
960,025 | ||||||||
Railroads–0.47% | ||||||||
Kansas City Southern de Mexico S.A. de C.V. (Mexico), Sr. Unsec. Notes, 8.00%, 02/01/18(b) | 230,000 | 236,509 | ||||||
Regional Banks–1.05% | ||||||||
Regions Financial Corp., Unsec. Sub. Notes, 7.38%, 12/10/37 | 170,000 | 147,847 | ||||||
Susquehanna Capital II, Jr. Gtd. Sub. Notes, 11.00%, 03/23/40 | 175,000 | 181,395 | ||||||
Zions Bancorp., Sr. Unsec. Notes, 7.75%, 09/23/14 | 200,000 | 202,875 | ||||||
532,117 | ||||||||
Semiconductor Equipment–0.51% | ||||||||
Amkor Technology Inc., Sr. Unsec. Gtd. Notes, 9.25%, 06/01/16 | 120,000 | 126,600 | ||||||
Sr. Unsec. Notes, 7.38%, 05/01/18(b) | 135,000 | 132,300 | ||||||
258,900 | ||||||||
Semiconductors–1.47% | ||||||||
Freescale Semiconductor Inc., Sr. Sec. Gtd. Notes, 9.25%, 04/15/18(b) | 55,000 | 54,450 | ||||||
Sr. Unsec. Gtd. Global Notes, 8.88%, 12/15/14 | 435,000 | 401,287 | ||||||
MagnaChip Semiconductor S.A./MagnaChip Semiconductor Finance Co. (South Korea), Sr. Sec. Gtd. Global Notes, 6.88%, 12/15/11(d) | 360,000 | 7,650 | ||||||
NXP BV/NXP Funding LLC (Netherlands), Sr. Sec. Gtd. Global Notes, 7.88%, 10/15/14 | 309,000 | 284,280 | ||||||
747,667 | ||||||||
Specialized Finance–1.21% | ||||||||
CIT Group Inc., Sr. Sec. Bonds, 7.00%, 05/01/14 | 305,000 | 288,987 | ||||||
7.00%, 05/01/17 | 360,000 | 327,600 | ||||||
616,587 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Specialized REIT’s–0.17% | ||||||||
Senior Housing Properties Trust, Sr. Unsec. Notes, 6.75%, 04/15/20 | $ | 85,000 | $ | 84,256 | ||||
Specialty Chemicals–1.14% | ||||||||
Huntsman International LLC, Sr. Gtd. Sub. Notes, 8.63%, 03/15/20(b) | 40,000 | 36,950 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 7.88%, 11/15/14 | 225,000 | 217,125 | ||||||
7.38%, 01/01/15 | 195,000 | 181,350 | ||||||
NewMarket Corp., Sr. Unsec. Gtd. Global Notes, 7.13%, 12/15/16 | 150,000 | 146,813 | ||||||
582,238 | ||||||||
Specialty Stores–0.27% | ||||||||
Michaels Stores, Inc., Sr. Unsec. Gtd. Global Notes, 10.00%, 11/01/14 | 130,000 | 135,525 | ||||||
Steel–0.65% | ||||||||
Metals USA, Inc., Sr. Sec. Gtd. Global Notes, 11.13%, 12/01/15 | 195,000 | 206,700 | ||||||
Steel Dynamics Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 04/15/16 | 120,000 | 121,200 | ||||||
327,900 | ||||||||
Textiles–0.21% | ||||||||
Invista, Sr. Unsec. Notes, 9.25%, 05/01/12(b) | 104,000 | 105,430 | ||||||
Tires & Rubber–1.64% | ||||||||
Cooper Tire & Rubber Co., Sr. Unsec. Notes, 8.00%, 12/15/19 | 185,000 | 184,075 | ||||||
7.63%, 03/15/27 | 370,000 | 333,925 | ||||||
Goodyear Tire & Rubber Co. (The), Sr. Unsec. Gtd. Notes, 8.75%, 08/15/20 | 310,000 | 318,525 | ||||||
836,525 | ||||||||
Trading Companies & Distributors–1.08% | ||||||||
Ashtead Capital Inc., Sr. Sec. Gtd. Notes, 9.00%, 08/15/16(b) | 150,000 | 149,250 | ||||||
H&E Equipment Services Inc., Sr. Unsec. Gtd. Global Notes, 8.38%, 07/15/16 | 145,000 | 137,025 | ||||||
Sunstate Equipment Co., LLC, Sr. Unsec. Notes, 10.50%, 04/01/13(b) | 90,000 | 77,850 | ||||||
United Rentals North America, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 7.75%, 11/15/13 | 25,000 | 24,313 | ||||||
7.00%, 02/15/14 | 170,000 | 160,225 | ||||||
548,663 | ||||||||
Trucking–0.15% | ||||||||
Hertz Corp. (The), Sr. Unsec. Gtd. Global Notes, 8.88%, 01/01/14 | 75,000 | 76,313 | ||||||
Wireless Telecommunication Services–3.87% | ||||||||
Clearwire Communications LLC/Clearwire Finance Inc., Sr. Sec. Gtd. Notes, 12.00%, 12/01/15(b) | 400,000 | 405,000 | ||||||
Cricket Communications, Inc., Sr. Sec. Gtd. Global Notes, 7.75%, 05/15/16 | 100,000 | 102,500 | ||||||
Sr. Unsec. Gtd. Global Notes, 10.00%, 07/15/15 | 70,000 | 72,800 | ||||||
Digicel Group Ltd. (Bermuda), Sr. Unsec. Notes, 8.88%, 01/15/15(b) | 145,000 | 142,462 | ||||||
Digicel Ltd. (Bermuda), Sr. Notes, 8.25%, 09/01/17(b) | 155,000 | 154,419 | ||||||
Sr. Unsec. Notes, 12.00%, 04/01/14(b) | 110,000 | 123,612 | ||||||
MetroPCS Wireless Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 11/01/14 | 105,000 | 108,413 | ||||||
9.25%, 11/01/14 | 95,000 | 98,088 | ||||||
SBA Telecommunications Inc., Sr. Unsec. Gtd. Notes, 8.25%, 08/15/19(b) | 155,000 | 162,556 | ||||||
Sprint Capital Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 11/15/28 | 100,000 | 83,250 | ||||||
Sprint Nextel Corp., Sr. Unsec. Notes, 8.38%, 08/15/17 | 515,000 | 516,287 | ||||||
1,969,387 | ||||||||
Total U.S. Dollar Denominated Bonds & Notes (Cost $45,192,287) | 46,461,752 | |||||||
Non-U.S. Dollar Denominated Bonds & Notes–3.22%(g) | ||||||||
Croatia–0.31% | ||||||||
Agrokor, Sr. Unsec. Medium-Term Euro Notes, 10.00%, 12/07/16 | EUR | 130,000 | 156,618 | |||||
Greece–0.27% | ||||||||
Yioula Glassworks S.A., Sr. Unsec. Gtd. Notes, 9.00%, 12/01/15(b) | EUR | 200,000 | 138,210 | |||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Ireland–0.14% | ||||||||
Ardagh Glass Finance PLC, Sr. Notes, 8.75%, 02/01/20(b) | EUR | 60,000 | $ | 73,203 | ||||
Luxembourg–0.45% | ||||||||
Cirsa Funding Luxembourg S.A., Sr. Gtd. Euro Bonds, 8.75%, 05/15/18(b) | EUR | 50,000 | 56,263 | |||||
Hellas Telecommunications Luxembourg V, Sr. Sec. Gtd. Floating Rate Bonds, 4.84%, 10/15/12(b)(c) | EUR | 459,411 | 169,976 | |||||
226,239 | ||||||||
Netherlands–0.87% | ||||||||
Boats Investments B.V., Sec. PIK Medium-Term Euro Notes, 11.00%, 03/31/17 | EUR | 69,182 | 62,616 | |||||
Carlson Wagonlit B.V., Sr. Gtd. Floating Rate Notes, 6.41%, 05/01/15(b)(c) | EUR | 240,000 | 261,988 | |||||
Ziggo Bond Co. B.V., Sr. Sec. Gtd. Notes, 8.00%, 05/15/18(b) | EUR | 100,000 | 118,335 | |||||
442,939 | ||||||||
Spain–0.23% | ||||||||
Campofrio Food Group S.A., Sr. Unsec. Gtd. Notes, 8.25%, 10/31/16(b) | EUR | 100,000 | 119,252 | |||||
United Kingdom–0.60% | ||||||||
Avis Finance Co. PLC, Sr. Unsec. Gtd. Floating Rate Euro Bonds, 3.28%, 07/31/13(c) | EUR | 110,000 | 123,778 | |||||
EC Finance PLC, Sr. Sec. Gtd. Bonds, 9.75%, 08/01/17(b) | EUR | 50,000 | 60,130 | |||||
Infinis PLC, Sr. Notes, 9.13%, 12/15/14(b) | GBP | 80,000 | 121,297 | |||||
305,205 | ||||||||
United States–0.35% | ||||||||
Hertz Corp. (The), Sr. Unsec. Gtd. Global Notes, 7.88%, 01/01/14 | EUR | 100,000 | 118,029 | |||||
Hertz Holdings Netherlands B.V., Sr. Sec. Bonds, 8.50%, 07/31/15(b) | EUR | 50,000 | 61,403 | |||||
179,432 | ||||||||
Total Non-U.S. Dollar Denominated Bonds & Notes (Cost $1,874,901) | 1,641,098 | |||||||
Bundled Securities–0.56% | ||||||||
Investment Banking & Brokerage–0.56% | ||||||||
Targeted Return Index Securities Trust, Series HY 2006-1, Sec. Variable Rate Bonds, (Acquired 08/15/08; Cost $274,050) (Cost $277,072)(b)(c) | $ | 290,000 | 285,444 | |||||
Shares | ||||||||
Preferred Stocks–0.53% | ||||||||
Diversified Banks–0.30% | ||||||||
Ally Financial, Inc., Series G, 7.00%–Conv. Pfd.(b) | 195 | 151,582 | ||||||
Regional Banks–0.23% | ||||||||
Zions Bancorp., Series E–Variable Rate Pfd.(c)(h) | 4,560 | 118,104 | ||||||
Total Preferred Stocks (Cost $174,992) | 269,686 | |||||||
Common Stocks & Other Equity Interests–0.34% | ||||||||
Broadcasting–0.21% | ||||||||
Adelphia Communications Corp., 10.88%, 10/01/10(i) | — | 4,100 | ||||||
Adelphia Recovery Trust, Series ACC-1(i) | 318,570 | 8,601 | ||||||
Adelphia Recovery Trust, Series ARAHOVA(i) | 109,170 | 25,928 | ||||||
Virgin Media Inc. | 4,129 | 68,913 | ||||||
107,542 | ||||||||
Building Products–0.02% | ||||||||
Nortek, Inc.(h) | 215 | 9,030 | ||||||
Publishing–0.11% | ||||||||
Dex One Corp.(h) | 2,970 | 56,430 | ||||||
Total Common Stocks & Other Equity Interests (Cost $487,727) | 173,002 | |||||||
Principal | ||||||||
Amount | ||||||||
Senior Secured Floating Rate Interest Loans–0.17% | ||||||||
Airlines–0.17% | ||||||||
Evergreen International Aviation, Inc., Sr. Gtd. Floating Rate First Lien Term Loans, 9.00%, 10/31/11 (Cost $90,569)(d) | $ | 90,569 | 85,097 | |||||
Shares | ||||||||
Money Market Funds–3.07% | ||||||||
Liquid Assets Portfolio–Institutional Class(j) | 781,216 | 781,216 | ||||||
Premier Portfolio–Institutional Class(j) | 781,216 | 781,216 | ||||||
Total Money Market Funds (Cost $1,562,432) | 1,562,432 | |||||||
TOTAL INVESTMENTS–99.18% (Cost $49,659,980) | 50,478,511 | |||||||
OTHER ASSETS LESS LIABILITIES–0.82% | 416,367 | |||||||
NET ASSETS–100.00% | $ | 50,894,878 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Investment Abbreviations:
Conv. | – Convertible | |
Ctfs. | – Certificates | |
Cum | – Cumulative | |
Deb. | – Debentures | |
Disc. | – Discounted | |
EUR | – Euro | |
GBP | – British Pound | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
Ltd. | – Limited | |
Pfd. | – Preferred | |
PIK | – Payment in Kind | |
REIT | – Real Estate Investment Trust | |
Sec. | – Secured | |
Sr. | – Senior | |
Sub. | – Subordinated | |
Unsec. | – Unsecured | |
Unsub. | – Unsubordinated |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2010 was $12,803,509, which represented 25.16% of the Fund’s Net Assets. | |
(c) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2010. | |
(d) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The aggregate value of these securities at June 30, 2010 was $671,423, which represented 1.32% of the Fund’s Net Assets. | |
(e) | Zero coupon bond issued at a discount. The interest rate shown represents the yield to maturity at issue. | |
(f) | Step coupon bond issued at discount. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. | |
(g) | Foreign denominated security. Principal amount is denominated in currency indicated. | |
(h) | Non-income producing security. | |
(i) | Non-income producing security acquired as part of the Adelphia Communications bankruptcy reorganization. | |
(j) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By credit quality, based on Net Assets
as of June 30, 2010
AA | 0.2 | % | ||
A | 2.0 | |||
BBB | 6.2 | |||
BB | 28.3 | |||
B | 43.2 | |||
CCC | 13.9 | |||
NR | 4.5 | |||
Cash | 1.7 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $48,097,548) | $ | 48,916,079 | ||
Investments in affiliated money market funds, at value and cost | 1,562,432 | |||
Total investments, at value (Cost $49,659,980) | 50,478,511 | |||
Cash | 218,977 | |||
Foreign currencies, at value (Cost $151,632) | 151,076 | |||
Receivables for: | ||||
Investments sold | 83,100 | |||
Fund shares sold | 112,217 | |||
Dividends and interest | 1,032,731 | |||
Foreign currency contracts | 62,298 | |||
Fund expenses absorbed | 5,406 | |||
Investment for trustee deferred compensation and retirement plans | 26,986 | |||
Other assets | 1,827 | |||
Total assets | 52,173,129 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 1,159,433 | |||
Fund shares reacquired | 22,349 | |||
Accrued fees to affiliates | 33,880 | |||
Accrued other operating expenses | 29,666 | |||
Trustee deferred compensation and retirement plans | 32,923 | |||
Total liabilities | 1,278,251 | |||
Net assets applicable to shares outstanding | $ | 50,894,878 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 56,049,534 | ||
Undistributed net investment income | 7,648,950 | |||
Undistributed net realized gain (loss) | (13,678,094 | ) | ||
Unrealized appreciation | 874,488 | |||
$ | 50,894,878 | |||
Net Assets: | ||||
Series I | $ | 50,463,979 | ||
Series II | $ | 430,899 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 9,335,469 | |||
Series II | 79,844 | |||
Series I: | ||||
Net asset value per share | $ | 5.41 | ||
Series II: | ||||
Net asset value per share | $ | 5.40 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Interest | $ | 2,615,366 | ||
Dividends | 15,891 | |||
Dividends from affiliated money market funds | 347 | |||
Total investment income | 2,631,604 | |||
Expenses: | ||||
Advisory fees | 177,154 | |||
Administrative services fees | 92,979 | |||
Custodian fees | 11,667 | |||
Distribution fees — Series II | 558 | |||
Transfer agent fees | 6,692 | |||
Trustees’ and officers’ fees and benefits | 9,867 | |||
Professional services fees | 21,997 | |||
Other | 9,792 | |||
Total expenses | 330,706 | |||
Less: Fees waived | (61,348 | ) | ||
Net expenses | 269,358 | |||
Net investment income | 2,362,246 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 1,969,009 | |||
Foreign currencies | (26,745 | ) | ||
Foreign currency contracts | 318,314 | |||
2,260,578 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (2,490,719 | ) | ||
Foreign currencies | 1,127 | |||
Foreign currency contracts | (15,645 | ) | ||
(2,505,237 | ) | |||
Net realized and unrealized gain (loss) | (244,659 | ) | ||
Net increase in net assets resulting from operations | $ | 2,117,587 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 2,362,246 | $ | 5,270,463 | ||||
Net realized gain (loss) | 2,260,578 | (16,824 | ) | |||||
Change in net unrealized appreciation (depreciation) | (2,505,237 | ) | 17,080,223 | |||||
Net increase in net assets resulting from operations | 2,117,587 | 22,333,862 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (4,425,953 | ) | |||||
Series II | — | (35,151 | ) | |||||
Total distributions from net investment income | — | (4,461,104 | ) | |||||
Share transactions–net: | ||||||||
Series I | (12,287,497 | ) | 3,004,710 | |||||
Series II | (48,538 | ) | (55,854 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (12,336,035 | ) | 2,948,856 | |||||
Net increase (decrease) in net assets | (10,218,448 | ) | 20,821,614 | |||||
Net assets: | ||||||||
Beginning of period | 61,113,326 | 40,291,712 | ||||||
End of period (includes undistributed net investment income of $7,648,950 and $5,286,704, respectively) | $ | 50,894,878 | $ | 61,113,326 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. High Yield Fund, formerly AIM V.I. High Yield Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is total return, comprised of current income and capital appreciation.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Senior secured floating rate loans and senior secured floating rate debt securities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may reflect appropriate factors such as ratings, tranche type, industry, company performance, spread, individual trading characteristics, institution-size trading in similar groups of securities and other market data. | ||
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the |
Invesco V.I. High Yield Fund
security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
Invesco V.I. High Yield Fund
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Lower-Rated Securities — The Fund normally invests at least 80% of its net assets in lower-quality debt securities, i.e., “junk bonds”. Investments in lower-rated securities or unrated securities of comparable quality tend to be more sensitive to economic conditions than higher rated securities. Junk bonds involve a greater risk of default by the issuer because such securities are generally unsecured and are often subordinated to other creditors’ claims. | |
J. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. | |
K. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
L. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
Invesco V.I. High Yield Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $200 million | 0 | .625% | ||
Next $300 million | 0 | .55% | ||
Next $500 million | 0 | .50% | ||
Over $1 billion | 0 | .45% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.95% and Series II shares to 1.20% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver [and/or expense reimbursement] to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $61,348.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $24,794 for accounting and fund administrative services and reimbursed $68,185 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Invesco V.I. High Yield Fund
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, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 1,849,438 | $ | 155,682 | $ | — | $ | 2,005,120 | ||||||||
Corporate Debt Securities | — | 48,473,391 | 0 | 48,473,391 | ||||||||||||
$ | 1,849,438 | $ | 48,629,073 | $ | 0 | $ | 50,478,511 | |||||||||
Foreign Currency Contracts* | — | 62,298 | — | 62,298 | ||||||||||||
Total Investments | $ | 1,849,438 | $ | 48,691,371 | $ | 0 | $ | 50,540,809 | ||||||||
* | Unrealized appreciation. |
NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure 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. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2010:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign currency contracts(a) | $ | 62,298 | $ | — | ||||
(a) | Values are disclosed on the Statement of Assets and Liabilities under the Foreign currency contracts. |
Effect of Derivative Instruments for the six months ended June 30, 2010
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Foreign Currency | ||||
Contracts* | ||||
Realized Gain | ||||
Currency risk | $ | 318,314 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Currency risk | (15,646 | ) | ||
Total | $ | 302,668 | ||
* | The average value of foreign currency contracts outstanding during the period was $1,831,177. |
Open Foreign Currency Contracts | ||||||||||||||||||||
Settlement | Contract to | Unrealized | ||||||||||||||||||
Date | Deliver | Receive | Value | Appreciation | ||||||||||||||||
8/11/10 | EUR | 1,106,000 | USD | 1,409,403 | $ | 1,352,995 | $ | 56,408 | ||||||||||||
Invesco V.I. High Yield Fund
Closed Foreign Currency Contracts | ||||||||||||||||||||
Closed | Contract to | Realized | ||||||||||||||||||
Date | Deliver | Receive | Value | Gain | ||||||||||||||||
8/11/10 | EUR | 149,000 | USD | 189,874 | $ | 183,984 | $ | 5,890 | ||||||||||||
Total foreign currency contracts | $ | 62,298 | ||||||||||||||||||
Currency Abbreviations: | ||
EUR | – Euro | |
USD | – U.S. Dollar |
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $1,364 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6—Cash Balances
The Fund may borrow for leveraging in an amount up to 5% of the Fund’s total assets (excluding the amount borrowed) at the time the borrowing is made. In doing so, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate. A Fund may not purchase additional securities when any borrowings from banks exceeds 5% of the Fund’s total assets.
NOTE 7—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, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2010 | $ | 10,225,025 | ||
December 31, 2016 | 3,209,402 | |||
December 31, 2017 | 1,834,418 | |||
Total capital loss carryforward | $ | 15,268,845 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
Invesco 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, 2010 was $29,206,522 and $40,221,505, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 2,852,543 | ||
Aggregate unrealized (depreciation) of investment securities | (2,631,786 | ) | ||
Net unrealized appreciation of investment securities | $ | 220,757 | ||
Cost of investments for tax purposes is $50,257,754. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 3,192,322 | $ | 17,080,512 | 9,049,093 | $ | 37,158,640 | ||||||||||
Series II | — | — | 49 | 222 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 862,759 | 4,425,953 | ||||||||||||
Series II | — | — | 6,852 | 35,151 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (5,473,603 | ) | (29,368,009 | ) | (9,123,929 | ) | (38,579,883 | ) | ||||||||
Series II | (9,114 | ) | (48,538 | ) | (19,361 | ) | (91,227 | ) | ||||||||
Net increase (decrease) in share activity | (2,290,395 | ) | $ | (12,336,035 | ) | 775,463 | $ | 2,948,856 | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 80% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. High Yield Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | securities | Dividends | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | |||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 5.22 | $ | 0.22 | $ | (0.03 | ) | $ | 0.19 | $ | — | $ | 5.41 | 3.64 | % | $ | 50,464 | 0.94 | %(d) | 1.16 | %(d) | 8.35 | %(d) | 52 | % | |||||||||||||||||||||||
Year ended 12/31/09 | 3.69 | 0.47 | 1.47 | 1.94 | (0.41 | ) | 5.22 | 52.79 | 60,649 | 0.95 | 1.22 | 10.29 | 125 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 5.74 | 0.49 | (2.00 | ) | (1.51 | ) | (0.54 | ) | 3.69 | (25.69 | ) | 39,918 | 0.95 | 1.22 | 9.19 | 85 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 6.12 | 0.46 | (0.38 | ) | 0.08 | (0.46 | ) | 5.74 | 1.24 | 51,225 | 0.96 | 1.15 | 7.42 | 113 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 6.03 | 0.45 | 0.19 | 0.64 | (0.55 | ) | 6.12 | 10.74 | 58,336 | 0.96 | 1.18 | 7.22 | 135 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 6.45 | 0.43 | (0.26 | ) | 0.17 | (0.59 | ) | 6.03 | 2.72 | 54,731 | 1.01 | 1.16 | 6.58 | 69 | ||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 5.22 | 0.22 | (0.04 | ) | 0.18 | — | 5.40 | 3.45 | 431 | 1.19 | (d) | 1.41 | (d) | 8.10 | (d) | 52 | ||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 3.68 | 0.46 | 1.48 | 1.94 | (0.40 | ) | 5.22 | 52.77 | 464 | 1.20 | 1.47 | 10.04 | 125 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 5.72 | 0.47 | (1.99 | ) | (1.52 | ) | (0.52 | ) | 3.68 | (26.00 | ) | 374 | 1.20 | 1.47 | 8.94 | 85 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 6.09 | 0.44 | (0.38 | ) | 0.06 | (0.43 | ) | 5.72 | 1.01 | 666 | 1.21 | 1.40 | 7.17 | 113 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 6.00 | 0.43 | 0.19 | 0.62 | (0.53 | ) | 6.09 | 10.41 | 919 | 1.21 | 1.43 | 6.97 | 135 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 6.43 | 0.41 | (0.26 | ) | 0.15 | (0.58 | ) | 6.00 | 2.43 | 1,556 | 1.22 | 1.41 | 6.37 | 69 | ||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns 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) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $56,709 and $450 for Series I and Series II shares, respectively. |
Invesco V.I. High Yield Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,036.40 | $ | 4.75 | $ | 1,020.13 | $ | 4.71 | 0.94 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,036.50 | 6.01 | 1,018.89 | 5.96 | 1.19 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. High Yield Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. High Yield Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses, and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investment Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the quality and efficiency of the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the additional resources and talents of the Affiliated Sub-Advisers in managing the Fund.
Invesco V.I. High Yield Fund
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, and against the Lipper VA Underlying Funds — High Current Yield Index. The Board noted that the performance of Series I shares of the Fund was in the first quintile of its performance universe for the one year period and the second quintile for the 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 performance of Series I shares of the Fund was above the performance of the Index for the one, three and five year periods. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was at the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year.
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 mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including one mutual fund advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was above the effective fee rate for the other mutual fund.
Other than the mutual fund described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client accounts in a manner substantially similar to the management of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 also considered the effect this expense limitation would have on the Fund’s estimated total expenses.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above, the advisory fee after fee waivers and expense limitations and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes three breakpoints, and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. High Yield Fund
Invesco V.I. High Yield Securities Fund Semiannual Report to Shareholders ■ June 30, 2010 | ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
MS-VIHYI-SAR-1
Fund Performance
Performance summary
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 2.48 | % | ||
Series II Shares | 2.24 | |||
Barclays Capital U.S. Corporate High Yield 2% Issuer Cap Index▼ (Broad Market/Style-Specific Index) | 4.45 | |||
▼ Lipper Inc.
The Barclays Capital U.S. Corporate High Yield 2% Issuer Cap Index is an unmanaged index that covers U.S. corporate, fixed-rate, non-investment grade debt with at least one year to maturity and at least $150 million in par outstanding. Index weights for each issuer are capped at 2%.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (3/9/84) | 3.94 | % | ||
10 Years | -2.20 | |||
5 Years | 5.71 | |||
1 Year | 21.90 | |||
Series II Shares | ||||
Inception (6/5/00) | -2.41 | % | ||
10 Years | -2.46 | |||
5 Years | 5.46 | |||
1 Year | 21.61 |
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund advised by Morgan Stanley Investment Advisors Inc. were reorganized into Series I and Series II shares, respectively, of Invesco V.I. High Yield Securities Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. High Yield Securities Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return
and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.75% and 2.00%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 2.08% and 2.33%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. High Yield Securities Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus. |
Invesco V.I. High Yield Securities Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Principal | ||||||||
Amount | Value | |||||||
Bonds & Notes–91.8% | ||||||||
Advertising–1.2% | ||||||||
Affinion Group, Inc., 11.50%, 10/15/15 | $ | 295,000 | $ | 310,488 | ||||
Lamar Media Corp., 7.875%, 04/15/18(b) | 70,000 | 70,700 | ||||||
381,188 | ||||||||
Aerospace & Defense–2.0% | ||||||||
Hexcel Corp., 6.75%, 02/01/15 | 145,000 | 142,825 | ||||||
L-3 Communications Corp., 5.875%, 01/15/15 | 200,000 | 198,500 | ||||||
Transdigm, Inc., 7.75%, 07/15/14(b) | 145,000 | 145,725 | ||||||
Triumph Group, Inc., 8.00%, 11/15/17 | 140,000 | 134,750 | ||||||
621,800 | ||||||||
Airlines–0.7% | ||||||||
Continental Airlines 2007-1 Class C Pass Through Trust, 7.339%, 04/19/14 | 106,209 | 102,226 | ||||||
Continental Airlines 2009-1 Class B Pass Through Trust, (Series B), 9.25%, 05/10/17 | 10,000 | 10,456 | ||||||
United Air Lines, Inc., 9.875%, 08/01/13(b) | 95,000 | 98,325 | ||||||
211,007 | ||||||||
Alternative Carriers–0.1% | ||||||||
Intelsat Corp., 9.25%, 06/15/16 | 30,000 | 31,650 | ||||||
Aluminum–1.4% | ||||||||
Century Aluminum Co., 8.00%, 05/15/14 | 35,000 | 33,075 | ||||||
Novelis, Inc. (Canada), 7.25%, 02/15/15 | 430,000 | 419,250 | ||||||
452,325 | ||||||||
Apparel Retail–1.2% | ||||||||
Brown Shoe Co., Inc., 8.75%, 05/01/12 | 330,000 | 334,950 | ||||||
Collective Brands, Inc., 8.25%, 08/01/13 | 50,000 | 50,625 | ||||||
385,575 | ||||||||
Apparel, Accessories & Luxury Goods–0.8% | ||||||||
Oxford Industries, Inc., 11.375%, 07/15/15 | 150,000 | 166,125 | ||||||
Quiksilver, Inc., 6.875%, 04/15/15 | 100,000 | 91,250 | ||||||
257,375 | ||||||||
Asset Management & Custody Banks–0.3% | ||||||||
Apria Healthcare Group, Inc., 12.375%, 11/01/14(b) | 95,000 | 102,244 | ||||||
Auto Parts & Equipment–0.8% | ||||||||
Cooper-Standard Automotive, Inc., 8.50%, 05/01/18(b) | 150,000 | 151,500 | ||||||
Tenneco, Inc., 8.125%, 11/15/15 | 105,000 | 106,313 | ||||||
257,813 | ||||||||
Automobile Manufacturers–1.0% | ||||||||
Ford Motor Co., 7.45%, 07/16/31 | 265,000 | 239,825 | ||||||
General Motors Corp., 8.375%, 07/15/33(c) | 265,000 | 85,463 | ||||||
325,288 | ||||||||
Broadcasting–3.0% | ||||||||
Charter Communications Operating LLC/Charter Communications Operating Capital, 10.875%, 09/15/14(b) | 295,000 | 327,081 | ||||||
DISH DBS Corp., 6.625%, 10/01/14 | 330,000 | 331,650 | ||||||
DISH DBS Corp., 7.00%, 10/01/13 | 130,000 | 134,550 | ||||||
XM Satellite Radio, Inc., 13.00%, 08/01/13(b) | 135,000 | 147,994 | ||||||
941,275 | ||||||||
Building Products–1.5% | ||||||||
Building Materials Corp. of America, 7.50%, 03/15/20(b) | 40,000 | 39,000 | ||||||
Gibraltar Industries, Inc., 8.00%, 12/01/15 | 105,000 | 102,900 | ||||||
Nortek, Inc., 11.00%, 12/01/13 | 115,000 | 120,463 | ||||||
Ply Gem Industries, Inc., 11.75%, 06/15/13 | 200,000 | 209,500 | ||||||
471,863 | ||||||||
Cable & Satellite–2.9% | ||||||||
CSC Holdings, Inc., 8.50%, 06/15/15 | 120,000 | 124,800 | ||||||
CSC Holdings, Inc., 8.625%, 02/15/19 | 445,000 | 470,031 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
Principal | ||||||||
Amount | Value | |||||||
Cable & Satellite–(continued) | ||||||||
Hughes Network Systems LLC/HNS Finance Corp., 9.50%, 04/15/14 | $ | 125,000 | $ | 126,250 | ||||
Virgin Media Finance PLC, 9.125%, 08/15/16 | 205,000 | 213,200 | ||||||
934,281 | ||||||||
Casinos & Gaming–4.2% | ||||||||
Ameristar Casinos, Inc., 9.25%, 06/01/14 | 165,000 | 173,662 | ||||||
Harrah’s Operating Co., Inc., 5.625%, 06/01/15 | 115,000 | 74,750 | ||||||
Harrah’s Operating Co., Inc., 11.25%, 06/01/17 | 135,000 | 142,088 | ||||||
Las Vegas Sands Corp., 6.375%, 02/15/15 | 100,000 | 96,250 | ||||||
MGM Mirage, 6.75%, 04/01/13 | 475,000 | 418,000 | ||||||
MGM Mirage, 13.00%, 11/15/13 | 145,000 | 167,112 | ||||||
Resort at Summerlin LP, (Series B), 13.00%, 12/15/07(c) | 7,210,050 | 0 | ||||||
Scientific Games International, Inc., 9.25%, 06/15/19 | 125,000 | 128,750 | ||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., 7.875%, 05/01/20(b) | 160,000 | 161,200 | ||||||
1,361,812 | ||||||||
Coal & Consumable Fuels–0.6% | ||||||||
Consol Energy, Inc., 8.25%, 04/01/20(b) | 35,000 | 36,794 | ||||||
Foundation PA Coal Co. LLC, 7.25%, 08/01/14 | 140,000 | 143,150 | ||||||
179,944 | ||||||||
Commodity Chemicals–0.4% | ||||||||
Westlake Chemical Corp., 6.625%, 01/15/16 | 130,000 | 125,288 | ||||||
Communications Equipment–0.6% | ||||||||
Avaya, Inc., 9.75%, 11/01/15 | 195,000 | 186,713 | ||||||
Construction & Farm Machinery & Heavy Trucks–2.2% | ||||||||
Case New Holland, Inc., 7.75%, 09/01/13 | 135,000 | 139,050 | ||||||
Case New Holland, Inc., 7.875%, 12/01/17(b) | 75,000 | 76,500 | ||||||
Navistar International Corp., 8.25%, 11/01/21 | 410,000 | 417,175 | ||||||
Oshkosh Corp., 8.50%, 03/01/20 | 75,000 | 78,187 | ||||||
710,912 | ||||||||
Construction Materials–0.5% | ||||||||
Hanson Ltd., 7.875%, 09/27/10 | 100,000 | 100,563 | ||||||
Texas Industries, Inc., 7.25%, 07/15/13 | 55,000 | 53,625 | ||||||
154,188 | ||||||||
Consumer Finance–2.4% | ||||||||
Ally Financial, Inc., 6.875%, 09/15/11 | 190,000 | 194,275 | ||||||
Ally Financial, Inc., 8.00%, 03/15/20(b) | 170,000 | 167,875 | ||||||
Ally Financial, Inc., 8.00%, 11/01/31 | 85,000 | 79,900 | ||||||
Ford Motor Credit Co. LLC, 8.00%, 12/15/16 | 95,000 | 97,137 | ||||||
Ford Motor Credit Co. LLC, 8.125%, 01/15/20 | 215,000 | 220,375 | ||||||
759,562 | ||||||||
Data Processing & Outsourced Services–1.3% | ||||||||
SunGard Data Systems, Inc., 9.125%, 08/15/13 | 280,000 | 286,650 | ||||||
SunGard Data Systems, Inc., 10.25%, 08/15/15 | 60,000 | 61,950 | ||||||
SunGard Data Systems, Inc., 10.625%, 05/15/15 | 65,000 | 69,875 | ||||||
418,475 | ||||||||
Department Stores–0.6% | ||||||||
Macy’s Retail Holdings, Inc., 5.90%, 12/01/16 | 200,000 | 202,000 | ||||||
Distillers & Vintners–0.6% | ||||||||
Constellation Brands, Inc., 7.25%, 05/15/17 | 175,000 | 178,500 | ||||||
Diversified Chemicals–1.2% | ||||||||
Ashland, Inc., 9.125%, 06/01/17 | 175,000 | 193,375 | ||||||
Innophos, Inc., 8.875%, 08/15/14 | 175,000 | 180,469 | ||||||
373,844 | ||||||||
Diversified Commercial & Professional Services–0.3% | ||||||||
ARAMARK Corp., 8.50%, 02/01/15 | 100,000 | 101,750 | ||||||
Diversified Metals & Mining–1.3% | ||||||||
Teck Resources Ltd. (Canada), 10.25%, 05/15/16 | 360,000 | 425,700 | ||||||
Diversified Support Services–0.4% | ||||||||
Travelport LLC, 9.875%, 09/01/14 | 113,000 | 114,695 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
Principal | ||||||||
Amount | Value | |||||||
Electric Utilities–0.7% | ||||||||
Edison Mission Energy, 7.00%, 05/15/17 | $ | 315,000 | $ | 204,750 | ||||
Midwest Generation LLC, (Series B), 8.56%, 01/02/16 | 11,655 | 11,509 | ||||||
216,259 | ||||||||
Electrical Components & Equipment–0.4% | ||||||||
Baldor Electric Co., 8.625%, 02/15/17 | 120,000 | 124,800 | ||||||
Fertilizers & Agricultural Chemicals–0.7% | ||||||||
CF Industries, Inc., 7.125%, 05/01/20 | 210,000 | 216,300 | ||||||
Food Retail–1.1% | ||||||||
SUPERVALU, Inc., 7.50%, 05/15/12 | 110,000 | 113,850 | ||||||
SUPERVALU, Inc., 7.50%, 11/15/14 | 120,000 | 120,300 | ||||||
SUPERVALU, Inc., 8.00%, 05/01/16 | 120,000 | 119,100 | ||||||
353,250 | ||||||||
Gas Utilities–0.6% | ||||||||
Ferrellgas LP, 6.75%, 05/01/14 | 110,000 | 108,625 | ||||||
Suburban Propane Partners, 7.375%, 03/15/20 | 75,000 | 76,125 | ||||||
184,750 | ||||||||
Health Care Services–1.1% | ||||||||
Fresenius Medical Care Capital Trust IV, 7.875%, 06/15/11 | 255,000 | 264,562 | ||||||
Multiplan, Inc., 10.375%, 04/15/16(b) | 52,000 | 53,690 | ||||||
Universal Hospital Services, Inc., (PIK), 8.50%, 06/01/15 | 25,000 | 24,688 | ||||||
342,940 | ||||||||
Health Care Equipment–1.4% | ||||||||
Biomet, Inc., 10.00%, 10/15/17 | 280,000 | 303,100 | ||||||
Fresenius US Finance II, Inc., 9.00%, 07/15/15(b) | 80,000 | 87,200 | ||||||
Invacare Corp., 9.75%, 02/15/15 | 65,000 | 70,200 | ||||||
460,500 | ||||||||
Health Care Facilities–4.1% | ||||||||
Community Health Systems, 8.875%, 07/15/15 | 175,000 | 182,000 | ||||||
HCA, Inc., 5.75%, 03/15/14 | 255,000 | 238,425 | ||||||
HCA, Inc., 6.25%, 02/15/13 | 200,000 | 197,500 | ||||||
HCA, Inc., 7.875%, 02/15/20 | 70,000 | 72,450 | ||||||
HCA, Inc., 9.875%, 02/15/17 | 115,000 | 124,200 | ||||||
Select Medical Corp., 6.143%, 09/15/15(d) | 60,000 | 51,900 | ||||||
Sun Healthcare Group, Inc., 9.125%, 04/15/15 | 130,000 | 136,337 | ||||||
Tenet Healthcare Corp., 7.375%, 02/01/13 | 180,000 | 181,350 | ||||||
Tenet Healthcare Corp., 10.00%, 05/01/18(b) | 135,000 | 149,850 | ||||||
1,334,012 | ||||||||
Heavy Electrical Equipment–0.0% | ||||||||
Ormat Funding Corp., 8.25%, 12/30/20 | — | 0 | ||||||
Homebuilding–1.2% | ||||||||
K Hovnanian Enterprises, Inc., 10.625%, 10/15/16 | 295,000 | 296,475 | ||||||
M/I Homes, Inc., 6.875%, 04/01/12 | 90,000 | 89,550 | ||||||
386,025 | ||||||||
Independent Power Producers & Energy Traders–2.8% | ||||||||
AES Corp. (The), 7.75%, 03/01/14 | 270,000 | 276,075 | ||||||
Ipalco Enterprises, Inc., 8.625%, 11/14/11 | 115,000 | 119,313 | ||||||
Mirant Americas Generation LLC, 8.50%, 10/01/21 | 135,000 | 126,225 | ||||||
NRG Energy, Inc., 7.375%, 02/01/16 | 205,000 | 205,512 | ||||||
RRI Energy, Inc., 7.875%, 06/15/17 | 165,000 | 156,337 | ||||||
883,462 | ||||||||
Industrial Conglomerates–0.8% | ||||||||
RBS Global, Inc./Rexnord LLC, 8.50%, 05/01/18(b) | 255,000 | 247,350 | ||||||
Industrial Gases–0.1% | ||||||||
Airgas, Inc., 7.125%, 10/01/18(b) | 45,000 | 48,431 | ||||||
Integrated Telecommunication Services–6.3% | ||||||||
Frontier Communications Corp., 9.00%, 08/15/31 | 300,000 | 280,125 | ||||||
Intelsat Bermuda Ltd. (PIK) (Bermuda), 11.50%, 02/04/17 | 551,875 | 554,634 | ||||||
Intelsat Jackson Holdings Ltd., 9.50%, 06/15/16 | 110,000 | 116,325 | ||||||
West Corp., 9.50%, 10/15/14 | 275,000 | 279,125 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
Principal | ||||||||
Amount | Value | |||||||
Integrated Telecommunication Services–(continued) | ||||||||
Wind Acquisition Finance SA, 11.75%, 07/15/17(b) | $ | 200,000 | $ | 208,500 | ||||
Wind Acquisition Finance SA (Luxembourg), 12.00%, 12/01/15(b) | 275,000 | 286,000 | ||||||
Windstream Corp., 7.875%, 11/01/17 | 165,000 | 161,288 | ||||||
Windstream Corp., 8.125%, 08/01/13 | 125,000 | 129,531 | ||||||
2,015,528 | ||||||||
Internet Retail–1.8% | ||||||||
Expedia, Inc., 8.50%, 07/01/16 | 270,000 | 292,191 | ||||||
Ticketmaster Entertainment LLC/Ticketmaster Noteco, Inc., 10.75%, 08/01/16 | 260,000 | 280,150 | ||||||
572,341 | ||||||||
Metal & Glass Containers–1.6% | ||||||||
Berry Plastics Corp., 9.50%, 05/15/18(b) | 220,000 | 202,400 | ||||||
Crown Americas LLC/Crown Americas Capital Corp., 7.625%, 11/15/13 | 12,000 | 12,390 | ||||||
Owens-Brockway Glass Container, Inc., 7.375%, 05/15/16 | 115,000 | 120,175 | ||||||
Solo Cup Co., 8.50%, 02/15/14 | 180,000 | 162,450 | ||||||
497,415 | ||||||||
Movies & Entertainment–0.7% | ||||||||
AMC Entertainment, Inc., 8.75%, 06/01/19 | 220,000 | 222,200 | ||||||
Multi-line Insurance–0.5% | ||||||||
Hartford Financial Services Group, Inc., 8.125%, 06/15/38(d) | 165,000 | 151,592 | ||||||
Oil & Gas Drilling–0.2% | ||||||||
Pride International, Inc., 7.375%, 07/15/14 | 75,000 | 74,531 | ||||||
Oil & Gas Equipment & Services–1.2% | ||||||||
Bristow Group, Inc., 7.50%, 09/15/17 | 60,000 | 57,450 | ||||||
Cie Generale de Geophysique-Veritas (France), 7.50%, 05/15/15 | 205,000 | 196,800 | ||||||
Key Energy Services, Inc., 8.375%, 12/01/14 | 140,000 | 139,300 | ||||||
393,550 | ||||||||
Oil & Gas Exploration & Production–10.7% | ||||||||
Atlas Energy Operating Co. LLC/ Atlas Energy Finance Corp., 10.75%, 02/01/18 | 235,000 | 250,863 | ||||||
Chaparral Energy, Inc., 8.875%, 02/01/17 | 140,000 | 130,550 | ||||||
Chesapeake Energy Corp., 6.375%, 06/15/15 | 150,000 | 155,010 | ||||||
Chesapeake Energy Corp., 6.50%, 08/15/17 | 130,000 | 129,350 | ||||||
Chesapeake Energy Corp., 6.875%, 11/15/20 | 10,000 | 10,175 | ||||||
Cimarex Energy Co., 7.125%, 05/01/17 | 220,000 | 222,200 | ||||||
Continental Resources, 7.375%, 10/01/20(b) | 65,000 | 64,675 | ||||||
Continental Resources, 8.25%, 10/01/19 | 50,000 | 52,625 | ||||||
Encore Acquisition Co., 9.50%, 05/01/16 | 90,000 | 95,288 | ||||||
Forest Oil Corp., 7.25%, 06/15/19 | 265,000 | 257,712 | ||||||
Hilcorp Energy I LP/Hilcorp Finance Co., 7.75%, 11/01/15(b) | 305,000 | 298,900 | ||||||
Intergen N.V. (Netherlands), 9.00%, 06/30/17(b) | 285,000 | 286,425 | ||||||
McMoRan Exploration Co, 11.875%, 11/15/14 | 250,000 | 256,562 | ||||||
Newfield Exploration Co., 6.625%, 09/01/14 | 255,000 | 258,187 | ||||||
Newfield Exploration Co., 7.125%, 05/15/18 | 60,000 | 59,700 | ||||||
Petrohawk Energy Corp., 7.875%, 06/01/15 | 175,000 | 176,313 | ||||||
Pioneer Natural Resources Co., 6.65%, 03/15/17 | 215,000 | 218,802 | ||||||
Plains Exploration & Production Co., 7.625%, 06/01/18 | 195,000 | 191,831 | ||||||
Range Resources Corp., 7.50%, 05/15/16 | 110,000 | 111,925 | ||||||
SandRidge Energy, Inc., (144A), 8.00%, 06/01/18(b) | 80,000 | 74,400 | ||||||
Southwestern Energy Co., 7.50%, 02/01/18 | 120,000 | 128,100 | ||||||
3,429,593 | ||||||||
Oil & Gas Refining & Marketing–1.0% | ||||||||
Tesoro Corp., 6.50%, 06/01/17 | 170,000 | 157,250 | ||||||
United Refining Co., (Series 2), 10.50%, 08/15/12 | 165,000 | 151,388 | ||||||
308,638 | ||||||||
Oil & Gas Storage & Transportation–2.7% | ||||||||
Copano Energy LLC/Copano Energy Finance Corp., 8.125%, 03/01/16 | 155,000 | 154,225 | ||||||
El Paso Corp., 6.875%, 06/15/14 | 115,000 | 117,300 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
Principal | ||||||||
Amount | Value | |||||||
Oil & Gas Storage & Transportation–(continued) | ||||||||
El Paso Corp., 12.00%, 12/12/13 | $ | 25,000 | $ | 29,000 | ||||
Inergy LP, 8.25%, 03/01/16 | 125,000 | 127,500 | ||||||
MarkWest Energy Partners LP/ MarkWest Energy Finance Corp., (Series B), 8.75%, 04/15/18 | 160,000 | 163,600 | ||||||
Regency Energy Partners, 8.375%, 12/15/13 | 85,000 | 88,187 | ||||||
Sonat, Inc., 7.625%, 07/15/11 | 170,000 | 175,525 | ||||||
855,337 | ||||||||
Other Diversified Financial Services–2.4% | ||||||||
Bank of America Corp., 8.00%,10/30/49(d)(e) | 190,000 | 182,400 | ||||||
International Lease Finance Corp., 8.625%, 09/15/15(b) | 235,000 | 224,425 | ||||||
International Lease Finance Corp., 8.75%, 03/15/17(b) | 94,000 | 89,770 | ||||||
NSG Holdings LLC/NSG Holdings, Inc., 7.75%, 12/15/25(b) | 315,000 | 279,562 | ||||||
776,157 | ||||||||
Packaged Foods & Meats–0.5% | ||||||||
JBS USA LLC/JBS USA Finance, Inc., 11.625%, 05/01/14 | 140,000 | 157,500 | ||||||
Paper Packaging–1.8% | ||||||||
Cascades, Inc, 7.875%, 01/15/20 | 145,000 | 142,100 | ||||||
Graham Packaging Co. LP/GPC Capital Corp. I, 9.875%, 10/15/14 | 210,000 | 214,200 | ||||||
Graphic Packaging International, Inc., 9.50%, 08/15/13 | 200,000 | 204,000 | ||||||
560,300 | ||||||||
Paper Products–2.1% | ||||||||
Georgia-Pacific LLC, 7.125%, 01/15/17(b) | 265,000 | 271,625 | ||||||
Georgia-Pacific LLC, 8.25%, 05/01/16(b) | 65,000 | 69,875 | ||||||
Mercer International, Inc., 9.25%, 02/15/13 | 210,000 | 204,225 | ||||||
PH Glatfelter Co., 7.125%, 05/01/16 | 110,000 | 108,305 | ||||||
654,030 | ||||||||
Pharmaceuticals–0.3% | ||||||||
Axcan Intermediate Holdings, Inc., 12.75%, 03/01/16 | 110,000 | 111,788 | ||||||
Publishing–0.9% | ||||||||
Gannett Co., Inc., 9.375%, 11/15/17(b) | 95,000 | 100,938 | ||||||
Nielsen Finance LLC/Nielsen Finance Co., 10.00%, 08/01/14 | 185,000 | 190,087 | ||||||
291,025 | ||||||||
Railroads–0.3% | ||||||||
Kansas City Southern de Mexico SA de CV (Mexico), 8.00%, 02/01/18(b) | 95,000 | 97,689 | ||||||
Semiconductors–0.9% | ||||||||
Freescale Semiconductor, Inc., 9.125%, 12/15/14 | 190,000 | 171,475 | ||||||
Freescale Semiconductor, Inc., 9.25%, 04/15/18(b) | 109,000 | 107,910 | ||||||
279,385 | ||||||||
Specialized Finance–1.7% | ||||||||
CIT Group, Inc., 7.00%, 05/01/17 | 580,000 | 527,800 | ||||||
Specialty Chemicals–0.5% | ||||||||
Huntsman International LLC, 7.375%, 01/01/15 | 190,000 | 176,700 | ||||||
Specialty Stores–0.5% | ||||||||
Michaels Stores, Inc., 13.00%, 11/01/16(f) | 175,000 | 157,063 | ||||||
Systems Software–1.4% | ||||||||
Vangent, Inc., 9.625%, 02/15/15 | 460,000 | 442,175 | ||||||
Tires & Rubber–0.4% | ||||||||
Cooper Tire and Rubber Co., 8.00%, 12/15/19 | 140,000 | 139,650 | ||||||
Trading Companies & Distributors–0.5% | ||||||||
H&E Equipment Services, Inc., 8.375%, 07/15/16 | 160,000 | 151,200 | ||||||
Trucking–0.4% | ||||||||
Hertz Corp. (The), 8.875%, 01/01/14 | 120,000 | 122,100 | ||||||
Wireless Telecommunication Services–2.0% | ||||||||
Nextel Communications, Inc., (Series E), 6.875%, 10/31/13 | 370,000 | 363,525 | ||||||
Sprint Capital Corp., 6.90%, 05/01/19 | 315,000 | 287,437 | ||||||
650,962 | ||||||||
Total Bonds & Notes (Cost $35,033,856) | 29,281,395 | |||||||
Senior Secured Floating Rate Interest Loans–1.6% | ||||||||
Casinos & Gaming–1.0% | ||||||||
CCM Merger Corp., 8.50%, 07/13/12(d) | 315,369 | 310,049 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
Principal | ||||||||
Amount | Value | |||||||
Independent Power Producers & Energy Traders–0.6% | ||||||||
Calpine Corp., 3.165%, 03/29/14(d) | $ | 249,038 | $ | 228,816 | ||||
Total Senior Secured Floating Rate Interest Loans (Cost $492,254) | 538,865 | |||||||
Shares | ||||||||
Preferred Stocks–0.7% | ||||||||
Diversified Banks–0.4% | ||||||||
Ally Financial, Inc.(b) | 172 | 133,703 | ||||||
Regional Banks–0.3% | ||||||||
Zions Bancorporation | 3,150 | 81,585 | ||||||
Total Preferred Stocks (Cost $152,236) | 215,288 | |||||||
Common Stocks–0.1% | ||||||||
Communications Equipment–0.1% | ||||||||
Orbcomm, Inc.(g) | 6,198 | 11,280 | ||||||
Wireless Telecommunication Services–0.0% | ||||||||
USA Mobility, Inc. | 521 | 6,731 | ||||||
Total Common Stocks (Cost $0) | 18,011 | |||||||
Money Market Funds–1.7% | ||||||||
Liquid Assets Portfolio–Institutional Class(h) | 267,119 | 267,119 | ||||||
Premier Portfolio–Institutional Class(h) | 267,119 | 267,119 | ||||||
Total Money Market Funds (Cost $534,238) | 534,238 | |||||||
TOTAL INVESTMENTS (Cost $36,212,584)–95.9% | 30,587,797 | |||||||
OTHER ASSETS LESS LIABILITIES–4.1% | 1,320,000 | |||||||
NET ASSETS–100.0% | $ | 31,907,797 | ||||||
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2010 was $4,908,256 which represented 15.4% of the Fund’s Net Assets. | |
(c) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The aggregate value of these securities at June 30, 2010 was $85,463, which represented 0.3% of the Fund’s Net Assets. | |
(d) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2010. | |
(e) | Perpetual bond with no specified maturity date. | |
(f) | Step coupon bond. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. | |
(g) | Non-income producing security. | |
(h) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By credit quality, based on Net Assets
as of June 30, 2010
BBB | 4.0 | % | ||
BB | 42.2 | |||
B | 37.7 | |||
CCC | 9.8 | |||
NR | 1.4 | |||
Cash | 4.9 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $35,678,346) | $ | 30,053,559 | ||
Investments in affiliated money market funds, at value and cost | 534,238 | |||
Total investments, at value (Cost $36,212,584) | 30,587,797 | |||
Cash | 6,303 | |||
Receivable for: | ||||
Investments sold | 2,468,340 | |||
Dividends | 607,223 | |||
Fund expenses absorbed | 133,186 | |||
Other Assets | 3,725 | |||
Total assets | 33,806,574 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 1,418,673 | |||
Fund shares reacquired | 200,999 | |||
Accrued fees to affiliates | 10,161 | |||
Accrued other operating expenses | 267,568 | |||
Trustee deferred compensation and retirement plans | 1,376 | |||
Total liabilities | 1,898,777 | |||
Net assets applicable to shares outstanding | $ | 31,907,797 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 285,357,059 | ||
Undistributed net investment income | 819,564 | |||
Undistributed net realized gain (loss) | (248,644,039 | ) | ||
Unrealized appreciation (depreciation) | (5,624,787 | ) | ||
$ | 31,907,797 | |||
Net Assets: | ||||
Series I | $ | 15,728,618 | ||
Series II | $ | 16,179,179 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 14,866,839 | |||
Series II | 15,289,494 | |||
Series I: | ||||
Net asset value per share | $ | 1.06 | ||
Series II: | ||||
Net asset value per share | $ | 1.06 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment Income: | ||||
Interest | $ | 1,524,563 | ||
Dividends | 6,065 | |||
Dividends from affiliated money market funds | 1,068 | |||
Income from securities loaned | 4,371 | |||
Total investment income | 1,536,067 | |||
Expenses | ||||
Advisory fees | 68,917 | |||
Administrative services fees | 21,706 | |||
Custodian fees | 1,904 | |||
Distribution fees — Series II | 20,670 | |||
Transfer agent fees | 250 | |||
Trustees’ and officers’ fees and benefits | 2,651 | |||
Professional fees | 299,221 | |||
Other | 26,492 | |||
Total expenses | 441,811 | |||
Less: Fees waived | (134,042 | ) | ||
Net expenses | 307,769 | |||
Net investment income | 1,228,298 | |||
Realized and unrealized gain (loss) from: | ||||
Realized gain (loss) from investment securities | (45,271,531 | ) | ||
Net change in unrealized appreciation of investment securities | 44,814,280 | |||
Net realized and unrealized gain (loss) | (457,251 | ) | ||
Net increase in net assets resulting from operations | $ | 771,047 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, 2010 | December 31, 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,228,298 | $ | 2,629,901 | ||||
Net realized gain (loss) | (45,271,531 | ) | (2,347,089 | ) | ||||
Change in net unrealized appreciation | 44,814,280 | 10,752,985 | ||||||
Net increase in net assets resulting from operations | 771,047 | 11,035,797 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (1,323,198 | ) | (1,215,369 | ) | ||||
Series II | (1,325,494 | ) | (1,195,423 | ) | ||||
Total distributions from net investment income | (2,648,692 | ) | (2,410,792 | ) | ||||
Net increase (decrease) from in net assets resulting from share transactions | 238,838 | (2,278,057 | ) | |||||
Net increase (decrease) in net assets | (1,638,807 | ) | 6,346,948 | |||||
Net Assets: | ||||||||
Beginning of period | 33,546,604 | 27,199,656 | ||||||
End of period (includes undistributed net investment income of $819,564 and $2,239,958, respectively) | $ | 31,907,797 | $ | 33,546,604 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. High Yield Securities Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
Prior to June 1, 2010, the Fund operated as Morgan Stanley Variable Investment Series - High Yield Portfolio (the “Acquired Fund”), an investment portfolio of Morgan Stanley Variable Investment Series. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class X and Class Y shares received Series I and Series II shares, respectively of the Fund.
Information for the Acquired Fund’s — Class X and Class Y shares prior to the Reorganization are included with Series I and Series II shares, respectively, of the Fund throughout this report.
The Fund’s primary investment objective is to provide a high level of current income by investing in a diversified portfolio consisting principally of fixed-income securities, which may include both non-convertible and convertible debt securities and preferred stocks. As a secondary objective the Fund will seek capital appreciation, but only when consistent with its primary objective.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. |
Invesco V.I. High Yield Securities Fund
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 ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. |
Invesco V.I. High Yield Securities Fund
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Lower-Rated Securities — The Fund normally invests at least 80% of its net assets in lower-quality debt securities, i.e., “junk bonds”. Investments in lower-rated securities or unrated securities of comparable quality tend to be more sensitive to economic conditions than higher rated securities. Junk bonds involve a greater risk of default by the issuer because such securities are generally unsecured and are often subordinated to other creditors’ claims. | |
J. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $500 million | 0 | .42% | ||
Next $250 million | 0 | .345% | ||
Next $250 billion | 0 | .295% | ||
Next $1 billion | 0 | .27% | ||
Next $1 billion | 0 | .245% | ||
Over $3 billion | 0 | .22% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee to Morgan Stanley Investment Advisors Inc. (“MSIA”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 1.75% and Series II shares to 2.00% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above:
Invesco V.I. High Yield Securities Fund
(1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waiver or reimbursements prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds. Prior to the Reorganization, investment advisory fees paid by the Acquired Fund were reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class shares.
For the six months ended June 30, 2010, the Adviser and MSIA waived advisory fees of $133,179 and $863, respectively.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the period ended June 30, 2010, Invesco was paid $4,110 for accounting and fund administrative services and reimbursed $6,571 for services provided by insurance companies. Prior to the Reorganization, the Acquired Fund paid an administration fee of $11,025 to Morgan Stanley Services Company, Inc.
Also, the Trust has entered into service agreements with State Street Bank & Trust Company (“SSB”) serves as custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. Prior to the Reorganization, the Acquired Fund paid $208 to Morgan Stanley Trust, which served as the Acquired Fund’s transfer agent. For the six months ended June 30, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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. Prior to the Reorganization, the Acquired Fund paid distribution fees $17,330 to Morgan Stanley Distributors Inc. based on the annual rate of 0.25% of the Acquired Fund’s average daily net assets of Class Y shares. For the six months ended June 30, 2010, expenses incurred under the Plans are detailed in the Statement of Operations as distribution fees.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 633,834 | $ | 133,703 | $ | — | $ | 767,537 | ||||||||
Corporate Debt Securities | — | 29,820,260 | 0 | 29,820,260 | ||||||||||||
Total Investments | $ | 633,834 | $ | 29,953,963 | $ | 0 | $ | 30,587,797 | ||||||||
Invesco V.I. High Yield Securities Fund
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—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, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2010 | $ | 63,495,000 | ||
December 31, 2011 | 81,458,000 | |||
December 31, 2012 | 24,098,000 | |||
December 31, 2013 | 15,737,000 | |||
December 31, 2014 | 6,219,000 | |||
December 31, 2016 | 1,794,000 | |||
December 31, 2017 | 10,401,000 | |||
Total capital loss carryforward | $ | 203,202,000 | ||
* | 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, 2010 was $14,211,456 and $15,697,997, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 1,737,020 | ||
Aggregate unrealized (depreciation) of investment securities | (7,369,549 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (5,632,529 | ) | |
Cost of investments for tax purposes is 36,220,326. |
Invesco V.I. High Yield Securities Fund
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Series I | ||||||||||||||||
Sold | 203,334 | $ | 228,309 | 885,547 | $ | 849,248 | ||||||||||
Reinvestment of dividends and distributions | 1,272,306 | 1,323,198 | 1,279,336 | 1,215,369 | ||||||||||||
Redeemed | (1,511,833 | ) | (1,718,352 | ) | (2,812,285 | ) | (2,762,208 | ) | ||||||||
Net increase (decrease) — Series I | (36,193 | ) | (166,845 | ) | (647,402 | ) | (697,591 | ) | ||||||||
Series II | ||||||||||||||||
Sold | 289,370 | 312,665 | 408,859 | 415,103 | ||||||||||||
Reinvestment of dividends and distributions | 1,274,514 | 1,325,494 | 1,258,340 | 1,195,423 | ||||||||||||
Redeemed | (1,100,086 | ) | (1,232,476 | ) | (3,277,685 | ) | (3,190,992 | ) | ||||||||
Net increase (decrease) — Series II | 463,798 | 405,683 | (1,610,486 | ) | (1,580,466 | ) | ||||||||||
Net increase in (decrease) in share activity | 427,605 | $ | 238,838 | (2,257,888 | ) | $ | (2,278,057 | ) | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 94% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or advisor, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Six months ended | ||||||||||||||||||||||||
June 30, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Series I | ||||||||||||||||||||||||
Selected Per Share Data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 1.13 | $ | 0.85 | $ | 1.13 | $ | 1.16 | $ | 1.14 | $ | 1.20 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.04 | 0.09 | 0.07 | 0.08 | 0.08 | 0.08 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.01 | ) | 0.27 | (0.33 | ) | (0.03 | ) | 0.02 | (0.06 | ) | ||||||||||||||
Total income (loss) from investment operations | 0.03 | 0.36 | (0.26 | ) | 0.05 | 0.10 | 0.02 | |||||||||||||||||
Less dividends from net investment income | (0.10 | ) | (0.08 | ) | (0.02 | ) | (0.08 | ) | (0.08 | ) | (0.08 | ) | ||||||||||||
Net asset value, end of period | $ | 1.06 | $ | 1.13 | $ | 0.85 | $ | 1.13 | $ | 1.16 | $ | 1.14 | ||||||||||||
Total return(b) | 2.48 | % | 44.56 | % | (23.13 | )% | 4.17 | % | 9.29 | % | 2.18 | % | ||||||||||||
Net assets, end of period, (000’s omitted) | $ | 15,729 | $ | 16,824 | $ | 13,226 | $ | 21,625 | $ | 27,907 | $ | 35,226 | ||||||||||||
Ratios to Average Net Assets: | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 1.75 | %(c) | 1.74 | %(d) | 1.48 | %(d) | 1.18 | % | 0.95 | % | 0.87 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 2.57 | %(c) | 1.75 | %(d) | 1.48 | %(d) | 1.18 | % | 0.95 | % | 0.87 | % | ||||||||||||
Net investment income | 7.61 | %(c) | 8.76 | %(d) | 6.90 | %(d) | 6.48 | % | 6.78 | % | 6.81 | % | ||||||||||||
Rebate from affiliates | — | 0.01 | % | 0.00 | %(e) | — | — | — | ||||||||||||||||
Supplemental Data: | ||||||||||||||||||||||||
Portfolio turnover rate(f) | 46 | % | 75 | % | 44 | % | 26 | % | 23 | % | 48 | % | ||||||||||||
(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 return. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $16,419. | |
(d) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(e) | Amount is less than 0.005%. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
Invesco V.I. High Yield Securities Fund
Six months ended | ||||||||||||||||||||||||
June 30, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Series II | ||||||||||||||||||||||||
Selected Per Share Data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 1.13 | $ | 0.85 | $ | 1.13 | $ | 1.16 | $ | 1.14 | $ | 1.20 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.04 | 0.08 | 0.07 | 0.07 | 0.08 | 0.08 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.02 | ) | 0.28 | (0.33 | ) | (0.03 | ) | 0.02 | (0.06 | ) | ||||||||||||||
Total income (loss) from investment operations | 0.02 | 0.36 | (0.26 | ) | 0.04 | 0.10 | 0.02 | |||||||||||||||||
Less dividends from net investment income | (0.09 | ) | (0.08 | ) | (0.02 | ) | (0.07 | ) | (0.08 | ) | (0.08 | ) | ||||||||||||
Net asset value, end of period | $ | 1.06 | $ | 1.13 | $ | 0.85 | $ | 1.13 | $ | 1.16 | $ | 1.14 | ||||||||||||
Total return(b) | 2.24 | % | 44.27 | % | (23.20 | )% | 3.90 | % | 9.01 | % | 1.92 | % | ||||||||||||
Net assets, end of period, (000’s omitted) | $ | 16,179 | $ | 16,723 | $ | 13,973 | $ | 24,433 | $ | 30,764 | $ | 35,551 | ||||||||||||
Ratios to Average Net Assets: | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 2.00 | %(c) | 1.99 | %(d) | 1.73 | %(d) | 1.43 | % | 1.20 | % | 1.12 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 2.82 | %(c) | 2.00 | %(d) | 1.73 | %(d) | 1.43 | % | 1.20 | % | 1.12 | % | ||||||||||||
Net investment income | 7.36 | %(c) | 8.51 | %(d) | 6.65 | %(d) | 6.23 | % | 6.53 | % | 6.56 | % | ||||||||||||
Rebate from affiliates | — | 0.01 | % | 0.00 | %(e) | — | — | — | ||||||||||||||||
Supplemental Data: | ||||||||||||||||||||||||
Portfolio turnover rate(f) | 46 | % | 75 | % | 44 | % | 26 | % | 23 | % | 48 | % | ||||||||||||
(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 return. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $16,670. | |
(d) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(e) | Amount is less than 0.005%. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
NOTE 10—Change in Independent Registered Public Accounting Firm
The Fund is a new fund that was formed to acquire the assets and liabilities of a predecessor fund in a shell fund reorganization (the “Reorganization”). In connection with the organization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
Invesco V.I. High Yield 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, 2010 through June 30, 2010.
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 only, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,024.80 | $ | 8.79 | $ | 1,016.12 | $ | 8.75 | 1.75 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,022.40 | 10.03 | 1,014.88 | 9.99 | 2.00 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. High Yield Securities Fund
Approval of Investment Advisory and Sub-Advisory Agreements With Invesco Advisers, Inc. and Its Affiliates |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco V.I. High Yield Securities Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Morgan Stanley retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-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 the 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. The Board noted that the Fund’s contractual advisory fee schedule provides for
breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services.
Invesco V.I. High Yield Securities Fund
The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are 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 Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. High Yield Securities Fund
Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Morgan Stanley Variable Investment Series — High Yield Portfolio was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 26,367,409 | 1,046,234 | 2,021,109 | 0 |
Invesco V.I. High Yield Securities Fund
Invesco V.I. Income Builder Fund Semiannual Report to Shareholders ■ June 30, 2010 | ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
MS-VIIBU-SAR-1
Fund Performance
Performance summary
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | –5.02 | % | ||
Series II Shares | –5.18 | |||
Russell 1000 Value Index▼(Broad Market Index) | –5.12 | |||
Barclays Capital U.S. Government/Credit Index▼(Style-Specific Index) | 5.49 | |||
▼ Lipper Inc.
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Barclays Capital U.S. Government/Credit Index includes treasuries and agencies that represent the government portion of the index, and includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements to represent the credit interests.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (1/21/97) | 4.88 | % | ||
10 Years | 3.87 | |||
5 Years | 1.70 | |||
1 Year | 15.83 | |||
Series II Shares | ||||
Inception (6/5/00) | 3.26 | % | ||
10 Years | 3.60 | |||
5 Years | 1.44 | |||
1 Year | 15.45 |
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund advised by Morgan Stanley Investment Advisors Inc. were reorganized into Series I and Series II shares, respectively, of Invesco V.I. Income Builder Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. Income Builder Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.02% and 1.27%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.35% and 1.60%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Income Builder Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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, 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus. |
Invesco V.I. Income Builder Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–70.9% | ||||||||
Aerospace & Defense–0.3% | ||||||||
General Dynamics Corp. | 1,636 | $ | 95,804 | |||||
Air Freight & Logistics–0.5% | ||||||||
FedEx Corp. | 2,020 | 141,622 | ||||||
Apparel Retail–0.7% | ||||||||
Gap, Inc. (The) | 9,908 | 192,810 | ||||||
Asset Management & Custody Banks–1.0% | ||||||||
Janus Capital Group, Inc. | 10,554 | 93,719 | ||||||
State Street Corp. | 5,580 | 188,716 | ||||||
282,435 | ||||||||
Automobile Manufacturers–0.4% | ||||||||
Ford Motor Co.(b) | 11,929 | 120,244 | ||||||
Biotechnology–0.9% | ||||||||
Genzyme Corp.(b) | 5,004 | 254,053 | ||||||
Cable & Satellite–2.1% | ||||||||
Comcast Corp. (Class A) | 19,760 | 343,231 | ||||||
Time Warner Cable, Inc. | 4,981 | 259,411 | ||||||
602,642 | ||||||||
Communications Equipment–1.0% | ||||||||
Cisco Systems, Inc.(b) | 13,578 | 289,347 | ||||||
Computer Hardware–2.1% | ||||||||
Dell, Inc.(b) | 18,683 | 225,317 | ||||||
Hewlett-Packard Co. | 8,774 | 379,739 | ||||||
605,056 | ||||||||
Consumer Electronics–0.7% | ||||||||
Sony Corp. (ADR) (Japan) | 8,194 | 218,616 | ||||||
Data Processing & Outsourced Services–0.6% | ||||||||
Western Union Co. (The) | 12,589 | 187,702 | ||||||
Diversified Banks–1.2% | ||||||||
US Bancorp | 6,112 | 136,603 | ||||||
Wells Fargo & Co. | 8,947 | 229,043 | ||||||
365,646 | ||||||||
Diversified Chemicals–1.2% | ||||||||
Dow Chemical Co. (The) | 9,043 | 214,500 | ||||||
PPG Industries, Inc. | 2,405 | 145,286 | ||||||
359,786 | ||||||||
Diversified Metals & Mining–0.4% | ||||||||
Freeport-McMoRan Copper & Gold, Inc. | 2,116 | 125,119 | ||||||
Diversified Support Services–0.4% | ||||||||
Cintas Corp. | 4,714 | 112,995 | ||||||
Drug Retail–0.6% | ||||||||
Walgreen Co. | 6,452 | 172,268 | ||||||
Electric Utilities–3.0% | ||||||||
American Electric Power Co., Inc. | 13,715 | 442,994 | ||||||
Edison International | 2,983 | 94,621 | ||||||
Entergy Corp. | 2,273 | 162,792 | ||||||
FirstEnergy Corp. | 4,877 | 171,817 | ||||||
872,224 | ||||||||
Food Distributors–0.8% | ||||||||
Sysco Corp. | 8,369 | 239,102 | ||||||
Health Care Distributors–0.5% | ||||||||
Cardinal Health, Inc. | 4,281 | 143,884 | ||||||
Health Care Equipment–0.9% | ||||||||
Covidien PLC (Ireland) | 6,686 | 268,644 | ||||||
Home Improvement Retail–1.2% | ||||||||
Home Depot, Inc. | 12,464 | 349,865 | ||||||
Human Resource & Employment Services–0.7% | ||||||||
Manpower, Inc. | 2,636 | 113,822 | ||||||
Robert Half International, Inc. | 4,136 | 97,403 | ||||||
211,225 | ||||||||
Hypermarkets & Super Centers–1.2% | ||||||||
Wal-Mart Stores, Inc. | 7,658 | 368,120 | ||||||
Industrial Conglomerates–4.2% | ||||||||
General Electric Co. | 48,205 | 695,116 | ||||||
Siemens AG (ADR) (Germany) | 2,559 | 229,108 | ||||||
Tyco International Ltd. | 8,792 | 309,742 | ||||||
1,233,966 | ||||||||
Industrial Machinery–1.5% | ||||||||
Dover Corp. | 5,472 | 228,675 | ||||||
Ingersoll-Rand PLC (Ireland) | 5,882 | 202,870 | ||||||
431,545 | ||||||||
Insurance Brokers–2.3% | ||||||||
Marsh & McLennan Cos., Inc. | 29,560 | 666,578 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Income Builder Fund
Shares | Value | |||||||
Integrated Oil & Gas–5.2% | ||||||||
ConocoPhillips | 4,731 | $ | 232,245 | |||||
Exxon Mobil Corp. | 3,617 | 206,422 | ||||||
Hess Corp. | 4,250 | 213,945 | ||||||
Occidental Petroleum Corp. | 6,407 | 494,300 | ||||||
Royal Dutch Shell PLC (ADR) (United Kingdom) | 7,597 | 381,521 | ||||||
1,528,433 | ||||||||
Integrated Telecommunication Services–0.7% | ||||||||
Verizon Communications, Inc. | 7,157 | 200,539 | ||||||
Internet Software & Services–2.3% | ||||||||
eBay, Inc.(b) | 23,790 | 466,522 | ||||||
Yahoo!, Inc.(b) | 15,811 | 218,666 | ||||||
685,188 | ||||||||
Investment Banking & Brokerage–1.0% | ||||||||
Charles Schwab Corp. (The) | 20,419 | 289,542 | ||||||
IT Consulting & Other Services–0.7% | ||||||||
Amdocs Ltd.(b) | 7,432 | 199,549 | ||||||
Life & Health Insurance–0.5% | ||||||||
Principal Financial Group, Inc. | 6,151 | 144,180 | ||||||
Managed Health Care–1.0% | ||||||||
UnitedHealth Group, Inc. | 10,343 | 293,741 | ||||||
Motorcycle Manufacturers–0.3% | ||||||||
Harley-Davidson, Inc. | 4,642 | 103,192 | ||||||
Movies & Entertainment–3.4% | ||||||||
Time Warner, Inc. | 13,407 | 387,596 | ||||||
Viacom, Inc. (Class B) | 19,089 | 598,822 | ||||||
986,418 | ||||||||
Multi-Utilities–1.6% | ||||||||
PG&E Corp. | 11,467 | 471,277 | ||||||
Office Services & Supplies–0.4% | ||||||||
Avery Dennison Corp. | 3,752 | 120,552 | ||||||
Oil & Gas Equipment & Services–0.9% | ||||||||
Schlumberger Ltd. | 4,559 | 252,295 | ||||||
Oil & Gas Exploration & Production–1.8% | ||||||||
Anadarko Petroleum Corp. | 6,179 | 223,000 | ||||||
Devon Energy Corp. | 3,232 | 196,894 | ||||||
Noble Energy, Inc. | 1,643 | 99,122 | ||||||
519,016 | ||||||||
Other Diversified Financial Services–6.0% | ||||||||
Bank of America Corp. | 36,086 | 518,556 | ||||||
Citigroup, Inc. | 57,078 | 214,613 | ||||||
JPMorgan Chase & Co. | 27,869 | 1,020,284 | ||||||
1,753,453 | ||||||||
Packaged Foods & Meats–2.1% | ||||||||
Kraft Foods, Inc. (Class A) | 16,258 | 455,224 | ||||||
Unilever N.V. (NY Registered Shares) (Netherlands) | 5,635 | 153,948 | ||||||
609,172 | ||||||||
Personal Products–0.7% | ||||||||
Avon Products, Inc. | 8,042 | 213,113 | ||||||
Pharmaceuticals–5.6% | ||||||||
Abbott Laboratories | 3,425 | 160,221 | ||||||
Bayer AG (ADR) (Germany) | 4,013 | 225,623 | ||||||
Bristol-Myers Squibb Co. | 15,806 | 394,202 | ||||||
Merck & Co., Inc. | 9,688 | 338,789 | ||||||
Pfizer, Inc. | 20,010 | 285,343 | ||||||
Roche Holding AG (ADR) (Switzerland) | 6,472 | 223,716 | ||||||
1,627,894 | ||||||||
Property & Casualty Insurance–0.8% | ||||||||
Chubb Corp. | 4,929 | 246,499 | ||||||
Regional Banks–2.7% | ||||||||
BB&T Corp. | 6,927 | 182,249 | ||||||
Fifth Third Bancorp | 12,410 | 152,519 | ||||||
PNC Financial Services Group, Inc. | 7,892 | 445,898 | ||||||
780,666 | ||||||||
Semiconductor Equipment–0.3% | ||||||||
Lam Research Corp.(b) | 2,675 | 101,811 | ||||||
Semiconductors–0.8% | ||||||||
Intel Corp. | 12,399 | 241,161 | ||||||
Soft Drinks–0.6% | ||||||||
Coca-Cola Co. (The) | 3,262 | 163,492 | ||||||
Wireless Telecommunication Services–1.1% | ||||||||
Vodafone Group PLC (ADR) (United Kingdom) | 15,433 | 319,000 | ||||||
Total Common Stocks & Other Equity Interests (Cost $22,023,901) | 20,761,481 | |||||||
Principal | ||||||||
Amount | ||||||||
Convertible Bonds–14.0% | ||||||||
Brewery–4.4% | ||||||||
Molson Coors Brewing Co., 2.50%, 07/30/13 | $ | 1,200,000 | 1,293,000 | |||||
Electronic Component–Semiconductor–4.7% | ||||||||
Intel Corp., (144A), 2.95%, 12/15/35(c) | 1,450,000 | 1,384,750 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Income Builder Fund
Principal | ||||||||
Amount | Value | |||||||
Gold Mining–4.9% | ||||||||
Newmont Mining Corp., 1.25%, 07/15/14 | $ | 1,000,000 | $ | 1,430,000 | ||||
Total Convertible Bonds (Cost $3,723,455) | 4,107,750 | |||||||
Bonds & Notes–11.0% | ||||||||
Hotels & Motels–7.3% | ||||||||
Starwood Hotels & Resorts Worldwide, Inc., 7.875%, 05/01/12 | 2,000,000 | 2,134,701 | ||||||
Paper & Related Products–3.7% | ||||||||
Buckeye Technologies, Inc., 8.50%, 10/01/13 | 1,050,000 | 1,068,375 | ||||||
Total Bonds & Notes (Cost $3,102,032) | 3,203,076 | |||||||
Shares | ||||||||
Convertible Preferred Stocks–1.4% | ||||||||
Real Estate Investment Trusts (REITs) | ||||||||
Equity Residential (Series E) $1.75 (Cost $225,040) | 9,000 | 417,241 | ||||||
Money Market Funds–2.8% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 408,137 | 408,137 | ||||||
Premier Portfolio–Institutional Class(d) | 408,137 | 408,137 | ||||||
Total Money Market Funds (Cost $816,274) | 816,274 | |||||||
TOTAL INVESTMENTS–100.1% (Cost $29,890,702) | 29,305,822 | |||||||
LIABILITIES IN EXCESS OF OTHER ASSETS–(0.1) | (38,846 | ) | ||||||
NET ASSETS–100.0% | $ | 29,266,976 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt | |
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The value of this security at June 30, 2010 represented 4.73% of the Fund’s Net Assets. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
as of June 30, 2010
Financials | 16.9 | % | ||
Consumer Discretionary | 16.1 | |||
Information Technology | 12.6 | |||
Consumer Staples | 10.4 | |||
Materials | 10.2 | |||
Health Care | 8.8 | |||
Industrials | 8.0 | |||
Energy | 7.9 | |||
Utilities | 4.6 | |||
Telecommunication Services | 1.8 | |||
Money Market Funds Plus Other Assets Less Liabilities | 2.7 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Income Builder Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
(Unaudited)
Assets: | ||||
Investments, at value (Cost $29,074,428) | $ | 28,489,548 | ||
Investments in affiliated money market funds, at value and cost | 816,274 | |||
Total investments, at value (Cost $29,890,702) | 29,305,822 | |||
Receivable for: | ||||
Investments sold | 45,709 | |||
Dividends | 129,773 | |||
Fund shares sold | 8,344 | |||
Other assets | 3,652 | |||
Total assets | 29,493,300 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 130,745 | |||
Fund shares reacquired | 56,354 | |||
Accrued fees to affiliates | 12,871 | |||
Accrued other operating expenses | 24,995 | |||
Trustee deferred compensation and retirement plans | 1,359 | |||
Total liabilities | 226,324 | |||
Net assets applicable to shares outstanding | $ | 29,266,976 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 33,790,571 | ||
Undistributed net investment income | 162,608 | |||
Undistributed net realized gain (loss) | (4,101,323 | ) | ||
Unrealized appreciation (depreciation) | (584,880 | ) | ||
$ | 29,266,976 | |||
Net Assets: | ||||
Series I | $ | 15,322,040 | ||
Series II | $ | 13,944,936 | ||
Shares outstanding, $0.01 par value per share, unlimited number of shares authorized: | ||||
Series I | 1,721,347 | |||
Series II | 1,571,583 | |||
Series I: | ||||
Net asset value per share | $ | 8.90 | ||
Series II: | ||||
Net asset value per share | $ | 8.87 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
(Unaudited)
Investment income: | ||||
Dividends (net of $6,366 foreign withholding tax) | $ | 263,030 | ||
Dividends from affiliated money market funds | 422 | |||
Interest | 176,021 | |||
Total investment income | 439,473 | |||
Expenses | ||||
Advisory fees | 108,322 | |||
Administrative services fees | 21,319 | |||
Custodian fees | 3,745 | |||
Distribution fees-Series II | 19,363 | |||
Transfer agent fees | 250 | |||
Trustees’ and officers’ fees and benefits | 1,546 | |||
Professional services fees | 21,810 | |||
Other | 12,958 | |||
Total expenses | 189,313 | |||
Less: Fees waived | (3,134 | ) | ||
Net expenses | 186,179 | |||
Net investment income | 253,294 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from investment securities (includes net gains from securities sold to affiliates of $232) | 937,111 | |||
Change in net unrealized appreciation (depreciation) of investment securities | (2,711,886 | ) | ||
Net realized and unrealized gain (loss) | (1,774,775 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (1,521,481 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Income Builder Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, 2010 | December 31, 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 253,294 | 697,812 | |||||
Net realized gain (loss) | 937,111 | (3,563,908 | ) | |||||
Change in net unrealized appreciation (depreciation) | (2,711,886 | ) | 9,679,080 | |||||
Net increase (decrease) in net assets resulting from operations | (1,521,481 | ) | 6,812,984 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (411,145 | ) | (528,794 | ) | ||||
Series II | (334,922 | ) | (448,809 | ) | ||||
Total Dividends | (746,067 | ) | (977,603 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | — | (8,092 | ) | |||||
Series II | — | (7,525 | ) | |||||
Total Distributions | — | (15,617 | ) | |||||
Net increase (decrease) in net assets resulting from share transactions | (1,580,021 | ) | (4,385,614 | ) | ||||
Net increase (decrease) in net assets | (3,847,569 | ) | 1,434,150 | |||||
Net Assets: | ||||||||
Beginning of year | 33,114,545 | 31,680,395 | ||||||
End of year (includes undistributed net investment income of $162,608 and $655,381, respectively) | $ | 29,266,976 | 33,114,545 | |||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Income Builder Fund (the “Fund”), is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
Prior to June 1, 2010, the Fund operated as Morgan Stanley Variable Investment Series Income Builder Portfolio (the “Acquired Fund”), an investment portfolio of Morgan Stanley Variable Investment Series. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class X and Class Y shares received Series I and Series II shares, respectively of the Fund.
Information for the Acquired Fund’s — Class X and Class Y shares prior to the Reorganization are included with Series I and Series II shares, respectively, of the Fund throughout this report.
The Fund’s primary investment objective is to seek reasonable income. As a secondary objective, the Fund seeks growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
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 |
Invesco V.I. Income Builder Fund
are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. |
Invesco V.I. Income Builder Fund
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | 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 (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
J. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $500 million | 0.67% | |||
Over $500 million | 0.645% | |||
Prior to the Reorganization, the Acquired Fund paid an advisory fee to Morgan Stanley Investment Advisors Inc. (“MSIA”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to
Invesco V.I. Income Builder Fund
1.02% and Series II shares to 1.27% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds. Prior to the Reorganization, investment advisory fees paid by the Acquired Fund were reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class shares.
For the six months ended June 30, 2010, the Adviser and MSIA waived advisory fees of $323 and $2,811, respectively.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the period ended June 30, 2010, Invesco was paid $4,110 for accounting and fund administrative services and reimbursed $6,288 for services provided by insurance companies. Prior to the Reorganization, the Acquired Fund paid an administration fee of $10,921 to Morgan Stanley Services Company, Inc.
Also, the Trust has entered into service agreements whereby State Street Bank & Trust Company (“SSB”) serves as custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. Prior to the Reorganization, the Acquired Fund paid $207 to Morgan Stanley Trust, which served as the Acquired Fund’s transfer agent. For the six months ended June 30, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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. Prior to the Reorganization, the Acquired Fund paid distribution fees of $16,369 to Morgan Stanley Distributors Inc. based on the annual rate of 0.25% of the Acquired Fund’s average daily net assets of Class Y shares. For the six months ended June 30, 2010, expenses incurred under the Plans are detailed in the Statement of Operations as distribution fees.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 21,545,657 | $ | 449,339 | $ | — | $ | 21,994,996 | ||||||||
Corporate Debt Securities | — | 7,310,826 | — | 7,310,826 | ||||||||||||
Total Investments | $ | 21,545,657 | $ | 7,760,165 | $ | — | $ | 29,305,822 | ||||||||
Invesco V.I. Income Builder Fund
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2010, the Fund engaged in securities purchases of $18,896 and securities sales of $1,133, which resulted in net realized gains (losses) of $232.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—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, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2017 | $ | 4,529,599 | ||
* | 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, 2010 was $3,501,483 and $5,697,994, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 1,668,182 | ||
Aggregate unrealized (depreciation) of investment securities | (2,733,381 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (1,065,199 | ) | |
Cost of investments for tax purposes is $30,371,021. |
Invesco V.I. Income Builder Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
For the six months ended | For the year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Series I | ||||||||||||||||
Sold | 38,157 | $ | 377,430 | 84,206 | $ | 700,726 | ||||||||||
Reinvestment of dividends and distributions | 43,739 | 411,146 | 68,133 | 536,886 | ||||||||||||
Redeemed | (141,062 | ) | (1,360,418 | ) | (402,407 | ) | (3,276,702 | ) | ||||||||
Net increase (decrease) — Series I | (59,166 | ) | (571,842 | ) | (250,068 | ) | (2,039,090 | ) | ||||||||
Series II | ||||||||||||||||
Sold | 34,108 | 323,782 | 46,979 | 393,492 | ||||||||||||
Reinvestment of dividends and distributions | 35,706 | 334,922 | 58,058 | 456,334 | ||||||||||||
Redeemed | (169,679 | ) | (1,666,883 | ) | (392,269 | ) | (3,196,350 | ) | ||||||||
Net increase (decrease) — Series II | (99,865 | ) | (1,008,179 | ) | (287,232 | ) | (2,346,524 | ) | ||||||||
Net increase (decrease) in share activity | (159,031 | ) | $ | (1,580,021 | ) | (537,300 | ) | $ | (4,385,614 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 93% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Income Builder Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
For the six | ||||||||||||||||||||||||
months ended | ||||||||||||||||||||||||
June 30, | For the year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Series I | ||||||||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 9.61 | $ | 7.96 | $ | 12.86 | $ | 13.59 | $ | 12.22 | $ | 11.74 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.08 | 0.20 | 0.31 | 0.31 | 0.33 | 0.29 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.55 | ) | 1.73 | (3.33 | ) | 0.15 | 1.38 | 0.52 | ||||||||||||||||
Total income (loss) from investment operations | (0.47 | ) | 1.93 | (3.02 | ) | 0.46 | 1.71 | 0.81 | ||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.24 | ) | (0.28 | ) | (0.09 | ) | (0.38 | ) | (0.34 | ) | (0.33 | ) | ||||||||||||
Net realized gain | — | 0.00 | (b) | (1.79 | ) | (0.81 | ) | — | — | |||||||||||||||
Total dividends and distributions | (0.24 | ) | (0.28 | ) | (1.88 | ) | (1.19 | ) | (0.34 | ) | (0.33 | ) | ||||||||||||
Net asset value, end of period | $ | 8.90 | $ | 9.61 | $ | 7.96 | $ | 12.86 | $ | 13.59 | $ | 12.22 | ||||||||||||
Total Return(c) | (5.02 | )% | 25.16 | % | (26.29 | )% | 3.21 | % | 14.21 | % | 6.96 | % | ||||||||||||
Net assets, end of period (000’s) | $ | 15,322 | $ | 17,116 | $ | 16,164 | $ | 28,244 | $ | 35,195 | $ | 39,562 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 1.03 | %(d) | 1.01 | %(e) | 0.90 | %(e) | 0.85 | % | 0.83 | % | 0.84 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 1.05 | %(d) | ||||||||||||||||||||||
Net investment income | 1.69 | %(d) | 2.40 | %(e) | 2.95 | %(e) | 2.31 | % | 2.61 | % | 2.47 | % | ||||||||||||
Rebate from affiliates | — | 0.01 | % | 0.00 | %(f) | — | — | — | ||||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(g) | 12 | % | 47 | % | 35 | % | 32 | % | 19 | % | 27 | % | ||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Amount is less than $0.005. | |
(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 return. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $16,984. | |
(e) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(f) | Amount is less than 0.005%. | |
(g) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
Invesco V.I. Income Builder Fund
NOTE 10—Financial Highlights (continued)
For the six | ||||||||||||||||||||||||
months ended | ||||||||||||||||||||||||
June 30, | For the year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Series II | ||||||||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 9.57 | $ | 7.92 | $ | 12.82 | $ | 13.56 | $ | 12.20 | $ | 11.71 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.07 | 0.18 | 0.29 | 0.28 | 0.30 | 0.26 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.55 | ) | 1.73 | (3.32 | ) | 0.14 | 1.37 | 0.53 | ||||||||||||||||
Total income (loss) from investment operations | (0.48 | ) | 1.91 | (3.03 | ) | 0.42 | 1.67 | 0.79 | ||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.22 | ) | (0.26 | ) | (0.08 | ) | (0.35 | ) | (0.31 | ) | (0.30 | ) | ||||||||||||
Net realized gain | — | 0.00 | (b) | (1.79 | ) | (0.81 | ) | — | — | |||||||||||||||
Total dividends and distributions | (0.22 | ) | (0.26 | ) | (1.87 | ) | (1.16 | ) | (0.31 | ) | (0.30 | ) | ||||||||||||
Net asset value, end of period | $ | 8.87 | $ | 9.57 | $ | 7.92 | $ | 12.82 | $ | 13.56 | $ | 12.20 | ||||||||||||
Total Return(c) | (5.18 | )% | 24.90 | % | (26.44 | )% | 2.86 | % | 13.96 | % | 6.71 | % | ||||||||||||
Net assets, end of period (000’s) | $ | 13,945 | $ | 15,998 | $ | 15,517 | $ | 34,717 | $ | 45,371 | $ | 45,918 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 1.28 | %(d) | 1.26 | %(e) | 1.15 | %(e) | 1.10 | % | 1.08 | % | 1.09 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 1.30 | %(d) | ||||||||||||||||||||||
Net investment income | 1.44 | %(d) | 2.15 | %(e) | 2.70 | %(e) | 2.06 | % | 2.36 | % | 2.22 | % | ||||||||||||
Rebate from affiliates | — | 0.01 | % | 0.00 | %(f) | — | — | — | ||||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(g) | 12 | % | 47 | % | 35 | % | 32 | % | 19 | % | 27 | % | ||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Amount is less than $0.005. | |
(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 return. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $15,619. | |
(e) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(f) | Amount is less than 0.005%. | |
(g) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
Invesco V.I. Income Builder Fund
NOTE 11 — | Change in Independent Registered Public Accounting Firm |
The Fund is a new fund that was formed to acquire the assets and liabilities of a predecessor fund in a shell fund reorganization (the “Reorganization”). In connection with the organization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
Invesco V.I. Income Builder 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, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2,3 | (06/30/10) | Period2,4 | Ratio2 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 949.80 | $ | 4.98 | $ | 1,019.69 | $ | 5.16 | 1.03 | % | ||||||||||||||||||
Series II | 1,000.00 | 948.20 | 6.18 | 1,018.45 | 6.41 | 1.28 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. Effective June 1, 2010, the Fund’s adviser has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit Total Annual Fund Operating Expense of Series I, and Series II shares to 1.02% and 1.27% of average daily net assets, respectively. The annualized expense ratios restated as if these agreements had been in effect throughout the entire most recent fiscal half year are 1.02% and 1.27% for Series I and Series II shares, respectively. |
3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.93 and $6.13 for Series I and Series II shares, respectively. |
4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $5.11 and $6.36 for Series I and Series II shares, respectively. |
Invesco V.I. Income Builder Fund
Approval of Investment Advisory and sub-Advisory Agreements with Invesco Advisers, Inc. and Its Affiliates |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco V.I. Income Builder Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Morgan Stanley retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-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 the 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. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco
Invesco V.I. Income Builder Fund
Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are 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 Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Income Builder Fund
Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Morgan Stanley Variable Investment Series — Income Builder Portfolio was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 2,927,333 | 225,191 | 246,768 | 0 |
Invesco V.I. Income Builder Fund
Invesco V.I. International Growth Fund Semiannual Report to Shareholders ■ June 30, 2010 | ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIIGR-SAR-1
Performance summary
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -8.46 | % | ||
Series II Shares | -8.54 | |||
MSCI EAFE Index▼ (Broad Market Index) | -13.23 | |||
MSCI EAFE Growth Index▼ (Style-Specific Index) | -10.73 | |||
Lipper VUF International Growth Funds Index▼ (Peer Group Index) | -9.54 | |||
▼ Lipper Inc.
The MSCI EAFE® Index is an unmanaged index considered representative of stocks of Europe, Australasia and the Far East.
The MSCI EAFE® Growth Index is an unmanaged index considered representative of growth stocks of Europe, Australasia and the Far East.
The Lipper VUF International Growth Funds Index is an unmanaged index considered representative of international growth variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (5/5/93) | 6.75 | % | ||
10 Years | 0.87 | |||
5 Years | 4.89 | |||
1 Year | 11.71 | |||
Series II Shares | ||||
10 Years | 0.62 | % | ||
5 Years | 4.62 | |||
1 Year | 11.45 |
Series II shares incepted on September 19, 2001. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.06% and 1.31%, 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.
Invesco V.I. International Growth Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 by calling 800 451 4246.
As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. International Growth Fund
Schedule of Investments
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–94.20% | ||||||||
Australia–5.44% | ||||||||
BHP Billiton Ltd. | 500,223 | $ | 15,548,544 | |||||
Cochlear Ltd. | 211,474 | 13,166,079 | ||||||
CSL Ltd. | 310,263 | 8,457,355 | ||||||
QBE Insurance Group Ltd. | 471,761 | 7,175,567 | ||||||
Woolworths Ltd. | 283,846 | 6,431,215 | ||||||
50,778,760 | ||||||||
Belgium–1.94% | ||||||||
Anheuser-Busch InBev N.V. | 378,091 | 18,164,935 | ||||||
Brazil–1.02% | ||||||||
Banco Bradesco S.A.–ADR | 602,200 | 9,550,892 | ||||||
Canada–6.35% | ||||||||
Bombardier Inc.–Class B | 1,455,233 | 6,630,853 | ||||||
Canadian National Railway Co. | 113,460 | 6,510,839 | ||||||
Canadian Natural Resources Ltd. | 243,185 | 8,085,604 | ||||||
Cenovus Energy Inc. | 307,695 | 7,929,419 | ||||||
EnCana Corp. | 229,895 | 6,976,333 | ||||||
Fairfax Financial Holdings Ltd. | 22,102 | 8,130,853 | ||||||
Suncor Energy, Inc. | 283,716 | 8,356,348 | ||||||
Talisman Energy Inc. | 440,003 | 6,659,572 | ||||||
59,279,821 | ||||||||
China–1.33% | ||||||||
Industrial and Commercial Bank of China Ltd.–Class H | 17,174,000 | 12,469,732 | ||||||
Denmark–1.58% | ||||||||
Novo Nordisk A.S.–Class B | 182,596 | 14,730,801 | ||||||
France–4.46% | ||||||||
AXA S.A. | 365,800 | 5,548,816 | ||||||
BNP Paribas | 194,784 | 10,402,504 | ||||||
Danone S.A. | 170,181 | 9,089,858 | ||||||
Eutelsat Communications | 189,073 | 6,317,963 | ||||||
Total S.A. | 231,470 | 10,303,562 | ||||||
41,662,703 | ||||||||
Germany–7.11% | ||||||||
Adidas AG | 224,053 | 10,816,795 | ||||||
Bayer AG | 238,247 | 13,295,726 | ||||||
Bayerische Motoren Werke AG | 315,889 | 15,282,116 | ||||||
Fresenius Medical Care AG & Co. KGaA | 174,648 | 9,450,332 | ||||||
Puma AG Rudolf Dassler Sport | 39,892 | 10,530,846 | ||||||
SAP AG | 157,185 | 6,983,239 | ||||||
66,359,054 | ||||||||
Hong Kong–2.53% | ||||||||
Esprit Holdings Ltd. | 1,126,735 | 6,076,041 | ||||||
Hutchison Whampoa Ltd. | 1,785,000 | 11,020,122 | ||||||
Li & Fung Ltd. | 1,462,000 | 6,544,428 | ||||||
23,640,591 | ||||||||
India–2.07% | ||||||||
Bharat Heavy Electricals Ltd. | 110,887 | 5,840,176 | ||||||
Infosys Technologies Ltd. | 226,553 | 13,537,670 | ||||||
19,377,846 | ||||||||
Israel–2.51% | ||||||||
Teva Pharmaceutical Industries Ltd.–ADR | 450,273 | 23,409,693 | ||||||
Italy–1.70% | ||||||||
Finmeccanica S.p.A. | 727,582 | 7,551,755 | ||||||
UniCredit S.p.A. | 3,745,577 | 8,315,770 | ||||||
15,867,525 | ||||||||
Japan–7.18% | ||||||||
Denso Corp. | 283,400 | 7,837,643 | ||||||
Fanuc Ltd. | 96,500 | 10,829,401 | ||||||
Hoya Corp. | 379,800 | 8,066,922 | ||||||
Keyence Corp. | 40,800 | 9,388,231 | ||||||
Komatsu Ltd. | 343,900 | 6,216,054 | ||||||
Nidec Corp. | 188,400 | 15,783,717 | ||||||
Toyota Motor Corp. | 258,600 | 8,895,606 | ||||||
67,017,574 | ||||||||
Mexico–2.91% | ||||||||
America Movil S.A.B de C.V.–Series L–ADR | 383,410 | 18,211,975 | ||||||
Fomento Economico Mexicano, S.A.B. de C.V.–ADR | 20,127 | 868,480 | ||||||
Grupo Televisa S.A.–ADR | 465,946 | 8,112,120 | ||||||
27,192,575 | ||||||||
Netherlands–4.27% | ||||||||
Koninklijke (Royal) KPN N.V. | 727,300 | 9,288,684 | ||||||
Koninklijke Ahold N.V. | 861,338 | 10,669,220 | ||||||
TNT N.V. | 416,726 | 10,505,417 | ||||||
Unilever N.V. | 347,021 | 9,463,567 | ||||||
39,926,888 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
Shares | Value | |||||||
Norway–0.41% | ||||||||
Petroleum Geo-Services A.S.A.(a) | 461,001 | $ | 3,848,362 | |||||
Philippines–1.18% | ||||||||
Philippine Long Distance Telephone Co. | 214,790 | 11,017,002 | ||||||
Russia–1.61% | ||||||||
Gazprom–ADR | 490,742 | 9,230,092 | ||||||
VimpelCom Ltd.–ADR(a) | 358,456 | 5,799,818 | ||||||
15,029,910 | ||||||||
Singapore–3.17% | ||||||||
K-Green Trust(a) | 438,000 | 328,641 | ||||||
Keppel Corp. Ltd. | 2,190,000 | 13,194,923 | ||||||
United Overseas Bank Ltd. | 1,156,000 | 16,058,109 | ||||||
29,581,673 | ||||||||
South Korea–2.59% | ||||||||
Hyundai Mobis | 102,160 | 17,111,721 | ||||||
NHN Corp.(a) | 47,347 | 7,047,227 | ||||||
24,158,948 | ||||||||
Spain–0.49% | ||||||||
Telefonica S.A. | 249,447 | 4,607,355 | ||||||
Switzerland–7.71% | ||||||||
Julius Baer Group Ltd. | 208,947 | 5,948,065 | ||||||
Nestle S.A. | 409,544 | 19,757,737 | ||||||
Novartis AG | 197,719 | 9,591,288 | ||||||
Roche Holding AG | 160,037 | 21,973,801 | ||||||
Syngenta AG | 63,688 | 14,704,745 | ||||||
71,975,636 | ||||||||
Taiwan–2.84% | ||||||||
Hon Hai Precision Industry Co., Ltd. | 2,253,000 | 7,912,441 | ||||||
MediaTek Inc. | 448,000 | 6,247,975 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd.–ADR | 1,267,523 | 12,371,024 | ||||||
26,531,440 | ||||||||
Turkey–0.89% | ||||||||
Akbank T.A.S. | 1,741,766 | 8,316,826 | ||||||
United Kingdom–20.91% | ||||||||
BG Group PLC | 733,154 | 10,850,771 | ||||||
British American Tobacco PLC | 379,180 | 12,004,247 | ||||||
Capita Group PLC | 472,831 | 5,186,658 | ||||||
Centrica PLC | 3,011,607 | 13,259,302 | ||||||
Compass Group PLC | 2,056,810 | 15,601,874 | ||||||
Imperial Tobacco Group PLC | 685,619 | 19,112,783 | ||||||
Informa PLC | 1,587,631 | 8,353,763 | ||||||
International Power PLC | 3,386,130 | 14,998,933 | ||||||
Kingfisher PLC | 1,523,690 | 4,727,622 | ||||||
Next PLC | 271,096 | 8,020,713 | ||||||
Reckitt Benckiser Group PLC | 378,815 | 17,519,175 | ||||||
Reed Elsevier PLC | 1,117,207 | 8,245,910 | ||||||
Shire PLC | 881,029 | 17,904,367 | ||||||
Smith & Nephew PLC | 478,567 | 4,504,863 | ||||||
Tesco PLC | 2,342,972 | 13,189,398 | ||||||
Vodafone Group PLC | 6,553,363 | 13,577,289 | ||||||
WPP PLC | 874,407 | 8,221,078 | ||||||
195,278,746 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $704,075,593) | 879,775,288 | |||||||
Preferred Stocks–0.97% | ||||||||
Brazil–0.97% | ||||||||
Petroleo Brasileiro S.A.–ADR–Pfd. (Cost $5,890,149) | 304,695 | 9,079,911 | ||||||
Money Market Funds–4.75% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 22,177,461 | 22,177,461 | ||||||
Premier Portfolio–Institutional Class(b) | 22,177,461 | 22,177,461 | ||||||
Total Money Market Funds (Cost $44,354,922) | 44,354,922 | |||||||
TOTAL INVESTMENTS–99.92% (Cost $754,320,664) | 933,210,121 | |||||||
OTHER ASSETS LESS LIABILITIES–0.08% | 738,287 | |||||||
NET ASSETS–100.00% | 933,948,408 | |||||||
Investment Abbreviations:
ADR | – American Depositary Receipt | |
Pfd. | – Preferred |
Notes to Schedule of Investments:
(a) | Non-income producing security. | |
(b) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2010
Consumer Discretionary | 16.1 | % | ||
Consumer Staples | 14.6 | |||
Health Care | 14.6 | |||
Financials | 9.9 | |||
Information Technology | 9.4 | |||
Industrials | 8.9 | |||
Energy | 8.7 | |||
Telecommunication Services | 6.7 | |||
Materials | 3.3 | |||
Utilities | 3.0 | |||
Money Market Funds Plus Other Assets Less Liabilities | 4.8 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $709,965,742) | $ | 888,855,199 | ||
Investments in affiliated money market funds, at value and cost | 44,354,922 | |||
Total investments, at value (Cost $754,320,664) | 933,210,121 | |||
Cash | 487,364 | |||
Foreign currencies | 2,242,414 | |||
Receivables for: | ||||
Investments sold | 1,577,072 | |||
Fund shares sold | 828,931 | |||
Dividends | 3,723,077 | |||
Investment for trustee deferred compensation and retirement plans | 44,642 | |||
Other assets | 2,637 | |||
Total assets | 942,116,258 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 379,760 | |||
Fund shares reacquired | 5,579,005 | |||
Accrued fees to affiliates | 1,613,779 | |||
Accrued other operating expenses | 462,959 | |||
Trustee deferred compensation and retirement plans | 132,347 | |||
Total liabilities | 8,167,850 | |||
Net assets applicable to shares outstanding | $ | 933,948,408 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,046,845,237 | ||
Undistributed net investment income | 36,925,575 | |||
Undistributed net realized gain (loss) | (328,701,574 | ) | ||
Unrealized appreciation | 178,879,170 | |||
$ | 933,948,408 | |||
Net Assets: | ||||
Series I | $ | 475,454,502 | ||
Series II | $ | 458,493,906 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 19,965,489 | |||
Series II | 19,559,348 | |||
Series I: | ||||
Net asset value per share | $ | 23.81 | ||
Series II: | ||||
Net asset value per share | $ | 23.44 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $2,622,077) | $ | 26,651,442 | ||
Dividends from affiliated money market funds | 58,296 | |||
Total investment income | 26,709,738 | |||
Expenses: | ||||
Advisory fees | 6,285,633 | |||
Administrative services fees | 2,378,642 | |||
Custodian fees | 424,054 | |||
Distribution fees — Series II | 1,569,160 | |||
Transfer agent fees | 29,991 | |||
Trustees’ and officers’ fees and benefits | 38,155 | |||
Other | 65,048 | |||
Total expenses | 10,790,683 | |||
Less: Fees waived | (112,581 | ) | ||
Net expenses | 10,678,102 | |||
Net investment income | 16,031,636 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains (losses) from securities sold to affiliates of $(1,349)) | (42,049,558 | ) | ||
Foreign currencies | (3,311,366 | ) | ||
(45,360,924 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities (net of foreign taxes of $855,181) | (139,954,065 | ) | ||
Foreign currencies | (315,729 | ) | ||
(140,269,794 | ) | |||
Net realized and unrealized gain (loss) | (185,630,718 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (169,599,082 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 16,031,636 | $ | 20,309,315 | ||||
Net realized gain (loss) | (45,360,924 | ) | (147,739,857 | ) | ||||
Change in net unrealized appreciation (depreciation) | (140,269,794 | ) | 630,344,796 | |||||
Net increase (decrease) in net assets resulting from operations | (169,599,082 | ) | 502,914,254 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (7,359,852 | ) | |||||
Series II | — | (17,849,719 | ) | |||||
Total distributions from net investment income | — | (25,209,571 | ) | |||||
Share transactions–net: | ||||||||
Series I | (35,562,883 | ) | (27,076,452 | ) | ||||
Series II | (918,286,730 | ) | 366,967,140 | |||||
Net increase (decrease) in net assets resulting from share transactions | (953,849,613 | ) | 339,890,688 | |||||
Net increase (decrease) in net assets | (1,123,448,695 | ) | 817,595,371 | |||||
Net assets: | ||||||||
Beginning of period | 2,057,397,103 | 1,239,801,732 | ||||||
End of period (includes undistributed net investment income of $36,925,575 and $20,893,939, respectively) | $ | 933,948,408 | $ | 2,057,397,103 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. International Growth Fund, formerly AIM V.I. International Growth Fund (the “Fund”), is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. |
Invesco V.I. International Growth Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. International Growth Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
J. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .75% | ||
Over $250 million | 0 | .70% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2011 to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees and/or reimburse expenses during the period under this limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $112,581.
Invesco V.I. International Growth Fund
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $194,924 for accounting and fund administrative services and reimbursed $2,183,718 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities 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. |
Invesco V.I. International Growth Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1* | Level 2* | Level 3 | Total | |||||||||||||
Australia | $ | — | $ | 50,778,760 | $ | — | $ | 50,778,760 | ||||||||
Belgium | — | 18,164,935 | — | 18,164,935 | ||||||||||||
Brazil | 18,630,803 | — | — | 18,630,803 | ||||||||||||
Canada | 59,279,821 | — | — | 59,279,821 | ||||||||||||
China | — | 12,469,732 | — | 12,469,732 | ||||||||||||
Denmark | — | 14,730,801 | — | 14,730,801 | ||||||||||||
France | — | 41,662,703 | — | 41,662,703 | ||||||||||||
Germany | — | 66,359,054 | — | 66,359,054 | ||||||||||||
Hong Kong | — | 23,640,591 | — | 23,640,591 | ||||||||||||
India | — | 19,377,846 | — | 19,377,846 | ||||||||||||
Israel | 23,409,693 | — | — | 23,409,693 | ||||||||||||
Italy | — | 15,867,525 | — | 15,867,525 | ||||||||||||
Japan | — | 67,017,574 | — | 67,017,574 | ||||||||||||
Mexico | 27,192,575 | — | — | 27,192,575 | ||||||||||||
Netherlands | — | 39,926,888 | — | 39,926,888 | ||||||||||||
Norway | — | 3,848,362 | — | 3,848,362 | ||||||||||||
Philippines | — | 11,017,002 | — | 11,017,002 | ||||||||||||
Russia | 5,799,818 | 9,230,092 | — | 15,029,910 | ||||||||||||
Singapore | 328,641 | 29,253,032 | — | 29,581,673 | ||||||||||||
South Korea | — | 24,158,948 | — | 24,158,948 | ||||||||||||
Spain | — | 4,607,355 | — | 4,607,355 | ||||||||||||
Switzerland | — | 71,975,636 | — | 71,975,636 | ||||||||||||
Taiwan | 12,371,024 | 14,160,416 | — | 26,531,440 | ||||||||||||
Turkey | — | 8,316,826 | — | 8,316,826 | ||||||||||||
United Kingdom | — | 195,278,746 | — | 195,278,746 | ||||||||||||
United States | 44,354,922 | — | — | 44,354,922 | ||||||||||||
Total Investments | $ | 191,367,297 | $ | 741,842,824 | $ | — | $ | 933,210,121 | ||||||||
* | Transfers occurred between Level 1 and Level 2 due to foreign fair value adjustments. |
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2010, the Fund engaged in securities sales of $30,109, which resulted in net realized gains (losses) of $(1,349).
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $3,654 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.
Invesco V.I. International Growth 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, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—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, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 87,932,439 | ||
December 31, 2017 | 143,189,697 | |||
Total capital loss carryforward | $ | 231,122,136 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2010 was $361,240,191 and $1,174,285,293, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 149,956,102 | ||
Aggregate unrealized (depreciation) of investment securities | (18,539,276 | ) | ||
Net unrealized appreciation of investment securities | $ | 131,416,826 | ||
Cost of investments for tax purposes is $801,793,295. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||||||
Six months ended | Year ended | |||||||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||
Sold: | ||||||||||||||||||||
Series I | 1,231,188 | $ | 31,675,018 | 3,456,056 | $ | 76,132,583 | ||||||||||||||
Series II | 4,277,814 | 107,976,826 | 21,080,766 | 443,187,963 | ||||||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||||||
Series I | — | — | 284,164 | 7,359,852 | ||||||||||||||||
Series II | — | — | 698,893 | 17,849,719 | ||||||||||||||||
Reacquired: | ||||||||||||||||||||
Series I | (2,677,760 | ) | (67,237,901 | ) | (5,238,473 | ) | (110,568,887 | ) | ||||||||||||
Series II | (43,253,398 | ) | (1,026,263,556 | ) | (4,496,473 | ) | (94,070,542 | ) | ||||||||||||
Net increase (decrease) in share activity | (40,422,156 | ) | $ | (953,849,613 | ) | 15,784,933 | $ | 339,890,688 | ||||||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 56% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. International Growth Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 26.01 | $ | 0.25 | $ | (2.45 | ) | $ | (2.20 | ) | $ | — | $ | — | $ | — | $ | 23.81 | (8.46 | )% | $ | 475,455 | 1.03 | %(d) | 1.04 | %(d) | 1.98 | %(d) | 22 | % | ||||||||||||||||||||||||||
Year ended 12/31/09 | 19.49 | 0.32 | 6.55 | 6.87 | (0.35 | ) | — | (0.35 | ) | 26.01 | 35.24 | 556,883 | 1.02 | 1.04 | 1.47 | 27 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 33.63 | 0.54 | (14.16 | ) | (13.62 | ) | (0.15 | ) | (0.37 | ) | (0.52 | ) | 19.49 | (40.38 | ) | 446,437 | 1.05 | 1.06 | 1.96 | 44 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 29.44 | 0.34 | 3.98 | 4.32 | (0.13 | ) | — | (0.13 | ) | 33.63 | 14.68 | 792,779 | 1.06 | 1.07 | 1.06 | 20 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 23.17 | 0.23 | 6.32 | 6.55 | (0.28 | ) | — | (0.28 | ) | 29.44 | 28.28 | 563,460 | 1.10 | 1.10 | 0.90 | 34 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 19.77 | 0.23 | 3.31 | 3.54 | (0.14 | ) | — | (0.14 | ) | 23.17 | 17.93 | 444,608 | 1.11 | 1.11 | 1.11 | 36 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 25.63 | 0.22 | (2.41 | ) | (2.19 | ) | — | — | — | 23.44 | (8.54 | ) | 458,494 | 1.28 | (d) | 1.29 | (d) | 1.73 | (d) | 22 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 19.23 | 0.27 | 6.44 | 6.71 | (0.31 | ) | — | (0.31 | ) | 25.63 | 34.91 | 1,500,514 | 1.27 | 1.29 | 1.22 | 27 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 33.24 | 0.45 | (13.96 | ) | (13.51 | ) | (0.13 | ) | (0.37 | ) | (0.50 | ) | 19.23 | (40.55 | ) | 793,365 | 1.30 | 1.31 | 1.71 | 44 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 29.16 | 0.26 | 3.94 | 4.20 | (0.12 | ) | — | (0.12 | ) | 33.24 | 14.41 | 745,206 | 1.31 | 1.32 | 0.81 | 20 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 23.00 | 0.17 | 6.25 | 6.42 | (0.26 | ) | — | (0.26 | ) | 29.16 | 27.92 | 163,657 | 1.35 | 1.35 | 0.65 | 34 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 19.65 | 0.18 | 3.30 | 3.48 | (0.13 | ) | — | (0.13 | ) | 23.00 | 17.70 | 54,658 | 1.36 | 1.36 | 0.86 | 36 | ||||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than a year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are annualized and are based on average daily net assets (000’s omitted) of $527,190 and $1,265,731 for Series I and Series II shares, respectively. |
Invesco V.I. International Growth Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 915.40 | $ | 4.89 | $ | 1,019.69 | $ | 5.16 | 1.03 | % | ||||||||||||||||||
Series II | 1,000.00 | 914.60 | 6.08 | 1,018.45 | 6.41 | 1.28 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. International Growth Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. International Growth Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years
Invesco V.I. International Growth Fund
to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser and against the Lipper VA Underlying Funds — International Growth Funds Index. The Board noted that the performance of Series I shares of the Fund was in the fourth quintile of its performance universe for the one year period and the first quintile for the 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 performance of Series I shares of the Fund was below the performance of the Index for the one year period and above the performance of the Index for the three and five year periods. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year.
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 mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including one mutual fund advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was below the effective fee rate for the other mutual fund. The Board also noted that Invesco Advisers sub-advises other mutual funds with similar investment strategies and that the sub-advisory fee is below the advisory fee for the Fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients based upon policies reviewed with the Board. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts, including provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets managed for other client accounts and noted that advance notice of redemptions affecting management assets is often provided to Invesco Advisers by institutional clients. Although the Board noted that the fees charged to other client accounts were often lower than the advisory fee charged by Invesco Advisers to the Fund and other Invesco Funds, the Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts were more comparable. In light of this information, the Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from services provided to other client accounts and accordingly, the Board did not place significant weight on these fee comparisons.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes one breakpoint and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. International Growth Fund
Invesco V.I. Large Cap Growth Fund Semiannual Report to Shareholders ■ June 30, 2010 | ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VILCG-SAR-1
Fund Performance
Performance summary
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares* | -6.35 | % | ||
Series II Shares* | -6.48 | |||
S&P 500 Index▼ (Broad Market Index) | -6.64 | |||
Russell 1000 Growth Index▼ (Style-Specific Index) | -7.65 | |||
Lipper VUF Large-Cap Growth Funds Index▼ (Peer Group Index) | -8.85 | |||
▼ Lipper Inc.
* | Performance includes litigation proceeds. Had these proceeds not been received, total return would have been lower. |
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Russell 1000® Growth Index is an unmanaged index considered representative of large-cap growth stocks. The Russell 1000 Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Large-Cap Growth Funds Index is an unmanaged index considered representative of large-cap growth variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (8/29/03) | 2.23 | % | ||
5 Years | -0.26 | |||
1 Year | 12.80 | |||
Series II Shares | ||||
Inception (8/29/03) | 2.01 | % | ||
5 Years | -0.51 | |||
1 Year | 12.55 |
Performance includes litigation proceeds. Had these proceeds not been received, total return would have been lower.
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.02% and 1.27%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.16% and 1.41%, 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.
Invesco V.I. Large Cap Growth Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246.
As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses in the past, performance would have been lower.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. |
Invesco V.I. Large Cap Growth Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks–85.46% | ||||||||
Aerospace & Defense–2.03% | ||||||||
Goodrich Corp. | 17,973 | $ | 1,190,711 | |||||
Air Freight & Logistics–1.63% | ||||||||
C.H. Robinson Worldwide, Inc. | 10,761 | 598,957 | ||||||
Expeditors International of Washington, Inc. | 10,286 | 354,970 | ||||||
953,927 | ||||||||
Airlines–0.49% | ||||||||
Continental Airlines, Inc.–Class B(b) | 12,915 | 284,130 | ||||||
Apparel Retail–3.78% | ||||||||
Limited Brands, Inc. | 46,674 | 1,030,095 | ||||||
Ross Stores, Inc. | 22,223 | 1,184,264 | ||||||
2,214,359 | ||||||||
Application Software–1.97% | ||||||||
Salesforce.com, Inc.(b) | 13,443 | 1,153,678 | ||||||
Cable & Satellite–3.08% | ||||||||
Comcast Corp.–Class A | 69,703 | 1,210,741 | ||||||
Time Warner Cable Inc. | 11,362 | 591,733 | ||||||
1,802,474 | ||||||||
Casinos & Gaming–3.12% | ||||||||
Las Vegas Sands Corp.(b) | 34,858 | 771,756 | ||||||
Wynn Resorts Ltd. | 13,833 | 1,055,043 | ||||||
1,826,799 | ||||||||
Communications Equipment–1.01% | ||||||||
Cisco Systems, Inc.(b) | 27,762 | 591,608 | ||||||
Computer Hardware–6.94% | ||||||||
Apple Inc.(b) | 16,164 | 4,065,731 | ||||||
Computer Storage & Peripherals–2.60% | ||||||||
EMC Corp.(b) | 83,220 | 1,522,926 | ||||||
Consumer Finance–2.93% | ||||||||
American Express Co. | 43,297 | 1,718,891 | ||||||
Data Processing & Outsourced Services–2.02% | ||||||||
MasterCard, Inc.–Class A | 3,069 | 612,357 | ||||||
Visa Inc.–Class A | 8,033 | 568,335 | ||||||
1,180,692 | ||||||||
Electrical Components & Equipment–0.74% | ||||||||
Cooper Industries PLC (Ireland) | 9,894 | 435,336 | ||||||
Gas Utilities–1.00% | ||||||||
Questar Corp. | 12,935 | 588,413 | ||||||
General Merchandise Stores–1.54% | ||||||||
Dollar Tree, Inc.(b) | 21,639 | 900,811 | ||||||
Gold–3.42% | ||||||||
Barrick Gold Corp. (Canada) | 19,938 | 905,385 | ||||||
Newmont Mining Corp. | 17,775 | 1,097,428 | ||||||
2,002,813 | ||||||||
Health Care Distributors–5.09% | ||||||||
AmerisourceBergen Corp. | 28,985 | 920,274 | ||||||
Cardinal Health, Inc. | 26,979 | 906,764 | ||||||
McKesson Corp. | 17,167 | 1,152,936 | ||||||
2,979,974 | ||||||||
Health Care Equipment–4.07% | ||||||||
Edwards Lifesciences Corp.(b) | 6,930 | 388,219 | ||||||
Hospira, Inc.(b) | 14,732 | 846,353 | ||||||
Intuitive Surgical, Inc.(b) | 3,650 | 1,152,013 | ||||||
2,386,585 | ||||||||
Health Care Services–4.47% | ||||||||
Express Scripts, Inc.(b) | 18,613 | 875,183 | ||||||
Medco Health Solutions, Inc.(b) | 29,620 | 1,631,470 | ||||||
Quest Diagnostics Inc. | 2,266 | 112,779 | ||||||
2,619,432 | ||||||||
Industrial Machinery–1.53% | ||||||||
Ingersoll-Rand PLC (Ireland) | 25,930 | 894,326 | ||||||
Integrated Oil & Gas–1.98% | ||||||||
Occidental Petroleum Corp. | 15,070 | 1,162,650 | ||||||
Internet Retail–0.95% | ||||||||
Amazon.com, Inc.(b) | 5,090 | 556,133 | ||||||
Internet Software & Services–1.28% | ||||||||
Google Inc.–Class A(b) | 1,682 | 748,406 | ||||||
IT Consulting & Other Services–3.39% | ||||||||
Accenture PLC–Class A (Ireland) | 3,017 | 116,607 | ||||||
Cognizant Technology Solutions Corp.–Class A(b) | 13,422 | 671,905 | ||||||
International Business Machines Corp. | 9,689 | 1,196,398 | ||||||
1,984,910 | ||||||||
Life Sciences Tools & Services–1.72% | ||||||||
Thermo Fisher Scientific, Inc.(b) | 20,566 | 1,008,762 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Large Cap Growth Fund
Shares | Value | |||||||
Oil & Gas Exploration & Production–0.99% | ||||||||
Ultra Petroleum Corp.(b) | 13,139 | $ | 581,401 | |||||
Packaged Foods & Meats–4.00% | ||||||||
General Mills, Inc. | 32,985 | 1,171,627 | ||||||
Mead Johnson Nutrition Co. | 23,365 | 1,171,054 | ||||||
2,342,681 | ||||||||
Personal Products–1.35% | ||||||||
Estee Lauder Cos. Inc. (The)–Class A | 14,238 | 793,484 | ||||||
Property & Casualty Insurance–3.07% | ||||||||
Berkshire Hathaway Inc.–Class B(b) | 22,600 | 1,800,994 | ||||||
Railroads–2.21% | ||||||||
Union Pacific Corp. | 18,631 | 1,295,041 | ||||||
Restaurants–2.64% | ||||||||
McDonald’s Corp. | 13,701 | 902,485 | ||||||
Starbucks Corp. | 26,513 | 644,266 | ||||||
1,546,751 | ||||||||
Semiconductors–2.32% | ||||||||
Broadcom Corp.–Class A | 17,892 | 589,899 | ||||||
Xilinx, Inc. | 30,513 | 770,759 | ||||||
1,360,658 | ||||||||
Soft Drinks–3.22% | ||||||||
Dr. Pepper Snapple Group, Inc. | 50,519 | 1,888,905 | ||||||
Systems Software–1.93% | ||||||||
Check Point Software Technologies Ltd. (Israel)(b) | 11,056 | 325,931 | ||||||
Rovi Corp.(b) | 10,021 | 379,896 | ||||||
VMware, Inc.–Class A(b) | 6,789 | 424,923 | ||||||
1,130,750 | ||||||||
Wireless Telecommunication Services–0.95% | ||||||||
American Tower Corp.–Class A(b) | 12,443 | 553,714 | ||||||
Total Common Stocks (Cost $45,073,130) | 50,068,856 | |||||||
Preferred Stocks–2.18% | ||||||||
Brewers–2.18% | ||||||||
Companhia de Bebidas das Americas (Brazil)–Pfd.–ADR (Cost $1,204,696) | 12,628 | 1,275,555 | ||||||
Money Market Funds–8.59% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 2,515,024 | 2,515,024 | ||||||
Premier Portfolio–Institutional Class(c) | 2,515,024 | 2,515,024 | ||||||
Total Money Market Funds (Cost $5,030,048) | 5,030,048 | |||||||
TOTAL INVESTMENTS–96.23% (Cost $51,307,874) | 56,374,459 | |||||||
OTHER ASSETS LESS LIABILITIES–3.77% | 2,210,928 | |||||||
NET ASSETS–100.00% | $ | 58,585,387 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt | |
Pfd. | – Preferred |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
as of June 30, 2010
Information Technology | 23.4 | % | ||
Health Care | 15.4 | |||
Consumer Discretionary | 15.1 | |||
Consumer Staples | 10.8 | |||
Industrials | 8.6 | |||
Financials | 6.0 | |||
Materials | 3.4 | |||
Energy | 3.0 | |||
Utilities | 1.0 | |||
Telecommunication Services | 0.9 | |||
Money Market Funds Plus Other Assets Less Liabilities | 12.4 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Large Cap Growth Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $46,277,826) | $ | 51,344,411 | ||
Investments in affiliated money market funds, at value and cost | 5,030,048 | |||
Total investments, at value (Cost $51,307,874) | 56,374,459 | |||
Receivables for: | ||||
Investments sold | 25,263,688 | |||
Investments sold to affiliates | 1,878,924 | |||
Fund shares sold | 7,838 | |||
Dividends | 52,168 | |||
Investment for trustee deferred compensation and retirement plans | 24,220 | |||
Other assets | 2,627 | |||
Total assets | 83,603,924 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 18,365,467 | |||
Investments purchased from affiliates | 6,437,110 | |||
Fund shares reacquired | 112,077 | |||
Accrued fees to affiliates | 35,242 | |||
Accrued other operating expenses | 33,035 | |||
Trustee deferred compensation and retirement plans | 35,606 | |||
Total liabilities | 25,018,537 | |||
Net assets applicable to shares outstanding | $ | 58,585,387 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 64,855,847 | ||
Undistributed net investment income | 316,662 | |||
Undistributed net realized gain (loss) | (11,664,467 | ) | ||
Unrealized appreciation | 5,077,345 | |||
$ | 58,585,387 | |||
Net Assets: | ||||
Series I | $ | 58,066,749 | ||
Series II | $ | 518,638 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 5,049,466 | |||
Series II | 45,505 | |||
Series I: | ||||
Net asset value per share | $ | 11.50 | ||
Series II: | ||||
Net asset value per share | $ | 11.40 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $3,842) | $ | 388,288 | ||
Dividends from affiliated money market funds (includes securities lending income of $1,664) | 3,013 | |||
Total investment income | 391,301 | |||
Expenses: | ||||
Advisory fees | 228,256 | |||
Administrative services fees | 103,232 | |||
Custodian fees | 3,981 | |||
Distribution fees — Series II | 775 | |||
Transfer agent fees | 4,667 | |||
Trustees’ and officers’ fees and benefits | 9,821 | |||
Professional services fees | 22,469 | |||
Other | 5,913 | |||
Total expenses | 379,114 | |||
Less: Fees waived | (47,692 | ) | ||
Net expenses | 331,422 | |||
Net investment income | 59,879 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $447,212) | 3,135,431 | |||
Foreign currencies | (318 | ) | ||
3,135,113 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (7,182,378 | ) | ||
Foreign currencies | 10,186 | |||
(7,172,192 | ) | |||
Net realized and unrealized gain (loss) | (4,037,079 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (3,977,200 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Large Cap Growth Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 59,879 | $ | 282,650 | ||||
Net realized gain (loss) | 3,135,113 | (3,064,495 | ) | |||||
Change in net unrealized appreciation (depreciation) | (7,172,192 | ) | 17,627,936 | |||||
Net increase (decrease) in net assets resulting from operations | (3,977,200 | ) | 14,846,091 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (225,916 | ) | |||||
Series II | — | (60 | ) | |||||
Total distributions from net investment income | — | (225,976 | ) | |||||
Share transactions–net: | ||||||||
Series I | (5,826,389 | ) | (9,298,793 | ) | ||||
Series II | (142,616 | ) | (166,783 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (5,969,005 | ) | (9,465,576 | ) | ||||
Net increase (decrease) in net assets | (9,946,205 | ) | 5,154,539 | |||||
Net assets: | ||||||||
Beginning of period | 68,531,592 | 63,377,053 | ||||||
End of period (includes undistributed net investment income of $316,662 and $256,783, respectively) | $ | 58,585,387 | $ | 68,531,592 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Large Cap Growth Fund, formerly AIM V.I. Large Cap Growth Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. |
Invesco V.I. Large Cap Growth Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. Large Cap Growth Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. | |
J. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
K. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
Invesco 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 Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .695% | ||
Next $250 million | 0 | .67% | ||
Next $500 million | 0 | .645% | ||
Next $1.5 billion | 0 | .62% | ||
Next $2.5 billion | 0 | .595% | ||
Next $2.5 billion | 0 | .57% | ||
Next $2.5 billion | 0 | .545% | ||
Over $10 billion | 0 | .52% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2011, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 1.01% and Series II shares to 1.26% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the net annual operating expenses to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $47,692.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $78,437 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation
Invesco V.I. Large Cap Growth Fund
inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 56,374,459 | $ | — | $ | — | $ | 56,374,459 | ||||||||
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2010, the Fund engaged in securities purchases of $6,437,110 and securities sales of $2,321,577, which resulted in net realized gains of $447,212.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $1,371 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—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.
Invesco V.I. Large Cap Growth Fund
The Fund had a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2010 | $ | 3,544,700 | ||
December 31, 2013 | 10,283 | |||
December 31, 2014 | 1,757,332 | |||
December 31, 2016 | 3,185,835 | |||
December 31, 2017 | 5,433,762 | |||
Total capital loss carryforward | $ | 13,931,912 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2010 was $37,654,810 and $50,550,273, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 5,627,769 | ||
Aggregate unrealized (depreciation) of investment securities | (1,428,852 | ) | ||
Net unrealized appreciation of investment securities | $ | 4,198,917 | ||
Cost of investments for tax purposes is $52,175,542. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 117,795 | $ | 1,477,579 | 1,174,128 | $ | 11,561,836 | ||||||||||
Series II | 221 | 2,826 | 143 | 1,375 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 19,033 | 225,916 | ||||||||||||
Series II | — | — | 5 | 60 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (589,987 | ) | (7,303,968 | ) | (2,077,325 | ) | (21,086,545 | ) | ||||||||
Series II | (12,173 | ) | (145,442 | ) | (16,099 | ) | (168,218 | ) | ||||||||
Net increase (decrease) in share activity | (484,144 | ) | $ | (5,969,005 | ) | (900,115 | ) | $ | (9,465,576 | ) | ||||||
(a) | There are entities that are 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 adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco 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.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | securities | Dividends | Distributions | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||||
value, | investment | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) to | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | average net | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | (loss) | unrealized) | operations | income | gains | Distributions | of period | Return(a) | (000s omitted) | absorbed | absorbed | assets | turnover(b) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 12.28 | $ | 0.01 | (c) | $ | (0.79 | ) | $ | (0.78 | ) | $ | — | $ | — | $ | — | $ | 11.50 | (6.35 | )% | $ | 58,067 | 1.00 | %(d) | 1.15 | %(d) | 0.18 | %(d) | 60 | % | |||||||||||||||||||||||||
Year ended 12/31/09 | 9.78 | 0.04 | (c) | 2.50 | (e) | 2.54 | (0.04 | ) | — | (0.04 | ) | 12.28 | 25.99 | (e) | 67,831 | 1.01 | 1.15 | 0.44 | 57 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 15.85 | 0.03 | (c) | (6.10 | ) | (6.07 | ) | (0.00 | ) | — | (0.00 | ) | 9.78 | (38.29 | ) | 62,665 | 1.01 | 1.10 | 0.23 | 41 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.71 | 0.02 | 2.13 | 2.15 | (0.01 | ) | — | (0.01 | ) | 15.85 | 15.64 | 129,071 | 1.01 | 1.08 | 0.11 | 58 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 12.71 | 0.02 | 1.00 | 1.02 | (0.02 | ) | — | (0.02 | ) | 13.71 | 8.05 | 120,825 | 1.02 | 1.23 | 0.06 | 76 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 11.86 | (0.01 | )(c) | 0.88 | 0.87 | — | (0.02 | ) | (0.02 | ) | 12.71 | 7.30 | 4,352 | 1.13 | 7.30 | (0.06 | ) | 99 | ||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 12.19 | (0.00 | )(c) | (0.79 | ) | (0.79 | ) | — | — | — | 11.40 | (6.48 | ) | 519 | 1.25 | (d) | 1.40 | (d) | (0.07 | )(d) | 60 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 9.70 | 0.02 | (c) | 2.47 | (e) | 2.49 | (0.00 | ) | — | (0.00 | ) | 12.19 | 25.68 | (e) | 700 | 1.26 | 1.40 | 0.19 | 57 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 15.75 | 0.00 | (c) | (6.05 | ) | (6.05 | ) | — | — | — | 9.70 | (38.41 | ) | 712 | 1.26 | 1.35 | (0.02 | ) | 41 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.66 | (0.04 | ) | 2.13 | 2.09 | — | — | — | 15.75 | 15.30 | 1,259 | 1.26 | 1.33 | (0.14 | ) | 58 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 12.67 | (0.01 | ) | 1.00 | 0.99 | — | — | — | 13.66 | 7.81 | 1,949 | 1.27 | 1.48 | (0.19 | ) | 76 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 11.84 | (0.03 | )(c) | 0.88 | 0.85 | — | (0.02 | ) | (0.02 | ) | 12.67 | 7.15 | 636 | 1.33 | 7.55 | (0.26 | ) | 99 | ||||||||||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $65,605 and $625 for Series I and Series II shares, respectively. | |
(e) | Includes litigation proceeds received during the period. Had the litigation proceeds not been received net gains (losses) on securities (both realized and unrealized) per share would have been $2.44 and $2.41 for Series I and Series II shares, respectively and total returns would have been lower. |
Invesco 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, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 936.50 | $ | 4.80 | $ | 1,019.84 | $ | 5.01 | 1.00 | % | ||||||||||||||||||
Series II | 1,000.00 | 935.20 | 6.00 | 1,018.60 | 6.26 | 1.25 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Large Cap Growth Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Large Cap Growth Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper
Invesco V.I. Large Cap Growth Fund
performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser and against the Lipper VA Underlying Funds — Large-Cap Growth Index. The Board noted that the performance of Series I shares of the Fund was in the fifth quintile of its performance universe for the one year period and the fourth quintile for the 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 performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. Invesco Advisers advised the Board noted that the portfolio management team has a conservative, quality bias that underperformed during the low-quality rally in 2009. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year.
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 mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including one mutual fund advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was above the effective fee rate for the other mutual fund. The Board noted that Invesco Advisers sub-advises two other mutual funds and the effective sub-advisory fee rate is below the advisory effective fee rate of the Fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients based upon policies reviewed with the Board. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts, including provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets managed for other client accounts and noted that advance notice of redemptions affecting management assets is often provided to Invesco Advisers by institutional clients. Although the Board noted that the fees charged to other client accounts were often lower than the advisory fee charged by Invesco Advisers to the Fund and other Invesco Funds, the Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts were more comparable. In light of this information, the Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from services provided to other client accounts and accordingly, the Board did not place significant weight on these fee comparisons.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 also considered the effect this expense limitation would have on the Fund’s estimated total expenses.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information and the expense limitation discussed above and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes seven breakpoints and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Large Cap Growth Fund
Invesco V.I. Leisure Fund Semiannual Report to Shareholders ■ June 30, 2010 | ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
I-VILEI-SAR-1
Fund Performance
Performance summary
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -5.34 | % | ||
Series II Shares | -5.34 | |||
S&P 500 Index▼ (Broad Market Index) | -6.64 | |||
S&P Consumer Discretionary Index▼ (Style-Specific Index) | -1.59 | |||
▼ Lipper Inc.
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The S&P Consumer Discretionary Index is an unmanaged index considered representative of the consumer discretionary market.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (4/30/02) | 1.02 | % | ||
5 Years | -2.24 | |||
1 Year | 17.06 | |||
Series II Shares | ||||
Inception | 0.80 | % | ||
5 Years | -2.46 | |||
1 Year | 17.00 |
Series II shares incepted on April 30, 2004. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.02% and 1.27%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.75% and 2.00%, 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.
Invesco V.I. Leisure Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. |
Invesco V.I. Leisure Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.79% | ||||||||
Advertising–9.24% | ||||||||
Interpublic Group of Cos., Inc. (The)(b) | 65,107 | $ | 464,213 | |||||
Lamar Advertising Co.–Class A(b) | 11,903 | 291,861 | ||||||
National CineMedia, Inc. | 11,362 | 189,291 | ||||||
Omnicom Group Inc. | 19,957 | 684,525 | ||||||
1,629,890 | ||||||||
Apparel Retail–6.18% | ||||||||
Abercrombie & Fitch Co.–Class A | 8,944 | 274,491 | ||||||
American Eagle Outfitters, Inc. | 19,583 | 230,100 | ||||||
Gap, Inc. (The) | 6,385 | 124,252 | ||||||
J. Crew Group, Inc.(b) | 3,335 | 122,761 | ||||||
TJX Cos., Inc. (The) | 4,649 | 195,026 | ||||||
Urban Outfitters, Inc.(b) | 4,174 | 143,544 | ||||||
1,090,174 | ||||||||
Apparel, Accessories & Luxury Goods–3.95% | ||||||||
Carter’s, Inc.(b) | 4,948 | 129,885 | ||||||
Coach, Inc. | 5,228 | 191,083 | ||||||
Hanesbrands, Inc.(b) | 8,174 | 196,667 | ||||||
Polo Ralph Lauren Corp. | 2,453 | 178,971 | ||||||
696,606 | ||||||||
Brewers–1.08% | ||||||||
Heineken N.V. (Netherlands) | 4,493 | 190,494 | ||||||
Broadcasting–7.25% | ||||||||
Discovery Communications, Inc.–Class A(b) | 12,078 | 431,306 | ||||||
Grupo Televisa S.A.–ADR (Mexico) | 18,266 | 318,011 | ||||||
Scripps Networks Interactive Inc.–Class A | 13,104 | 528,615 | ||||||
1,277,932 | ||||||||
Cable & Satellite–2.33% | ||||||||
DIRECTV–Class A(b) | 12,112 | 410,839 | ||||||
Casinos & Gaming–6.55% | ||||||||
International Game Technology | 28,666 | 450,056 | ||||||
MGM Resorts International(b)(c) | 7,116 | 68,598 | ||||||
Penn National Gaming, Inc.(b) | 10,738 | 248,048 | ||||||
WMS Industries Inc.(b) | 9,884 | 387,947 | ||||||
1,154,649 | ||||||||
Department Stores–4.00% | ||||||||
Kohl’s Corp.(b) | 6,791 | 322,573 | ||||||
Macy’s, Inc. | 10,620 | 190,098 | ||||||
Nordstrom, Inc. | 5,995 | 192,979 | ||||||
705,650 | ||||||||
Food Retail–1.92% | ||||||||
Woolworths Ltd. (Australia) | 14,907 | 337,754 | ||||||
Footwear–3.05% | ||||||||
NIKE, Inc.–Class B | 7,962 | 537,833 | ||||||
General Merchandise Stores–3.14% | ||||||||
Target Corp. | 11,255 | 553,408 | ||||||
Home Improvement Retail–6.15% | ||||||||
Home Depot, Inc. (The) | 20,459 | 574,284 | ||||||
Lowe’s Cos., Inc. | 24,970 | 509,887 | ||||||
1,084,171 | ||||||||
Hotels, Resorts & Cruise Lines–8.48% | ||||||||
Carnival Corp.(d) | 5,718 | 172,912 | ||||||
Choice Hotels International, Inc. | 6,457 | 195,066 | ||||||
Hyatt Hotels Corp.–Class A(b) | 5,597 | 207,593 | ||||||
Marriott International, Inc.–Class A | 20,625 | 617,513 | ||||||
Orient-Express Hotels Ltd.–Class A (Bermuda)(b) | 19,076 | 141,162 | ||||||
Regal Hotels International Holdings Ltd. (Hong Kong) | 413,800 | 161,746 | ||||||
1,495,992 | ||||||||
Hypermarkets & Super Centers–1.49% | ||||||||
Costco Wholesale Corp. | 4,785 | 262,362 | ||||||
Internet Retail–1.82% | ||||||||
Amazon.com, Inc.(b) | 2,941 | 321,334 | ||||||
Internet Software & Services–3.97% | ||||||||
Google Inc.–Class A(b) | 404 | 179,760 | ||||||
GSI Commerce, Inc.(b) | 7,772 | 223,833 | ||||||
Knot, Inc. (The)(b) | 20,356 | 158,370 | ||||||
OpenTable, Inc.(b)(c) | 3,343 | 138,634 | ||||||
700,597 | ||||||||
Motorcycle Manufacturers–1.01% | ||||||||
Harley-Davidson, Inc. | 8,011 | 178,085 | ||||||
Movies & Entertainment–12.51% | ||||||||
Time Warner Inc. | 13,284 | 384,040 | ||||||
Viacom Inc.–Class A(c) | 7,140 | 254,612 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Leisure Fund
Shares | Value | |||||||
Movies & Entertainment–(continued) | ||||||||
Viacom Inc.–Class B | 9,053 | $ | 283,993 | |||||
Walt Disney Co. (The) | 40,743 | 1,283,405 | ||||||
2,206,050 | ||||||||
Personal Products–1.00% | ||||||||
Estee Lauder Cos. Inc. (The)–Class A | 3,168 | 176,553 | ||||||
Restaurants–10.91% | ||||||||
Brinker International, Inc. | 19,179 | 277,329 | ||||||
Buffalo Wild Wings Inc.(b) | 4,235 | 154,916 | ||||||
Darden Restaurants, Inc. | 10,749 | 417,599 | ||||||
Jack in the Box Inc.(b) | 12,806 | 249,077 | ||||||
McDonald’s Corp. | 4,890 | 322,104 | ||||||
P.F. Chang’s China Bistro, Inc. | 4,985 | 197,655 | ||||||
Starbucks Corp. | 12,550 | 304,965 | ||||||
1,923,645 | ||||||||
Specialty Stores–2.76% | ||||||||
Staples, Inc. | 19,163 | 365,055 | ||||||
Tiffany & Co. | 3,233 | 122,563 | ||||||
487,618 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $16,791,566) | 17,421,636 | |||||||
Money Market Funds–1.01% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 88,547 | 88,547 | ||||||
Premier Portfolio–Institutional Class(e) | 88,547 | 88,547 | ||||||
Total Money Market Funds (Cost $177,094) | 177,094 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–99.80% (Cost $16,968,660) | 17,598,730 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–2.04% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $360,195)(e)(f) | 360,195 | 360,195 | ||||||
TOTAL INVESTMENTS–101.84% (Cost $17,328,855) | 17,958,925 | |||||||
OTHER ASSETS LESS LIABILITIES–(1.84)% | (324,544 | ) | ||||||
NET ASSETS–100.00% | $ | 17,634,381 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | All or a portion of this security was out on loan at June 30, 2010. | |
(d) | Each unit represents one common share and one trust share. | |
(e) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(f) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1J. |
By sector, based on Net Assets
as of June 30, 2010
Consumer Discretionary | 89.3 | % | ||
Consumer Staples | 5.5 | |||
Information Technology | 4.0 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.2 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Leisure Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $16,791,566)* | $ | 17,421,636 | ||
Investments in affiliated money market funds, at value and cost | 537,289 | |||
Total investments, at value (Cost $17,328,855) | 17,958,925 | |||
Foreign currencies, at value (Cost $10,920) | 10,451 | |||
Receivables for: | ||||
Fund shares sold | 41,276 | |||
Dividends | 21,160 | |||
Investment for trustee deferred compensation and retirement plans | 8,937 | |||
Other assets | 1,977 | |||
Total assets | 18,042,726 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 13 | |||
Collateral upon return of securities loaned | 360,195 | |||
Accrued fees to affiliates | 11,163 | |||
Accrued other operating expenses | 25,005 | |||
Trustee deferred compensation and retirement plans | 11,969 | |||
Total liabilities | 408,345 | |||
Net assets applicable to shares outstanding | $ | 17,634,381 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 21,418,481 | ||
Undistributed net investment income | 131,846 | |||
Undistributed net realized gain (loss) | (4,545,353 | ) | ||
Unrealized appreciation | 629,407 | |||
$ | 17,634,381 | |||
Net Assets: | ||||
Series I | $ | 17,575,322 | ||
Series II | $ | 59,059 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 2,834,560 | |||
Series II | 9,532 | |||
Series I: | ||||
Net asset value per share | $ | 6.20 | ||
Series II: | ||||
Net asset value per share | $ | 6.20 | ||
* | At June 30, 2010, securities with an aggregate value of $351,170 were on loan to brokers. |
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $678) | $ | 141,556 | ||
Dividends from affiliated money market funds (includes securities lending income of $3,123) | 3,224 | |||
Total investment income | 144,780 | |||
Expenses: | ||||
Advisory fees | 76,013 | |||
Administrative services fees | 50,102 | |||
Custodian fees | 5,508 | |||
Distribution fees — Series II | 54 | |||
Transfer agent fees | 1,279 | |||
Trustees’ and officers’ fees and benefits | 9,136 | |||
Professional services fees | 17,709 | |||
Other | 6,226 | |||
Total expenses | 166,027 | |||
Less: Fees waived | (63,778 | ) | ||
Net expenses | 102,249 | |||
Net investment income | 42,531 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $17,892) | 1,324,489 | |||
Foreign currencies | (11,756 | ) | ||
1,312,733 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (2,252,772 | ) | ||
Foreign currencies | (574 | ) | ||
(2,253,346 | ) | |||
Net realized and unrealized gain (loss) | (940,614 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (898,082 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Leisure Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 42,531 | $ | 127,249 | ||||
Net realized gain (loss) | 1,312,733 | (3,631,778 | ) | |||||
Change in net unrealized appreciation (depreciation) | (2,253,346 | ) | 8,741,336 | |||||
Net increase (decrease) in net assets resulting from operations | (898,082 | ) | 5,236,807 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (347,842 | ) | |||||
Series II | — | (128 | ) | |||||
Total distributions from net investment income | — | (347,970 | ) | |||||
Share transactions–net: | ||||||||
Series I | (1,867,333 | ) | (2,556,830 | ) | ||||
Series II | 58,138 | 1,158 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (1,809,195 | ) | (2,555,672 | ) | ||||
Net increase (decrease) in net assets | (2,707,277 | ) | 2,333,165 | |||||
Net assets: | ||||||||
Beginning of period | 20,341,658 | 18,008,493 | ||||||
End of period (includes undistributed net investment income of $131,846 and $89,315, respectively) | $ | 17,634,381 | $ | 20,341,658 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Leisure Fund, formerly AIM V.I. Leisure Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term capital growth.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. |
Invesco V.I. Leisure Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. | ||
Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. Leisure Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Other Risks — The Fund’s investments are concentrated in a comparatively narrow segment of the economy. Consequently, the Fund may tend to be more volatile than other mutual funds, and the value of the Fund’s investments may tend to rise and fall more rapidly. | |
The leisure sector depends on consumer discretionary spending, which generally falls during economic downturns. | ||
J. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. | |
K. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
L. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. | |
Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. | ||
The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
Invesco V.I. Leisure Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .75% | ||
Next $250 million | 0 | .74% | ||
Next $500 million | 0 | .73% | ||
Next $1.5 billion | 0 | .72% | ||
Next $2.5 billion | 0 | .71% | ||
Next $2.5 billion | 0 | .70% | ||
Next $2.5 billion | 0 | .69% | ||
Over $10 billion | 0 | .68% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2011, 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. In determining the adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the net annual operating expenses to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursement prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $63,778.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $25,307 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation
Invesco V.I. Leisure Fund
inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 17,268,930 | $ | 689,995 | $ | — | $ | 17,958,925 | ||||||||
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, 2010, the Fund engaged in securities purchases of $196,263 and securities sales of $136,726, which resulted in net realized gains of $17,892.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested.
Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $1,322 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—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.
Invesco V.I. Leisure Fund
The Fund had a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 850,432 | ||
December 31, 2017 | 4,976,585 | |||
Total capital loss carryforward | $ | 5,827,017 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2010 was $4,392,536 and $6,170,228, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 2,399,049 | ||
Aggregate unrealized (depreciation) of investment securities | (1,800,048 | ) | ||
Net unrealized appreciation of investment securities | $ | 599,001 | ||
Cost of investments for tax purposes is $17,359,924. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 23,173 | $ | 161,892 | 15,116 | $ | 86,339 | ||||||||||
Series II | 17,144 | 120,582 | 195 | 1,057 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 54,350 | 347,842 | ||||||||||||
Series II | — | — | 20 | 128 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (293,107 | ) | (2,029,225 | ) | (553,001 | ) | (2,991,011 | ) | ||||||||
Series II | (8,958 | ) | (62,444 | ) | (5 | ) | (27 | ) | ||||||||
Net increase (decrease) in share activity | (261,748 | ) | $ | (1,809,195 | ) | (483,325 | ) | $ | (2,555,672 | ) | ||||||
(a) | There is an entity that is a record owner of more than 5% of the outstanding shares of the Fund that owns 16% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with this entity whereby this entity sells units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to this entity, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by this entity is also owned beneficially. |
Invesco 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.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income | unrealized) | operations | income | gains | Distributions | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 6.55 | $ | 0.01 | (c) | $ | (0.36 | ) | $ | (0.35 | ) | $ | — | $ | — | $ | — | $ | 6.20 | (5.34 | )% | $ | 17,575 | 1.01 | %(d) | 1.64 | %(d) | 0.42 | %(d) | 22 | % | |||||||||||||||||||||||||
Year ended 12/31/09 | 5.02 | 0.04 | (c) | 1.60 | 1.64 | (0.11 | ) | — | (0.11 | ) | 6.55 | 32.78 | 20,333 | 1.01 | 1.74 | 0.69 | 61 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 12.67 | 0.12 | (c) | (5.67 | ) | (5.55 | ) | (0.12 | ) | (1.98 | ) | (2.10 | ) | 5.02 | (43.04 | ) | 18,003 | 1.01 | 1.44 | 1.15 | 7 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.82 | 0.09 | (0.15 | ) | (0.06 | ) | (0.24 | ) | (0.85 | ) | (1.09 | ) | 12.67 | (0.79 | ) | 42,593 | 1.01 | 1.28 | 0.50 | 15 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 11.86 | 0.07 | 2.83 | 2.90 | (0.16 | ) | (0.78 | ) | (0.94 | ) | 13.82 | 24.61 | 52,820 | 1.01 | 1.26 | 0.54 | 14 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 12.38 | 0.04 | (0.19 | ) | (0.15 | ) | (0.14 | ) | (0.23 | ) | (0.37 | ) | 11.86 | (1.19 | ) | 54,192 | 1.16 | 1.31 | 0.34 | 32 | ||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 6.55 | 0.01 | (c) | (0.36 | ) | (0.35 | ) | — | — | — | 6.20 | (5.34 | ) | 59 | 1.26 | (d) | 1.89 | (d) | 0.17 | (d) | 22 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 5.02 | 0.02 | (c) | 1.61 | 1.63 | (0.10 | ) | — | (0.10 | ) | 6.55 | 32.47 | 9 | 1.26 | 1.99 | 0.44 | 61 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 12.63 | 0.09 | (c) | (5.64 | ) | (5.55 | ) | (0.08 | ) | (1.98 | ) | (2.06 | ) | 5.02 | (43.17 | ) | 6 | 1.26 | 1.69 | 0.90 | 7 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.78 | 0.05 | (0.15 | ) | (0.10 | ) | (0.20 | ) | (0.85 | ) | (1.05 | ) | 12.63 | (1.13 | ) | 9 | 1.26 | 1.53 | 0.25 | 15 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 11.84 | 0.04 | 2.82 | 2.86 | (0.14 | ) | (0.78 | ) | (0.92 | ) | 13.78 | 24.28 | 14 | 1.26 | 1.51 | 0.29 | 14 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 12.37 | 0.02 | (0.19 | ) | (0.17 | ) | (0.13 | ) | (0.23 | ) | (0.36 | ) | 11.84 | (1.37 | ) | 11 | 1.36 | 1.56 | 0.14 | 32 | ||||||||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $20,395 and $43 for Series I and Series II shares, respectively. |
Invesco V.I. Leisure Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 946.60 | $ | 4.87 | $ | 1,019.79 | $ | 5.06 | 1.01 | % | ||||||||||||||||||
Series II | 1,000.00 | 946.60 | 6.08 | 1,018.55 | 6.31 | 1.26 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Leisure Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Leisure Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The
Invesco V.I. Leisure Fund
Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser. The Board noted that the performance of Series I shares of the Fund was in the second quintile of its performance universe for the one year period, the fifth quintile for the three year period and the fourth quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that Invesco Advisers made changes to the Fund’s portfolio management team in 2009, and Invesco Advisers advised the Board that the team has a conservative, quality bias that underperformed during the low-quality rally in 2009. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year.
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 mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including one mutual fund advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was the same as the effective fee rate for the other mutual fund.
Other than the mutual fund described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other client accounts with investment strategies comparable to those of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 also considered the effect this fee waiver would have on the Fund’s total estimated expenses.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above, the expense limitations and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes seven breakpoints and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Leisure Fund
Invesco V.I. Mid Cap Core Equity Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIMCCE-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -4.49 | % | ||
Series II Shares | -4.52 | |||
S&P 500 Index6 (Broad Market Index) | -6.64 | |||
Russell Midcap Index6 (Style-Specific Index) | -2.06 | |||
Lipper VUF Mid-Cap Core Funds Index6 (Peer Group Index) | -1.83 |
6 | Lipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Russell Midcap® Index is an unmanaged index considered representative of mid-cap stocks. The Russell Midcap Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Mid-Cap Core Funds Index is an unmanaged index considered representative of mid-cap core variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (9/10/01) | 5.58 | % | ||
5 Years | 2.74 | |||
1 Year | 16.12 |
Series II Shares | ||||
Inception (9/10/01) | 5.34 | % | ||
5 Years | 2.50 | |||
1 Year | 15.95 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.07% and 1.32%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Mid Cap Core Equity Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Mid Cap Core Equity Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–86.11% | ||||||||
Aerospace & Defense–5.73% | ||||||||
Alliant Techsystems Inc.(b) | 85,379 | $ | 5,298,621 | |||||
Goodrich Corp. | 51,302 | 3,398,757 | ||||||
ITT Corp. | 184,570 | 8,290,884 | ||||||
Moog Inc.–Class A(b) | 115,334 | 3,717,215 | ||||||
Precision Castparts Corp. | 38,742 | 3,987,327 | ||||||
24,692,804 | ||||||||
Air Freight & Logistics–1.11% | ||||||||
Expeditors International of Washington, Inc. | 138,652 | 4,784,881 | ||||||
Apparel, Accessories & Luxury Goods–1.23% | ||||||||
Carter’s, Inc.(b) | 202,408 | 5,313,210 | ||||||
Asset Management & Custody Banks–3.26% | ||||||||
Legg Mason, Inc. | 260,763 | 7,309,187 | ||||||
Northern Trust Corp. | 144,665 | 6,755,855 | ||||||
14,065,042 | ||||||||
Biotechnology–1.91% | ||||||||
Biogen Idec Inc.(b) | 77,592 | 3,681,740 | ||||||
Genzyme Corp.(b) | 89,941 | 4,566,305 | ||||||
8,248,045 | ||||||||
Communications Equipment–2.08% | ||||||||
Juniper Networks, Inc.(b) | 111,838 | 2,552,143 | ||||||
Motorola, Inc.(b) | 987,238 | 6,436,792 | ||||||
8,988,935 | ||||||||
Computer Storage & Peripherals–0.21% | ||||||||
NetApp, Inc.(b) | 24,799 | 925,251 | ||||||
Construction, Farm Machinery & Heavy Trucks–1.46% | ||||||||
WABCO Holdings Inc.(b) | 199,676 | 6,285,800 | ||||||
Data Processing & Outsourced Services–1.52% | ||||||||
Western Union Co. | 438,356 | 6,535,888 | ||||||
Distributors–0.15% | ||||||||
Genuine Parts Co. | 16,283 | 642,364 | ||||||
Education Services–0.60% | ||||||||
Apollo Group, Inc.–Class A(b) | 61,219 | 2,599,971 | ||||||
Electric Utilities–0.95% | ||||||||
Edison International | 128,705 | 4,082,523 | ||||||
Electrical Components & Equipment–0.89% | ||||||||
Thomas & Betts Corp.(b) | 110,402 | 3,830,949 | ||||||
Electronic Equipment & Instruments–1.26% | ||||||||
Agilent Technologies, Inc.(b) | 191,111 | 5,433,286 | ||||||
Electronic Manufacturing Services–0.68% | ||||||||
Molex Inc. | 160,307 | 2,924,000 | ||||||
Environmental & Facilities Services–1.76% | ||||||||
Republic Services, Inc. | 254,745 | 7,573,569 | ||||||
Fertilizers & Agricultural Chemicals–0.50% | ||||||||
Scotts Miracle-Gro Co. (The)–Class A | 48,396 | 2,149,266 | ||||||
Food Retail–2.69% | ||||||||
Kroger Co. (The) | 103,865 | 2,045,102 | ||||||
Safeway Inc. | 486,644 | 9,567,421 | ||||||
11,612,523 | ||||||||
Gas Utilities–0.14% | ||||||||
UGI Corp. | 23,517 | 598,272 | ||||||
Health Care Equipment–7.33% | ||||||||
Boston Scientific Corp.(b) | 1,865,416 | 10,819,413 | ||||||
Hologic, Inc.(b) | 446,329 | 6,217,363 | ||||||
Hospira, Inc.(b) | 68,897 | 3,958,132 | ||||||
St. Jude Medical, Inc.(b) | 3,667 | 132,342 | ||||||
Teleflex Inc. | 39,403 | 2,138,795 | ||||||
Varian Medical Systems, Inc.(b) | 15,793 | 825,658 | ||||||
Zimmer Holdings, Inc.(b) | 139,057 | 7,516,031 | ||||||
31,607,734 | ||||||||
Health Care Facilities–0.70% | ||||||||
Rhoen-Klinikum AG (Germany)(c) | 136,159 | 3,024,878 | ||||||
Health Care Services–3.11% | ||||||||
DaVita, Inc.(b) | 85,912 | 5,364,346 | ||||||
Laboratory Corp. of America Holdings(b) | 47,532 | 3,581,536 | ||||||
Quest Diagnostics Inc. | 89,960 | 4,477,309 | ||||||
13,423,191 | ||||||||
Health Care Supplies–1.31% | ||||||||
Cooper Cos., Inc. (The) | 141,869 | 5,644,968 | ||||||
Household Products–0.54% | ||||||||
Energizer Holdings, Inc.(b) | 46,124 | 2,319,115 | ||||||
Hypermarkets & Super Centers–1.45% | ||||||||
BJ’s Wholesale Club, Inc.(b) | 169,188 | 6,261,648 | ||||||
Industrial Conglomerates–1.36% | ||||||||
Tyco International Ltd. | 166,195 | 5,855,050 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Core Equity Fund
Shares | Value | |||||||
Industrial Gases–0.12% | ||||||||
Air Products & Chemicals, Inc. | 8,181 | $ | 530,211 | |||||
Industrial Machinery–2.75% | ||||||||
Actuant Corp.–Class A | 160,620 | 3,024,475 | ||||||
Atlas Copco A.B.–Class A (Sweden) | 236,378 | 3,461,624 | ||||||
Danaher Corp. | 20,644 | 766,305 | ||||||
Pall Corp. | 45,877 | 1,576,792 | ||||||
Parker Hannifin Corp. | 54,808 | 3,039,652 | ||||||
11,868,848 | ||||||||
Insurance Brokers–1.61% | ||||||||
Marsh & McLennan Cos., Inc. | 306,934 | 6,921,362 | ||||||
IT Consulting & Other Services–1.41% | ||||||||
Amdocs Ltd.(b) | 227,148 | 6,098,924 | ||||||
Leisure Products–0.65% | ||||||||
Hasbro, Inc. | 68,063 | 2,797,389 | ||||||
Life Sciences Tools & Services–4.05% | ||||||||
Pharmaceutical Product Development, Inc. | 318,830 | 8,101,470 | ||||||
Techne Corp. | 89,197 | 5,124,368 | ||||||
Waters Corp.(b) | 65,471 | 4,235,974 | ||||||
17,461,812 | ||||||||
Managed Health Care–1.49% | ||||||||
Aetna Inc. | 237,587 | 6,267,545 | ||||||
Health Net Inc.(b) | 5,791 | 141,127 | ||||||
6,408,672 | ||||||||
Metal & Glass Containers–1.23% | ||||||||
Owens-Illinois, Inc.(b) | 200,893 | 5,313,620 | ||||||
Multi-Sector Holdings–0.20% | ||||||||
PICO Holdings, Inc.(b) | 28,327 | 848,960 | ||||||
Office Electronics–0.18% | ||||||||
Xerox Corp. | 96,087 | 772,539 | ||||||
Office Services & Supplies–1.10% | ||||||||
Pitney Bowes Inc. | 215,389 | 4,729,942 | ||||||
Oil & Gas Drilling–0.66% | ||||||||
Helmerich & Payne, Inc. | 77,683 | 2,836,983 | ||||||
Oil & Gas Equipment & Services–3.42% | ||||||||
Baker Hughes Inc. | 188,107 | 7,819,608 | ||||||
Cameron International Corp.(b) | 87,281 | 2,838,378 | ||||||
Dresser-Rand Group, Inc.(b) | 98,104 | 3,095,181 | ||||||
Smith International, Inc. | 26,397 | 993,847 | ||||||
14,747,014 | ||||||||
Oil & Gas Exploration & Production–1.54% | ||||||||
Newfield Exploration Co.(b) | 73,706 | 3,601,275 | ||||||
Penn West Energy Trust (Canada) | 113,569 | 2,160,082 | ||||||
Pioneer Natural Resources Co. | 8,220 | 488,679 | ||||||
Southwestern Energy Co.(b) | 10,259 | 396,408 | ||||||
6,646,444 | ||||||||
Oil & Gas Refining & Marketing–0.52% | ||||||||
Valero Energy Corp. | 124,717 | 2,242,412 | ||||||
Oil & Gas Storage & Transportation–1.26% | ||||||||
Williams Cos., Inc. (The) | 296,500 | 5,420,020 | ||||||
Packaged Foods & Meats–0.24% | ||||||||
Kraft Foods Inc.–Class A | 16,136 | 451,808 | ||||||
Sara Lee Corp. | 42,182 | 594,766 | ||||||
1,046,574 | ||||||||
Paper Packaging–1.58% | ||||||||
Sealed Air Corp. | 344,569 | 6,794,901 | ||||||
Personal Products–0.10% | ||||||||
Avon Products, Inc. | 16,908 | 448,062 | ||||||
Pharmaceuticals–0.69% | ||||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 57,201 | 2,973,880 | ||||||
Property & Casualty Insurance–1.86% | ||||||||
Axis Capital Holdings Ltd. | 21,306 | 633,214 | ||||||
Progressive Corp. (The) | 394,026 | 7,376,167 | ||||||
8,009,381 | ||||||||
Research & Consulting Services–1.13% | ||||||||
Dun & Bradstreet Corp. (The) | 72,840 | 4,889,021 | ||||||
Semiconductors–2.92% | ||||||||
Linear Technology Corp. | 224,228 | 6,235,781 | ||||||
Microchip Technology Inc.(c) | 112,448 | 3,119,307 | ||||||
Xilinx, Inc. | 128,681 | 3,250,482 | ||||||
12,605,570 | ||||||||
Specialized Consumer Services–1.58% | ||||||||
H&R Block, Inc. | 435,049 | 6,825,919 | ||||||
Specialized Finance–1.06% | ||||||||
Moody’s Corp. | 229,724 | 4,576,102 | ||||||
Specialty Chemicals–3.10% | ||||||||
International Flavors & Fragrances Inc. | 148,639 | 6,305,266 | ||||||
Sigma-Aldrich Corp. | 141,695 | 7,060,662 | ||||||
13,365,928 | ||||||||
Systems Software–2.48% | ||||||||
Symantec Corp.(b) | 769,816 | 10,685,046 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Core Equity Fund
Shares | Value | |||||||
Thrifts & Mortgage Finance–2.40% | ||||||||
People’s United Financial Inc. | 765,303 | $ | 10,331,590 | |||||
Wireless Telecommunication Services–0.85% | ||||||||
MetroPCS Communications, Inc.(b) | 446,080 | 3,653,395 | ||||||
Total Common Stocks & Other Equity Interests (Cost $355,754,822) | 371,273,684 | |||||||
Money Market Funds–13.89% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 29,945,613 | 29,945,613 | ||||||
Premier Portfolio–Institutional Class(d) | 29,945,613 | 29,945,613 | ||||||
Total Money Market Funds (Cost $59,891,226) | 59,891,226 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.00% (Cost $415,646,048) | 431,164,910 | |||||||
Shares | ||||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–1.11% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $4,782,949)(d)(e) | 4,782,949 | 4,782,949 | ||||||
TOTAL INVESTMENTS–101.11% (Cost $420,428,997) | 435,947,859 | |||||||
OTHER ASSETS LESS LIABILITIES–(1.11)% | (4,793,934 | ) | ||||||
NET ASSETS–100.00% | $ | 431,153,925 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | All or a portion of this security was out on loan at June 30, 2010. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(e) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1I. |
By sector, based on Net Assets
as of June 30, 2010
Health Care | 20.6 | % | ||
Industrials | 15.8 | |||
Information Technology | 12.8 | |||
Financials | 10.4 | |||
Energy | 7.4 | |||
Materials | 6.5 | |||
Consumer Discretionary | 5.7 | |||
Consumer Staples | 5.0 | |||
Utilities | 1.1 | |||
Telecommunication Services | 0.8 | |||
Money Market Funds Plus Other Assets Less Liabilities | 13.9 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Core Equity Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $355,754,822)* | $ | 371,273,684 | ||
Investments in affiliated money market funds, at value and cost | 64,674,175 | |||
Total investments, at value (Cost $420,428,997) | 435,947,859 | |||
Foreign currencies, at value (Cost $137) | 7 | |||
Receivables for: | ||||
Investments sold | 27,813 | |||
Fund shares sold | 636,025 | |||
Dividends | 460,480 | |||
Investment for trustee deferred compensation and retirement plans | 18,146 | |||
Other assets | 2,116 | |||
Total assets | 437,092,446 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 530,837 | |||
Fund shares reacquired | 189,122 | |||
Collateral upon return of securities loaned | 4,782,949 | |||
Accrued fees to affiliates | 329,404 | |||
Accrued other operating expenses | 39,102 | |||
Trustee deferred compensation and retirement plans | 67,107 | |||
Total liabilities | 5,938,521 | |||
Net assets applicable to shares outstanding | $ | 431,153,925 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 449,412,485 | ||
Undistributed net investment income | 2,849,762 | |||
Undistributed net realized gain (loss) | (36,625,024 | ) | ||
Unrealized appreciation | 15,516,702 | |||
$ | 431,153,925 | |||
Net Assets: | ||||
Series I | $ | 382,175,414 | ||
Series II | $ | 48,978,511 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 36,630,579 | |||
Series II | 4,739,063 | |||
Series I: | ||||
Net asset value per share | $ | 10.43 | ||
Series II: | ||||
Net asset value per share | $ | 10.34 | ||
* | At June 30, 2010, securities with an aggregate value of $4,624,829 were on loan to brokers. |
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $43,027) | $ | 2,846,336 | ||
Dividends from affiliated money market funds (includes securities lending income of $14,068) | 50,456 | |||
Total investment income | 2,896,792 | |||
Expenses: | ||||
Advisory fees | 1,718,547 | |||
Administrative services fees | 646,878 | |||
Custodian fees | 6,731 | |||
Distribution fees — Series II | 68,281 | |||
Transfer agent fees | 11,222 | |||
Trustees’ and officers’ fees and benefits | 16,551 | |||
Other | 23,257 | |||
Total expenses | 2,491,467 | |||
Less: Fees waived | (54,725 | ) | ||
Net expenses | 2,436,742 | |||
Net investment income | 460,050 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $674,870) | 38,219,247 | |||
Foreign currencies | (126,022 | ) | ||
Foreign currency contracts | 257,196 | |||
38,350,421 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (58,481,676 | ) | ||
Foreign currencies | (373 | ) | ||
Foreign currency contracts | (112,609 | ) | ||
(58,594,658 | ) | |||
Net realized and unrealized gain (loss) | (20,244,237 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (19,784,187 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Core Equity Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 460,050 | $ | 2,434,222 | ||||
Net realized gain (loss) | 38,350,421 | (61,873,895 | ) | |||||
Change in net unrealized appreciation (depreciation) | (58,594,658 | ) | 174,517,834 | |||||
Net increase (decrease) in net assets resulting from operations | (19,784,187 | ) | 115,078,161 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (5,080,173 | ) | |||||
Series II | — | (530,907 | ) | |||||
Total distributions from net investment income | — | (5,611,080 | ) | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | — | (4,902,328 | ) | |||||
Series II | — | (669,176 | ) | |||||
Total distributions from net realized gains | — | (5,571,504 | ) | |||||
Share transactions–net: | ||||||||
Series I | (32,518,969 | ) | (11,987,008 | ) | ||||
Series II | (4,904,688 | ) | (4,824,114 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (37,423,657 | ) | (16,811,122 | ) | ||||
Net increase (decrease) in net assets | (57,207,844 | ) | 87,084,455 | |||||
Net assets: | ||||||||
Beginning of period | 488,361,769 | 401,277,314 | ||||||
End of period (includes undistributed net investment income of $2,849,762 and $2,389,712, respectively) | $ | 431,153,925 | $ | 488,361,769 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Mid Cap Core Equity Fund, formerly AIM V.I. Mid Cap Core Equity Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an |
Invesco V.I. Mid Cap Core Equity Fund
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 make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to |
Invesco V.I. Mid Cap Core Equity Fund
federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | ||
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. | |
J. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
K. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
Invesco V.I. Mid Cap Core Equity Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $500 million | 0 | .725% | ||
Next $500 million | 0 | .70% | ||
Next $500 million | 0 | .675% | ||
Over $1.5 billion | 0 | .65% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2011, 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. In determining the adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the net annual operating expenses to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $54,725.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $59,478 for accounting and fund administrative services and reimbursed $587,400 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Invesco V.I. Mid Cap Core Equity Fund
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, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 429,461,357 | $ | 6,486,502 | $ | — | $ | 435,947,859 | ||||||||
NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure 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. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Effect of Derivative Instruments for the six months ended June 30, 2010
The table below summarizes the gains on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (loss) on Statement of Operations | ||||
Foreign Currency Contracts* | ||||
Realized Gain | ||||
Currency risk | $ | 257,196 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Currency risk | $ | (112,609 | ) | |
Total | $ | 144,587 | ||
* | The average value of foreign currency contracts outstanding during the period was $580,610. |
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2010, the Fund engaged in securities purchases of $10,254,905 and securities sales of $10,717,006, which resulted in net realized gains of $674,870.
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $1,869 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
Invesco V.I. Mid Cap Core 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.
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, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2017 | $ | 70,739,673 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
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, 2010 was $160,566,409 and $193,875,492, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 40,532,496 | ||
Aggregate unrealized (depreciation) of investment securities | (29,136,797 | ) | ||
Net unrealized appreciation of investment securities | $ | 11,395,699 | ||
Cost of investments for tax purposes is $424,552,160. |
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 917,922 | $ | 10,349,449 | 3,776,568 | $ | 34,511,811 | ||||||||||
Series II | 688,218 | 7,605,320 | 1,852,803 | 16,828,951 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 939,088 | 9,982,501 | ||||||||||||
Series II | — | — | 113,860 | 1,200,083 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (3,875,361 | ) | (42,868,418 | ) | (6,211,044 | ) | (56,481,320 | ) | ||||||||
Series II | (1,132,408 | ) | (12,510,008 | ) | (2,477,573 | ) | (22,853,148 | ) | ||||||||
Net increase (decrease) in share activity | (3,401,629 | ) | $ | (37,423,657 | ) | (2,006,298 | ) | $ | (16,811,122 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 74% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Mid Cap Core Equity Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | securities | Dividends | Distributions | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||||
value, | investment | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | (loss) | unrealized) | operations | income | gains | Distributions | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 10.92 | $ | 0.01 | (c) | $ | (0.50 | ) | $ | (0.49 | ) | $ | — | $ | — | $ | — | $ | 10.43 | (4.49 | )% | $ | 382,175 | 1.00 | %(d) | 1.02 | %(d) | 0.22 | %(d) | 39 | % | |||||||||||||||||||||||||
Year ended 12/31/09 | 8.59 | 0.06 | (c) | 2.53 | 2.59 | (0.13 | ) | (0.13 | ) | (0.26 | ) | 10.92 | 30.21 | 432,233 | 1.02 | 1.04 | 0.60 | 41 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 14.57 | 0.14 | (c) | (4.33 | ) | (4.19 | ) | (0.22 | ) | (1.57 | ) | (1.79 | ) | 8.59 | (28.52 | ) | 352,788 | 1.01 | 1.04 | 1.05 | 62 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.52 | 0.19 | 1.11 | 1.30 | (0.04 | ) | (0.21 | ) | (0.25 | ) | 14.57 | 9.55 | 585,608 | 1.00 | 1.01 | 1.23 | 62 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 13.61 | 0.14 | 1.39 | 1.53 | (0.14 | ) | (1.48 | ) | (1.62 | ) | 13.52 | 11.24 | 581,154 | 1.04 | 1.04 | 0.93 | 83 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 13.11 | 0.06 | 0.94 | 1.00 | (0.07 | ) | (0.43 | ) | (0.50 | ) | 13.61 | 7.62 | 584,860 | 1.03 | 1.03 | 0.50 | 70 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 10.83 | (0.00 | )(c) | (0.49 | ) | (0.49 | ) | — | — | — | 10.34 | (4.52 | ) | 48,979 | 1.25 | (d) | 1.27 | (d) | (0.03 | )(d) | 39 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 8.52 | 0.03 | (c) | 2.51 | 2.54 | (0.10 | ) | (0.13 | ) | (0.23 | ) | 10.83 | 29.85 | 56,129 | 1.27 | 1.29 | 0.35 | 41 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 14.45 | 0.10 | (c) | (4.28 | ) | (4.18 | ) | (0.18 | ) | (1.57 | ) | (1.75 | ) | 8.52 | (28.68 | ) | 48,489 | 1.26 | 1.29 | 0.80 | 62 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.42 | 0.13 | 1.12 | 1.25 | (0.01 | ) | (0.21 | ) | (0.22 | ) | 14.45 | 9.29 | 79,079 | 1.25 | 1.26 | 0.98 | 62 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 13.52 | 0.10 | 1.38 | 1.48 | (0.10 | ) | (1.48 | ) | (1.58 | ) | 13.42 | 10.98 | 56,766 | 1.29 | 1.29 | 0.68 | 83 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 13.04 | 0.03 | 0.92 | 0.95 | (0.04 | ) | (0.43 | ) | (0.47 | ) | 13.52 | 7.27 | 50,380 | 1.28 | 1.28 | 0.25 | 70 | |||||||||||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $422,933 and $55,078 for Series I and Series II shares, respectively. |
Invesco 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, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 955.10 | $ | 4.85 | $ | 1,019.84 | $ | 5.01 | 1.00 | % | ||||||||||||||||||
Series II | 1,000.00 | 954.80 | 6.06 | 1,018.60 | 6.26 | 1.25 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Mid Cap Core Equity Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Mid Cap Core Equity Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper
Invesco V.I. Mid Cap Core Equity Fund
performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, and against the Lipper VA Underlying Funds — Mid-Cap Core Index. The Board noted that the performance of Series I shares of the Fund was in the fifth quintile for the one year period and the first quintile of its performance universe for the 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 performance of Series I shares of the Fund was below the performance of the Index for the one year period and above the performance of the Index for the three and five year periods. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was at the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including one mutual fund advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was above the rate for the other mutual fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients based upon policies reviewed with the Board. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts, including provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets managed for other client accounts and noted that advance notice of redemptions affecting management assets is often provided to Invesco Advisers by institutional clients. Although the Board noted that the fees charged to other client accounts were often lower than the advisory fee charged by Invesco Advisers to the Fund and other Invesco Funds, the Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts were more comparable. In light of this information, the Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from services provided to other client accounts and accordingly, the Board did not place significant weight on these fee comparisons.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services provided by Invesco Advisers pursuant to the Fund’s advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes three breakpoints, and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for the research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Mid Cap Core Equity Fund
Invesco V.I. Money Market Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIMKT-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
As of June 30, 2010, the seven-day SEC yield on the Fund’s Series I shares was 0.37% and the seven-day SEC yield on the Fund’s Series II shares was 0.37%. Had fees not been waived, seven-day SEC yields for the Fund’s Series I and Series II shares would have been -0.61% and -0.86%, respectively.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please see your variable product issuer or financial adviser for the most recent month-end variable product performance.
Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
Invesco V.I. Money Market Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
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.
Invesco V.I. Money Market Fund
Schedule of Investments
June 30, 2010
(Unaudited)
Principal | ||||||||||||||||
Interest | Maturity | Amount | ||||||||||||||
Rate | Date | (000) | Value | |||||||||||||
Variable Rate Demand Notes–30.03%(a)(b) | ||||||||||||||||
Credit Enhanced–30.03% | ||||||||||||||||
Benjamin Rose Institute (The) (Kethley House); Series 2005, VRD Taxable Notes (LOC–JPMorgan Chase Bank N.A.)(c) | 0.35 | % | 12/01/28 | $ | 1,800 | $ | 1,800,000 | |||||||||
Collier (County of), Florida Industrial Development Authority (Allete, Inc.); Series 2006, Ref. VRD IDR (LOC–Wells Fargo Bank, N.A.)(c) | 0.37 | % | 10/01/25 | 1,000 | 1,000,000 | |||||||||||
Hamilton (County of), Ohio (Children’s Hospital Medical Center); Series 1997 A, VRD Hospital Facilities RB (LOC–PNC Bank, N.A.)(c) | 0.30 | % | 05/15/17 | 600 | 600,000 | |||||||||||
Miami-Dade (County of), Florida Industrial Development Authority (Professional Modification Services, Inc.); Series 1998, VRD RB (LOC–JPMorgan Chase Bank, N.A.)(c) | 0.29 | % | 08/01/18 | 1,000 | 1,000,000 | |||||||||||
Nashville (City of) & Davidson (County of), Tennessee Metropolitan Government Industrial Development Board (L & S, LLC); Series 2001, VRD IDR (LOC–JPMorgan Chase Bank, N.A.)(c) | 0.31 | % | 03/01/26 | 520 | 520,000 | |||||||||||
New Hampshire (State of) Business Finance Authority (Alice Peck Day Health Systems Obligated Group); Series 2007 B, VRD RB (LOC–TD Bank, N.A.)(c)(d) | 0.40 | % | 10/01/36 | 1,000 | 1,000,000 | |||||||||||
Pitney Road Partners, LLC; Series 2008, VRD Notes (CEP–General Electric Capital Corp.)(e) | 0.48 | % | 07/01/25 | 2,260 | 2,260,000 | |||||||||||
Rock Island (County of), Illinois Metropolitan Airport Authority (Quad City International Airport Air Freight Project); Series 1998 A, VRD Priority RB (LOC–U.S. Bank, N.A.)(c) | 0.40 | % | 12/01/18 | 535 | 535,000 | |||||||||||
Saint Paul (City of), Minnesota Port Authority; Series 2009-10 CC, VRD District Cooling RB (LOC–Deutsche Bank AG)(c)(d) | 0.32 | % | 03/01/29 | 500 | 500,000 | |||||||||||
Total Variable Rate Demand Notes (Cost $9,215,000) | 9,215,000 | |||||||||||||||
Certificates of Deposit–17.60% | ||||||||||||||||
Credit Agricole Corporate & Investment Bank | 0.70 | % | 09/10/10 | 1,000 | 1,000,000 | |||||||||||
Lloyds TSB Bank PLC | 0.18 | % | 07/06/10 | 1,400 | 1,400,000 | |||||||||||
Nordea Bank Finland PLC | 0.51 | % | 09/07/10 | 1,500 | 1,500,000 | |||||||||||
Royal Bank of Scotland PLC | 0.40 | % | 07/12/10 | 1,500 | 1,500,000 | |||||||||||
Total Certificates of Deposit (Cost $5,400,000) | 5,400,000 | |||||||||||||||
Commercial Paper–15.31%(f) | ||||||||||||||||
Asset-Backed Securities–Commercial Loans/Leases–2.28% | ||||||||||||||||
Atlantis One Funding Corp.(d)(e) | 0.29 | % | 08/09/10 | 700 | 699,780 | |||||||||||
Asset-Backed Securities–Fully Supported Bank–4.89% | ||||||||||||||||
Crown Point Capital Co., LLC–Series A, (Multi CEP’s-Liberty Hampshire Co., LLC; agent)(d)(e) | 0.50 | % | 08/06/10 | 1,500 | 1,499,250 | |||||||||||
Asset-Backed Securities–Multi-Purpose–3.26% | ||||||||||||||||
Mont Blanc Capital Corp.(d)(e) | 0.37 | % | 07/16/10 | 1,000 | 999,846 | |||||||||||
Life & Health Insurance–1.63% | ||||||||||||||||
Metlife Short-Term Funding LLC(e) | 0.36 | % | 07/21/10 | 500 | 499,900 | |||||||||||
Regional Banks–3.25% | ||||||||||||||||
Banque et Caisse d’Epargne de l’Etat(d) | 0.46 | % | 10/28/10 | 1,000 | 998,479 | |||||||||||
Total Commercial Paper (Cost $4,697,255) | 4,697,255 | |||||||||||||||
Medium-Term Notes–11.05% | ||||||||||||||||
European Investment Bank Sr. Unsec. Global MTN(d) | 5.25 | % | 06/15/11 | 968 | 1,008,745 | |||||||||||
JPMorgan Chase & Co. Sr. Unsec. Global MTN(b) | 0.86 | % | 09/24/10 | 1,000 | 1,000,768 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Money Market Fund
Principal | ||||||||||||||||
Interest | Maturity | Amount | ||||||||||||||
Rate | Date | (000) | Value | |||||||||||||
Medium-Term Notes–(continued) | ||||||||||||||||
Unilever Capital Corp. Sr. Unsec. Gtd. Global MTN(d) | 7.13 | % | 11/01/10 | $ | 1,351 | $ | 1,381,945 | |||||||||
Total Medium-Term Notes (Cost $3,391,458) | 3,391,458 | |||||||||||||||
TOTAL INVESTMENTS (excluding Repurchase Agreements)–73.99% (Cost $22,703,713) | 22,703,713 | |||||||||||||||
Repurchase | ||||||||||||||||
Amount | ||||||||||||||||
Repurchase Agreements–25.85%(g) | ||||||||||||||||
Banc of America Securities LLC, Joint agreement dated 06/30/10, aggregate maturing value $350,000,194 (collateralized by U.S. Treasury obligations valued at $357,000,099; 1.75%-3.63%, 11/15/11-08/15/19) | 0.02 | % | 07/01/10 | 1,500,001 | 1,500,000 | |||||||||||
BNP Paribas, Joint agreement dated 06/30/10, aggregate maturing value $392,003,158 (collateralized by U.S. Government sponsored agency and Corporate obligations valued at $399,966,432; 0%-6.00%, 05/25/11-09/16/37)(d) | 0.29 | % | 07/01/10 | 1,500,012 | 1,500,000 | |||||||||||
Goldman, Sachs & Co., Joint agreement dated 06/30/10, aggregate maturing value $250,000,208 (collateralized by U.S. Government sponsored agency obligations valued at $255,000,001; 2.42%-7.00%, 05/01/20-06/01/40) | 0.03 | % | 07/01/10 | 1,500,001 | 1,500,000 | |||||||||||
RBS Securities Inc., Joint agreement dated 06/30/10, aggregate maturing value $350,000,778 (collateralized by U.S. Treasury obligations valued at $357,004,410; 2.38%-4.63%, 02/29/12-03/31/15) | 0.08 | % | 07/01/10 | 2,031,769 | 2,031,764 | |||||||||||
Wells Fargo Securities, LLC, Joint agreement dated 06/30/10, aggregate maturing value $625,003,646 (collateralized by Corporate obligations valued at $656,250,000; 0%-7.95%, 08/14/11-12/10/49) | 0.21 | % | 07/01/10 | 1,400,008 | 1,400,000 | |||||||||||
Total Repurchase Agreements (Cost $7,931,764) | 7,931,764 | |||||||||||||||
TOTAL INVESTMENTS(h)(i)–99.84% (Cost $30,635,477) | 30,635,477 | |||||||||||||||
OTHER ASSETS LESS LIABILITIES–0.16% | 49,248 | |||||||||||||||
NET ASSETS–100.00% | $ | 30,684,725 | ||||||||||||||
Investment Abbreviations:
CEP | – Credit Enhancement Provider | |
Gtd. | – Guaranteed | |
IDR | – Industrial Development Revenue Bonds | |
LOC | – Letter of Credit | |
MTN | – Medium-Term Notes | |
RB | – Revenue Bonds | |
Ref. | – Refunding | |
Sr. | – Senior | |
Unsec. | – Unsecured | |
VRD | – Variable Rate Demand |
Notes to Schedule of Investments:
(a) | Demand security payable upon demand by the Fund at specified time intervals no greater than thirteen months. | |
(b) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2010. | |
(c) | Principal and interest payments are fully enhanced by a letter of credit from the bank listed or a predecessor bank, branch or subsidiary. | |
(d) | The security is credit guaranteed, enhanced or has credit risk by a foreign entity. The foreign credit exposure to countries other than the United States of America (as a percentage of net assets) is summarized as follows: Netherlands: 5.5%; other countries less than 5% each: 25.7%. | |
(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, 2010 was $5,958,776, which represented 19.41% of the Fund’s Net Assets. | |
(f) | Security may be traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. | |
(g) | Principal amount equals value at period end. See Note 1I. | |
(h) | Also represents cost for federal income tax purposes. | |
(i) | This table provides a listing of those entities that have either issued, guaranteed, backed or otherwise enhanced the credit quality of more than 5% of the securities held in the portfolio. In instances where the entity has guaranteed, backed or otherwise enhanced the credit quality of a security, it is not primarily responsible for the issuer’s obligations but may be called upon to satisfy the issuer’s obligations. |
Entities | Percentage | |||
JPMorgan Chase Bank, N.A. | 14.1 | % | ||
General Electric Capital Corp. | 7.4 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Money Market Fund
Number of days to Maturity
as of June 30, 2010
1-7 | 54.0 | % | ||
8-30 | 16.5 | |||
31-90 | 24.8 | |||
91-180 | 3.7 | |||
181+ | 1.0 | |||
* | 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. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Money Market Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, excluding repurchase agreements, at value and cost | $ | 22,703,713 | ||
Repurchase agreements, at value and cost | 7,931,764 | |||
Total investments, at value and cost | 30,635,477 | |||
Receivables for: | ||||
Investments sold | 115,000 | |||
Interest | 28,380 | |||
Fund expenses absorbed | 9,846 | |||
Investment for trustee deferred compensation and retirement plans | 34,948 | |||
Other assets | 2,652 | |||
Total assets | 30,826,303 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 56,573 | |||
Accrued fees to affiliates | 15,083 | |||
Accrued other operating expenses | 26,264 | |||
Trustee deferred compensation and retirement plans | 43,658 | |||
Total liabilities | 141,578 | |||
Net assets applicable to shares outstanding | $ | 30,684,725 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 30,686,868 | ||
Undistributed net realized gain (loss) | (2,143 | ) | ||
$ | 30,684,725 | |||
Net Assets: | ||||
Series I | $ | 29,261,624 | ||
Series II | $ | 1,423,101 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 29,262,525 | |||
Series II | 1,422,917 | |||
Series I: | ||||
Net asset value per share | $ | 1.00 | ||
Series II: | ||||
Net asset value per share | $ | 1.00 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Interest | $ | 52,012 | ||
Expenses: | ||||
Advisory fees | 65,234 | |||
Administrative services fees | 53,322 | |||
Custodian fees | 5,791 | |||
Distribution fees — Series II | 1,836 | |||
Transfer agent fees | 3,466 | |||
Trustees’ and officers’ fees and benefits | 9,444 | |||
Professional services fees | 25,160 | |||
Other | 6,560 | |||
Total expenses | 170,813 | |||
Less: Fees waived | (161,069 | ) | ||
Net expenses | 9,744 | |||
Net investment income | 42,268 | |||
Net realized gain (loss) from investment securities | (2,143 | ) | ||
Net increase in net assets resulting from operations | $ | 40,125 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Money Market Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 42,268 | $ | 50,085 | ||||
Net realized gain (loss) | (2,143 | ) | — | |||||
Net increase in net assets resulting from operations | 40,125 | 50,085 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (40,384 | ) | (48,846 | ) | ||||
Series II | (1,884 | ) | (1,239 | ) | ||||
Total distributions from net investment income | (42,268 | ) | (50,085 | ) | ||||
Share transactions–net: | ||||||||
Series I | (4,222,003 | ) | (15,518,673 | ) | ||||
Series II | (266,293 | ) | (576,067 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (4,488,296 | ) | (16,094,740 | ) | ||||
Net increase (decrease) in net assets | (4,490,439 | ) | (16,094,740 | ) | ||||
Net assets: | ||||||||
Beginning of period | 35,175,164 | 51,269,904 | ||||||
End of period (includes undistributed net investment income of $0 and $0, respectively) | $ | 30,684,725 | $ | 35,175,164 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Money Market Fund, formerly AIM V.I. Money Market Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly AIM Variable Insurance Funds, (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to provide as high a level of current income as is consistent with the preservation of capital and liquidity.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — The Fund’s securities are recorded on the basis of amortized cost which approximates value as permitted by Rule 2a-7 under the 1940 Act. This method values a security at its cost on the date of purchase and, thereafter, assumes a constant amortization to maturity of any premiums or accretion of any discounts. | |
Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income, adjusted for amortization of premiums and accretion of discounts on investments, is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized gain (loss) from investment securities |
Invesco V.I. Money Market Fund
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 investment adviser. | ||
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income are declared daily and paid monthly to separate accounts of participating insurance companies. Distributions from net realized gain, if any, are generally paid annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Repurchase Agreements — The Fund may enter into repurchase agreements. Collateral on repurchase agreements, including the Fund’s pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. Eligible securities for collateral are securities consistent with the Fund’s investment objectives and may consist of U.S. Government Securities, U.S. Government Sponsored Agency Securities and/or, Investment Grade Debt Securities. Collateral consisting of U.S. Government Securities and U.S. Government Sponsored Agency Securities is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. Collateral consisting of Investment Grade Debt Securities is marked to market daily to ensure its market value is at least 105% of the sales price of the repurchase agreement. The investments in some repurchase agreements, pursuant to procedures approved by the Board of Trustees, are through participation with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates (“Joint repurchase agreements”). The 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 Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .40% | ||
Over $250 million | 0 | .35% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Invesco V.I. Money Market Fund
The Adviser has contractually agreed, through at least April 30, 2011, 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. In determining the adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the net annual operating expenses to exceed the numbers reflected above: (1) interest; (2) taxes; (3) extraordinary or non-routine items, including payments to participate in the United States Treasury Temporary Guarantee Program (the “Program”); (4) expenses related to a merger or reorganization, as approved by the Fund’s Board of Trustees; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
The Adviser and/or Invesco Distributors, Inc., (“IDI”) voluntarily agreed to waive fees and/or reimbursed expenses in order to increase the Fund’s yield. Voluntary fee waivers and/or reimbursements may be modified at any time upon consultation with the Board of Trustees without further notice to investors.
For the six months ended June 30, 2010, Invesco voluntarily waived advisory fees of $159,233 and reimbursed class level expenses of $1,836 for Series II shares.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $24,794 for accounting and fund administrative services and reimbursed $28,528 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Short-term Investments | $ | — | $ | 30,635,477 | $ | — | $ | 30,635,477 | ||||||||
Invesco V.I. Money Market Fund
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2010, the Fund engaged in securities purchases of $1,520,060 and securities sales of $660,016.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $1,338 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The Bank of New York Mellon, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—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, 2009.
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 6,983,582 | $ | 6,983,582 | 14,958,501 | $ | 14,958,537 | ||||||||||
Series II | 36,103 | 36,103 | 51,965 | 51,965 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 40,384 | 40,384 | 48,883 | 48,846 | ||||||||||||
Series II | 1,884 | 1,884 | 1,238 | 1,239 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (11,245,969 | ) | (11,245,969 | ) | (30,526,056 | ) | (30,526,056 | ) | ||||||||
Series II | (304,280 | ) | (304,280 | ) | (629,271 | ) | (629,271 | ) | ||||||||
Net increase (decrease) in share activity | (4,488,296 | ) | $ | (4,488,296 | ) | (16,094,740 | ) | $ | (16,094,740 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 92% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Money Market Fund
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||
to average | to average net | Ratio of net | ||||||||||||||||||||||||||||||||||
Net asset | Dividends | net assets | assets without | investment | ||||||||||||||||||||||||||||||||
value, | Net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | |||||||||||||||||||||||||||||
beginning | Investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | ||||||||||||||||||||||||||||
of period | income | income | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | ||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 1.00 | $ | 0.00 | (b) | $ | (0.00 | ) | $ | 1.00 | 0.13 | % | $ | 29,262 | 0.06 | %(c) | 1.04 | %(c) | 0.26 | %(c) | ||||||||||||||||
Year ended 12/31/09 | 1.00 | 0.00 | (b) | (0.00 | ) | 1.00 | 0.11 | 33,486 | 0.65 | 0.90 | 0.11 | |||||||||||||||||||||||||
Year ended 12/31/08 | 1.00 | 0.02 | (b) | (0.02 | ) | 1.00 | 2.04 | 49,004 | 0.86 | 0.86 | 2.02 | |||||||||||||||||||||||||
Year ended 12/31/07 | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.54 | 46,492 | 0.86 | 0.86 | 4.45 | ||||||||||||||||||||||||||
Year ended 12/31/06 | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.27 | 43,568 | 0.90 | 0.90 | 4.20 | ||||||||||||||||||||||||||
Year ended 12/31/05 | 1.00 | 0.02 | (0.02 | ) | 1.00 | 2.51 | 44,923 | 0.82 | 0.82 | 2.46 | ||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 1.00 | 0.00 | (b) | (0.00 | ) | 1.00 | 0.13 | 1,423 | 0.06 | (c) | 1.29 | (c) | 0.26 | (c) | ||||||||||||||||||||||
Year ended 12/31/09 | 1.00 | 0.00 | (b) | (0.00 | ) | 1.00 | 0.06 | 1,690 | 0.70 | 1.15 | 0.06 | |||||||||||||||||||||||||
Year ended 12/31/08 | 1.00 | 0.02 | (b) | (0.02 | ) | 1.00 | 1.78 | 2,266 | 1.11 | 1.11 | 1.77 | |||||||||||||||||||||||||
Year ended 12/31/07 | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.28 | 2,515 | 1.11 | 1.11 | 4.20 | ||||||||||||||||||||||||||
Year ended 12/31/06 | 1.00 | 0.04 | (0.04 | ) | 1.00 | 4.01 | 2,341 | 1.15 | 1.15 | 3.95 | ||||||||||||||||||||||||||
Year ended 12/31/05 | 1.00 | 0.02 | (0.02 | ) | 1.00 | 2.26 | 3,080 | 1.07 | 1.07 | 2.21 | ||||||||||||||||||||||||||
(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, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(b) | Calculated using average shares outstanding. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $31,407 and $1,481 for Series I and Series II shares, respectively. |
Invesco 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, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,001.30 | $ | 0.30 | $ | 1,024.50 | $ | 0.30 | 0.06 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,001.30 | 0.30 | 1,024.50 | 0.30 | 0.06 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Money Market Fund
Approval of Investment Advisory and Sub-advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Money Market Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses, and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investment Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the quality and efficiency of the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the additional resources and talents of the Affiliated Sub-Advisers in managing the Fund.
Invesco V.I. Money Market Fund
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser and against the Lipper VA Underlying Funds — Money Market Index. The Board noted that the performance of Series I shares of the Fund was in the third quintile of its performance universe for the one year period, the fourth quintile for the three year period and the fifth quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that the performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. Invesco Advisers advised the Board that the Fund has historically been priced consistent with its role as a conduit to and from other Invesco Advisers products, which impacts performance. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual advisory fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
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 mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including two mutual funds advised or sub-advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was above the effective fee rate for the mutual fund advised by Invesco Advisers and above the sub-adviser effective fee rate of the fund sub-advised by Invesco Advisers.
Other than the mutual funds described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client accounts in a manner substantially similar to the management of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes one breakpoint, and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoint. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Money Market Fund
Invesco V.I. S&P 500 Index Fund Semiannual Report to Shareholders n June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
MS-VISPI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -6.75 | % | ||
Series II Shares | -6.92 | |||
S&P 500 Index6 (Broad Market/Style-Specific Index) | -6.64 |
6 | Lipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
Series I Shares | ||||
Inception (5/18/98) | 0.86 | % | ||
10 Years | -1.88 | |||
5 Years | -0.97 | |||
1 Year | 14.19 | |||
Series II Shares | ||||
Inception (6/5/00) | -2.21 | % | ||
10 Years | -2.13 | |||
5 Years | -1.23 | |||
1 Year | 13.87 |
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund advised by Morgan Stanley Investment Advisors Inc. were reorganized into Series I and Series II shares, respectively, of Invesco V.I. S&P 500 Index Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. S&P 500 Index Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.28% and 0.53%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.49% and 0.74%, 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.
Invesco V.I. S&P 500 Index Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
Invesco V.I. S&P 500 Index Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.0% | ||||||||
Advertising–0.2% | ||||||||
Interpublic Group of Cos., Inc.(b) | 5,848 | $ | 41,696 | |||||
Omnicom Group, Inc. | 3,656 | 125,401 | ||||||
167,097 | ||||||||
Aerospace & Defense–2.8% | ||||||||
Boeing Co. (The) | 9,072 | 569,268 | ||||||
General Dynamics Corp. | 4,610 | 269,962 | ||||||
Goodrich Corp. | 1,496 | 99,110 | ||||||
Honeywell International, Inc. | 9,158 | 357,437 | ||||||
ITT Corp. | 2,193 | 98,510 | ||||||
L-3 Communications Holdings, Inc. | 1,383 | 97,972 | ||||||
Lockheed Martin Corp. | 3,728 | 277,736 | ||||||
Northrop Grumman Corp. | 3,600 | 195,984 | ||||||
Precision Castparts Corp. | 1,699 | 174,861 | ||||||
Raytheon Co. | 4,554 | 220,368 | ||||||
Rockwell Collins, Inc. | 1,881 | 99,937 | ||||||
United Technologies Corp. | 11,153 | 723,941 | ||||||
3,185,086 | ||||||||
Agricultural Products–0.2% | ||||||||
Archer-Daniels-Midland Co. | 7,686 | 198,453 | ||||||
Air Freight & Logistics–1.0% | ||||||||
C.H. Robinson Worldwide, Inc. | 1,982 | 110,318 | ||||||
Expeditors International of Washington, Inc. | 2,544 | 87,793 | ||||||
FedEx Corp. | 3,729 | 261,440 | ||||||
United Parcel Service, Inc. (Class B) | 11,839 | 673,521 | ||||||
1,133,072 | ||||||||
Airlines–0.1% | ||||||||
Southwest Airlines Co. | 8,898 | 98,857 | ||||||
Aluminum–0.1% | ||||||||
Alcoa, Inc. | 12,204 | 122,772 | ||||||
Apparel Retail–0.5% | ||||||||
Abercrombie & Fitch Co. (Class A) | 1,054 | 32,347 | ||||||
Gap, Inc. (The) | 5,415 | 105,376 | ||||||
Limited Brands, Inc. | 3,226 | 71,198 | ||||||
Ross Stores, Inc. | 1,464 | 78,017 | ||||||
TJX Cos., Inc. | 4,876 | 204,548 | ||||||
Urban Outfitters, Inc.(b) | 1,556 | 53,511 | ||||||
544,997 | ||||||||
Apparel, Accessories & Luxury Goods–0.2% | ||||||||
Coach, Inc. | 3,646 | 133,261 | ||||||
Polo Ralph Lauren Corp. | 794 | 57,930 | ||||||
VF Corp. | 1,052 | 74,882 | ||||||
266,073 | ||||||||
Application Software–0.5% | ||||||||
Adobe Systems, Inc.(b) | 6,292 | 166,297 | ||||||
Autodesk, Inc.(b) | 2,742 | 66,795 | ||||||
Citrix Systems, Inc.(b) | 2,220 | 93,751 | ||||||
Compuware Corp.(b) | 2,689 | 21,458 | ||||||
Intuit, Inc.(b) | 3,756 | 130,596 | ||||||
Salesforce.com, Inc.(b) | 1,352 | 116,029 | ||||||
594,926 | ||||||||
Asset Management & Custody Banks–1.1% | ||||||||
Ameriprise Financial, Inc. | 3,059 | 110,522 | ||||||
Bank of New York Mellon Corp. (The) | 14,461 | 357,042 | ||||||
Federated Investors, Inc. (Class B) | 1,061 | 21,973 | ||||||
Franklin Resources, Inc. | 1,766 | 152,212 | ||||||
Invesco Ltd. | 5,584 | 93,979 | ||||||
Janus Capital Group, Inc. | 2,229 | 19,793 | ||||||
Legg Mason, Inc. | 2,004 | 56,172 | ||||||
Northern Trust Corp. | 2,890 | 134,963 | ||||||
State Street Corp. | 5,978 | 202,176 | ||||||
T. Rowe Price Group, Inc. | 3,102 | 137,698 | ||||||
1,286,530 | ||||||||
Auto Parts & Equipment–0.2% | ||||||||
Johnson Controls, Inc. | 8,040 | 216,035 | ||||||
Automobile Manufacturers–0.4% | ||||||||
Ford Motor Co.(b) | 40,721 | 410,468 | ||||||
Automotive Retail–0.2% | ||||||||
AutoNation, Inc.(b) | 1,065 | 20,767 | ||||||
AutoZone, Inc.(b) | 348 | 67,241 | ||||||
O’Reilly Automotive, Inc.(b) | 1,650 | 78,474 | ||||||
166,482 | ||||||||
Biotechnology–1.4% | ||||||||
Amgen, Inc.(b) | 11,450 | 602,270 | ||||||
Biogen Idec, Inc.(b) | 3,191 | 151,413 | ||||||
Celgene Corp.(b) | 5,508 | 279,917 | ||||||
Cephalon, Inc.(b) | 898 | 50,961 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Biotechnology–(continued) | ||||||||
Genzyme Corp.(b) | 3,189 | $ | 161,906 | |||||
Gilead Sciences, Inc.(b) | 10,637 | 364,636 | ||||||
1,611,103 | ||||||||
Brewers–0.1% | ||||||||
Molson Coors Brewing Co. (Class B) | 1,885 | 79,849 | ||||||
Broadcasting–0.2% | ||||||||
CBS Corp. (Class B) | 8,127 | 105,082 | ||||||
Discovery Communications, Inc. (Class A)(b) | 3,398 | 121,343 | ||||||
226,425 | ||||||||
Building Products–0.0% | ||||||||
Masco Corp. | 4,287 | 46,128 | ||||||
Cable & Satellite–1.1% | ||||||||
Comcast Corp. (Class A) | 33,728 | 585,855 | ||||||
DirecTV (Class A)(b) | 10,862 | 368,439 | ||||||
Scripps Networks Interactive, Inc. (Class A) | 1,073 | 43,285 | ||||||
Time Warner Cable, Inc. | 4,225 | 220,038 | ||||||
1,217,617 | ||||||||
Casinos & Gaming–0.1% | ||||||||
International Game Technology | 3,563 | 55,939 | ||||||
Wynn Resorts Ltd. | 825 | 62,923 | ||||||
118,862 | ||||||||
Coal & Consumable Fuels–0.2% | ||||||||
Consol Energy, Inc. | 2,697 | 91,051 | ||||||
Massey Energy Co. | 1,202 | 32,875 | ||||||
Peabody Energy Corp. | 3,212 | 125,685 | ||||||
249,611 | ||||||||
Commercial Printing–0.0% | ||||||||
RR Donnelley & Sons Co. | 2,465 | 40,352 | ||||||
Communications Equipment–2.5% | ||||||||
Cisco Systems, Inc.(b) | 68,269 | 1,454,812 | ||||||
Corning, Inc. | 18,656 | 301,295 | ||||||
Harris Corp. | 1,551 | 64,599 | ||||||
JDS Uniphase Corp.(b) | 2,683 | 26,401 | ||||||
Juniper Networks, Inc.(b) | 6,288 | 143,492 | ||||||
Motorola, Inc.(b) | 27,781 | 181,132 | ||||||
QUALCOMM, Inc. | 19,608 | 643,927 | ||||||
Tellabs, Inc. | 4,605 | 29,426 | ||||||
2,845,084 | ||||||||
Computer & Electronics Retail–0.2% | ||||||||
Best Buy Co., Inc. | 4,135 | 140,011 | ||||||
GameStop Corp. (Class A)(b) | 1,826 | 34,311 | ||||||
RadioShack Corp. | 1,498 | 29,226 | ||||||
203,548 | ||||||||
Computer Hardware–5.5% | ||||||||
Apple, Inc.(b) | 10,876 | 2,735,640 | ||||||
Dell, Inc.(b) | 20,597 | 248,400 | ||||||
Hewlett-Packard Co. | 27,905 | 1,207,728 | ||||||
International Business Machines Corp. | 15,328 | 1,892,702 | ||||||
Teradata Corp.(b) | 1,994 | 60,777 | ||||||
6,145,247 | ||||||||
Computer Storage & Peripherals–0.8% | ||||||||
EMC Corp.(b) | 24,571 | 449,649 | ||||||
Lexmark International, Inc.(b) | 938 | 30,982 | ||||||
NetApp, Inc.(b) | 4,119 | 153,680 | ||||||
QLogic Corp.(b) | 1,333 | 22,155 | ||||||
SanDisk Corp.(b) | 2,748 | 115,608 | ||||||
Western Digital Corp.(b) | 2,739 | 82,608 | ||||||
854,682 | ||||||||
Construction & Engineering–0.2% | ||||||||
Fluor Corp. | 2,136 | 90,780 | ||||||
Jacobs Engineering Group, Inc.(b) | 1,494 | 54,441 | ||||||
Quanta Services, Inc.(b) | 2,521 | 52,059 | ||||||
197,280 | ||||||||
Construction & Farm Machinery & Heavy Trucks–0.9% | ||||||||
Caterpillar, Inc. | 7,503 | 450,705 | ||||||
Cummins, Inc. | 2,397 | 156,117 | ||||||
Deere & Co. | 5,078 | 282,743 | ||||||
PACCAR, Inc. | 4,346 | 173,275 | ||||||
1,062,840 | ||||||||
Construction Materials–0.1% | ||||||||
Vulcan Materials Co. | 1,526 | 66,885 | ||||||
Consumer Electronics–0.0% | ||||||||
Harman International Industries, Inc.(b) | 827 | 24,719 | ||||||
Consumer Finance–0.8% | ||||||||
American Express Co. | 14,359 | 570,052 | ||||||
Capital One Financial Corp. | 5,456 | 219,877 | ||||||
Discover Financial Services | 6,500 | 90,870 | ||||||
SLM Corp.(b) | 5,806 | 60,324 | ||||||
941,123 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Data Processing & Outsourced Services–1.2% | ||||||||
Automatic Data Processing, Inc. | 6,012 | $ | 242,043 | |||||
Computer Sciences Corp. | 1,843 | 83,396 | ||||||
Fidelity National Information Services, Inc. | 3,961 | 106,234 | ||||||
Fiserv, Inc.(b) | 1,824 | 83,284 | ||||||
Mastercard, Inc. (Class A) | 1,157 | 230,856 | ||||||
Paychex, Inc. | 3,844 | 99,829 | ||||||
Total System Services, Inc. | 2,359 | 32,082 | ||||||
Visa, Inc. (Class A) | 5,409 | 382,687 | ||||||
Western Union Co. (The) | 8,034 | 119,787 | ||||||
1,380,198 | ||||||||
Department Stores–0.4% | ||||||||
JC Penney Co., Inc. | 2,823 | 60,638 | ||||||
Kohl’s Corp.(b) | 3,680 | 174,800 | ||||||
Macy’s, Inc. | 5,045 | 90,305 | ||||||
Nordstrom, Inc. | 1,990 | 64,058 | ||||||
Sears Holdings Corp.(b) | 592 | 38,273 | ||||||
428,074 | ||||||||
Distillers & Vintners–0.1% | ||||||||
Brown-Forman Corp. (Class B) | 1,285 | 73,541 | ||||||
Constellation Brands, Inc.(b) | 2,292 | 35,801 | ||||||
109,342 | ||||||||
Distributors–0.1% | ||||||||
Genuine Parts Co. | 1,898 | 74,876 | ||||||
Diversified REIT’s–0.1% | ||||||||
Vornado Realty Trust | 1,891 | 137,948 | ||||||
Diversified Banks–1.9% | ||||||||
Comerica, Inc. | 2,125 | 78,264 | ||||||
US Bancorp | 22,913 | 512,106 | ||||||
Wells Fargo & Co. | 62,282 | 1,594,412 | ||||||
2,184,782 | ||||||||
Diversified Chemicals–0.8% | ||||||||
Dow Chemical Co. (The) | 13,805 | 327,455 | ||||||
Eastman Chemical Co. | 865 | 46,156 | ||||||
EI Du Pont de Nemours & Co. | 10,829 | 374,575 | ||||||
FMC Corp. | 868 | 49,849 | ||||||
PPG Industries, Inc. | 1,988 | 120,095 | ||||||
918,130 | ||||||||
Diversified Metals & Mining–0.3% | ||||||||
Freeport-McMoRan Copper & Gold, Inc. | 5,638 | 333,375 | ||||||
Titanium Metals Corp.(b) | 1,008 | 17,731 | ||||||
351,106 | ||||||||
Diversified Support Services–0.1% | ||||||||
Cintas Corp. | 1,571 | 37,657 | ||||||
Iron Mountain, Inc. | 2,162 | 48,558 | ||||||
86,215 | ||||||||
Drug Retail–0.7% | ||||||||
CVS Caremark Corp. | 16,267 | 476,948 | ||||||
Walgreen Co. | 11,695 | 312,257 | ||||||
789,205 | ||||||||
Education Services–0.1% | ||||||||
Apollo Group, Inc. (Class A)(b) | 1,504 | 63,875 | ||||||
DeVry, Inc. | 740 | 38,842 | ||||||
102,717 | ||||||||
Electric Utilities–1.9% | ||||||||
Allegheny Energy, Inc. | 2,026 | 41,898 | ||||||
American Electric Power Co., Inc. | 5,720 | 184,756 | ||||||
Duke Energy Corp. | 15,696 | 251,136 | ||||||
Edison International | 3,919 | 124,311 | ||||||
Entergy Corp. | 2,262 | 162,004 | ||||||
Exelon Corp. | 7,895 | 299,773 | ||||||
FirstEnergy Corp. | 3,643 | 128,343 | ||||||
NextEra Energy, Inc. | 4,956 | 241,655 | ||||||
Northeast Utilities | 2,099 | 53,482 | ||||||
Pepco Holdings, Inc. | 2,668 | 41,834 | ||||||
Pinnacle West Capital Corp. | 1,296 | 47,123 | ||||||
PPL Corp. | 5,601 | 139,745 | ||||||
Progress Energy, Inc. | 3,432 | 134,603 | ||||||
Southern Co. | 9,855 | 327,974 | ||||||
2,178,637 | ||||||||
Electrical Components & Equipment–0.5% | ||||||||
Emerson Electric Co. | 9,007 | 393,516 | ||||||
First Solar, Inc.(b) | 581 | 66,135 | ||||||
Rockwell Automation, Inc. | 1,704 | 83,649 | ||||||
543,300 | ||||||||
Electronic Components–0.1% | ||||||||
Amphenol Corp. (Class A) | 2,074 | 81,467 | ||||||
Electronic Equipment & Instruments–0.2% | ||||||||
Agilent Technologies, Inc.(b) | 4,160 | 118,269 | ||||||
FLIR Systems, Inc.(b) | 1,832 | 53,293 | ||||||
171,562 | ||||||||
Electronic Manufacturing Services–0.1% | ||||||||
Jabil Circuit, Inc. | 2,315 | 30,790 | ||||||
Molex, Inc. | 1,622 | 29,585 | ||||||
60,375 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Environmental & Facilities Services–0.3% | ||||||||
Republic Services, Inc. | 3,879 | $ | 115,323 | |||||
Stericycle, Inc.(b) | 1,011 | 66,301 | ||||||
Waste Management, Inc. | 5,773 | 180,637 | ||||||
362,261 | ||||||||
Fertilizers & Agricultural Chemicals–0.3% | ||||||||
CF Industries Holdings, Inc. | 849 | 53,869 | ||||||
Monsanto Co. | 6,520 | 301,354 | ||||||
355,223 | ||||||||
Food Distributors–0.2% | ||||||||
Sysco Corp. | 7,071 | 202,018 | ||||||
Food Retail–0.3% | ||||||||
Kroger Co. (The) | 7,724 | 152,086 | ||||||
Safeway, Inc. | 4,644 | 91,301 | ||||||
SUPERVALU, Inc. | 2,536 | 27,490 | ||||||
Whole Foods Market, Inc.(b) | 2,049 | 73,805 | ||||||
344,682 | ||||||||
Footwear–0.3% | ||||||||
NIKE, Inc. (Class B) | 4,644 | 313,702 | ||||||
Forest Products–0.1% | ||||||||
Weyerhaeuser Co. | 2,529 | 89,021 | ||||||
Gas Utilities–0.1% | ||||||||
EQT Corp. | 1,719 | 62,124 | ||||||
Nicor, Inc. | 538 | 21,789 | ||||||
Questar Corp. | 2,092 | 29,787 | ||||||
113,700 | ||||||||
General Merchandise Stores–0.5% | ||||||||
Big Lots, Inc.(b) | 961 | 30,838 | ||||||
Family Dollar Stores, Inc. | 1,614 | 60,832 | ||||||
Target Corp. | 8,802 | 432,794 | ||||||
524,464 | ||||||||
Gold–0.3% | ||||||||
Newmont Mining Corp. | 5,872 | 362,537 | ||||||
Health Care Services–0.8% | ||||||||
Cerner Corp(b) | 829 | 62,913 | ||||||
DaVita, Inc.(b) | 1,241 | 77,488 | ||||||
Express Scripts, Inc.(b) | 6,536 | 307,323 | ||||||
Laboratory Corp. of America Holdings(b) | 1,243 | 93,660 | ||||||
Medco Health Solutions, Inc.(b) | 5,460 | 300,737 | ||||||
Quest Diagnostics, Inc. | 1,806 | 89,884 | ||||||
932,005 | ||||||||
Health Care Distributors–0.4% | ||||||||
AmerisourceBergen Corp. | 3,376 | 107,188 | ||||||
Cardinal Health, Inc. | 4,327 | 145,430 | ||||||
McKesson Corp. | 3,243 | 217,800 | ||||||
Patterson Cos., Inc. | 1,115 | 31,811 | ||||||
502,229 | ||||||||
Health Care Equipment–1.8% | ||||||||
Baxter International, Inc. | 7,129 | 289,723 | ||||||
Becton Dickinson and Co. | 2,788 | 188,525 | ||||||
Boston Scientific Corp.(b) | 18,125 | 105,125 | ||||||
C.R. Bard, Inc. | 1,136 | 88,074 | ||||||
CareFusion Corp.(b) | 2,125 | 48,238 | ||||||
Hospira, Inc.(b) | 1,982 | 113,866 | ||||||
Intuitive Surgical, Inc.(b) | 471 | 148,657 | ||||||
Medtronic, Inc. | 13,167 | 477,567 | ||||||
St Jude Medical, Inc.(b) | 3,905 | 140,931 | ||||||
Stryker Corp. | 3,366 | 168,502 | ||||||
Varian Medical Systems, Inc.(b) | 1,476 | 77,165 | ||||||
Zimmer Holdings, Inc.(b) | 2,424 | 131,017 | ||||||
1,977,390 | ||||||||
Health Care Facilities–0.0% | ||||||||
Tenet Healthcare Corp.(b) | 5,208 | 22,603 | ||||||
Health Care Supplies–0.0% | ||||||||
DENTSPLY International, Inc. | 1,749 | 52,313 | ||||||
Home Entertainment Software–0.1% | ||||||||
Electronic Arts, Inc.(b) | 3,918 | 56,419 | ||||||
Home Furnishings–0.0% | ||||||||
Leggett & Platt, Inc. | 1,770 | 35,506 | ||||||
Home Improvement Retail–0.9% | ||||||||
Home Depot, Inc. | 20,086 | 563,814 | ||||||
Lowe’s Cos., Inc. | 17,084 | 348,855 | ||||||
Sherwin-Williams Co. (The) | 1,101 | 76,178 | ||||||
988,847 | ||||||||
Homebuilding–0.1% | ||||||||
DR Horton, Inc. | 3,308 | 32,518 | ||||||
Lennar Corp. (Class A) | 1,995 | 27,750 | ||||||
Pulte Group, Inc.(b) | 3,795 | 31,423 | ||||||
91,691 | ||||||||
Homefurnishing Retail–0.1% | ||||||||
Bed Bath & Beyond, Inc.(b) | 3,146 | 116,654 | ||||||
Hotels, Resorts & Cruise Lines–0.3% | ||||||||
Carnival Corp. (Units) | 5,174 | 156,462 | ||||||
Marriott International, Inc. (Class A) | 3,066 | 91,796 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Hotels, Resorts & Cruise Lines–(continued) | ||||||||
Starwood Hotels & Resorts Worldwide, Inc. | 2,265 | $ | 93,839 | |||||
Wyndham Worldwide Corp. | 2,151 | 43,321 | ||||||
385,418 | ||||||||
Household Appliances–0.2% | ||||||||
Stanley Black & Decker, Inc. | 1,917 | 96,847 | ||||||
Whirlpool Corp. | 897 | 78,774 | ||||||
175,621 | ||||||||
Household Products–2.6% | ||||||||
Clorox Co. | 1,683 | 104,615 | ||||||
Colgate-Palmolive Co. | 5,851 | 460,825 | ||||||
Kimberly-Clark Corp. | 4,948 | 299,997 | ||||||
Procter & Gamble Co. (The) | 34,425 | 2,064,812 | ||||||
2,930,249 | ||||||||
Housewares & Specialties–0.1% | ||||||||
Fortune Brands, Inc. | 1,820 | 71,308 | ||||||
Newell Rubbermaid, Inc. | 3,325 | 48,678 | ||||||
119,986 | ||||||||
Human Resource & Employment Services–0.1% | ||||||||
Monster Worldwide, Inc.(b) | 1,507 | 17,557 | ||||||
Robert Half International, Inc. | 1,793 | 42,225 | ||||||
59,782 | ||||||||
Hypermarkets & Super Centers–1.3% | ||||||||
Costco Wholesale Corp. | 5,285 | 289,777 | ||||||
Wal-Mart Stores, Inc. | 24,831 | 1,193,626 | ||||||
1,483,403 | ||||||||
Independent Power Producers & Energy Traders–0.2% | ||||||||
AES Corp. (The)(b) | 7,985 | 73,781 | ||||||
Constellation Energy Group, Inc. | 2,410 | 77,723 | ||||||
NRG Energy, Inc.(b) | 3,051 | 64,712 | ||||||
216,216 | ||||||||
Industrial Conglomerates–2.3% | ||||||||
3M Co. | 8,523 | 673,232 | ||||||
General Electric Co.(c) | 127,625 | 1,840,352 | ||||||
Textron, Inc. | 3,266 | 55,424 | ||||||
2,569,008 | ||||||||
Industrial Gases–0.4% | ||||||||
Air Products & Chemicals, Inc. | 2,538 | 164,488 | ||||||
Praxair, Inc. | 3,656 | 277,819 | ||||||
442,307 | ||||||||
Industrial Machinery–0.8% | ||||||||
Danaher Corp. | 6,286 | 233,336 | ||||||
Dover Corp. | 2,232 | 93,275 | ||||||
Eaton Corp. | 2,003 | 131,076 | ||||||
Flowserve Corp. | 672 | 56,986 | ||||||
Illinois Tool Works, Inc. | 4,624 | 190,879 | ||||||
Pall Corp. | 1,397 | 48,015 | ||||||
Parker Hannifin Corp. | 1,924 | 106,705 | ||||||
Roper Industries, Inc. | 1,122 | 62,787 | ||||||
Snap-On, Inc. | 691 | 28,269 | ||||||
951,328 | ||||||||
Industrial REIT’s–0.1% | ||||||||
ProLogis | 5,696 | 57,700 | ||||||
Insurance Brokers–0.2% | ||||||||
AON Corp. | 3,220 | 119,526 | ||||||
Marsh & McLennan Cos., Inc. | 6,469 | 145,876 | ||||||
265,402 | ||||||||
Integrated Oil & Gas–6.5% | ||||||||
Chevron Corp. | 24,010 | 1,629,319 | ||||||
ConocoPhillips | 17,790 | 873,311 | ||||||
Exxon Mobil Corp. | 61,108 | 3,487,434 | ||||||
Hess Corp. | 3,492 | 175,787 | ||||||
Marathon Oil Corp. | 8,480 | 263,643 | ||||||
Murphy Oil Corp. | 2,288 | 113,370 | ||||||
Occidental Petroleum Corp. | 9,707 | 748,895 | ||||||
7,291,759 | ||||||||
Integrated Telecommunication Services–2.6% | ||||||||
AT&T, Inc. | 70,634 | 1,708,636 | ||||||
CenturyTel, Inc. | 3,590 | 119,583 | ||||||
Frontier Communications Corp. | 3,733 | 26,542 | ||||||
Qwest Communications International, Inc. | 17,848 | 93,702 | ||||||
Verizon Communications, Inc. | 33,789 | 946,768 | ||||||
Windstream Corp. | 5,774 | 60,973 | ||||||
2,956,204 | ||||||||
Internet Retail–0.5% | ||||||||
Amazon.com, Inc.(b) | 4,101 | 448,075 | ||||||
Expedia, Inc. | 2,478 | 46,537 | ||||||
Priceline.com, Inc.(b) | 567 | 100,098 | ||||||
594,710 | ||||||||
Internet Software & Services–1.7% | ||||||||
Akamai Technologies, Inc.(b) | 2,057 | 83,452 | ||||||
eBay, Inc.(b) | 13,592 | 266,539 | ||||||
Google, Inc. (Class A)(b) | 2,894 | 1,287,685 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Internet Software & Services–(continued) | ||||||||
VeriSign, Inc.(b) | 2,181 | $ | 57,906 | |||||
Yahoo!, Inc.(b) | 14,073 | 194,630 | ||||||
1,890,212 | ||||||||
Investment Banking & Brokerage–1.2% | ||||||||
Charles Schwab Corp. (The) | 11,668 | 165,452 | ||||||
E*Trade Financial Corp.(b) | 2,367 | 27,978 | ||||||
Goldman Sachs Group, Inc. (The) | 6,151 | 807,442 | ||||||
Morgan Stanley | 16,708 | 387,793 | ||||||
1,388,665 | ||||||||
IT Consulting & Other Services–0.2% | ||||||||
Cognizant Technology Solutions Corp. (Class A)(b) | 3,558 | 178,113 | ||||||
SAIC, Inc.(b) | 3,497 | 58,540 | ||||||
236,653 | ||||||||
Leisure Products–0.1% | ||||||||
Hasbro, Inc. | 1,564 | 64,280 | ||||||
Mattel, Inc. | 4,359 | 92,237 | ||||||
156,517 | ||||||||
Life & Health Insurance–1.1% | ||||||||
Aflac, Inc. | 5,632 | 240,317 | ||||||
Lincoln National Corp. | 3,613 | 87,760 | ||||||
MetLife, Inc. | 9,796 | 369,897 | ||||||
Principal Financial Group, Inc. | 3,845 | 90,127 | ||||||
Prudential Financial, Inc. | 5,570 | 298,886 | ||||||
Torchmark Corp. | 986 | 48,817 | ||||||
Unum Group | 3,978 | 86,323 | ||||||
1,222,127 | ||||||||
Life Sciences Tools & Services–0.5% | ||||||||
Life Technologies Corp.(b) | 2,182 | 103,100 | ||||||
Millipore Corp.(b) | 669 | 71,349 | ||||||
PerkinElmer, Inc. | 1,408 | 29,103 | ||||||
Thermo Fisher Scientific, Inc.(b) | 4,905 | 240,590 | ||||||
Waters Corp.(b) | 1,110 | 71,817 | ||||||
515,959 | ||||||||
Managed Health Care–0.9% | ||||||||
Aetna, Inc. | 5,078 | 133,958 | ||||||
CIGNA Corp. | 3,307 | 102,715 | ||||||
Coventry Health Care, Inc.(b) | 1,768 | 31,258 | ||||||
Humana, Inc.(b) | 2,034 | 92,893 | ||||||
UnitedHealth Group, Inc. | 13,587 | 385,871 | ||||||
WellPoint, Inc.(b) | 5,106 | 249,836 | ||||||
996,531 | ||||||||
Metal & Glass Containers–0.1% | ||||||||
Ball Corp. | 1,103 | 58,271 | ||||||
Owens-Illinois, Inc.(b) | 1,971 | 52,133 | ||||||
Pactiv Corp.(b) | 1,588 | 44,226 | ||||||
154,630 | ||||||||
Motorcycle Manufacturers–0.1% | ||||||||
Harley-Davidson, Inc. | 2,814 | 62,555 | ||||||
Movies & Entertainment–1.5% | ||||||||
News Corp. (Class A) | 26,907 | 321,808 | ||||||
Time Warner, Inc. | 13,623 | 393,841 | ||||||
Viacom, Inc. (Class B) | 7,259 | 227,715 | ||||||
Walt Disney Co. (The) | 23,411 | 737,446 | ||||||
1,680,810 | ||||||||
Multi-line Insurance–0.4% | ||||||||
American International Group, Inc.(b) | 1,614 | 55,586 | ||||||
Assurant, Inc. | 1,336 | 46,359 | ||||||
Genworth Financial, Inc. (Class A)(b) | 5,845 | 76,394 | ||||||
Hartford Financial Services Group, Inc. | 5,308 | 117,466 | ||||||
Loews Corp. | 4,201 | 139,936 | ||||||
435,741 | ||||||||
Multi-Sector Holdings–0.0% | ||||||||
Leucadia National Corp.(b) | 2,268 | 44,249 | ||||||
Multi-Utilities–1.4% | ||||||||
Ameren Corp. | 2,848 | 67,697 | ||||||
Centerpoint Energy, Inc. | 4,977 | 65,497 | ||||||
CMS Energy Corp. | 2,747 | 40,244 | ||||||
Consolidated Edison, Inc. | 3,370 | 145,247 | ||||||
Dominion Resources, Inc. | 7,124 | 275,984 | ||||||
DTE Energy Co. | 2,012 | 91,767 | ||||||
Integrys Energy Group, Inc. | 920 | 40,241 | ||||||
NiSource, Inc. | 3,316 | 48,082 | ||||||
Oneok, Inc. | 1,270 | 54,927 | ||||||
PG&E Corp. | 4,475 | 183,922 | ||||||
Public Service Enterprise Group, Inc. | 6,047 | 189,452 | ||||||
SCANA Corp. | 1,355 | 48,455 | ||||||
Sempra Energy | 2,978 | 139,341 | ||||||
TECO Energy, Inc. | 2,556 | 38,519 | ||||||
Wisconsin Energy Corp. | 1,397 | 70,884 | ||||||
Xcel Energy, Inc. | 5,493 | 113,211 | ||||||
1,613,470 | ||||||||
Office Electronics–0.1% | ||||||||
Xerox Corp. | 16,484 | 132,531 | ||||||
Office REIT’s–0.1% | ||||||||
Boston Properties, Inc. | 1,661 | 118,496 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Office Services & Supplies–0.1% | ||||||||
Avery Dennison Corp. | 1,320 | $ | 42,411 | |||||
Pitney Bowes, Inc. | 2,480 | 54,461 | ||||||
96,872 | ||||||||
Oil & Gas Drilling–0.2% | ||||||||
Diamond Offshore Drilling, Inc. | 830 | 51,618 | ||||||
Helmerich & Payne, Inc. | 1,243 | 45,394 | ||||||
Nabors Industries Ltd. (Bermuda) | 3,409 | 60,067 | ||||||
Rowan Cos., Inc.(b) | 1,367 | 29,992 | ||||||
187,071 | ||||||||
Oil & Gas Equipment & Services–1.5% | ||||||||
Baker Hughes, Inc. | 5,128 | 213,171 | ||||||
Cameron International Corp.(b) | 2,918 | 94,893 | ||||||
FMC Technologies, Inc.(b) | 1,453 | 76,515 | ||||||
Halliburton Co. | 10,784 | 264,747 | ||||||
National Oilwell Varco, Inc. | 5,008 | 165,615 | ||||||
Schlumberger Ltd. | 14,258 | 789,038 | ||||||
Smith International, Inc. | 2,970 | 111,820 | ||||||
1,715,799 | ||||||||
Oil & Gas Exploration & Production–1.7% | ||||||||
Anadarko Petroleum Corp. | 5,913 | 213,400 | ||||||
Apache Corp. | 4,031 | 339,370 | ||||||
Cabot Oil & Gas Corp. | 1,242 | 38,900 | ||||||
Chesapeake Energy Corp. | 7,780 | 162,991 | ||||||
Denbury Resources, Inc.(b) | 4,772 | 69,862 | ||||||
Devon Energy Corp. | 5,341 | 325,374 | ||||||
EOG Resources, Inc. | 3,025 | 297,569 | ||||||
Noble Energy, Inc. | 2,074 | 125,124 | ||||||
Pioneer Natural Resources Co. | 1,385 | 82,338 | ||||||
Range Resources Corp. | 1,905 | 76,486 | ||||||
Southwestern Energy Co.(b) | 4,137 | 159,854 | ||||||
1,891,268 | ||||||||
Oil & Gas Refining & Marketing–0.2% | ||||||||
Sunoco, Inc. | 1,441 | 50,103 | ||||||
Tesoro Corp. | 1,688 | 19,699 | ||||||
Valero Energy Corp. | 6,759 | 121,527 | ||||||
191,329 | ||||||||
Oil & Gas Storage & Transportation–0.3% | ||||||||
El Paso Corp. | 8,411 | 93,446 | ||||||
Spectra Energy Corp. | 7,745 | 155,442 | ||||||
Williams Cos., Inc. (The) | 7,018 | 128,289 | ||||||
377,177 | ||||||||
Other Diversified Financial Services–4.0% | ||||||||
Bank of America Corp. | 119,932 | 1,723,421 | ||||||
Citigroup, Inc. | 270,207 | 1,015,978 | ||||||
JPMorgan Chase & Co. | 47,559 | 1,741,135 | ||||||
4,480,534 | ||||||||
Packaged Foods & Meats–1.8% | ||||||||
Campbell Soup Co. | 2,236 | 80,116 | ||||||
ConAgra Foods, Inc. | 5,325 | 124,179 | ||||||
Dean Foods Co.(b) | 2,174 | 21,892 | ||||||
General Mills, Inc. | 7,912 | 281,034 | ||||||
Hershey Co. (The) | 1,982 | 94,997 | ||||||
HJ Heinz Co. | 3,779 | 163,328 | ||||||
Hormel Foods Corp. | 828 | 33,518 | ||||||
JM Smucker Co. (The) | 1,423 | 85,693 | ||||||
Kellogg Co. | 3,048 | 153,315 | ||||||
Kraft Foods, Inc. (Class A) | 20,840 | 583,520 | ||||||
McCormick & Co., Inc. | 1,583 | 60,091 | ||||||
Mead Johnson Nutrition Co. | 2,459 | 123,245 | ||||||
Sara Lee Corp. | 7,934 | 111,869 | ||||||
Tyson Foods, Inc. (Class A) | 3,649 | 59,807 | ||||||
1,976,604 | ||||||||
Paper Packaging–0.1% | ||||||||
Bemis Co., Inc. | 1,303 | 35,181 | ||||||
Sealed Air Corp. | 1,906 | 37,586 | ||||||
72,767 | ||||||||
Paper Products–0.1% | ||||||||
International Paper Co. | 5,218 | 118,083 | ||||||
MeadWestvaco Corp. | 2,042 | 45,333 | ||||||
163,416 | ||||||||
Personal Products–0.2% | ||||||||
Avon Products, Inc. | 5,120 | 135,680 | ||||||
Estee Lauder Cos., Inc. (The) (Class A) | 1,430 | 79,694 | ||||||
215,374 | ||||||||
Pharmaceuticals–6.1% | ||||||||
Abbott Laboratories | 18,451 | 863,138 | ||||||
Allergan, Inc. | 3,690 | 214,979 | ||||||
Bristol-Myers Squibb Co. | 20,556 | 512,667 | ||||||
Eli Lilly & Co. | 12,129 | 406,321 | ||||||
Forest Laboratories, Inc.(b) | 3,643 | 99,927 | ||||||
Johnson & Johnson | 32,968 | 1,947,090 | ||||||
King Pharmaceuticals, Inc.(b) | 2,983 | 22,641 | ||||||
Merck & Co., Inc. | 37,275 | 1,303,507 | ||||||
Mylan, Inc.(b) | 3,691 | 62,895 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Pharmaceuticals–(continued) | ||||||||
Pfizer, Inc. | 96,420 | $ | 1,374,949 | |||||
Watson Pharmaceuticals, Inc.(b) | 1,280 | 51,930 | ||||||
6,860,044 | ||||||||
Photographic Products–0.0% | ||||||||
Eastman Kodak Co.(b) | 3,211 | 13,936 | ||||||
Property & Casualty Insurance–2.2% | ||||||||
Allstate Corp. (The) | 6,429 | 184,705 | ||||||
Berkshire Hathaway, Inc. (Class B)(b) | 19,787 | 1,576,826 | ||||||
Chubb Corp. | 3,905 | 195,289 | ||||||
Cincinnati Financial Corp. | 1,948 | 50,395 | ||||||
Progressive Corp. (The) | 8,013 | 150,003 | ||||||
Travelers Cos., Inc. (The) | 5,920 | 291,560 | ||||||
XL Capital Ltd. (Class A) (Cayman Islands) | 4,088 | 65,449 | ||||||
2,514,227 | ||||||||
Publishing–0.2% | ||||||||
Gannett Co., Inc. | 2,846 | 38,307 | ||||||
McGraw-Hill Cos., Inc. (The) | 3,795 | 106,791 | ||||||
Meredith Corp. | 410 | 12,763 | ||||||
New York Times Co. (The) (Class A)(b) | 1,392 | 12,041 | ||||||
Washington Post Co. (The) (Class B) | 72 | 29,555 | ||||||
199,457 | ||||||||
Railroads–0.8% | ||||||||
CSX Corp. | 4,661 | 231,326 | ||||||
Norfolk Southern Corp. | 4,423 | 234,640 | ||||||
Union Pacific Corp. | 6,049 | 420,466 | ||||||
886,432 | ||||||||
Real Estate Services–0.0% | ||||||||
CB Richard Ellis Group, Inc. (Class A)(b) | 3,249 | 44,219 | ||||||
Regional Banks–1.1% | ||||||||
BB&T Corp. | 8,272 | 217,636 | ||||||
Fifth Third Bancorp | 9,500 | 116,755 | ||||||
First Horizon National Corp.(b) | 2,733 | 31,290 | ||||||
Huntington Bancshares, Inc. | 8,565 | 47,450 | ||||||
KeyCorp | 10,508 | 80,807 | ||||||
M&T Bank Corp. | 990 | 84,101 | ||||||
Marshall & Ilsley Corp. | 6,302 | 45,248 | ||||||
PNC Financial Services Group, Inc. | 6,287 | 355,218 | ||||||
Regions Financial Corp. | 14,254 | 93,791 | ||||||
SunTrust Banks, Inc. | 5,975 | 139,217 | ||||||
Zions BanCorp. | 1,915 | 41,307 | ||||||
1,252,820 | ||||||||
Research & Consulting Services–0.1% | ||||||||
Dun & Bradstreet Corp. | 602 | 40,406 | ||||||
Equifax, Inc. | 1,513 | 42,455 | ||||||
82,861 | ||||||||
Residential REIT’s–0.2% | ||||||||
Apartment Investment & Management Co. | 1,396 | 27,040 | ||||||
AvalonBay Communities, Inc. | 991 | 92,530 | ||||||
Equity Residential | 3,381 | 140,785 | ||||||
260,355 | ||||||||
Restaurants–1.2% | ||||||||
Darden Restaurants, Inc. | 1,680 | 65,268 | ||||||
McDonald’s Corp. | 12,859 | 847,022 | ||||||
Starbucks Corp. | 8,906 | 216,416 | ||||||
Yum! Brands, Inc. | 5,587 | 218,117 | ||||||
1,346,823 | ||||||||
Retail REIT’s–0.3% | ||||||||
Kimco Realty Corp. | 4,848 | 65,157 | ||||||
Simon Property Group, Inc. | 3,498 | 282,464 | ||||||
347,621 | ||||||||
Semiconductor Equipment–0.3% | ||||||||
Applied Materials, Inc. | 16,056 | 192,993 | ||||||
KLA-Tencor Corp. | 2,031 | 56,624 | ||||||
MEMC Electronic Materials, Inc.(b) | 2,718 | 26,854 | ||||||
Novellus Systems, Inc.(b) | 1,148 | 29,113 | ||||||
Teradyne, Inc.(b) | 2,154 | 21,002 | ||||||
326,586 | ||||||||
Semiconductors–2.2% | ||||||||
Advanced Micro Devices, Inc.(b) | 6,760 | 49,483 | ||||||
Altera Corp. | 3,605 | 89,440 | ||||||
Analog Devices, Inc. | 3,561 | 99,210 | ||||||
Broadcom Corp. (Class A) | 5,162 | 170,191 | ||||||
Intel Corp. | 66,510 | 1,293,620 | ||||||
Linear Technology Corp. | 2,679 | 74,503 | ||||||
LSI Corp.(b) | 7,812 | 35,935 | ||||||
Microchip Technology, Inc. | 2,217 | 61,500 | ||||||
Micron Technology, Inc.(b) | 10,211 | 86,691 | ||||||
National Semiconductor Corp. | 2,855 | 38,428 | ||||||
Nvidia Corp.(b) | 6,839 | 69,826 | ||||||
Texas Instruments, Inc. | 14,610 | 340,121 | ||||||
Xilinx, Inc. | 3,273 | 82,676 | ||||||
2,491,624 | ||||||||
Soft Drinks–2.5% | ||||||||
Coca-Cola Co. (The) | 27,577 | 1,382,159 | ||||||
Coca-Cola Enterprises, Inc. | 3,888 | 100,544 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Soft Drinks–(continued) | ||||||||
Dr Pepper Snapple Group, Inc. | 2,936 | $ | 109,777 | |||||
PepsiCo, Inc. | 19,277 | 1,174,933 | ||||||
2,767,413 | ||||||||
Specialized Consumer Services–0.1% | ||||||||
H&R Block, Inc. | 3,935 | 61,740 | ||||||
Specialized Finance–0.4% | ||||||||
CME Group, Inc. | 788 | 221,861 | ||||||
IntercontinentalExchange, Inc.(b) | 887 | 100,258 | ||||||
Moody’s Corp. | 2,351 | 46,832 | ||||||
NASDAQ OMX Group, Inc. (The)(b) | 1,742 | 30,973 | ||||||
NYSE Euronext | 3,119 | 86,178 | ||||||
486,102 | ||||||||
Specialized REIT’s–0.5% | ||||||||
HCP, Inc. | 3,513 | 113,294 | ||||||
Health Care REIT, Inc. | 1,503 | 63,307 | ||||||
Host Hotels & Resorts, Inc. | 7,867 | 106,047 | ||||||
Plum Creek Timber Co., Inc. | 1,947 | 67,230 | ||||||
Public Storage | 1,623 | 142,678 | ||||||
Ventas, Inc. | 1,874 | 87,984 | ||||||
580,540 | ||||||||
Specialty Chemicals–0.3% | ||||||||
Airgas, Inc. | 995 | 61,889 | ||||||
Ecolab, Inc. | 2,789 | 125,254 | ||||||
International Flavors & Fragrances, Inc. | 950 | 40,299 | ||||||
Sigma-Aldrich Corp. | 1,450 | 72,253 | ||||||
299,695 | ||||||||
Specialty Stores–0.3% | ||||||||
CarMax, Inc.(b) | 2,667 | 53,073 | ||||||
Office Depot, Inc.(b) | 3,293 | 13,304 | ||||||
Staples, Inc. | 8,724 | 166,192 | ||||||
Tiffany & Co. | 1,519 | 57,585 | ||||||
290,154 | ||||||||
Steel–0.3% | ||||||||
AK Steel Holding Corp. | 1,313 | 15,651 | ||||||
Allegheny Technologies, Inc. | 1,177 | 52,012 | ||||||
Cliffs Natural Resources, Inc. | 1,618 | 76,305 | ||||||
Nucor Corp. | 3,766 | 144,162 | ||||||
United States Steel Corp. | 1,713 | 66,036 | ||||||
354,166 | ||||||||
Systems Software–3.1% | ||||||||
BMC Software, Inc.(b) | 2,169 | 75,113 | ||||||
CA, Inc. | 4,668 | 85,891 | ||||||
McAfee, Inc.(b) | 1,864 | 57,262 | ||||||
Microsoft Corp. | 91,142 | 2,097,177 | ||||||
Novell, Inc.(b) | 4,181 | 23,748 | ||||||
Oracle Corp. | 46,797 | 1,004,264 | ||||||
Red Hat, Inc.(b) | 2,254 | 65,231 | ||||||
Symantec Corp.(b) | 9,549 | 132,540 | ||||||
3,541,226 | ||||||||
Thrifts & Mortgage Finance–0.1% | ||||||||
Hudson City Bancorp, Inc. | 5,664 | 69,327 | ||||||
People’s United Financial, Inc. | 4,479 | 60,467 | ||||||
129,794 | ||||||||
Tires & Rubber–0.0% | ||||||||
Goodyear Tire & Rubber Co. (The)(b) | 2,903 | 28,856 | ||||||
Tobacco–1.6% | ||||||||
Altria Group, Inc. | 24,893 | 498,856 | ||||||
Lorillard, Inc. | 1,838 | 132,299 | ||||||
Philip Morris International, Inc. | 22,136 | 1,014,714 | ||||||
Reynolds American, Inc. | 2,020 | 105,283 | ||||||
1,751,152 | ||||||||
Trading Companies & Distributors–0.1% | ||||||||
Fastenal Co. | 1,568 | 78,698 | ||||||
WW Grainger, Inc. | 740 | 73,593 | ||||||
152,291 | ||||||||
Trucking–0.0% | ||||||||
Ryder System, Inc. | 633 | 25,466 | ||||||
Wireless Telecommunication Services–0.4% | ||||||||
American Tower Corp. (Class A)(b) | 4,822 | 214,579 | ||||||
MetroPCS Communications, Inc.(b) | 3,123 | 25,577 | ||||||
Sprint Nextel Corp.(b) | 35,633 | 151,084 | ||||||
391,240 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $92,309,258) | 111,366,692 | |||||||
Money Market Funds–0.6% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 359,814 | 359,814 | ||||||
Premier Portfolio–Institutional Class(d) | 359,814 | 359,814 | ||||||
Total Money Market Funds (Cost $719,628) | 719,628 | |||||||
TOTAL INVESTMENTS–99.6% (Cost $93,028,886) | 112,086,320 | |||||||
OTHER ASSETS LESS LIABILITIES–0.4% | 471,131 | |||||||
NET ASSETS–100.0% | $ | 112,557,451 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Investment Abbreviations:
REIT | – Real Estate Investment Trust. |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1I and Note 4. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on net assets
as of June 30, 2010
Information Technology | 18.5 | % | ||
Financials | 16.1 | |||
Health Care | 12.0 | |||
Consumer Staples | 11.4 | |||
Energy | 10.6 | |||
Industrials | 10.3 | |||
Consumer Discretionary | 10.1 | |||
Utilities | 3.7 | |||
Materials | 3.3 | |||
Telecommunication Services | 3.0 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.0 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
(Unaudited)
Assets: | ||||
Investments, at value (Cost $92,309,258) | $ | 111,366,692 | ||
Investments in affiliated money market funds, at value and cost | 719,628 | |||
Total investments, at value (Cost $93,028,886) | 112,086,320 | |||
Receivable for: | ||||
Investments sold | 1,700,173 | |||
Dividends | 153,026 | |||
Fund shares sold | 423,250 | |||
Other assets | 8,384 | |||
Total assets | 114,371,153 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 1,701,662 | |||
Fund shares reacquired | 37,758 | |||
Variation margin | 6,960 | |||
Accrued fees to affiliates | 36,998 | |||
Accrued other operating expenses | 24,990 | |||
Trustee deferred compensation and retirement plans | 5,334 | |||
Total liabilities | 1,813,702 | |||
Net assets applicable to shares outstanding | $ | 112,557,451 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 127,203,559 | ||
Undistributed net investment income | 971,172 | |||
Undistributed net realized gain (loss) | (34,594,317 | ) | ||
Unrealized appreciation | 18,977,037 | |||
$ | 112,557,451 | |||
Net Assets: | ||||
Series I | $ | 33,910,816 | ||
Series II | $ | 78,646,635 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 3,659,820 | |||
Series II | 8,528,465 | |||
Series I: | ||||
Net asset value and offering price per share | $ | 9.27 | ||
Series II: | ||||
Net asset value and offering price per share | $ | 9.22 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
(Unaudited)
Investment Income: | ||||
Dividends | $ | 1,246,936 | ||
Dividends from affiliated money market funds | 392 | |||
Interest | 20 | |||
Total investment income | 1,247,348 | |||
Expenses | ||||
Advisory fees | 76,001 | |||
Administrative services fees | 71,370 | |||
Custodian fees | 5,195 | |||
Distribution fees — Series II | 110,607 | |||
Transfer agent fees | 250 | |||
Trustees’ and officers’ fees and benefits | 9,940 | |||
Reports to shareholders | 18,212 | |||
Professional services fees | 16,928 | |||
Other | 7,005 | |||
Total expenses | 315,508 | |||
Less: Fees waived | (22,708 | ) | ||
Net expenses | 292,800 | |||
Net investment income | 954,548 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 2,290 | |||
Futures contracts | (23,187 | ) | ||
(20,897 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (8,894,437 | ) | ||
Futures contracts | (100,641 | ) | ||
(8,995,078 | ) | |||
Net realized and unrealized gain (loss) | (9,015,975 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (8,061,427 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 954,548 | 2,206,337 | |||||
Net realized gain (loss) | (20,897 | ) | (1,087,362 | ) | ||||
Change in net unrealized appreciation (depreciation) | (8,995,078 | ) | 26,688,201 | |||||
Net increase (decrease) in net assets resulting from operations | (8,061,427 | ) | 27,807,176 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I shares | (728,756 | ) | (976,649 | ) | ||||
Series II shares | (1,463,002 | ) | (2,074,490 | ) | ||||
Total distributions from net investment income | (2,191,758 | ) | (3,051,139 | ) | ||||
Net increase (decrease) from in net assets resulting from share transactions | (7,577,218 | ) | (8,284,436 | ) | ||||
Net increase (decrease) in net assets | (17,830,403 | ) | 16,471,601 | |||||
Net Assets: | ||||||||
Beginning of year | 130,387,854 | 113,916,253 | ||||||
End of year (Includes undistributed net investment income of $971,172 and $2,208,382, respectively) | $ | 112,557,451 | 130,387,854 | |||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. S&P 500 Index Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
Prior to June 1, 2010, the Fund operated as Morgan Stanley Variable Investment Series S&P 500 Index Portfolio (the “Acquired Fund”), an investment portfolio of Morgan Stanley Variable Investment Series. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class X and Class Y shares received Series I and Series II shares, respectively of the Fund.
Information for the Acquired Fund’s — Class X and Class Y shares prior to the Reorganization are included with Series I and Series II shares, respectively, of the Fund throughout this report.
The Fund’s primary investment objective is to provide investment results that, before expenses, correspond to the total return (i.e., the combination of capital changes and income) of the Standard & Poor’s® 500 Composite Stock Price Index.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
Invesco V.I. S&P 500 Index Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
Invesco V.I. S&P 500 Index Fund
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. | |
J. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $2 billion | 0 | .12% | ||
Over $2 billion | 0 | .10% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee to Morgan Stanley Investment Advisors Inc. (“MSIA”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization date, the Adviser has contractually agreed, through at least June 30, 2012 to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 0.28% and Series II shares to 0.53% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time.
Prior to the Reorganization, MSIA had voluntarily agreed to cap operating expenses (except for brokerage and 12b-1 fees) by assuming the Acquired Fund’s “other expenses” and/or waiving the Acquired Fund’s advisory fees, and Morgan Stanley Services Company Inc. (the “MSSCI”) had agreed to waive the Acquired Fund’s administrative fees, to the extent such operating expenses exceed 0.40% of the average daily net assets of the Acquired Fund on an annualized basis.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds. Prior to the Reorganization, investment advisory fees paid by the Acquired Fund were reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class shares.
For the six months ended June 30, 2010, the Adviser and MSIA waived advisory fees of $22,290 and $418, respectively.
Invesco V.I. S&P 500 Index Fund
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the period ended June 30, 2010, Invesco was paid $4,110 for accounting and fund administrative services and reimbursed $24,401 for services provided by insurance companies. Prior to the Reorganization, the Acquired Fund paid an administration fee of $42,859 to MSSCI.
Also, the Trust has entered into service agreements whereby State Street Bank & Trust Company (“SSB”) serves as custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. Prior to the Reorganization, the Acquired Fund paid $207 to Morgan Stanley Trust, which served as the Acquired Fund’s transfer agent. For the six months ended June 30, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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. Prior to the Reorganization, the Acquired Fund paid distribution fees of $93,623 to Morgan Stanley Distributors Inc. based on the annual rate of 0.25% of the Acquired Fund’s average daily net assets of Class Y shares. For the six months ended June 30, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 112,086,320 | $ | — | $ | — | $ | 112,086,320 | ||||||||
Futures* | (80,397 | ) | — | — | (80,397 | ) | ||||||||||
Total Investments | $ | 112,005,923 | $ | — | $ | — | $ | 112,005,923 | ||||||||
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure 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. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Invesco V.I. S&P 500 Index Fund
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2010:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Equity risk | ||||||||
Futures Contracts(a) | — | $ | (80,397 | ) | ||||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets & Liabilities. |
Effect of Derivative Instruments for the six months ended June 30, 2010
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Futures* | ||||
Realized Gain (Loss) | ||||
Equity risk | $ | (23,187 | ) | |
Change in Unrealized Appreciation (Depreciation) | ||||
Equity risk | $ | (100,641 | ) | |
Total | $ | (123,828 | ) | |
* | The average value of futures outstanding during the period was $1,279,911. |
Open Futures Contracts at Period-End | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Month/ | Appreciation | ||||||||||||||
Contract | Contracts | Commitment | Value | (Depreciation) | ||||||||||||
S&P 500 E-MINI | 25 | September-2010/Long | $ | 1,283,250 | $ | (100,609 | ) | |||||||||
S&P 500 E-MINI | 9 | September-2010/Short | 461,970 | 20,212 | ||||||||||||
Total | $ | (80,397 | ) | |||||||||||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—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.
Invesco V.I. S&P 500 Index Fund
The Fund had a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2010 | $ | 9,169,000 | ||
December 31, 2012 | 3,450,000 | |||
December 31, 2013 | 9,726,000 | |||
December 31, 2014 | 5,449,000 | |||
December 31, 2017 | 1,185,000 | |||
Total capital loss carryforward | $ | 28,979,000 | ||
* | 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, 2010 was $4,466,203 and $13,396,545, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 28,276,630 | ||
Aggregate unrealized (depreciation) of investment securities | (14,594,762 | ) | ||
Net unrealized appreciation of investment securities | $ | 13,681,868 | ||
Cost of investments for tax purposes is $98,404,452. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Series I Shares | ||||||||||||||||
Sold | 63,282 | $ | 650,867 | 227,397 | $ | 1,896,482 | ||||||||||
Reinvestment of dividends and distributions | 73,537 | 728,755 | 117,952 | 976,649 | ||||||||||||
Redeemed | (310,101 | ) | (3,145,664 | ) | (600,690 | ) | (5,068,610 | ) | ||||||||
Net increase (decrease) — Series I | (173,282 | ) | (1,766,042 | ) | (255,341 | ) | (2,195,479 | ) | ||||||||
Series II Shares | ||||||||||||||||
Sold | 71,410 | 676,753 | 584,015 | 5,084,799 | ||||||||||||
Reinvestment of dividends and distributions | 148,378 | 1,463,002 | 251,759 | 2,074,490 | ||||||||||||
Redeemed | (768,084 | ) | (7,950,931 | ) | (1,515,796 | ) | (13,248,246 | ) | ||||||||
Net increase (decrease) — Series II | (548,296 | ) | (5,811,176 | ) | (680,022 | ) | (6,088,957 | ) | ||||||||
Net increase (decrease) in share activity | (721,578 | ) | $ | (7,577,218 | ) | (935,363 | ) | $ | (8,284,436 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 95% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or advisor, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. S&P 500 Index Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Six months | ||||||||||||||||||||||||
ended June 30, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Series I | ||||||||||||||||||||||||
Selected Per Share Data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.14 | $ | 8.27 | $ | 13.46 | $ | 13.02 | $ | 11.46 | $ | 11.14 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.09 | 0.18 | 0.23 | 0.23 | 0.20 | 0.18 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.76 | ) | 1.94 | (5.14 | ) | 0.45 | 1.56 | 0.33 | ||||||||||||||||
Total income (loss) from investment operations | (0.67 | ) | 2.12 | (4.91 | ) | 0.68 | 1.76 | 0.51 | ||||||||||||||||
Less dividends from net investment income | (0.20 | ) | (0.25 | ) | (0.28 | ) | (0.24 | ) | (0.20 | ) | (0.19 | ) | ||||||||||||
Net asset value, end of period | $ | 9.27 | $ | 10.14 | $ | 8.27 | $ | 13.46 | $ | 13.02 | $ | 11.46 | ||||||||||||
Total return(b) | (6.75 | )% | 26.34 | % | (37.07 | )% | 5.23 | % | 15.56 | % | 4.64 | % | ||||||||||||
Net assets, end of period, (000’s omitted) | $ | 33,911 | $ | 38,873 | $ | 33,801 | $ | 66,275 | $ | 84,545 | $ | 103,899 | ||||||||||||
Ratios to Average Net Assets: | ||||||||||||||||||||||||
Total expenses: | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 0.28 | %(c) | 0.28 | %(d) | 0.30 | %(d) | 0.27 | % | 0.28 | % | 0.28 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 0.32 | %(c) | 0.28 | %(d) | 0.30 | %(d) | 0.27 | % | 0.28 | % | 0.28 | % | ||||||||||||
Net investment income | 1.69 | %(c) | 2.09 | %(d) | 2.01 | %(d) | 1.71 | % | 1.67 | % | 1.59 | % | ||||||||||||
Rebate from affiliates | — | 0.00 | %(e) | 0.00 | %(e) | — | — | — | ||||||||||||||||
Supplemental Data: | ||||||||||||||||||||||||
Portfolio turnover rate(f) | 4 | % | 5 | % | 14 | % | 3 | % | 4 | % | 5 | % | ||||||||||||
(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 return. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $38,499. | |
(d) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(e) | Amount is less than 0.005%. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
Invesco V.I. S&P 500 Index Fund
NOTE 10—Financial Highlights—(continued)
Six months | ||||||||||||||||||||||||
ended June 30, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Series II Shares | ||||||||||||||||||||||||
Selected Per Share Data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.08 | $ | 8.21 | $ | 13.36 | $ | 12.92 | $ | 11.38 | $ | 11.06 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.07 | 0.16 | 0.20 | 0.20 | 0.17 | 0.15 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.76 | ) | 1.93 | (5.11 | ) | 0.45 | 1.54 | 0.33 | ||||||||||||||||
Total income (loss) from investment operations | (0.69 | ) | 2.09 | (4.91 | ) | 0.65 | 1.71 | 0.48 | ||||||||||||||||
Less dividends from net investment income | (0.17 | ) | (0.22 | ) | (0.24 | ) | (0.21 | ) | (0.17 | ) | (0.16 | ) | ||||||||||||
Net asset value, end of period | $ | 9.22 | $ | 10.08 | $ | 8.21 | $ | 13.36 | $ | 12.92 | $ | 11.38 | ||||||||||||
Total return(b) | (6.92 | )% | 26.06 | % | (37.27 | )% | 5.00 | % | 15.21 | % | 4.43 | % | ||||||||||||
Net assets, end of period, (000’s omitted) | $ | 78,647 | $ | 91,515 | $ | 80,115 | $ | 152,984 | $ | 176,883 | $ | 172,544 | ||||||||||||
Ratios to Average Net Assets: | ||||||||||||||||||||||||
Total expenses: | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 0.53 | %(c) | 0.53 | %(d) | 0.55 | %(d) | 0.52 | % | 0.53 | % | 0.53 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 0.57 | %(c) | 0.53 | %(d) | 0.55 | %(d) | 0.52 | % | 0.53 | % | 0.53 | % | ||||||||||||
Net investment income | 1.44 | %(c) | 1.84 | %(d) | 1.76 | %(d) | 1.46 | % | 1.42 | % | 1.34 | % | ||||||||||||
Rebate from affiliates | — | 0.00 | %(e) | 0.00 | %(e) | — | — | — | ||||||||||||||||
Supplemental Data: | ||||||||||||||||||||||||
Portfolio turnover rate(f) | 4 | % | 5 | % | 14 | % | 3 | % | 4 | % | 5 | % | ||||||||||||
(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 return. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $89,219. | |
(d) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(e) | Amount is less than 0.005%. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
NOTE 11—Change in Independent Registered Public Accounting Firm
The Fund is a new fund that was formed to acquire the assets and liabilities of a predecessor fund in a shell fund reorganization (the “Reorganization”). In connection with the organization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
Invesco V.I. S&P 500 Index Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; 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, 2010 through June 30, 2010.
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 only, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio2 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 932.50 | $ | 1.34 | $ | 1,023.41 | $ | 1.40 | 0.28 | % | ||||||||||||||||||
Series II | 1,000.00 | 930.80 | 2.54 | 1,022.17 | 2.66 | 0.53 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. S&P 500 Index Fund
Approval of Investment Advisory and Sub-Advisory Agreements with Invesco Advisers, Inc. and its Affiliates
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco V.I. S&P 500 Index Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Morgan Stanley retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-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 the 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. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco
Invesco V.I. S&P 500 Index Fund
Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are 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 Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. S&P 500 Index Fund
Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Morgan Stanley Variable Investment Series — S&P 500 Index Portfolio was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 11,445,667 | 446,098 | 823,509 | 0 |
Invesco V.I. S&P 500 Index Fund
Semiannual Report to Shareholders ■ June 30, 2010 Invesco V.I. Select Dimensions Balanced Fund Invesco V.I. Select Dimensions Dividend Growth Fund Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website,invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
MS-VISDCOMBO-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary – Invesco V.I. Select Dimensions Balanced Fund | |||||
Fund vs. Indexes | |||||
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | |||||
Series I Shares | -4.08 | % | |||
Series II Shares | -4.19 | ||||
Russell 1000 Value Index▼ (Broad Market Index) | -5.12 | ||||
Barclays Capital U.S. Government/Credit Index▼ (Style-Specific Index) | 5.49 | ||||
▼Lipper Inc. | |||||
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co. | |||||
The Barclays Capital U.S. Government/Credit Index includes treasuries and agencies that represent the government portion of the index, and includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements to represent the credit interests. | |||||
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | |||||
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Average Annual Total Returns As of 6/30/10 | ||||
Series I Shares | ||||
Inception (11/9/94) | 6.78 | % | ||
10 Years | 4.28 | |||
5 Years | 1.85 | |||
1 Year | 14.44 | |||
Series II Shares | ||||
Inception (7/24/00) | 3.77 | % | ||
5 Years | 1.58 | |||
1 Year | 14.11 |
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund advised by Morgan Stanley Investment Advisors Inc. were reorganized into Series I and Series II shares, respectively, of Invesco V.I. Select Dimensions Balanced Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. Select Dimensions Balanced Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.82% and 1.07%, respectively. 1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date
of this report for Series I and Series II shares was 1.12% and 1.37%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Select Dimensions Balanced Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
Invesco V.I. Select Dimensions Funds
Fund Performance
Performance summary — Invesco V.I. Select Dimensions Dividend Growth Fund | ||||
Fund vs. Indexes | ||||
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | ||||
Series I Shares | -7.01 | % | ||
Series II Shares | -7.13 | |||
S&P 500 Index▼ (Broad Market/Style-Specific Index) | -6.64 | |||
▼Lipper Inc. | ||||
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market. | ||||
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | ||||
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Average Annual Total Returns | ||||
As of 6/30/10 | ||||
Series I Shares | ||||
Inception (11/9/94) | 6.53 | % | ||
10 Years | 1.10 | |||
5 Years | -1.87 | |||
1 Year | 12.82 | |||
Series II Shares | ||||
Inception (7/24/00) | 0.63 | % | ||
5 Years | -2.12 | |||
1 Year | 12.55 |
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund advised by Morgan Stanley Investment Advisors Inc. were reorganized into Series I and Series II shares, respectively, of Invesco V.I. Select Dimensions Dividend Growth Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. Select Dimensions Dividend Growth Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.72% and 0.97%, respectively. 1 The total annual Fund operating expense ratio set forth in the most
recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.95% and 1.20%, 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.
Invesco V.I. Select Dimensions Dividend Growth Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
Invesco V.I. Select Dimensions Funds
Fund Performance
Performance summary – Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund | ||||
Fund vs. Indexes | ||||
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | ||||
Series I Shares | -3.59 | % | ||
Series II Shares | -3.73 | |||
S&P 500 Equal Weight Index▼ (Broad Market/Style-Specific Index) | -3.43 | |||
▼Invesco, Bloomberg L.P. | ||||
The S&P 500 Equal Weight Index is the equally weighted version of 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 the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Average Annual Total Returns | ||||
As of 6/30/10 | ||||
Series I Shares | ||||
Inception (11/9/94) | 8.73 | % | ||
10 Years | 4.67 | |||
5 Years | 1.12 | |||
1 Year | 24.29 | |||
Series II Shares | ||||
Inception (7/24/00) | 4.26 | % | ||
5 Years | 0.86 | |||
1 Year | 24.06 |
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund advised by Morgan Stanley Investment Advisors Inc. were reorganized into Series I and Series II shares, respectively, of Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.37% and 0.62%, respectively. 1 The total annual Fund operating expense ratio set forth in the most
recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.60% and 0.85%, 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.
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
Invesco V.I. Select Dimensions Funds
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Invesco V.I. Select Dimensions Balanced Fund
Shares | Value | |||||||
Common Stocks & Other Equity Interests–64.4% | ||||||||
Aerospace & Defense–0.3% | ||||||||
General Dynamics Corp. | 1,924 | $ | 112,669 | |||||
Air Freight & Logistics–0.5% | ||||||||
FedEx Corp. | 2,405 | 168,614 | ||||||
Apparel Retail–0.6% | ||||||||
Gap, Inc. (The) | 11,733 | 228,324 | ||||||
Asset Management & Custody Banks–0.9% | ||||||||
Janus Capital Group, Inc. | 12,519 | 111,169 | ||||||
State Street Corp. | 6,636 | 224,429 | ||||||
335,598 | ||||||||
Automobile Manufacturers–0.4% | ||||||||
Ford Motor Co.(b) | 14,235 | 143,489 | ||||||
Biotechnology–0.8% | ||||||||
Genzyme Corp.(b) | 5,927 | 300,914 | ||||||
Cable & Satellite–1.9% | ||||||||
Comcast Corp. (Class A) | 23,500 | 408,195 | ||||||
Time Warner Cable, Inc. | 5,909 | 307,741 | ||||||
715,936 | ||||||||
Communications Equipment–0.9% | ||||||||
Cisco Systems, Inc.(b) | 16,128 | 343,688 | ||||||
Computer Hardware–1.9% | ||||||||
Dell, Inc.(b) | 21,741 | 262,197 | ||||||
Hewlett-Packard Co. | 10,444 | 452,016 | ||||||
714,213 | ||||||||
Consumer Electronics–0.7% | ||||||||
Sony Corp. (ADR) (Japan) | 9,516 | 253,887 | ||||||
Data Processing & Outsourced Services–0.6% | ||||||||
Western Union Co. (The) | 14,656 | 218,521 | ||||||
Diversified Banks–1.2% | ||||||||
US Bancorp | 7,105 | 158,797 | ||||||
Wells Fargo & Co. | 10,579 | 270,822 | ||||||
429,619 | ||||||||
Diversified Chemicals–1.1% | ||||||||
Dow Chemical Co. (The) | 10,676 | 253,235 | ||||||
PPG Industries, Inc. | 2,886 | 174,343 | ||||||
427,578 | ||||||||
Diversified Consumer Services–0.4% | ||||||||
Cintas Corp. | 5,579 | 133,729 | ||||||
Diversified Metals & Mining–0.4% | ||||||||
Freeport-McMoRan Copper & Gold, Inc. | 2,501 | 147,884 | ||||||
Drug Retail–0.5% | ||||||||
Walgreen Co. | 7,553 | 201,665 | ||||||
Electric Utilities–2.8% | ||||||||
American Electric Power Co., Inc. | 16,263 | 525,295 | ||||||
Edison International | 3,462 | 109,815 | ||||||
Entergy Corp. | 2,683 | 192,156 | ||||||
FirstEnergy Corp. | 5,780 | 203,629 | ||||||
1,030,895 | ||||||||
Food Distributors–0.8% | ||||||||
Sysco Corp. | 9,906 | 283,014 | ||||||
Health Care Distributors–0.5% | ||||||||
Cardinal Health, Inc. | 5,097 | 171,310 | ||||||
Health Care Equipment–0.9% | ||||||||
Covidien PLC (Ireland) | 7,878 | 316,538 | ||||||
Home Improvement Retail–1.1% | ||||||||
Home Depot, Inc. | 14,509 | 407,268 | ||||||
Human Resource & Employment Services–0.7% | ||||||||
Manpower, Inc. | 3,111 | 134,333 | ||||||
Robert Half International, Inc. | 4,905 | 115,513 | ||||||
249,846 | ||||||||
Hypermarkets & Super Centers–1.2% | ||||||||
Wal-Mart Stores, Inc. | 9,054 | 435,226 | ||||||
Industrial Conglomerates–3.9% | ||||||||
General Electric Co. | 55,702 | 803,223 | ||||||
Siemens AG (ADR) (Germany) | 2,982 | 266,978 | ||||||
Tyco International Ltd. (Luxembourg) | 10,389 | 366,005 | ||||||
1,436,206 | ||||||||
Industrial Machinery–1.3% | ||||||||
Dover Corp. | 6,331 | 264,572 | ||||||
Ingersoll-Rand PLC (Ireland) | 6,792 | 234,256 | ||||||
498,828 | ||||||||
Insurance Brokers–2.1% | ||||||||
Marsh & McLennan Cos., Inc. | 35,037 | 790,084 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Balanced Fund
Shares | Value | |||||||
Integrated Oil & Gas–4.9% | ||||||||
ConocoPhillips | 5,480 | $ | 269,013 | |||||
Exxon Mobil Corp. | 4,251 | 242,605 | ||||||
Hess Corp. | 5,132 | 258,345 | ||||||
Occidental Petroleum Corp. | 7,607 | 586,880 | ||||||
Royal Dutch Shell PLC (ADR) (Netherlands) | 8,869 | 445,401 | ||||||
1,802,244 | ||||||||
Integrated Telecommunication Services–0.6% | ||||||||
Verizon Communications, Inc. | 8,493 | 237,974 | ||||||
Internet Software & Services–2.2% | ||||||||
eBay, Inc.(b) | 28,180 | 552,610 | ||||||
Yahoo!, Inc.(b) | 18,407 | 254,569 | ||||||
807,179 | ||||||||
Investment Banking & Brokerage–0.9% | ||||||||
Charles Schwab Corp. (The) | 23,662 | 335,527 | ||||||
IT Consulting & Other Services–0.6% | ||||||||
Amdocs Ltd.(b) | 8,722 | 234,186 | ||||||
Life & Health Insurance–0.4% | ||||||||
Principal Financial Group, Inc. | 7,128 | 167,080 | ||||||
Managed Health Care–0.9% | ||||||||
UnitedHealth Group, Inc. | 12,250 | 347,900 | ||||||
Motorcycle Manufacturers–0.3% | ||||||||
Harley-Davidson, Inc. | 5,581 | 124,066 | ||||||
Movies & Entertainment–3.1% | ||||||||
Time Warner, Inc. | 15,917 | 460,160 | ||||||
Viacom, Inc. (Class B) | 22,561 | 707,739 | ||||||
1,167,899 | ||||||||
Office Services & Supplies–0.4% | ||||||||
Avery Dennison Corp. | 4,521 | 145,260 | ||||||
Oil & Gas Equipment & Services–0.8% | ||||||||
Schlumberger Ltd. (Netherlands Antilles) | 5,385 | 298,006 | ||||||
Oil & Gas Exploration & Production–1.7% | ||||||||
Anadarko Petroleum Corp. | 7,318 | 264,107 | ||||||
Devon Energy Corp. | 3,944 | 240,268 | ||||||
Noble Energy, Inc. | 1,951 | 117,704 | ||||||
622,079 | ||||||||
Other Diversified Financial Services–5.5% | ||||||||
Bank of America Corp. | 41,953 | 602,865 | ||||||
Citigroup, Inc.(b) | 66,357 | 249,502 | ||||||
JPMorgan Chase & Co. | 32,400 | 1,186,164 | ||||||
2,038,531 | ||||||||
Packaged Foods & Meats–1.9% | ||||||||
Kraft Foods, Inc. (Class A) | 19,331 | 541,268 | ||||||
Unilever N.V. (NY Registered Shares) (Netherlands) | 6,603 | 180,394 | ||||||
721,662 | ||||||||
Personal Products–0.7% | ||||||||
Avon Products, Inc. | 9,385 | 248,702 | ||||||
Pharmaceuticals–5.2% | ||||||||
Abbott Laboratories | 4,010 | 187,588 | ||||||
Bayer AG (ADR) (Germany) | 4,670 | 262,562 | ||||||
Bristol-Myers Squibb Co. | 18,648 | 465,081 | ||||||
Merck & Co., Inc. | 11,563 | 404,358 | ||||||
Pfizer, Inc. | 23,755 | 338,746 | ||||||
Roche Holding AG (ADR) (Switzerland) | 7,515 | 259,769 | ||||||
1,918,104 | ||||||||
Property & Casualty Insurance–0.8% | ||||||||
Chubb Corp. | 5,740 | 287,057 | ||||||
Regional Banks–2.5% | ||||||||
BB&T Corp. | 8,175 | 215,084 | ||||||
Fifth Third Bancorp | 14,715 | 180,847 | ||||||
PNC Financial Services Group, Inc. | 9,318 | 526,467 | ||||||
922,398 | ||||||||
Semiconductor Equipment–0.3% | ||||||||
Lam Research Corp.(b) | 3,161 | 120,308 | ||||||
Semiconductors–0.8% | ||||||||
Intel Corp. | 14,733 | 286,557 | ||||||
Soft Drinks–0.5% | ||||||||
Coca-Cola Co. (The) | 3,856 | 193,263 | ||||||
Wireless Telecommunication Services–1.0% | ||||||||
Vodafone Group PLC (ADR) (United Kingdom) | 18,149 | 375,140 | ||||||
Total Common Stocks & Other Equity Interests (Cost $26,219,874) | 23,896,665 | |||||||
Principal | ||||||||
Amount | ||||||||
U.S. Treasury Securities–18.2% | ||||||||
U.S. Treasury Bills–0.1% | ||||||||
0.10%, 10/28/10(c)(d) | $ | 15,000 | 14,993 | |||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Balanced Fund
Principal | ||||||||
Amount | Value | |||||||
U.S. Treasury Bonds–1.7% | ||||||||
4.25%, 05/15/39 | $ | 555,000 | $ | 586,826 | ||||
4.625%, 02/15/40 | 50,000 | 56,203 | ||||||
643,029 | ||||||||
U.S. Treasury Notes–16.4% | ||||||||
0.875%, 02/29/12 | 500,000 | 502,695 | ||||||
1.00%, 04/30/12 | 400,000 | 403,031 | ||||||
1.375%, 09/15/12 | 1,700,000 | 1,726,297 | ||||||
1.50%, 12/31/13 | 500,000 | 504,141 | ||||||
2.375%, 10/31/14 | 2,170,000 | 2,238,490 | ||||||
2.50%, 03/31/15 | 275,000 | 284,969 | ||||||
2.625%, 07/31/14 | 100,000 | 104,500 | ||||||
3.625%, 08/15/19 | 265,000 | 280,155 | ||||||
3.625%, 02/15/20 | 46,000 | 48,595 | ||||||
6,092,873 | ||||||||
Total U.S. Treasury Securities (Cost $6,569,685) | 6,750,895 | |||||||
Bonds & Notes–10.9% | ||||||||
Aerospace & Defense–0.1% | ||||||||
Systems 2001 Asset Trust, 6.664%, 09/15/13(e) | 28,257 | 29,953 | ||||||
Agricultural Products–0.0% | ||||||||
Bunge Ltd. Finance Corp., 8.50%, 06/15/19 | 10,000 | 11,928 | ||||||
Airlines–0.1% | ||||||||
Delta Air Lines, Inc., 6.20%, 07/02/18 | 20,000 | 20,275 | ||||||
Automobile Manufacturers–0.1% | ||||||||
Daimler Finance North America LLC, 7.30%, 01/15/12 | 20,000 | 21,522 | ||||||
Nissan Motor Acceptance Corp., 4.50%, 01/30/15(e) | 10,000 | 10,337 | ||||||
31,859 | ||||||||
Biotechnology–0.1% | ||||||||
Biogen Idec, Inc., 6.875%, 03/01/18 | 20,000 | 22,975 | ||||||
Brewers–0.2% | ||||||||
Anheuser-Busch InBev Worldwide, Inc., 7.20%, 01/15/14(e) | 25,000 | 28,777 | ||||||
FBG Finance Ltd. (Australia), 5.125%, 06/15/15(e) | 30,000 | 32,688 | ||||||
61,465 | ||||||||
Cable & Satellite–0.3% | ||||||||
Comcast Corp., 5.15%, 03/01/20 | 15,000 | 15,685 | ||||||
Comcast Corp., 5.70%, 05/15/18 | 45,000 | 49,411 | ||||||
Time Warner Cable, Inc., 6.75%, 06/15/39 | 10,000 | 11,053 | ||||||
Time Warner Cable, Inc., 8.25%, 04/01/19 | 10,000 | 12,319 | ||||||
Time Warner Cable, Inc., 8.75%, 02/14/19 | 15,000 | 18,909 | ||||||
107,377 | ||||||||
Communications Equipment–0.0% | ||||||||
Cisco Systems, Inc., 5.90%, 02/15/39 | 5,000 | 5,531 | ||||||
Construction Materials–0.0% | ||||||||
Holcim US Finance Sarl & Cie SCS, 6.00%, 12/30/19(e) | 15,000 | 16,229 | ||||||
Consumer Finance–0.5% | ||||||||
American Express Co., 8.125%, 05/20/19 | 20,000 | 24,810 | ||||||
American Express Credit Corp., (Series C), 7.30%, 08/20/13 | 35,000 | 39,739 | ||||||
Capital One Financial Corp., 6.75%, 09/15/17 | 50,000 | 57,292 | ||||||
HSBC Finance Corp., 6.375%, 10/15/11 | 25,000 | 26,270 | ||||||
HSBC Finance Corp., 6.75%, 05/15/11 | 45,000 | 46,895 | ||||||
195,006 | ||||||||
Department Stores–0.1% | ||||||||
Kohl’s Corp., 6.875%, 12/15/37 | 25,000 | 30,107 | ||||||
Diversified Banks–1.0% | ||||||||
Abbey National Treasury Services PLC, 3.875%, 11/10/14(e) | 100,000 | 99,801 | ||||||
Bank of Nova Scotia, 2.375%, 12/17/13 | 35,000 | 35,839 | ||||||
Barclays Bank PLC (United Kingdom), 6.75%, 05/22/19 | 25,000 | 27,886 | ||||||
Commonwealth Bank of Australia (Australia), 5.00%, 10/15/19(e) | 35,000 | 36,562 | ||||||
Credit Suisse (Switzerland), 6.00%, 02/15/18 | 5,000 | 5,206 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Balanced Fund
Principal | ||||||||
Amount | Value | |||||||
Diversified Banks–(continued) | ||||||||
US Bancorp, 2.00%, 06/14/13 | $ | 50,000 | $ | 50,605 | ||||
Wells Fargo & Co., 5.625%, 12/11/17 | 105,000 | 114,504 | ||||||
370,403 | ||||||||
Diversified Capital Markets–0.1% | ||||||||
Credit Suisse AG, 5.40%, 01/14/20 | 10,000 | 9,982 | ||||||
UBS AG (Switzerland), (MTN), 5.875%, 12/20/17 | 25,000 | 26,534 | ||||||
36,516 | ||||||||
Diversified Metals & Mining–0.2% | ||||||||
Freeport-McMoRan Copper & Gold, Inc., 8.375%, 04/01/17 | 5,000 | 5,511 | ||||||
Rio Tinto Finance USA Ltd. (Australia), 9.00%, 05/01/19 | 30,000 | 39,301 | ||||||
Southern Copper Corp., 5.375%, 04/16/20 | 5,000 | 5,047 | ||||||
Southern Copper Corp., 6.75%, 04/16/40 | 10,000 | 10,060 | ||||||
59,919 | ||||||||
Drug Retail–0.1% | ||||||||
CVS Pass-Through Trust, 6.036%, 12/10/28 | 41,160 | 42,933 | ||||||
Electric Utilities–1.0% | ||||||||
EDF SA, 4.60%, 01/27/20(e) | 25,000 | 25,684 | ||||||
Enel Finance International SA, 5.125%, 10/07/19(e) | 100,000 | 100,231 | ||||||
FirstEnergy Solutions Corp., 6.05%, 08/15/21 | 60,000 | 61,444 | ||||||
Iberdrola Finance Ireland Ltd. (Ireland), 3.80%, 09/11/14(e) | 75,000 | 74,817 | ||||||
Ohio Power Co., (Series M), 5.375%, 10/01/21 | 50,000 | 54,013 | ||||||
PPL Energy Supply LLC, 6.30%, 07/15/13 | 20,000 | 22,212 | ||||||
Progress Energy, Inc., 7.05%, 03/15/19 | 35,000 | 41,589 | ||||||
379,990 | ||||||||
Electrical Components & Equipment–0.1% | ||||||||
Cooper US, Inc., 5.25%, 11/15/12 | 25,000 | 26,982 | ||||||
Electronic Components–0.1% | ||||||||
Amphenol Corp., 4.75%, 11/15/14 | 15,000 | 15,834 | ||||||
Corning, Inc., 7.25%, 08/15/36 | 5,000 | 5,945 | ||||||
21,779 | ||||||||
Environmental & Facilities Services–0.1% | ||||||||
Republic Services, Inc., 5.50%, 09/15/19(e) | 25,000 | 27,043 | ||||||
Fertilizers & Agricultural Chemicals–0.1% | ||||||||
Mosaic Co. (The), 7.625%, 12/01/16(e) | 30,000 | 32,925 | ||||||
Potash Corp. of Saskatchewan, Inc. (Canada), 5.875%, 12/01/36 | 5,000 | 5,383 | ||||||
38,308 | ||||||||
Food Retail–0.3% | ||||||||
Delhaize America, Inc., 9.00%, 04/15/31 | 10,000 | 13,563 | ||||||
Delhaize Group SA (Belgium), 5.875%, 02/01/14 | 15,000 | 16,761 | ||||||
WM Wrigley Jr Co, 1.912%, 06/28/11(e)(f) | 65,000 | 65,203 | ||||||
95,527 | ||||||||
Gas Utilities–0.1% | ||||||||
QEP Resources Inc, 6.80%, 04/01/18 | 25,000 | 26,196 | ||||||
Health Care Services–0.1% | ||||||||
Medco Health Solutions, Inc., 7.125%, 03/15/18 | 30,000 | 35,885 | ||||||
Quest Diagnostics, Inc., 4.75%, 01/30/20 | 20,000 | 20,141 | ||||||
56,026 | ||||||||
Health Care Equipment–0.1% | ||||||||
CareFusion Corp., 4.125%, 08/01/12 | 35,000 | 36,651 | ||||||
Home Improvement Retail–0.1% | ||||||||
Home Depot, Inc., 5.875%, 12/16/36 | 25,000 | 25,565 | ||||||
Hypermarkets & Super Centers–0.0% | ||||||||
Wal-Mart Stores, Inc., 5.25%, 09/01/35 | 10,000 | 10,486 | ||||||
Wal-Mart Stores, Inc., 6.50%, 08/15/37 | 5,000 | 6,077 | ||||||
16,563 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Balanced Fund
Principal | ||||||||
Amount | Value | |||||||
Industrial Conglomerates–0.5% | ||||||||
General Electric Capital Corp., 5.625%, 05/01/18 | $ | 35,000 | $ | 37,286 | ||||
General Electric Capital Corp., (MTN), 5.875%, 01/14/38 | 15,000 | 14,696 | ||||||
General Electric Capital Corp., (Series G), 6.00%, 08/07/19 | 50,000 | 54,347 | ||||||
General Electric Co., 5.25%, 12/06/17 | 45,000 | 49,124 | ||||||
Koninklijke Philips Electronics N.V. (Netherlands), 5.75%, 03/11/18 | 25,000 | 28,253 | ||||||
183,706 | ||||||||
Integrated Oil & Gas–0.1% | ||||||||
Hess Corp., 6.00%, 01/15/40 | 25,000 | 25,955 | ||||||
Shell International Finance BV (Finland), 3.10%, 06/28/15 | 25,000 | 25,391 | ||||||
51,346 | ||||||||
Integrated Telecommunication Services–0.7% | ||||||||
AT&T Corp., 8.00%, 11/15/31 | 5,000 | 6,424 | ||||||
AT&T, Inc., 6.15%, 09/15/34 | 15,000 | 15,985 | ||||||
AT&T, Inc., 6.30%, 01/15/38 | 50,000 | 54,506 | ||||||
Deutsche Telekom International Finance BV (Netherlands), 8.75%, 06/15/30 | 15,000 | 19,368 | ||||||
NBC Universal, Inc., 5.15%, 04/30/20(e) | 20,000 | 20,925 | ||||||
Telecom Italia Capital SA (Luxembourg), 6.999%, 06/04/18 | 35,000 | 37,361 | ||||||
Telecom Italia Capital SA (Luxembourg), 7.175%, 06/18/19 | 20,000 | 21,519 | ||||||
Telefonica Europe BV (Netherlands), 8.25%, 09/15/30 | 30,000 | 37,116 | ||||||
Verizon Communications, Inc., 6.35%, 04/01/19 | 25,000 | 29,159 | ||||||
Verizon Communications, Inc., 8.95%, 03/01/39 | 20,000 | 28,869 | ||||||
271,232 | ||||||||
Investment Banking & Brokerage–0.5% | ||||||||
Bear Stearns Cos. LLC (The), 7.25%, 02/01/18 | 55,000 | 64,013 | ||||||
Goldman Sachs Group, Inc. (The), 6.15%, 04/01/18 | 100,000 | 104,729 | ||||||
Goldman Sachs Group, Inc. (The), 6.75%, 10/01/37 | 20,000 | 19,720 | ||||||
188,462 | ||||||||
Life & Health Insurance–0.4% | ||||||||
Aegon N.V. (Netherlands), 4.625%, 12/01/15 | 25,000 | 25,907 | ||||||
MetLife, Inc., 7.717%, 02/15/19 | 10,000 | 11,869 | ||||||
Pacific LifeCorp, 6.00%, 02/10/20(e) | 40,000 | 41,605 | ||||||
Principal Financial Group, Inc., 8.875%, 05/15/19 | 15,000 | 18,432 | ||||||
Prudential Financial, Inc., (MTN), 4.75%, 09/17/15 | 25,000 | 25,916 | ||||||
Prudential Financial, Inc., (MTN), 6.625%, 12/01/37 | 15,000 | 15,677 | ||||||
Prudential Financial, Inc., (Series D), 7.375%, 06/15/19 | 5,000 | 5,744 | ||||||
145,150 | ||||||||
Managed Health Care–0.1% | ||||||||
UnitedHealth Group, Inc., 6.00%, 02/15/18 | 25,000 | 28,042 | ||||||
�� | ||||||||
Movies & Entertainment–0.2% | ||||||||
News America, Inc., 7.85%, 03/01/39 | 30,000 | 37,384 | ||||||
Time Warner, Inc., 5.875%, 11/15/16 | 10,000 | 11,267 | ||||||
Time Warner, Inc., 7.70%, 05/01/32 | 20,000 | 24,027 | ||||||
Vivendi SA (France), 6.625%, 04/04/18(e) | 15,000 | 17,381 | ||||||
90,059 | ||||||||
Multi-Utilities–0.2% | ||||||||
CenterPoint Energy Resources Corp., 6.25%, 02/01/37 | 20,000 | 21,131 | ||||||
CenterPoint Energy Resources Corp., (Series B), 7.875%, 04/01/13 | 10,000 | 11,493 | ||||||
NiSource Finance Corp., 6.80%, 01/15/19 | 25,000 | 28,196 | ||||||
60,820 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Balanced Fund
Principal | ||||||||
Amount | Value | |||||||
Office Electronics–0.0% | ||||||||
Xerox Corp., 5.625%, 12/15/19 | $ | 5,000 | $ | 5,346 | ||||
Xerox Corp., 6.35%, 05/15/18 | 10,000 | 11,128 | ||||||
16,474 | ||||||||
Office REIT’s–0.2% | ||||||||
Boston Properties LP, 5.875%, 10/15/19 | 25,000 | 26,860 | ||||||
Digital Realty Trust LP, 4.50%, 07/15/15 | 30,000 | 29,909 | ||||||
56,769 | ||||||||
Oil & Gas Equipment & Services–0.1% | ||||||||
Weatherford International Ltd. (Switzerland), 9.625%, 03/01/19 | 30,000 | 36,339 | ||||||
Oil & Gas Exploration & Production–0.1% | ||||||||
Petrobras International Finance Co. (Cayman Islands), 5.75%, 01/20/20 | 20,000 | 20,120 | ||||||
Oil & Gas Storage & Transportation–0.4% | ||||||||
Energy Transfer Partners LP, 8.50%, 04/15/14 | 25,000 | 28,997 | ||||||
Enterprise Products Operating LLC, 5.25%, 01/31/20 | 15,000 | 15,559 | ||||||
Enterprise Products Operating LLC, (Series N), 6.50%, 01/31/19 | 25,000 | 27,926 | ||||||
Plains All American Pipeline LP/PAA Finance Corp., 6.70%, 05/15/36 | 20,000 | 20,136 | ||||||
Plains All American Pipeline LP / PAA Finance Corp., 8.75%, 05/01/19 | 20,000 | 24,002 | ||||||
Texas Eastern Transmission LP, 7.00%, 07/15/32 | 20,000 | 23,919 | ||||||
140,539 | ||||||||
Other Diversified Financial Services–1.1% | ||||||||
Bank of America Corp., 5.75%, 12/01/17 | 110,000 | 114,965 | ||||||
Bear Stearns Cos. LLC (The), 6.40%, 10/02/17 | 5,000 | 5,616 | ||||||
Citigroup Inc, 5.875%, 05/29/37 | 25,000 | 23,526 | ||||||
Citigroup Inc, 6.125%, 11/21/17 | 35,000 | 36,782 | ||||||
Citigroup Inc, 6.125%, 05/15/18 | 25,000 | 26,255 | ||||||
Citigroup Inc, 8.50%, 05/22/19 | 40,000 | 47,728 | ||||||
ERAC USA Finance LLC, 2.75%, 07/01/13(e) | 20,000 | 20,121 | ||||||
General Electric Capital Corp., 5.50%, 01/08/20 | 15,000 | 15,902 | ||||||
JPMorgan Chase & Co., 4.95%, 03/25/20 | 20,000 | 20,766 | ||||||
JPMorgan Chase & Co., 6.00%, 01/15/18 | 25,000 | 27,666 | ||||||
Merrill Lynch & Co., Inc., (MTN), 6.875%, 04/25/18 | 40,000 | 42,837 | ||||||
Xlliac Global Funding, 4.80%, 08/10/10(e) | 35,000 | 35,010 | ||||||
417,174 | ||||||||
Packaged Foods & Meats–0.3% | ||||||||
ConAgra Foods, Inc., 7.00%, 10/01/28 | 20,000 | 23,744 | ||||||
ConAgra Foods, Inc., 8.25%, 09/15/30 | 10,000 | 13,092 | ||||||
Kraft Foods, Inc., 5.375%, 02/10/20 | 15,000 | 16,074 | ||||||
Kraft Foods, Inc., 6.875%, 01/26/39 | 20,000 | 23,506 | ||||||
Kraft Foods, Inc., 7.00%, 08/11/37 | 30,000 | 35,523 | ||||||
111,939 | ||||||||
Paper Packaging–0.0% | ||||||||
Sealed Air Corp., 7.875%, 06/15/17(e) | 10,000 | 10,464 | ||||||
Property & Casualty Insurance–0.0% | ||||||||
Allstate Corp. (The), 7.45%, 05/16/19 | 15,000 | 17,702 | ||||||
Railroads–0.0% | ||||||||
CSX Corp., 6.15%, 05/01/37 | 5,000 | 5,467 | ||||||
Union Pacific Corp., 6.125%, 02/15/20 | 5,000 | 5,792 | ||||||
11,259 | ||||||||
Real Estate Management & Development–0.1% | ||||||||
Brookfield Asset Management, Inc. (Canada), 5.80%, 04/25/17 | 10,000 | 10,129 | ||||||
Brookfield Asset Management, Inc. (Canada), 7.125%, 06/15/12 | 10,000 | 10,745 | ||||||
20,874 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Balanced Fund
Principal | ||||||||
Amount | Value | |||||||
Regional Banks–0.1% | ||||||||
PNC Funding Corp., 5.125%, 02/08/20 | $ | 30,000 | $ | 31,330 | ||||
PNC Funding Corp., 6.70%, 06/10/19 | 20,000 | 23,020 | ||||||
54,350 | ||||||||
Reinsurance–0.1% | ||||||||
Platinum Underwriters Finance, Inc., (Series B), 7.50%, 06/01/17 | 15,000 | 15,961 | ||||||
Reinsurance Group of America, Inc., 6.45%, 11/15/19 | 25,000 | 26,705 | ||||||
42,666 | ||||||||
Residential REIT’s–0.1% | ||||||||
AvalonBay Communities, Inc., (MTN), 6.10%, 03/15/20 | 25,000 | 27,779 | ||||||
Restaurants–0.1% | ||||||||
Yum! Brands, Inc., 5.30%, 09/15/19 | 20,000 | 21,569 | ||||||
Yum! Brands, Inc., 6.25%, 03/15/18 | 10,000 | 11,462 | ||||||
33,031 | ||||||||
Retail REIT’s–0.1% | ||||||||
Simon Property Group LP, 5.65%, 02/01/20 | 10,000 | 10,615 | ||||||
Simon Property Group LP, 6.75%, 05/15/14 | 15,000 | 16,755 | ||||||
WEA Finance LLC/WT Finance Aust Pty Ltd., 6.75%, 09/02/19(e) | 25,000 | 27,778 | ||||||
55,148 | ||||||||
Semiconductor Equipment–0.0% | ||||||||
KLA-Tencor Corp., 6.90%, 05/01/18 | 15,000 | 16,856 | ||||||
Specialized Finance–0.1% | ||||||||
NASDAQ OMX Group, Inc. (The), 5.55%, 01/15/20 | 25,000 | 25,619 | ||||||
Steel–0.2% | ||||||||
ArcelorMittal (Luxembourg), 9.85%, 06/01/19 | 36,000 | 45,035 | ||||||
Vale Overseas Ltd. (Cayman Islands), 5.625%, 09/15/19 | 25,000 | 26,503 | ||||||
71,538 | ||||||||
Tobacco–0.1% | ||||||||
BAT International Finance PLC (United Kingdom), 9.50%, 11/15/18(e) | 15,000 | 19,724 | ||||||
Philip Morris International, Inc., 5.65%, 05/16/18 | 25,000 | 27,456 | ||||||
47,180 | ||||||||
Trucking–0.0% | ||||||||
Ryder System, Inc., (MTN), 7.20%, 09/01/15 | 10,000 | 11,640 | ||||||
Total Bonds & Notes (Cost $3,793,612) | 4,057,383 | |||||||
U.S. Government Agency Obligations–3.9% | ||||||||
Diversified Banks–FDIC Guaranteed–0.1% | ||||||||
GMAC, Inc., 2.20%, 12/19/12 | 50,000 | 51,473 | ||||||
Federal Home Loan Mortgage Corp. (FHLMC)–1.2% | ||||||||
Federal Home Loan Mortgage Corp., 3.00%, 07/28/14 | 120,000 | 126,408 | ||||||
Federal Home Loan Mortgage Corp., 5.50%, 08/23/17 | 140,000 | 164,627 | ||||||
Federal Home Loan Mortgage Corp., 6.75%, 03/15/31 | 100,000 | 132,681 | ||||||
423,716 | ||||||||
Federal National Mortgage Association (FNMA)–0.5% | ||||||||
Federal National Mortgage Assoc., 4.375%, 10/15/15 | 180,000 | 199,467 | ||||||
Industrial Conglomerates–FDIC Guaranteed–1.1% | ||||||||
General Electric Capital Corp., 2.20%, 06/08/12 | 80,000 | 82,163 | ||||||
General Electric Capital Corp. (Series G), 2.625%, 12/28/12 | 300,000 | 312,036 | ||||||
394,199 | ||||||||
Other Diversified Financial Services–FDIC Guaranteed–1.0% | ||||||||
Citigroup Funding, Inc., 2.25%, 12/10/12 | 360,000 | 371,198 | ||||||
Total U.S. Government Agency Obligations (Cost $1,378,784) | 1,440,053 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Balanced Fund
Principal | ||||||||
Amount | Value | |||||||
Foreign Government Obligations–0.4% | ||||||||
Brazilian Government International Bond (Brazil), 6.00%, 01/17/17 | $ | 100,000 | $ | 110,350 | ||||
Peruvian Government International Bond (Peru), 7.125%, 03/30/19 | 10,000 | 11,875 | ||||||
Republic of Italy (Italy), 6.875%, 09/27/23 | 30,000 | 34,253 | ||||||
Total Foreign Government Obligations (Cost $145,358) | 156,478 | |||||||
Shares | ||||||||
Money Market Funds–1.9% | ||||||||
Liquid Assets Portfolio–Institutional Class(g) | 344,280 | 344,280 | ||||||
Premier Portfolio–Institutional Class(g) | 344,280 | 344,280 | ||||||
Total Money Market Funds (Cost $688,560) | 688,560 | |||||||
TOTAL INVESTMENTS (Cost $38,795,873)–99.7% | 36,990,034 | |||||||
OTHER ASSETS IN EXCESS OF LIABILITIES–0.3% | 116,250 | |||||||
NET ASSETS–100.0% | $ | 37,106,284 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt. | |
FDIC | – Federal Deposit Insurance Corporation. | |
MTN | – Medium Term Note. | |
REIT | – Real Estate Investment Trust. |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. | |
(d) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1K and Note 4. | |
(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, 2010 was $773,258 which represented 2.08% of the Fund’s Net Assets. | |
(f) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2010. | |
(g) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By security type, based on Total Investments
as of June 30, 2010
Common Stocks & Other Equity Interests | 64.6 | % | ||
U.S. Treasury Securities | 18.3 | |||
Bonds & Notes | 11.0 | |||
U.S. Government Sponsored Agency Obligations | 3.9 | |||
Foreign Government Obligations | 0.4 | |||
Money Market Funds | 1.8 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Invesco V.I. Select Dimensions Dividend Growth Fund
Shares | Value | |||||||
Common Stocks & Other Equity Interests–92.1% | ||||||||
Aerospace & Defense–4.2% | ||||||||
General Dynamics Corp. | 15,197 | $ | 889,936 | |||||
Raytheon Co. | 18,200 | 880,698 | ||||||
United Technologies Corp. | 26,739 | 1,735,629 | ||||||
3,506,263 | ||||||||
Apparel Retail–1.5% | ||||||||
Ross Stores, Inc. | 23,930 | 1,275,230 | ||||||
Apparel, Accessories & Luxury Goods–2.7% | ||||||||
Guess?, Inc. | 36,290 | 1,133,699 | ||||||
VF Corp. | 16,349 | 1,163,722 | ||||||
2,297,421 | ||||||||
Asset Management & Custody Banks–1.0% | ||||||||
Federated Investors, Inc. (Class B) | 41,356 | 856,483 | ||||||
Auto Parts & Equipment–1.3% | ||||||||
Johnson Controls, Inc. | 41,860 | 1,124,778 | ||||||
Brewers–1.2% | ||||||||
Heineken N.V. (Netherlands) | 23,460 | 994,457 | ||||||
Building Products–1.0% | ||||||||
Masco Corp. | 79,472 | 855,119 | ||||||
Casinos & Gaming–1.0% | ||||||||
International Game Technology | 52,139 | 818,582 | ||||||
Communications Equipment–1.3% | ||||||||
Corning, Inc. | 66,730 | 1,077,690 | ||||||
Computer & Electronics Retail–1.6% | ||||||||
Best Buy Co., Inc. | 39,700 | 1,344,242 | ||||||
Computer Hardware–4.9% | ||||||||
Apple, Inc.(b)(c) | 3,248 | 816,969 | ||||||
Hewlett-Packard Co. | 37,920 | 1,641,178 | ||||||
International Business Machines Corp. | 13,347 | 1,648,088 | ||||||
4,106,235 | ||||||||
Construction & Farm Machinery & Heavy Trucks–1.5% | ||||||||
Caterpillar, Inc. | 20,460 | 1,229,032 | ||||||
Consumer Finance–3.1% | ||||||||
American Express Co. | 38,270 | 1,519,319 | ||||||
Capital One Financial Corp. | 26,561 | 1,070,408 | ||||||
2,589,727 | ||||||||
Data Processing & Outsourced Services–2.6% | ||||||||
Automatic Data Processing, Inc. | 27,994 | 1,127,038 | ||||||
Computer Sciences Corp. | 23,360 | 1,057,040 | ||||||
2,184,078 | ||||||||
Electric Utilities–1.0% | ||||||||
Entergy Corp. | 11,956 | 856,289 | ||||||
Food Distributors–1.2% | ||||||||
Sysco Corp. | 35,036 | 1,000,979 | ||||||
Gas Utilities–1.5% | ||||||||
Questar Corp. | 28,300 | 1,287,367 | ||||||
General Merchandise Stores–1.9% | ||||||||
Target Corp. | 32,220 | 1,584,257 | ||||||
Health Care Equipment–1.0% | ||||||||
Stryker Corp. | 17,407 | 871,394 | ||||||
Household Appliances–2.3% | ||||||||
Snap-On, Inc. | 18,313 | 749,185 | ||||||
Whirlpool Corp.(c) | 13,330 | 1,170,640 | ||||||
1,919,825 | ||||||||
Household Products–3.5% | ||||||||
Kimberly-Clark Corp. | 36,371 | 2,205,174 | ||||||
Procter & Gamble Co. (The) | 11,582 | 694,688 | ||||||
2,899,862 | ||||||||
Industrial Machinery–1.2% | ||||||||
Pentair, Inc. | 32,206 | 1,037,033 | ||||||
Insurance Brokers–1.2% | ||||||||
Marsh & McLennan Cos., Inc. | 45,771 | 1,032,136 | ||||||
Integrated Oil & Gas–5.5% | ||||||||
Chevron Corp. | 26,230 | 1,779,968 | ||||||
Exxon Mobil Corp. | 25,281 | 1,442,787 | ||||||
Marathon Oil Corp. | 43,370 | 1,348,373 | ||||||
4,571,128 | ||||||||
Integrated Telecommunication Services–1.7% | ||||||||
AT&T, Inc. | 58,046 | 1,404,133 | ||||||
Leisure Products–1.9% | ||||||||
Mattel, Inc. | 75,980 | 1,607,737 | ||||||
Life & Health Insurance–1.7% | ||||||||
MetLife, Inc. | 37,292 | 1,408,146 | ||||||
Multi-Utilities–3.2% | ||||||||
DTE Energy Co. | 26,800 | 1,222,348 | ||||||
Public Service Enterprise Group, Inc. | 45,640 | 1,429,901 | ||||||
2,652,249 | ||||||||
Office Services & Supplies–1.1% | ||||||||
Pitney Bowes, Inc. | 41,400 | 909,144 | ||||||
Oil & Gas Equipment & Services–1.1% | ||||||||
Baker Hughes, Inc. | 21,051 | 875,090 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Dividend Growth Fund
Shares | Value | |||||||
Other Diversified Financial Services–1.6% | ||||||||
JPMorgan Chase & Co. | 36,280 | $ | 1,328,211 | |||||
Paper Products–1.7% | ||||||||
International Paper Co. | 63,470 | 1,436,326 | ||||||
Pharmaceuticals–7.8% | ||||||||
Bristol-Myers Squibb Co. | 44,813 | 1,117,636 | ||||||
Johnson & Johnson | 21,993 | 1,298,906 | ||||||
Merck & Co., Inc. | 64,180 | 2,244,375 | ||||||
Pfizer, Inc. | 132,131 | 1,884,188 | ||||||
6,545,105 | ||||||||
Property & Casualty Insurance–3.0% | ||||||||
ACE Ltd. (Switzerland) | 20,860 | 1,073,873 | ||||||
Travelers Cos., Inc. (The) | 29,030 | 1,429,727 | ||||||
2,503,600 | ||||||||
Railroads–2.2% | ||||||||
CSX Corp. | 36,540 | 1,813,480 | ||||||
Regional Banks–1.2% | ||||||||
SunTrust Banks, Inc. | 43,029 | 1,002,576 | ||||||
Semiconductors–2.4% | ||||||||
Intel Corp. | 103,210 | 2,007,435 | ||||||
Soft Drinks–1.2% | ||||||||
Coca-Cola Co. (The) | 20,244 | 1,014,629 | ||||||
Specialty Chemicals–1.8% | ||||||||
Lubrizol Corp. (The) | 18,670 | 1,499,388 | ||||||
Systems Software–3.8% | ||||||||
Microsoft Corp. | 102,073 | 2,348,700 | ||||||
Oracle Corp. | 40,590 | 871,061 | ||||||
3,219,761 | ||||||||
Thrifts & Mortgage Finance–1.1% | ||||||||
Hudson City Bancorp, Inc. | 73,625 | 901,170 | ||||||
Tobacco–4.4% | ||||||||
Altria Group, Inc. | 69,659 | 1,395,966 | ||||||
Philip Morris International, Inc. | 50,179 | 2,300,206 | ||||||
3,696,172 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $79,253,385) | 77,143,959 | |||||||
Money Market Funds–1.6% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 654,015 | 654,015 | ||||||
Premier Portfolio–Institutional Class(d) | 654,015 | 654,015 | ||||||
Total Money Market Funds (Cost $1,308,030) | 1,308,030 | |||||||
TOTAL INVESTMENTS (Cost $80,561,415)–93.7% | 78,451,989 | |||||||
OTHER ASSETS IN EXCESS OF LIABILITIES–6.3% | 5,304,363 | |||||||
NET ASSETS–100.0% | $ | 83,756,352 | ||||||
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) | A portion of this security is subject to call options written. See Note 1L and Note 4. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2010
Information Technology | 15.0 | % | ||
Financials | 13.9 | |||
Consumer Discretionary | 13.4 | |||
Industrials | 12.1 | |||
Consumer Staples | 11.5 | |||
Health Care | 8.8 | |||
Energy | 6.5 | |||
Utilities | 5.7 | |||
Materials | 3.5 | |||
Telecommunication Services | 1.7 | |||
Money Market Funds Plus Other Assets Less Liabilities | 7.9 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.7% | ||||||||
Advertising–0.4% | ||||||||
Interpublic Group of Cos., Inc.(b) | 23,161 | $ | 165,138 | |||||
Omnicom Group, Inc. | 5,083 | 174,347 | ||||||
339,485 | ||||||||
Aerospace & Defense–2.4% | ||||||||
Boeing Co. (The) | 2,834 | 177,833 | ||||||
General Dynamics Corp. | 2,879 | 168,594 | ||||||
Goodrich Corp. | 2,697 | 178,676 | ||||||
Honeywell International, Inc. | 4,489 | 175,206 | ||||||
ITT Corp. | 3,974 | 178,512 | ||||||
L-3 Communications Holdings, Inc. | 2,360 | 167,182 | ||||||
Lockheed Martin Corp. | 2,387 | 177,832 | ||||||
Northrop Grumman Corp. | 3,103 | 168,927 | ||||||
Precision Castparts Corp. | 1,678 | 172,700 | ||||||
Raytheon Co. | 3,617 | 175,027 | ||||||
Rockwell Collins, Inc. | 3,289 | 174,745 | ||||||
United Technologies Corp. | 2,784 | 180,709 | ||||||
2,095,943 | ||||||||
Agricultural Products–0.2% | ||||||||
Archer-Daniels-Midland Co.(c) | 7,086 | 182,961 | ||||||
Air Freight & Logistics–0.8% | ||||||||
C.H. Robinson Worldwide, Inc. | 3,261 | 181,507 | ||||||
Expeditors International of Washington, Inc. | 4,989 | 172,170 | ||||||
FedEx Corp. | 2,447 | 171,559 | ||||||
United Parcel Service, Inc. (Class B) | 3,094 | 176,018 | ||||||
701,254 | ||||||||
Airlines–0.2% | ||||||||
Southwest Airlines Co. | 15,717 | 174,616 | ||||||
Aluminum–0.2% | ||||||||
Alcoa, Inc. | 17,344 | 174,481 | ||||||
Apparel Retail–1.2% | ||||||||
Abercrombie & Fitch Co. (Class A) | 5,453 | 167,353 | ||||||
Gap, Inc. (The) | 9,072 | 176,541 | ||||||
Limited Brands, Inc. | 7,814 | 172,455 | ||||||
Ross Stores, Inc. | 3,361 | 179,108 | ||||||
TJX Cos., Inc. | 4,192 | 175,854 | ||||||
Urban Outfitters, Inc.(b) | 5,274 | 181,373 | ||||||
1,052,684 | ||||||||
Apparel, Accessories & Luxury Goods–0.6% | ||||||||
Coach, Inc. | 4,469 | 163,342 | ||||||
Polo Ralph Lauren Corp. | 2,394 | 174,666 | ||||||
VF Corp. | 2,433 | 173,181 | ||||||
511,189 | ||||||||
Application Software–1.1% | ||||||||
Adobe Systems, Inc.(b) | 5,748 | 151,920 | ||||||
Autodesk, Inc.(b) | 6,618 | 161,214 | ||||||
Citrix Systems, Inc.(b) | 4,180 | 176,521 | ||||||
Compuware Corp.(b) | 22,226 | 177,364 | ||||||
Intuit, Inc.(b) | 5,131 | 178,405 | ||||||
Salesforce.com, Inc.(b) | 2,012 | 172,670 | ||||||
1,018,094 | ||||||||
Asset Management & Custody Banks–2.0% | ||||||||
Ameriprise Financial, Inc. | 4,846 | 175,086 | ||||||
Bank of New York Mellon Corp. (The) | 7,248 | 178,953 | ||||||
Federated Investors, Inc. (Class B) | 8,699 | 180,156 | ||||||
Franklin Resources, Inc. | 2,064 | 177,896 | ||||||
Invesco Ltd. | 10,018 | 168,603 | ||||||
Janus Capital Group, Inc. | 18,855 | 167,432 | ||||||
Legg Mason, Inc. | 6,021 | 168,769 | ||||||
Northern Trust Corp. | 3,831 | 178,908 | ||||||
State Street Corp. | 5,179 | 175,154 | ||||||
T. Rowe Price Group, Inc. | 3,905 | 173,343 | ||||||
1,744,300 | ||||||||
Auto Parts & Equipment–0.2% | ||||||||
Johnson Controls, Inc. | 6,674 | 179,330 | ||||||
Automobile Manufacturers–0.2% | ||||||||
Ford Motor Co.(b) | 16,814 | 169,485 | ||||||
Automotive Retail–0.6% | ||||||||
AutoNation, Inc.(b) | 9,097 | 177,391 | ||||||
AutoZone, Inc.(b) | 986 | 190,515 | ||||||
O’Reilly Automotive, Inc.(b) | 3,859 | 183,534 | ||||||
551,440 | ||||||||
Biotechnology–1.2% | ||||||||
Amgen, Inc.(b) | 3,496 | 183,889 | ||||||
Biogen Idec, Inc.(b) | 3,864 | 183,347 | ||||||
Celgene Corp.(b) | 3,480 | 176,854 | ||||||
Cephalon, Inc.(b) | 3,217 | 182,565 | ||||||
Genzyme Corp.(b) | 3,648 | 185,209 | ||||||
Gilead Sciences, Inc.(b) | 5,353 | 183,501 | ||||||
1,095,365 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Brewers–0.2% | ||||||||
Molson Coors Brewing Co. (Class B) | 4,318 | $ | 182,910 | |||||
Broadcasting–0.4% | ||||||||
CBS Corp. (Class B) | 12,906 | 166,874 | ||||||
Discovery Communications, Inc. (Class A)(b) | 4,908 | 175,265 | ||||||
342,139 | ||||||||
Building Products–0.2% | ||||||||
Masco Corp. | 15,641 | 168,297 | ||||||
Cable & Satellite–0.8% | ||||||||
Comcast Corp. (Class A) | 10,409 | 180,804 | ||||||
DirecTV (Class A)(b) | 5,147 | 174,586 | ||||||
Scripps Networks Interactive, Inc. (Class A) | 4,251 | 171,485 | ||||||
Time Warner Cable, Inc. | 3,492 | 181,864 | ||||||
708,739 | ||||||||
Casinos & Gaming–0.4% | ||||||||
International Game Technology | 10,500 | 164,850 | ||||||
Wynn Resorts Ltd. | 2,265 | 172,752 | ||||||
337,602 | ||||||||
Coal & Consumable Fuels–0.6% | ||||||||
Consol Energy, Inc. | 4,926 | 166,302 | ||||||
Massey Energy Co. | 6,155 | 168,339 | ||||||
Peabody Energy Corp. | 4,670 | 182,737 | ||||||
517,378 | ||||||||
Commercial Printing–0.2% | ||||||||
RR Donnelley & Sons Co. | 10,587 | 173,309 | ||||||
Communications Equipment–1.5% | ||||||||
Cisco Systems, Inc.(b) | 8,203 | 174,806 | ||||||
Corning, Inc. | 10,569 | 170,689 | ||||||
Harris Corp. | 3,973 | 165,475 | ||||||
JDS Uniphase Corp.(b) | 16,583 | 163,177 | ||||||
Juniper Networks, Inc.(b) | 7,556 | 172,428 | ||||||
Motorola, Inc.(b) | 26,542 | 173,054 | ||||||
QUALCOMM, Inc. | 5,398 | 177,270 | ||||||
Tellabs, Inc. | 27,646 | 176,658 | ||||||
1,373,557 | ||||||||
Computer & Electronics Retail–0.6% | ||||||||
Best Buy Co., Inc. | 5,093 | 172,449 | ||||||
GameStop Corp. (Class A)(b) | 10,030 | 188,464 | ||||||
RadioShack Corp. | 8,730 | 170,322 | ||||||
531,235 | ||||||||
Computer Hardware–1.0% | ||||||||
Apple, Inc.(b) | 702 | 176,574 | ||||||
Dell, Inc.(b) | 13,693 | 165,138 | ||||||
Hewlett-Packard Co. | 4,016 | 173,812 | ||||||
International Business Machines Corp. | 1,480 | 182,750 | ||||||
Teradata Corp.(b) | 5,670 | 172,822 | ||||||
871,096 | ||||||||
Computer Storage & Peripherals–1.2% | ||||||||
EMC Corp.(b) | 9,958 | 182,231 | ||||||
Lexmark International, Inc.(b) | 5,036 | 166,339 | ||||||
NetApp, Inc.(b) | 4,674 | 174,387 | ||||||
QLogic Corp.(b) | 10,657 | 177,119 | ||||||
SanDisk Corp.(b) | 3,931 | 165,377 | ||||||
Western Digital Corp.(b) | 5,503 | 165,971 | ||||||
1,031,424 | ||||||||
Construction & Engineering–0.6% | ||||||||
Fluor Corp. | 4,146 | 176,205 | ||||||
Jacobs Engineering Group, Inc.(b) | 4,621 | 168,389 | ||||||
Quanta Services, Inc.(b) | 8,433 | 174,142 | ||||||
518,736 | ||||||||
Construction & Farm Machinery & Heavy Trucks–0.8% | ||||||||
Caterpillar, Inc. | 2,925 | 175,705 | ||||||
Cummins, Inc. | 2,592 | 168,817 | ||||||
Deere & Co. | 3,250 | 180,960 | ||||||
PACCAR, Inc. | 4,414 | 175,986 | ||||||
701,468 | ||||||||
Construction Materials–0.2% | ||||||||
Vulcan Materials Co. | 4,054 | 177,687 | ||||||
Consumer Electronics–0.2% | ||||||||
Harman International Industries, Inc.(b) | 5,634 | 168,400 | ||||||
Consumer Finance–0.8% | ||||||||
American Express Co. | 4,584 | 181,985 | ||||||
Capital One Financial Corp. | 4,519 | 182,116 | ||||||
Discover Financial Services | 13,763 | 192,407 | ||||||
SLM Corp.(b) | 16,165 | 167,954 | ||||||
724,462 | ||||||||
Data Processing & Outsourced Services–1.8% | ||||||||
Automatic Data Processing, Inc. | 4,548 | 183,103 | ||||||
Computer Sciences Corp. | 3,813 | 172,538 | ||||||
Fidelity National Information Services, Inc. | 7,011 | 188,035 | ||||||
Fiserv, Inc.(b) | 3,942 | 179,992 | ||||||
Mastercard, Inc. (Class A) | 899 | 179,377 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Data Processing & Outsourced Services–(continued) | ||||||||
Paychex, Inc. | 6,801 | $ | 176,622 | |||||
Total System Services, Inc. | 12,976 | 176,474 | ||||||
Visa, Inc. (Class A) | 2,500 | 176,875 | ||||||
Western Union Co. (The) | 11,895 | 177,354 | ||||||
1,610,370 | ||||||||
Department Stores–0.9% | ||||||||
JC Penney Co., Inc. | 7,365 | 158,200 | ||||||
Kohl’s Corp.(b) | 3,655 | 173,613 | ||||||
Macy’s, Inc. | 8,979 | 160,724 | ||||||
Nordstrom, Inc. | 4,984 | 160,435 | ||||||
Sears Holdings Corp.(b) | 2,539 | 164,146 | ||||||
817,118 | ||||||||
Distillers & Vintners–0.4% | ||||||||
Brown-Forman Corp. (Class B) | 3,239 | 185,368 | ||||||
Constellation Brands, Inc.(b) | 11,822 | 184,660 | ||||||
370,028 | ||||||||
Distributors–0.2% | ||||||||
Genuine Parts Co. | 4,623 | 182,377 | ||||||
Diversified REIT’s–0.2% | ||||||||
Vornado Realty Trust | 2,426 | 176,977 | ||||||
Diversified Banks–0.6% | ||||||||
Comerica, Inc. | 4,891 | 180,136 | ||||||
US Bancorp | 8,175 | 182,711 | ||||||
Wells Fargo & Co. | 6,864 | 175,718 | ||||||
538,565 | ||||||||
Diversified Chemicals–1.0% | ||||||||
Dow Chemical Co. (The) | 7,136 | 169,266 | ||||||
Eastman Chemical Co. | 3,074 | 164,029 | ||||||
EI Du Pont de Nemours & Co. | 5,023 | 173,746 | ||||||
FMC Corp. | 3,085 | 177,171 | ||||||
PPG Industries, Inc. | 2,888 | 174,464 | ||||||
858,676 | ||||||||
Diversified Metals & Mining–0.4% | ||||||||
Freeport-McMoRan Copper & Gold, Inc. | 2,923 | 172,837 | ||||||
Titanium Metals Corp.(b) | 9,634 | 169,462 | ||||||
342,299 | ||||||||
Diversified Support Services–0.4% | ||||||||
Cintas Corp. | 7,383 | 176,971 | ||||||
Iron Mountain, Inc. | 7,916 | 177,793 | ||||||
354,764 | ||||||||
Drug Retail–0.4% | ||||||||
CVS Caremark Corp. | 5,941 | 174,190 | ||||||
Walgreen Co. | 6,403 | 170,960 | ||||||
345,150 | ||||||||
Education Services–0.4% | ||||||||
Apollo Group, Inc. (Class A)(b) | 3,982 | 169,116 | ||||||
DeVry, Inc. | 3,366 | 176,681 | ||||||
345,797 | ||||||||
Electric Utilities–2.9% | ||||||||
Allegheny Energy, Inc. | 8,647 | 178,820 | ||||||
American Electric Power Co., Inc. | 5,657 | 182,721 | ||||||
Duke Energy Corp. | 11,580 | 185,280 | ||||||
Edison International | 5,609 | 177,917 | ||||||
Entergy Corp. | 2,466 | 176,615 | ||||||
Exelon Corp. | 4,672 | 177,396 | ||||||
FirstEnergy Corp. | 5,008 | 176,432 | ||||||
NextEra Energy, Inc. | 3,668 | 178,852 | ||||||
Northeast Utilities | 7,170 | 182,692 | ||||||
Pepco Holdings, Inc. | 11,511 | 180,493 | ||||||
Pinnacle West Capital Corp. | 5,120 | 186,163 | ||||||
PPL Corp. | 7,394 | 184,480 | ||||||
Progress Energy, Inc. | 4,776 | 187,315 | ||||||
Southern Co. | 5,648 | 187,965 | ||||||
2,543,141 | ||||||||
Electrical Components & Equipment–0.6% | ||||||||
Emerson Electric Co. | 4,059 | 177,338 | ||||||
First Solar, Inc.(b) | 1,557 | 177,233 | ||||||
Rockwell Automation, Inc. | 3,578 | 175,644 | ||||||
530,215 | ||||||||
Electronic Components–0.2% | ||||||||
Amphenol Corp. (Class A) | 4,519 | 177,506 | ||||||
Electronic Equipment & Instruments–0.4% | ||||||||
Agilent Technologies, Inc.(b) | 5,908 | 167,965 | ||||||
FLIR Systems, Inc.(b) | 6,680 | 194,321 | ||||||
362,286 | ||||||||
Electronic Manufacturing Services–0.4% | ||||||||
Jabil Circuit, Inc. | 13,803 | 183,580 | ||||||
Molex, Inc. | 9,286 | 169,377 | ||||||
352,957 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Environmental & Facilities Services–0.6% | ||||||||
Republic Services, Inc. | 6,113 | $ | 181,740 | |||||
Stericycle, Inc.(b) | 2,943 | 193,002 | ||||||
Waste Management, Inc. | 5,746 | 179,792 | ||||||
554,534 | ||||||||
Fertilizers & Agricultural Chemicals–0.4% | ||||||||
CF Industries Holdings, Inc. | 2,998 | 190,223 | ||||||
Monsanto Co. | 3,824 | 176,745 | ||||||
366,968 | ||||||||
Food Distributors–0.2% | ||||||||
Sysco Corp. | 6,193 | 176,934 | ||||||
Food Retail–0.8% | ||||||||
Kroger Co. (The) | 9,605 | 189,122 | ||||||
Safeway, Inc. | 9,250 | 181,855 | ||||||
SUPERVALU, Inc. | 14,984 | 162,427 | ||||||
Whole Foods Market, Inc.(b) | 4,774 | 171,960 | ||||||
705,364 | ||||||||
Footwear–0.2% | ||||||||
NIKE, Inc. (Class B) | 2,570 | 173,604 | ||||||
Forest Products–0.2% | ||||||||
Weyerhaeuser Co. | 4,909 | 172,797 | ||||||
Gas Utilities–0.6% | ||||||||
EQT Corp. | 4,703 | 169,966 | ||||||
Nicor, Inc. | 4,487 | 181,724 | ||||||
Questar Corp. | 3,886 | 176,820 | ||||||
528,510 | ||||||||
General Merchandise Stores–0.6% | ||||||||
Big Lots, Inc.(b) | 5,556 | 178,292 | ||||||
Family Dollar Stores, Inc. | 4,890 | 184,304 | ||||||
Target Corp. | 3,589 | 176,471 | ||||||
539,067 | ||||||||
Gold–0.2% | ||||||||
Newmont Mining Corp. | 3,145 | 194,172 | ||||||
Health Care Services–1.2% | ||||||||
Cerner Corp(b) | 2,389 | 181,301 | ||||||
DaVita, Inc.(b) | 2,891 | 180,514 | ||||||
Express Scripts, Inc.(b) | 3,704 | 174,162 | ||||||
Laboratory Corp. of America Holdings(b) | 2,400 | 180,840 | ||||||
Medco Health Solutions, Inc.(b) | 3,208 | 176,697 | ||||||
Quest Diagnostics, Inc. | 3,628 | 180,566 | ||||||
1,074,080 | ||||||||
Health Care Distributors–0.8% | ||||||||
AmerisourceBergen Corp. | 5,917 | 187,865 | ||||||
Cardinal Health, Inc. | 5,376 | 180,687 | ||||||
McKesson Corp. | 2,748 | 184,556 | ||||||
Patterson Cos., Inc. | 6,266 | 178,769 | ||||||
731,877 | ||||||||
Health Care Equipment–2.5% | ||||||||
Baxter International, Inc. | 4,586 | 186,375 | ||||||
Becton Dickinson and Co. | 2,701 | 182,642 | ||||||
Boston Scientific Corp.(b) | 30,442 | 176,564 | ||||||
C.R. Bard, Inc. | 2,399 | 185,994 | ||||||
CareFusion Corp.(b) | 7,807 | 177,219 | ||||||
Hospira, Inc.(b) | 3,416 | 196,249 | ||||||
Intuitive Surgical, Inc.(b) | 550 | 173,591 | ||||||
Medtronic, Inc. | 4,957 | 179,790 | ||||||
St Jude Medical, Inc.(b) | 5,153 | 185,972 | ||||||
Stryker Corp. | 3,720 | 186,223 | ||||||
Varian Medical Systems, Inc.(b) | 3,621 | 189,306 | ||||||
Zimmer Holdings, Inc.(b) | 3,499 | 189,121 | ||||||
2,209,046 | ||||||||
Health Care Facilities–0.2% | ||||||||
Tenet Healthcare Corp.(b) | 39,326 | 170,675 | ||||||
Health Care Supplies–0.2% | ||||||||
DENTSPLY International, Inc. | 6,074 | 181,673 | ||||||
Home Entertainment Software–0.2% | ||||||||
Electronic Arts, Inc.(b) | 12,021 | 173,102 | ||||||
Home Furnishings–0.2% | ||||||||
Leggett & Platt, Inc. | 8,560 | 171,714 | ||||||
Home Improvement Retail–0.6% | ||||||||
Home Depot, Inc. | 6,032 | 169,318 | ||||||
Lowe’s Cos., Inc. | 8,518 | 173,938 | ||||||
Sherwin-Williams Co. (The) | 2,528 | 174,912 | ||||||
518,168 | ||||||||
Homebuilding–0.6% | ||||||||
DR Horton, Inc. | 17,924 | 176,193 | ||||||
Lennar Corp. (Class A) | 13,072 | 181,832 | ||||||
Pulte Group, Inc.(b) | 20,587 | 170,460 | ||||||
528,485 | ||||||||
Homefurnishing Retail–0.2% | ||||||||
Bed Bath & Beyond, Inc.(b) | 4,530 | 167,972 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Hotels, Resorts & Cruise Lines–0.7% | ||||||||
Carnival Corp. (Units) | 5,417 | $ | 163,810 | |||||
Marriott International, Inc. (Class A) | 5,458 | 163,412 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 3,990 | 165,306 | ||||||
Wyndham Worldwide Corp. | 7,962 | 160,355 | ||||||
652,883 | ||||||||
Household Appliances–0.6% | ||||||||
Snap-On, Inc. | 4,402 | 180,086 | ||||||
Stanley Black & Decker, Inc. | 3,440 | 173,789 | ||||||
Whirlpool Corp. | 1,906 | 167,385 | ||||||
521,260 | ||||||||
Household Products–0.8% | ||||||||
Clorox Co. | 2,960 | 183,994 | ||||||
Colgate-Palmolive Co. | 2,390 | 188,236 | ||||||
Kimberly-Clark Corp. | 3,068 | 186,013 | ||||||
Procter & Gamble Co. (The) | 3,142 | 188,457 | ||||||
746,700 | ||||||||
Housewares & Specialties–0.4% | ||||||||
Fortune Brands, Inc. | 4,267 | 167,181 | ||||||
Newell Rubbermaid, Inc. | 11,342 | 166,047 | ||||||
333,228 | ||||||||
Human Resource & Employment Services–0.4% | ||||||||
Monster Worldwide, Inc.(b) | 14,564 | 169,671 | ||||||
Robert Half International, Inc. | 7,795 | 183,572 | ||||||
353,243 | ||||||||
Hypermarkets & Super Centers–0.4% | ||||||||
Costco Wholesale Corp. | 3,304 | 181,158 | ||||||
Wal-Mart Stores, Inc. | 3,738 | 179,686 | ||||||
360,844 | ||||||||
Independent Power Producers & Energy Traders–0.6% | ||||||||
AES Corp. (The)(b) | 18,334 | 169,406 | ||||||
Constellation Energy Group, Inc. | 5,258 | 169,570 | ||||||
NRG Energy, Inc.(b) | 8,151 | 172,883 | ||||||
511,859 | ||||||||
Industrial Conglomerates–0.6% | ||||||||
3M Co. | 2,373 | 187,443 | ||||||
General Electric Co.(c) | 12,081 | 174,208 | ||||||
Textron, Inc. | 9,620 | 163,252 | ||||||
524,903 | ||||||||
Industrial Gases–0.4% | ||||||||
Air Products & Chemicals, Inc. | 2,692 | 174,469 | ||||||
Praxair, Inc. | 2,373 | 180,324 | ||||||
354,793 | ||||||||
Industrial Machinery–1.6% | ||||||||
Danaher Corp. | 4,733 | 175,689 | ||||||
Dover Corp. | 4,223 | 176,479 | ||||||
Eaton Corp. | 2,601 | 170,209 | ||||||
Flowserve Corp. | 2,036 | 172,653 | ||||||
Illinois Tool Works, Inc. | 4,257 | 175,729 | ||||||
Pall Corp. | 5,172 | 177,762 | ||||||
Parker Hannifin Corp. | 3,165 | 175,531 | ||||||
Roper Industries, Inc. | 3,178 | 177,841 | ||||||
1,401,893 | ||||||||
Industrial REIT’s–0.2% | ||||||||
ProLogis | 16,698 | 169,151 | ||||||
Insurance Brokers–0.4% | ||||||||
AON Corp. | 4,858 | 180,329 | ||||||
Marsh & McLennan Cos., Inc. | 8,327 | 187,774 | ||||||
368,103 | ||||||||
Integrated Oil & Gas–1.4% | ||||||||
Chevron Corp. | 2,538 | 172,229 | ||||||
ConocoPhillips | 3,439 | 168,820 | ||||||
Exxon Mobil Corp. | 3,053 | 174,235 | ||||||
Hess Corp. | 3,429 | 172,616 | ||||||
Marathon Oil Corp. | 5,702 | 177,275 | ||||||
Murphy Oil Corp. | 3,449 | 170,898 | ||||||
Occidental Petroleum Corp. | 2,214 | 170,810 | ||||||
1,206,883 | ||||||||
Integrated Telecommunication Services–1.2% | ||||||||
AT&T, Inc. | 7,577 | 183,288 | ||||||
CenturyTel, Inc. | 5,510 | 183,538 | ||||||
Frontier Communications Corp. | 24,610 | 174,977 | ||||||
Qwest Communications International, Inc. | 35,685 | 187,346 | ||||||
Verizon Communications, Inc. | 6,614 | 185,324 | ||||||
Windstream Corp. | 17,007 | 179,594 | ||||||
1,094,067 | ||||||||
Internet Retail–0.6% | ||||||||
Amazon.com, Inc.(b) | 1,531 | 167,277 | ||||||
Expedia, Inc. | 9,188 | 172,551 | ||||||
Priceline.com, Inc.(b) | 993 | 175,304 | ||||||
515,132 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Internet Software & Services–1.0% | ||||||||
Akamai Technologies, Inc.(b) | 4,214 | $ | 170,962 | |||||
eBay, Inc.(b) | 8,695 | 170,509 | ||||||
Google, Inc. (Class A)(b) | 384 | 170,861 | ||||||
VeriSign, Inc.(b) | 6,555 | 174,035 | ||||||
Yahoo!, Inc.(b) | 12,439 | 172,031 | ||||||
858,398 | ||||||||
Investment Banking & Brokerage–0.8% | ||||||||
Charles Schwab Corp. (The) | 12,472 | 176,853 | ||||||
E*Trade Financial Corp.(b) | 13,932 | 164,676 | ||||||
Goldman Sachs Group, Inc. (The) | 1,394 | 182,990 | ||||||
Morgan Stanley | 7,498 | 174,029 | ||||||
698,548 | ||||||||
IT Consulting & Other Services–0.4% | ||||||||
Cognizant Technology Solutions Corp. (Class A)(b) | 3,596 | 180,016 | ||||||
SAIC, Inc.(b) | 10,710 | 179,285 | ||||||
359,301 | ||||||||
Leisure Products–0.4% | ||||||||
Hasbro, Inc. | 4,493 | 184,663 | ||||||
Mattel, Inc. | 8,564 | 181,214 | ||||||
365,877 | ||||||||
Life & Health Insurance–1.4% | ||||||||
Aflac, Inc. | 4,339 | 185,145 | ||||||
Lincoln National Corp. | 6,928 | 168,281 | ||||||
MetLife, Inc. | 4,700 | 177,472 | ||||||
Principal Financial Group, Inc. | 7,312 | 171,393 | ||||||
Prudential Financial, Inc. | 3,262 | 175,039 | ||||||
Torchmark Corp. | 3,644 | 180,415 | ||||||
Unum Group | 8,172 | 177,332 | ||||||
1,235,077 | ||||||||
Life Sciences Tools & Services–1.0% | ||||||||
Life Technologies Corp.(b) | 3,735 | 176,479 | ||||||
Millipore Corp.(b) | 1,800 | 191,970 | ||||||
PerkinElmer, Inc. | 8,481 | 175,302 | ||||||
Thermo Fisher Scientific, Inc.(b) | 3,590 | 176,090 | ||||||
Waters Corp.(b) | 2,686 | 173,784 | ||||||
893,625 | ||||||||
Managed Health Care–1.2% | ||||||||
Aetna, Inc. | 6,331 | 167,012 | ||||||
CIGNA Corp. | 5,472 | 169,960 | ||||||
Coventry Health Care, Inc.(b) | 9,459 | 167,235 | ||||||
Humana, Inc.(b) | 3,912 | 178,661 | ||||||
UnitedHealth Group, Inc. | 6,150 | 174,660 | ||||||
WellPoint, Inc.(b) | 3,488 | 170,668 | ||||||
1,028,196 | ||||||||
Metal & Glass Containers–0.6% | ||||||||
Ball Corp. | 3,493 | 184,535 | ||||||
Owens-Illinois, Inc.(b) | 6,375 | 168,619 | ||||||
Pactiv Corp.(b) | 6,518 | 181,526 | ||||||
534,680 | ||||||||
Motorcycle Manufacturers–0.2% | ||||||||
Harley-Davidson, Inc. | 7,186 | 159,745 | ||||||
Movies & Entertainment–0.8% | ||||||||
News Corp. (Class A) | 13,787 | 164,893 | ||||||
Time Warner, Inc. | 5,845 | 168,979 | ||||||
Viacom, Inc. (Class B) | 5,411 | 169,743 | ||||||
Walt Disney Co. (The) | 5,481 | 172,651 | ||||||
676,266 | ||||||||
Multi-line Insurance–1.0% | ||||||||
American International Group, Inc.(b) | 5,082 | 175,024 | ||||||
Assurant, Inc. | 5,200 | 180,440 | ||||||
Genworth Financial, Inc. (Class A)(b) | 12,611 | 164,826 | ||||||
Hartford Financial Services Group, Inc. | 7,671 | 169,759 | ||||||
Loews Corp. | 5,683 | 189,301 | ||||||
879,350 | ||||||||
Multi-Sector Holdings–0.2% | ||||||||
Leucadia National Corp.(b) | 8,916 | 173,951 | ||||||
Multi-Utilities–3.3% | ||||||||
Ameren Corp. | 7,545 | 179,345 | ||||||
Centerpoint Energy, Inc. | 13,753 | 180,990 | ||||||
CMS Energy Corp. | 12,400 | 181,660 | ||||||
Consolidated Edison, Inc. | 4,292 | 184,985 | ||||||
Dominion Resources, Inc. | 4,587 | 177,700 | ||||||
DTE Energy Co. | 3,985 | 181,756 | ||||||
Integrys Energy Group, Inc. | 4,106 | 179,597 | ||||||
NiSource, Inc. | 12,400 | 179,800 | ||||||
Oneok, Inc. | 4,099 | 177,282 | ||||||
PG&E Corp. | 4,462 | 183,388 | ||||||
Public Service Enterprise Group, Inc. | 5,731 | 179,552 | ||||||
SCANA Corp. | 5,123 | 183,199 | ||||||
Sempra Energy | 3,846 | 179,954 | ||||||
TECO Energy, Inc. | 11,902 | 179,363 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Multi-Utilities–(continued) | ||||||||
Wisconsin Energy Corp. | 3,710 | $ | 188,245 | |||||
Xcel Energy, Inc. | 8,933 | 184,109 | ||||||
2,900,925 | ||||||||
Office Electronics–0.2% | ||||||||
Xerox Corp. | 20,434 | 164,289 | ||||||
Office REIT’s–0.2% | ||||||||
Boston Properties, Inc. | 2,405 | 171,573 | ||||||
Office Services & Supplies–0.4% | ||||||||
Avery Dennison Corp. | 5,475 | 175,912 | ||||||
Pitney Bowes, Inc. | 8,301 | 182,290 | ||||||
358,202 | ||||||||
Oil & Gas Drilling–0.8% | ||||||||
Diamond Offshore Drilling, Inc. | 3,016 | 187,565 | ||||||
Helmerich & Payne, Inc. | 4,532 | 165,509 | ||||||
Nabors Industries Ltd. (Bermuda) | 8,958 | 157,840 | ||||||
Rowan Cos., Inc.(b) | 7,628 | 167,358 | ||||||
678,272 | ||||||||
Oil & Gas Equipment & Services–1.4% | ||||||||
Baker Hughes, Inc. | 4,313 | 179,291 | ||||||
Cameron International Corp.(b) | 5,074 | 165,007 | ||||||
FMC Technologies, Inc.(b) | 3,493 | 183,941 | ||||||
Halliburton Co. | 7,141 | 175,312 | ||||||
National Oilwell Varco, Inc. | 5,057 | 167,235 | ||||||
Schlumberger Ltd. (Netherlands Antilles) | 3,182 | 176,092 | ||||||
Smith International, Inc. | 4,679 | 176,164 | ||||||
1,223,042 | ||||||||
Oil & Gas Exploration & Production–2.1% | ||||||||
Anadarko Petroleum Corp. | 4,526 | 163,343 | ||||||
Apache Corp. | 1,974 | 166,191 | ||||||
Cabot Oil & Gas Corp. | 5,260 | 164,743 | ||||||
Chesapeake Energy Corp. | 7,830 | 164,039 | ||||||
Denbury Resources, Inc.(b) | 11,023 | 161,377 | ||||||
Devon Energy Corp. | 2,755 | 167,835 | ||||||
EOG Resources, Inc. | 1,747 | 171,852 | ||||||
Noble Energy, Inc. | 2,919 | 176,103 | ||||||
Pioneer Natural Resources Co. | 2,688 | 159,802 | ||||||
QEP Resources | 1,904 | 58,700 | ||||||
Range Resources Corp. | 3,941 | 158,231 | ||||||
Southwestern Energy Co.(b) | 4,371 | 168,896 | ||||||
1,881,112 | ||||||||
Oil & Gas Refining & Marketing–0.6% | ||||||||
Sunoco, Inc. | 5,503 | 191,339 | ||||||
Tesoro Corp. | 15,666 | 182,822 | ||||||
Valero Energy Corp. | 10,710 | 192,566 | ||||||
566,727 | ||||||||
Oil & Gas Storage & Transportation–0.6% | ||||||||
El Paso Corp. | 15,197 | 168,839 | ||||||
Spectra Energy Corp. | 8,883 | 178,282 | ||||||
Williams Cos., Inc. (The) | 8,995 | 164,428 | ||||||
511,549 | ||||||||
Other Diversified Financial Services–0.6% | ||||||||
Bank of America Corp. | 12,209 | 175,443 | ||||||
Citigroup, Inc.(b) | 48,055 | 180,687 | ||||||
JPMorgan Chase & Co. | 4,918 | 180,048 | ||||||
536,178 | ||||||||
Packaged Foods & Meats–2.9% | ||||||||
Campbell Soup Co. | 5,186 | 185,814 | ||||||
ConAgra Foods, Inc. | 7,717 | 179,960 | ||||||
Dean Foods Co.(b) | 17,842 | 179,669 | ||||||
General Mills, Inc. | 4,999 | 177,565 | ||||||
Hershey Co. (The) | 3,837 | 183,907 | ||||||
HJ Heinz Co. | 4,166 | 180,055 | ||||||
Hormel Foods Corp. | 4,556 | 184,427 | ||||||
JM Smucker Co. (The) | 3,102 | 186,802 | ||||||
Kellogg Co. | 3,536 | 177,861 | ||||||
Kraft Foods, Inc. (Class A) | 6,400 | 179,200 | ||||||
McCormick & Co., Inc. | 4,753 | 180,424 | ||||||
Mead Johnson Nutrition Co. | 3,542 | 177,525 | ||||||
Sara Lee Corp. | 13,037 | 183,822 | ||||||
Tyson Foods, Inc. (Class A) | 10,517 | 172,374 | ||||||
2,529,405 | ||||||||
Paper Packaging–0.4% | ||||||||
Bemis Co., Inc. | 6,564 | 177,228 | ||||||
Sealed Air Corp. | 8,954 | 176,573 | ||||||
353,801 | ||||||||
Paper Products–0.4% | ||||||||
International Paper Co. | 7,489 | 169,476 | ||||||
MeadWestvaco Corp. | 7,916 | 175,735 | ||||||
345,211 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Personal Products–0.4% | ||||||||
Avon Products, Inc. | 6,704 | $ | 177,656 | |||||
Estee Lauder Cos., Inc. (The) (Class A) | 3,214 | 179,116 | ||||||
356,772 | ||||||||
Pharmaceuticals–2.3% | ||||||||
Abbott Laboratories | 3,951 | 184,828 | ||||||
Allergan, Inc. | 3,160 | 184,102 | ||||||
Bristol-Myers Squibb Co. | 7,474 | 186,402 | ||||||
Eli Lilly & Co. | 5,567 | 186,494 | ||||||
Forest Laboratories, Inc.(b) | 7,057 | 193,574 | ||||||
Johnson & Johnson | 3,255 | 192,240 | ||||||
King Pharmaceuticals, Inc.(b) | 23,673 | 179,678 | ||||||
Merck & Co., Inc. | 5,390 | 188,488 | ||||||
Mylan, Inc.(b) | 10,342 | 176,228 | ||||||
Pfizer, Inc. | 12,669 | 180,660 | ||||||
Watson Pharmaceuticals, Inc.(b) | 4,378 | 177,615 | ||||||
2,030,309 | ||||||||
Photographic Products–0.2% | ||||||||
Eastman Kodak Co.(b) | 36,018 | 156,318 | ||||||
Property & Casualty Insurance–1.4% | ||||||||
Allstate Corp. (The) | 6,309 | 181,257 | ||||||
Berkshire Hathaway, Inc. (Class B)(b) | 2,410 | 192,053 | ||||||
Chubb Corp. | 3,636 | 181,836 | ||||||
Cincinnati Financial Corp. | 6,810 | 176,175 | ||||||
Progressive Corp. (The) | 9,562 | 179,001 | ||||||
Travelers Cos., Inc. (The) | 3,752 | 184,786 | ||||||
XL Capital Ltd. (Class A) (Cayman Islands) | 10,710 | 171,467 | ||||||
1,266,575 | ||||||||
Publishing–1.0% | ||||||||
Gannett Co., Inc. | 11,573 | 155,773 | ||||||
McGraw-Hill Cos., Inc. (The) | 6,401 | 180,124 | ||||||
Meredith Corp. | 5,450 | 169,658 | ||||||
New York Times Co. (The) (Class A)(b) | 19,703 | 170,431 | ||||||
Washington Post Co. (The) (Class B) | 420 | 172,402 | ||||||
848,388 | ||||||||
Railroads–0.6% | ||||||||
CSX Corp. | 3,505 | 173,953 | ||||||
Norfolk Southern Corp. | 3,260 | 172,943 | ||||||
Union Pacific Corp. | 2,522 | 175,304 | ||||||
522,200 | ||||||||
Real Estate Services–0.2% | ||||||||
CB Richard Ellis Group, Inc. (Class A)(b) | 12,384 | 168,546 | ||||||
Regional Banks–2.2% | ||||||||
BB&T Corp. | 6,542 | 172,120 | ||||||
Fifth Third Bancorp | 14,189 | 174,383 | ||||||
First Horizon National Corp.(b) | 16,072 | 184,024 | ||||||
Huntington Bancshares, Inc. | 31,851 | 176,455 | ||||||
KeyCorp | 23,022 | 177,039 | ||||||
M&T Bank Corp. | 2,123 | 180,349 | ||||||
Marshall & Ilsley Corp. | 24,491 | 175,845 | ||||||
PNC Financial Services Group, Inc. | 3,068 | 173,342 | ||||||
Regions Financial Corp. | 26,951 | 177,338 | ||||||
SunTrust Banks, Inc. | 7,354 | 171,348 | ||||||
Zions BanCorp. | 8,035 | 173,315 | ||||||
1,935,558 | ||||||||
Research & Consulting Services–0.4% | ||||||||
Dun & Bradstreet Corp. | 2,630 | 176,526 | ||||||
Equifax, Inc. | 6,357 | 178,377 | ||||||
354,903 | ||||||||
Residential REIT’s–0.6% | ||||||||
Apartment Investment & Management Co. | 8,660 | 167,744 | ||||||
AvalonBay Communities, Inc. | 1,860 | 173,668 | ||||||
Equity Residential | 4,211 | 175,346 | ||||||
516,758 | ||||||||
Restaurants–0.8% | ||||||||
Darden Restaurants, Inc. | 4,332 | 168,298 | ||||||
McDonald’s Corp. | 2,756 | 181,538 | ||||||
Starbucks Corp. | 6,852 | 166,504 | ||||||
Yum! Brands, Inc. | 4,535 | 177,046 | ||||||
693,386 | ||||||||
Retail REIT’s–0.4% | ||||||||
Kimco Realty Corp. | 12,702 | 170,715 | ||||||
Simon Property Group, Inc. | 2,154 | 173,935 | ||||||
344,650 | ||||||||
Semiconductor Equipment–0.9% | ||||||||
Applied Materials, Inc. | 14,444 | 173,617 | ||||||
KLA-Tencor Corp. | 6,255 | 174,389 | ||||||
MEMC Electronic Materials, Inc.(b) | 16,385 | 161,884 | ||||||
Novellus Systems, Inc.(b) | 6,774 | 171,789 | ||||||
Teradyne, Inc.(b) | 16,330 | 159,217 | ||||||
840,896 | ||||||||
Semiconductors–2.5% | ||||||||
Advanced Micro Devices, Inc.(b) | 21,822 | 159,737 | ||||||
Altera Corp. | 7,423 | 184,165 | ||||||
Analog Devices, Inc. | 6,313 | 175,880 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Semiconductors–(continued) | ||||||||
Broadcom Corp. (Class A) | 5,441 | $ | 179,390 | |||||
Intel Corp. | 9,000 | 175,050 | ||||||
Linear Technology Corp. | 6,529 | 181,572 | ||||||
LSI Corp.(b) | 36,565 | 168,199 | ||||||
Microchip Technology, Inc. | 6,487 | 179,949 | ||||||
Micron Technology, Inc.(b) | 19,270 | 163,602 | ||||||
National Semiconductor Corp. | 13,081 | 176,070 | ||||||
Nvidia Corp.(b) | 15,666 | 159,950 | ||||||
Texas Instruments, Inc. | 7,571 | 176,253 | ||||||
Xilinx, Inc. | 7,189 | 181,594 | ||||||
2,261,411 | ||||||||
Soft Drinks–0.8% | ||||||||
Coca-Cola Co. (The) | 3,682 | 184,542 | ||||||
Coca-Cola Enterprises, Inc. | 7,125 | 184,252 | ||||||
Dr Pepper Snapple Group, Inc. | 5,076 | 189,792 | ||||||
PepsiCo, Inc. | 3,006 | 183,216 | ||||||
741,802 | ||||||||
Specialized Consumer Services–0.2% | ||||||||
H&R Block, Inc. | 12,196 | 191,355 | ||||||
Specialized Finance–1.0% | ||||||||
CME Group, Inc. | 627 | 176,532 | ||||||
IntercontinentalExchange, Inc.(b) | 1,576 | 178,135 | ||||||
Moody’s Corp. | 9,132 | 181,909 | ||||||
NASDAQ OMX Group, Inc. (The)(b) | 10,051 | 178,707 | ||||||
NYSE Euronext | 6,457 | 178,407 | ||||||
893,690 | ||||||||
Specialized REIT’s–1.2% | ||||||||
HCP, Inc. | 5,888 | 189,888 | ||||||
Health Care REIT, Inc. | 4,446 | 187,265 | ||||||
Host Hotels & Resorts, Inc. | 12,424 | 167,476 | ||||||
Plum Creek Timber Co., Inc. | 5,165 | 178,347 | ||||||
Public Storage | 2,053 | 180,479 | ||||||
Ventas, Inc. | 3,889 | 182,589 | ||||||
1,086,044 | ||||||||
Specialty Chemicals–0.8% | ||||||||
Airgas, Inc. | 3,021 | 187,906 | ||||||
Ecolab, Inc. | 4,099 | 184,086 | ||||||
International Flavors & Fragrances, Inc. | 4,146 | 175,874 | ||||||
Sigma-Aldrich Corp. | 3,617 | 180,235 | ||||||
728,101 | ||||||||
Specialty Stores–0.7% | ||||||||
CarMax, Inc.(b) | 8,438 | 167,916 | ||||||
Office Depot, Inc.(b) | 37,201 | 150,292 | ||||||
Staples, Inc. | 8,766 | 166,992 | ||||||
Tiffany & Co. | 4,336 | 164,378 | ||||||
649,578 | ||||||||
Steel–0.9% | ||||||||
AK Steel Holding Corp. | 13,862 | 165,235 | ||||||
Allegheny Technologies, Inc. | 3,700 | 163,503 | ||||||
Cliffs Natural Resources, Inc. | 3,426 | 161,570 | ||||||
Nucor Corp. | 4,644 | 177,772 | ||||||
United States Steel Corp. | 4,438 | 171,085 | ||||||
839,165 | ||||||||
Systems Software–1.6% | ||||||||
BMC Software, Inc.(b) | 5,102 | 176,682 | ||||||
CA, Inc. | 9,581 | 176,290 | ||||||
McAfee, Inc.(b) | 5,853 | 179,804 | ||||||
Microsoft Corp.(c) | 7,287 | 167,674 | ||||||
Novell, Inc.(b) | 31,486 | 178,841 | ||||||
Oracle Corp. | 8,305 | 178,225 | ||||||
Red Hat, Inc.(b) | 6,036 | 174,682 | ||||||
Symantec Corp.(b) | 12,710 | 176,415 | ||||||
1,408,613 | ||||||||
Thrifts & Mortgage Finance–0.4% | ||||||||
Hudson City Bancorp, Inc. | 14,401 | 176,268 | ||||||
People’s United Financial, Inc. | 13,252 | 178,902 | ||||||
355,170 | ||||||||
Tires & Rubber–0.2% | ||||||||
Goodyear Tire & Rubber Co. (The)(b) | 16,071 | 159,746 | ||||||
Tobacco–0.9% | ||||||||
Altria Group, Inc. | 9,624 | 192,865 | ||||||
Lorillard, Inc. | 2,569 | 184,917 | ||||||
Philip Morris International, Inc. | 4,197 | 192,390 | ||||||
Reynolds American, Inc. | 3,651 | 190,290 | ||||||
760,462 | ||||||||
Trading Companies & Distributors–0.4% | ||||||||
Fastenal Co. | 3,523 | 176,819 | ||||||
WW Grainger, Inc. | 1,779 | 176,922 | ||||||
353,741 | ||||||||
Trucking–0.2% | ||||||||
Ryder System, Inc. | 4,331 | 174,236 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Wireless Telecommunication Services–0.6% | ||||||||
American Tower Corp. (Class A)(b) | 4,275 | $ | 190,237 | |||||
MetroPCS Communications, Inc.(b) | 21,152 | 173,235 | ||||||
Sprint Nextel Corp.(b) | 41,982 | 178,004 | ||||||
541,476 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $57,073,704) | 88,144,125 | |||||||
Money Market Funds–0.4% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 184,825 | 184,825 | ||||||
Premier Portfolio–Institutional Class(d) | 184,825 | 184,825 | ||||||
Total Money Market Funds (Cost $369,650) | 369,650 | |||||||
TOTAL INVESTMENTS (Cost $57,443,354)–100.1% | 88,513,775 | |||||||
LIABILITIES IN EXCESS OF OTHER ASSETS–(0.1)% | (67,682 | ) | ||||||
NET ASSETS–100.0% | $ | 88,446,093 | ||||||
Investment Abbreviations
REIT | – Real Estate Investment Trust. |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1K and Note 4. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
as of June 30, 2010
Consumer Discretionary | 15.9 | % | ||
Financials | 15.8 | |||
Information Technology | 14.8 | |||
Industrials | 11.3 | |||
Health Care | 10.7 | |||
Consumer Staples | 8.4 | |||
Energy | 7.4 | |||
Utilities | 7.3 | |||
Materials | 6.2 | |||
Telecommunication Services | 1.9 | |||
Money Market Funds Plus Other Assets Less Liabilities | 0.3 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Statements of Assets and Liabilities
June 30, 2010
(Unaudited)
(Unaudited)
Invesco V.I. | ||||||||||||
Invesco V.I. | Select | Invesco V.I. | ||||||||||
Select | Dimensions | Select | ||||||||||
Dimensions | Dividend | Dimensions | ||||||||||
Balanced | Growth | Equally-Weighted | ||||||||||
Fund | Fund | S&P 500 Fund | ||||||||||
Assets: | ||||||||||||
Investments, at value* | $ | 36,301,474 | $ | 77,143,959 | $ | 88,144,125 | ||||||
Investments in affiliated money market funds, at value and cost | 688,560 | 1,308,030 | 369,650 | |||||||||
Total investments, at value | 36,990,034 | 78,451,989 | 88,513,775 | |||||||||
Receivable for: | ||||||||||||
Investments sold | 236,597 | 22,687,654 | 1,966,773 | |||||||||
Dividends and interest | 154,099 | 179,778 | 116,196 | |||||||||
Variation margin | 1,000 | — | — | |||||||||
Other assets | 5,345 | 3,649 | 7,582 | |||||||||
Total assets | 37,387,075 | 101,323,070 | 90,604,326 | |||||||||
Liabilities: | ||||||||||||
Payable for: | ||||||||||||
Investments purchased | 215,486 | 17,420,356 | 2,026,133 | |||||||||
Fund shares reacquired | 18,255 | 75,163 | 22,122 | |||||||||
Variation margin | — | — | 3,645 | |||||||||
Accrued fees to affiliates | 13,742 | 27,384 | 40,009 | |||||||||
Accrued other operating expenses | 33,308 | 42,425 | 66,324 | |||||||||
Written options outstanding, at value | — | 1,390 | — | |||||||||
Total liabilities | 280,791 | 17,566,718 | 2,158,233 | |||||||||
Net assets | $ | 37,106,284 | $ | 83,756,352 | $ | 88,446,093 | ||||||
Composition of Net Assets: | ||||||||||||
Shares of beneficial interest | $ | 40,700,636 | $ | 172,208,424 | $ | 64,306,675 | ||||||
Undistributed net investment income | 294,454 | 614,577 | 650,027 | |||||||||
Undistributed net realized gain (loss) | (2,077,881 | ) | (86,973,540 | ) | (7,554,093 | ) | ||||||
Net unrealized appreciation (depreciation) | (1,810,925 | ) | (2,093,109 | ) | 31,043,484 | |||||||
$ | 37,106,284 | $ | 83,756,352 | $ | 88,446,093 | |||||||
Net Assets: | ||||||||||||
Series I | $ | 22,665,947 | $ | 63,963,408 | $ | 38,230,135 | ||||||
Series II | $ | 14,440,337 | $ | 19,792,944 | $ | 50,215,958 | ||||||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||||||||||
Series I | 1,888,035 | 4,883,721 | 2,566,103 | |||||||||
Series II | 1,207,381 | 1,513,636 | 3,411,864 | |||||||||
Series I: | ||||||||||||
Net asset value per share | $ | 12.01 | $ | 13.10 | $ | 14.90 | ||||||
Series II: | ||||||||||||
Net asset value per share | $ | 11.96 | $ | 13.08 | $ | 14.72 | ||||||
* Cost | $ | 38,107,313 | $ | 79,253,385 | $ | 57,073,704 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Statements of Operations
For the six months ended June 30, 2010
(Unaudited)
(Unaudited)
Invesco V.I. | Invesco V.I. | |||||||||||
Invesco V.I. | Select Dimensions | Select Dimensions | ||||||||||
Select Dimensions | Dividend | Equally-Weighted | ||||||||||
Balanced Fund | Growth Fund | S&P 500 Fund | ||||||||||
Investment Income: | ||||||||||||
Dividends† | $ | 295,954 | $ | 989,045 | $ | 855,493 | ||||||
Dividends from affiliated money market funds | 842 | 553 | 397 | |||||||||
Interest | 201,792 | — | — | |||||||||
Total income | 498,588 | 989,598 | 855,890 | |||||||||
†Net of foreign withholding taxes | 12,985 | — | 156 | |||||||||
Expenses | ||||||||||||
Advisory fees | 106,793 | 259,535 | 59,539 | |||||||||
Administrative services fees | 25,940 | 54,599 | 56,981 | |||||||||
Custodian fees | 3,904 | 3,056 | 11,241 | |||||||||
Distribution fees — Series II | 19,802 | 28,057 | 70,297 | |||||||||
Transfer agent fees | 250 | 250 | 337 | |||||||||
Trustees’ and officers’ fees and benefits | 1,416 | 5,808 | 2,066 | |||||||||
Professional services fees | 24,724 | 19,049 | 17,993 | |||||||||
Other | 16,477 | 12,832 | 9,004 | |||||||||
Total expenses | 199,306 | 383,186 | 227,458 | |||||||||
Less: Fees waived | (7,354 | ) | (8,643 | ) | (280 | ) | ||||||
Net expenses | 191,952 | 374,543 | 227,178 | |||||||||
Net investment income | 306,636 | 615,055 | 628,712 | |||||||||
Net Realized and Unrealized Gain (Loss) from: | ||||||||||||
Net realized gain (loss) from: | ||||||||||||
Investment securities (includes gains (losses) from securities sold to affiliates of $(2,924,233)) | 1,061,185 | (1,133,729 | ) | 4,194,020 | ||||||||
Futures contracts | 12,885 | — | (68,269 | ) | ||||||||
Options written | — | 8,822 | — | |||||||||
Swap agreements | 525 | — | — | |||||||||
1,074,595 | (1,124,907 | ) | 4,125,751 | |||||||||
Change in unrealized appreciation (depreciation) of: | ||||||||||||
Investment securities | (2,882,150 | ) | (5,728,454 | ) | (7,762,274 | ) | ||||||
Foreign currencies | — | 7,327 | — | |||||||||
Futures contracts | (26,884 | ) | — | (16,573 | ) | |||||||
Options written | — | 5,866 | — | |||||||||
Swap agreements | (38 | ) | — | — | ||||||||
(2,909,072 | ) | (5,715,261 | ) | (7,778,847 | ) | |||||||
Net realized and unrealized gain (loss) | (1,834,477 | ) | (6,840,168 | ) | (3,653,096 | ) | ||||||
Net increase (decrease) in net assets resulting from operations | $ | (1,527,841 | ) | $ | (6,225,113 | ) | $ | (3,024,384 | ) | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Funds
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
Invesco V.I. | ||||||||||||||||||||||||
Invesco V.I. | Invesco V.I. | Select Dimensions | ||||||||||||||||||||||
Select Dimensions | Select Dimensions | Equally-Weighted | ||||||||||||||||||||||
Balanced Fund | Dividend Growth Fund | S&P 500 Fund | ||||||||||||||||||||||
For The Six | For The Year | For The Six | For The Year | For the Six | For The Year | |||||||||||||||||||
Months Ended | Ended | Months Ended | Ended | Months Ended | Ended | |||||||||||||||||||
June 30, | December 31, | June 30, | December 31, | June 30, | December 31, | |||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||
Operations: | ||||||||||||||||||||||||
Net investment income | $ | 306,636 | $ | 730,484 | $ | 615,055 | $ | 1,545,831 | $ | 628,712 | $ | 1,385,144 | ||||||||||||
Net realized gain (loss) | 1,074,595 | (194,630 | ) | (1,124,907 | ) | (8,551,653 | ) | 4,125,751 | (7,590,340 | ) | ||||||||||||||
Change in unrealized appreciation (depreciation) | (2,909,072 | ) | 6,485,933 | (5,715,261 | ) | 26,820,219 | (7,778,847 | ) | 39,237,550 | |||||||||||||||
Net increase (decrease) in net assets resulting from operations | (1,527,841 | ) | 7,021,787 | (6,225,113 | ) | 19,814,397 | (3,024,384 | ) | 33,032,354 | |||||||||||||||
Dividends and Distributions to Shareholders from: | ||||||||||||||||||||||||
Net investment income | ||||||||||||||||||||||||
Series I | (509,670 | ) | (750,282 | ) | (1,223,469 | ) | (1,414,595 | ) | (629,718 | ) | (960,460 | ) | ||||||||||||
Series II | (286,007 | ) | (437,618 | ) | (321,049 | ) | (386,002 | ) | (710,006 | ) | (1,118,274 | ) | ||||||||||||
Total distributions from net investment income | (795,677 | ) | (1,187,900 | ) | (1,544,518 | ) | (1,800,597 | ) | (1,339,724 | ) | (2,078,734 | ) | ||||||||||||
Net realized gain | ||||||||||||||||||||||||
Series I | — | — | — | — | — | (1,537,281 | ) | |||||||||||||||||
Series II | — | — | — | — | — | (2,093,569 | ) | |||||||||||||||||
Total distribution form net realized gains | — | — | — | — | — | (3,630,850 | ) | |||||||||||||||||
Net increase (decrease) in net assets resulting from share transactions | (2,740,398 | ) | (5,936,768 | ) | (7,796,669 | ) | (20,474,343 | ) | (8,320,497 | ) | (9,453,683 | ) | ||||||||||||
Net increase (decrease) in net assets | (5,063,916 | ) | (102,881 | ) | (15,566,300 | ) | (2,460,543 | ) | (12,684,605 | ) | 17,869,087 | |||||||||||||
Net Assets: | ||||||||||||||||||||||||
Beginning of period | 42,170,200 | 42,273,081 | 99,322,652 | 101,783,195 | 101,130,698 | 83,261,611 | ||||||||||||||||||
End of period | $ | 37,106,284 | $ | 42,170,200 | $ | 83,756,352 | $ | 99,322,652 | $ | 88,446,093 | $ | 101,130,698 | ||||||||||||
Undistributed net investment income | $ | 294,454 | $ | 783,495 | $ | 614,577 | $ | 1,544,040 | $ | 650,027 | $ | 1,361,039 | ||||||||||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly AIM Variable Insurance Funds, (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 forty-one separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The Funds covered in this report are Invesco V.I. Select Dimensions Balanced Fund, Invesco V.I. Select Dimensions Dividend Growth Fund and Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund (each “Fund” or collectively, the “Funds”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to each Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
Prior to June 1, 2010, Morgan Stanley Select Dimensions Balanced Portfolio, Morgan Stanley Select Dimensions Dividend Growth Portfolio and Morgan Stanley Select Dimensions Equally-Weighted S&P 500 Portfolio (each “Acquired Fund”) operated as a separate portfolio of Morgan Stanley Select Dimensions Investment Series. Each Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to each Fund (the “Reorganization”).
Invesco V.I. Select Dimensions Funds
Upon closing of the Reorganization, holders of each Acquired Fund’s Class X and Class Y shares received Series I and Series II shares, respectively of each corresponding Fund.
Information for each Acquired Fund’s — Class X and Class Y shares prior to the Reorganization are included with Series I and Series II shares, respectively, of each corresponding Fund throughout this report.
The investment objective’s: to provide capital growth with reasonable current income for Invesco V.I. Select Dimensions Balanced Fund; to provide reasonable current income and long-term growth of income and capital for Invesco V.I. Select Dimensions Dividend Growth Fund; and to achieve a high level of total return on its assets through a combination of capital appreciation and current income for Invesco V.I. Select Dimensions Equally-Weighted S&P 500 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”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. |
Invesco V.I. Select Dimensions Funds
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 investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print, which is generally 45 days from the period-end date. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
J. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
Invesco V.I. Select Dimensions Funds
K. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. | |
L. | Call Options Written — The Fund may write call options. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. Written call options are recorded as a liability in the Statement of Assets and Liabilities. The amount of the liability is subsequently “marked-to-market” to reflect the current market value of the option written. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. Realized gains and losses on these contracts are included in the Statement of Operations. A risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. | |
M. | Swap Agreements — The Fund may enter into various swap transactions, including interest rate, total return, index, currency exchange rate and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. | |
Interest rate, total return, index, and currency exchange rate swap agreements are two-party contracts entered into primarily to exchange the returns (or differentials in rates of returns) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a notional amount, i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or return of an underlying asset, in a particular foreign currency, or in a “basket” of securities representing a particular index. | ||
A CDS is an agreement between two parties (“Counterparties”) to exchange the credit risk of an issuer. A buyer of a CDS is said to buy protection by paying a fixed payment over the life of the agreement and in some situations an upfront payment to the seller of the CDS. If a defined credit event occurs (such as payment default or bankruptcy), the Fund as a protection buyer would cease paying its fixed payment, the Fund would deliver eligible bonds issued by the reference entity to the seller, and the seller would pay the full notional value, or the “par value”, of the referenced obligation to the Fund. A seller of a CDS is said to sell protection and thus would receive a fixed payment over the life of the agreement and an upfront payment, if applicable. If a credit event occurs, the Fund as a protection seller would cease to receive the fixed payment stream, the Fund would pay the buyer “par value” or the full notional value of the referenced obligation, and the Fund would receive the eligible bonds issued by the reference entity. In turn, these bonds may be sold in order to realize a recovery value. Alternatively, the seller of the CDS and its counterparty may agree to net the notional amount and the market value of the bonds and make a cash payment equal to the difference to the buyer of protection. If no credit event occurs, the Fund receives the fixed payment over the life of the agreement. As the seller, the Fund would effectively add leverage to its portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the CDS. In connection with these agreements, cash and securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default under the swap agreement or bankruptcy/insolvency of a party to the swap agreement. | ||
Implied credit spreads represent the current level at which protection could be bought or sold given the terms of the existing CDS contract and serve as an indicator of the current status of the payment/performance risk of the CDS. An implied spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets. | ||
Changes in the value of swap agreements are recognized as unrealized gains (losses) in the Statement of Operations by “marking to market” on a daily basis to reflect the value of the swap agreement at the end of each trading day. Payments received or paid at the beginning of the agreement are reflected as such on the Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund accrues for the fixed payment stream and amortizes upfront payments, if any, on swap agreements on a daily basis with the net amount, recorded as a component of realized gain (loss) on the Statement of Operations. A liquidation payment received or made at the termination of a swap agreement is recorded as realized gain (loss) on the Statement of Operations. The Fund segregates liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. The Fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the value of the contract. The risk may be mitigated by having a master netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to cover the Fund’s exposure to the counterparty. Entering into these agreements involves, to varying degrees, lack of liquidity and elements of credit, market, and counterparty risk in excess of amounts recognized on the Statement of Assets and Liabilities. Such risks involve the |
Invesco V.I. Select Dimensions Funds
possibility that a swap is difficult to sell or liquidate; the counterparty does not honor its obligations under the agreement and unfavorable interest rates and market fluctuations. | ||
N. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, each Fund pays an advisory fee to the Adviser based on the annual rate of such Fund’s average daily net assets as follows:
Invesco V.I. Select Dimensions Balanced Fund
Average Net Assets | Rate | |||
First $500 million | 0 | .52% | ||
Over $500 million | 0 | .495% | ||
Invesco V.I. Select Dimensions Dividend Growth Fund
Average Net Assets | Rate | |||
First $250 million | 0 | .545% | ||
Next $750 million | 0 | .42% | ||
Next $1 billion | 0 | .395% | ||
Over $2 billion | 0 | .37% | ||
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Average Net Assets | Rate | |||
First $2 billion | 0 | .12% | ||
Over $2 billion | 0 | .10% | ||
Prior to the Reorganization, each Acquired Fund paid an advisory fee to Morgan Stanley Investment Advisors Inc. (“MSIA”) based on the annual rates above of such Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to such Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I and Series II shares of each Fund as shown in the following table:
Series I | Series II | |||||||
Invesco V.I. Select Dimensions Balanced Fund | 0.82 | % | 1.07 | % | ||||
Invesco V.I. Select Dimensions Dividend Growth Fund | 0.72 | % | 0.97 | % | ||||
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund | 0.37 | % | 0.62 | % | ||||
In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by each Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by such Fund of uninvested cash in such affiliated money market funds. Prior to the Reorganization, investment advisory fees paid by each Acquired Fund were reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class shares.
Invesco V.I. Select Dimensions Funds
For the six months ended June 30, 2010, the Adviser and MSIA waived the following expenses:
Paid to | Paid to | |||||||
Adviser | MSIA | |||||||
Invesco V.I. Select Dimensions Balanced Fund | $ | 6,629 | $ | 725 | ||||
Invesco V.I. Select Dimensions Dividend Growth Fund | 8,056 | 587 | ||||||
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund | — | 280 | ||||||
The Trust has entered into a master administrative services agreement with Invesco pursuant to which each Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to such Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, each Fund for the period ended June 30, 2010, paid Invesco for accounting and fund administrative services and paid insurance companies for services provided as shown in the following table:
Paid to | ||||||||||||
Paid to | insurance | |||||||||||
Invesco | MSSCI | companies | ||||||||||
Invesco V.I. Select Dimensions Balanced Fund | $ | 4,110 | $ | 13,886 | $ | 7,944 | ||||||
Invesco V.I. Select Dimensions Dividend Growth Fund | 4,110 | 32,266 | 18,223 | |||||||||
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund | 4,110 | 33,473 | 19,398 | |||||||||
Prior to the Reorganization, each Acquired Fund paid an administration fee to the Morgan Stanley Services Company, Inc. (“MSSCI”).
Also, the Trust has entered into service agreements whereby State Street Bank & Trust Company (“SSB”) serves as custodian, fund accountant and provides certain administrative services to each Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which each Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to such Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. Prior to the Reorganization, the Acquired Fund paid Morgan Stanley Trust, which served as each Acquired Fund’s transfer agent as shown in the following table:
Invesco V.I. Select Dimensions Balanced Fund | $ | 206 | ||
Invesco V.I. Select Dimensions Dividend Growth Fund | 207 | |||
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund | 213 | |||
For the six months ended June 30, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for each Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to such Fund’s Series II shares (the “Plan”). Each Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of such 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 such Fund. Prior to the Reorganization, each Acquired Fund paid distribution fees to Morgan Stanley Distributors Inc. based on the annual rate of 0.25% of such Acquired Fund’s average daily net assets of Class Y shares as shown in the following table:
Invesco V.I. Select Dimensions Balanced Fund | $ | 16,714 | ||
Invesco V.I. Select Dimensions Dividend Growth Fund | 23,772 | |||
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund | 59,304 | |||
For the six months ended June 30, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Invesco V.I. Select Dimensions Funds
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, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between Level 1 and Level 2.
Invesco V.I. Select Dimensions Balanced Fund
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 24,062,894 | $ | 522,331 | $ | — | $ | 24,585,225 | ||||||||
U.S. Treasury Securities | — | 6,750,895 | — | 6,750,895 | ||||||||||||
U.S. Government Sponsored Securities | — | 1,440,053 | — | 1,440,053 | ||||||||||||
Corporate Debt Securities | — | 4,057,383 | — | 4,057,383 | ||||||||||||
Foreign Government Debt Securities | — | 156,478 | — | 156,478 | ||||||||||||
$ | 24,062,894 | $ | 12,927,140 | $ | — | $ | 36,990,034 | |||||||||
Futures* | (5,086 | ) | — | — | (5,086 | ) | ||||||||||
Total Investments | $ | 24,057,808 | $ | 12,927,140 | $ | — | $ | 36,984,948 | ||||||||
* | Unrealized appreciation (depreciation). |
Invesco V.I. Select Dimensions Dividend Growth Fund
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 77,457,532 | $ | 994,457 | $ | — | $ | 78,451,989 | ||||||||
Options* | 1,390 | — | — | 1,390 | ||||||||||||
Total Investments | $ | 77,458,922 | $ | 994,457 | $ | — | $ | 78,453,379 | ||||||||
* | Unrealized appreciation. |
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 88,513,775 | $ | — | $ | — | $ | 88,513,775 | ||||||||
Futures* | (26,937 | ) | — | — | (26,937 | ) | ||||||||||
Total Investments | $ | 88,486,838 | $ | — | $ | — | $ | 88,486,838 | ||||||||
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure 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. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The tables below summarize the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2010:
Invesco V.I. Select Dimensions Balanced Fund
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Interest rate risk | ||||||||
Futures contracts(a) | $ | 6,952 | $ | (12,038 | ) | |||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets & Liabilities. |
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Dividend Growth Fund
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Equity risk | ||||||||
Options written(a) | $ | 1,390 | — | |||||
(a) | Values are disclosed on the Statement of Assets and Liabilities under Written options outstanding, at value. |
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Equity risk | ||||||||
Futures contracts(a) | — | $ | (26,937 | ) | ||||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets & Liabilities. |
Effect of Derivative Instruments for the six months ended June 30, 2010
The tables below summarize the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Invesco V.I. Select Dimensions Balanced Fund
Location of Gain (Loss) on | ||||||||
Statement of Operations | ||||||||
Swap | ||||||||
Futures* | Agreements* | |||||||
Realized Gain | ||||||||
Credit risk | — | $ | 525 | |||||
Interest rate risk | $ | 12,885 | — | |||||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Credit risk | — | (38 | ) | |||||
Interest rate risk | (26,884 | ) | — | |||||
Total | $ | (13,999 | ) | $ | 487 | |||
* The average value of futures and swap agreements outstanding during the period was $3,038,309 and $3,205, respectively.
Invesco V.I. Select Dimensions Dividend Growth Fund
Location of Gain on | ||||
Statement of Operations | ||||
Options* | ||||
Realized Gain | ||||
Equity risk | $ | 8,822 | ||
Change in Unrealized Appreciation | ||||
Equity risk | 5,866 | |||
Total | $ | 14,688 | ||
* The average value of options outstanding during the period was $2,183.
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Futures* | ||||
Realized Gain (Loss) | ||||
Equity risk | $ | (68,269 | ) | |
Change in Unrealized Appreciation (Depreciation) | ||||
Equity risk | $ | (16,573 | ) | |
Total | $ | (84,842 | ) | |
* The average value of futures outstanding during the period was $964,861.
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Balanced Fund
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Month/ | Appreciation | ||||||||||||||
Contract | Contracts | Commitment | Value | (Depreciation) | ||||||||||||
U.S. Treasury 2 Year Notes | 2 | September-2010/Long | $ | 437,656 | $ | 1,871 | ||||||||||
U.S. Treasury 10 Year Notes | 1 | September-2010/Long | 122,547 | 2,123 | ||||||||||||
U.S. Treasury 30 Year Bonds | 1 | September-2010/Long | 127,500 | 2,958 | ||||||||||||
Subtotal | $ | 687,703 | $ | 6,952 | ||||||||||||
U.S. Treasury 5 Year Notes | 9 | September-2010/Short | $ | (1,065,164 | ) | $ | (12,038 | ) | ||||||||
Total | $ | 377,461 | $ | (5,086 | ) | |||||||||||
Invesco V.I. Select Dimensions Dividend Growth Fund
Open Options Written Contracts | ||||||||||||||||||||
Number of | ||||||||||||||||||||
Contract | Strike Price | Expiration Date | Contracts | Premium | Value | |||||||||||||||
Apple, Inc. | $ | 280.00 | July-2010 | 10 | $ | 5,320 | $ | 940 | ||||||||||||
Whirlpool Corp. | 110.00 | July-2010 | 30 | 5,060 | 450 | |||||||||||||||
Total | $ | 10,380 | $ | 1,390 | ||||||||||||||||
Transactions in options for the six months ended June 30, 2010, were as follows:
Number of | ||||||||
contracts | Premium | |||||||
Options written, outstanding at beginning of period | 22 | $ | 4,422 | |||||
Options written | 192 | 41,002 | ||||||
Options expired | (122 | ) | (28,098 | ) | ||||
Options closed | (52 | ) | (6,946 | ) | ||||
Options written, outstanding at end of period | 40 | $ | 10,380 | |||||
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Month/ | Appreciation | ||||||||||||||
Contract | Contracts | Commitment | Value | (Depreciation) | ||||||||||||
S&P 500 E-MINI | 9 | September-2010/Long | $ | 461,970 | $ | (26,937 | ) | |||||||||
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2010, the Funds engaged in the following transactions with Affiliated Funds:
Realized Gains | ||||||||||||
Purchases | Sales | (Losses) | ||||||||||
Invesco V.I. Select Dimensions Balanced Fund | $ | 20,385 | $ | 2,265 | $ | 438 | ||||||
Invesco V.I. Select Dimensions Dividend Growth Fund | 870,553 | 5,341,855 | (2,924,671 | ) | ||||||||
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund | — | — | — | |||||||||
Invesco V.I. Select Dimensions Funds
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 8—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, 2009 which expires as follows:
Invesco V.I. Select Dimensions Balanced Fund
Capital Loss | ||||
Carryforward | ||||
Expiration | (000s)* | |||
2016 | $ | 1,128 | ||
2017 | 1,938 | |||
Total capital loss carryforward | $ | 3,066 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
Invesco V.I. Select Dimensions Dividend Growth Fund
Capital Loss | ||||
Carryforward | ||||
Expiration | (000s)* | |||
2010 | $ | 37,657 | ||
2011 | 21,222 | |||
2016 | 7,857 | |||
2017 | 17,973 | |||
Total capital loss carryforward | $ | 84,709 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Capital Loss | ||||
Carryforward | ||||
Expiration | (000s)* | |||
2017 | $ | 9,172 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
Invesco V.I. Select Dimensions Funds
NOTE 9—Share Information
Invesco V. I. Select Dimensions Balanced Fund | Invesco V.I. Select Dimensions Dividend Growth Fund | Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund | ||||||||||||||||||||||
For The Six | For The Year | For The Six | For The Year | For The Six | For The Year | |||||||||||||||||||
Months Ended | Ended | Months Ended | Ended | Months Ended | Ended | |||||||||||||||||||
June 30, | December 31, | June 30, | December 31, | June 30, | December 31, | |||||||||||||||||||
2010(a) | 2009 | 2010(a) | 2009 | 2010(a) | 2009 | |||||||||||||||||||
Series I | ||||||||||||||||||||||||
Shares | ||||||||||||||||||||||||
Sold | 5,774 | 205,613 | 14,954 | 65,164 | 9,609 | 85,681 | ||||||||||||||||||
Reinvestment of dividends and distributions | 40,482 | 69,989 | 87,641 | 119,678 | 39,137 | 205,238 | ||||||||||||||||||
Redeemed | (188,450 | ) | (527,590 | ) | (514,533 | ) | (1,465,877 | ) | (257,997 | ) | (687,136 | ) | ||||||||||||
Net increase (decrease) — Series I | (142,194 | ) | (251,988 | ) | (411,938 | ) | (1,281,035 | ) | (209,251 | ) | (396,217 | ) | ||||||||||||
Amount | ||||||||||||||||||||||||
Sold | $ | 74,905 | $ | 2,288,162 | $ | 219,833 | $ | 821,495 | $ | 153,810 | $ | 1,108,596 | ||||||||||||
Reinvestment of dividends and distributions | 509,670 | 750,282 | 1,223,469 | 1,414,595 | 629,718 | 2,497,741 | ||||||||||||||||||
Redeemed | (2,463,125 | ) | (5,871,276 | ) | (7,479,174 | ) | (17,440,567 | ) | (4,216,269 | ) | (8,620,430 | ) | ||||||||||||
Net increase (decrease) — Series I | $ | (1,878,550 | ) | $ | (2,832,832 | ) | $ | (6,035,872 | ) | $ | (15,204,477 | ) | $ | (3,432,741 | ) | $ | (5,014,093 | ) | ||||||
Series II | ||||||||||||||||||||||||
Shares | ||||||||||||||||||||||||
Sold | 18,277 | 32,359 | 11,589 | 57,615 | 34,783 | 143,074 | ||||||||||||||||||
Reinvestment of dividends and distributions | 22,808 | 40,975 | 23,030 | 32,712 | 44,654 | 267,208 | ||||||||||||||||||
Redeemed | (107,723 | ) | (349,414 | ) | (154,351 | ) | (532,525 | ) | (384,631 | ) | (749,130 | ) | ||||||||||||
Net increase (decrease) — Series II | (66,638 | ) | (276,080 | ) | (119,732 | ) | (442,198 | ) | (305,194 | ) | (338,848 | ) | ||||||||||||
Amount | ||||||||||||||||||||||||
Sold | $ | 243,004 | $ | 351,813 | $ | 165,251 | $ | 653,317 | $ | 562,234 | $ | 1,655,307 | ||||||||||||
Reinvestment of dividends and distributions | 286,007 | 437,618 | 321,049 | 386,002 | 710,006 | 3,211,843 | ||||||||||||||||||
Redeemed | (1,390,859 | ) | (3,893,367 | ) | (2,247,097 | ) | (6,309,185 | ) | (6,159,996 | ) | (9,306,740 | ) | ||||||||||||
Net increase (decrease) — Series II | $ | (861,848 | ) | $ | (3,103,936 | ) | $ | (1,760,797 | ) | $ | (5,269,866 | ) | $ | (4,887,756 | ) | $ | (4,439,590 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of each Fund and in the aggregate own 97%, 99% and 91% of the outstanding shares of Invesco V.I. Select Dimensions Balanced Fund, Invesco V.I. Select Dimensions Dividend Growth Fund and Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund, respectively. The Funds and each Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Funds. The Funds, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Funds, for providing services to the Funds, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Investment Securities
The aggregate amount of investment securities purchased and sold by each Fund and aggregate cost and the net unrealized appreciation (depreciation) of investments for tax purposes are as follows:
At June 30, 2010 | ||||||||||||||||||||||||
For the six months ended | Net Unrealized | |||||||||||||||||||||||
June 30, 2010* | Federal Tax | Unrealized | Unrealized | Appreciation | ||||||||||||||||||||
Purchases | Sales | Cost** | Appreciation | (Depreciation) | (Depreciation) | |||||||||||||||||||
Invesco V.I. Select Dimensions Balanced Fund | $ | 10,468,774 | $ | 11,976,095 | $ | 38,856,445 | $ | 1,526,085 | $ | (3,392,496 | ) | $ | (1,866,411 | ) | ||||||||||
Invesco V.I. Select Dimensions Dividend Growth Fund | 34,836,808 | 48,304,415 | 80,657,268 | 4,327,814 | (6,533,093 | ) | (2,205,279 | ) | ||||||||||||||||
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund | 12,216,547 | 20,554,533 | 59,922,973 | 30,779,631 | (2,188,829 | ) | 28,590,802 | |||||||||||||||||
* | Excludes U.S. Treasury obligations and money market funds, if any. |
** | 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. |
Invesco V.I. Select Dimensions Funds
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of each Fund outstanding throughout the periods indicated.
Invesco V.I. Select Dimensions Balanced Fund
For the six | ||||||||||||||||||||||||
months ended | ||||||||||||||||||||||||
June 30, | For the year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Series I | ||||||||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 12.79 | $ | 11.05 | $ | 16.40 | $ | 17.57 | $ | 16.88 | $ | 15.95 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.10 | 0.22 | 0.36 | 0.42 | 0.41 | 0.34 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.61 | ) | 1.87 | (3.77 | ) | 0.28 | 1.60 | 0.95 | ||||||||||||||||
Total income (loss) from investment operations | (0.51 | ) | 2.09 | (3.41 | ) | 0.70 | 2.01 | 1.29 | ||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.27 | ) | (0.35 | ) | (0.11 | ) | (0.45 | ) | (0.44 | ) | (0.36 | ) | ||||||||||||
Net realized gain | — | — | (1.83 | ) | (1.42 | ) | (0.88 | ) | — | |||||||||||||||
Total dividends and distributions | (0.27 | ) | (0.35 | ) | (1.94 | ) | (1.87 | ) | (1.32 | ) | (0.36 | ) | ||||||||||||
Net asset value, end of period | $ | 12.01 | $ | 12.79 | $ | 11.05 | $ | 16.40 | $ | 17.57 | $ | 16.88 | ||||||||||||
Total return(b) | (4.08 | )% | 19.48 | % | (22.51 | )% | 3.86 | % | 12.67 | % | 8.21 | % | ||||||||||||
Net assets, end of period, (000’s) | $ | 22,666 | $ | 25,961 | $ | 25,225 | $ | 42,488 | $ | 54,204 | $ | 64,663 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 0.83 | %(c) | 0.82 | %(d) | 0.84 | %(d) | 0.78 | % | 0.74 | % | 0.70 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 0.87 | %(c) | ||||||||||||||||||||||
Net investment income | 1.60 | %(c) | 1.91 | %(d) | 2.65 | %(d) | 2.44 | % | 2.42 | % | 2.07 | % | ||||||||||||
Rebate from affiliates | — | 0.01 | % | 0.01 | % | — | — | — | ||||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(e) | 26 | % | 77 | % | 65 | % | 86 | % | 45 | % | 55 | % | ||||||||||||
(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 return. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $25,441. | |
(d) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(e) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
Invesco V.I. Select Dimensions Funds
NOTE 11—Financial Highlights—(continued)
Invesco V.I. Select Dimensions Balanced Fund
For the six | ||||||||||||||||||||||||
months ended | ||||||||||||||||||||||||
June 30, | For the year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Series II | ||||||||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 12.72 | $ | 11.00 | $ | 16.36 | $ | 17.52 | $ | 16.84 | $ | 15.92 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.09 | 0.19 | 0.33 | 0.38 | 0.37 | 0.30 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.61 | ) | 1.85 | (3.76 | ) | 0.29 | 1.59 | 0.95 | ||||||||||||||||
Total income (loss) from investment operations | (0.52 | ) | 2.04 | (3.43 | ) | 0.67 | 1.96 | 1.24 | ||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.24 | ) | (0.32 | ) | (0.10 | ) | (0.41 | ) | (0.40 | ) | (0.32 | ) | ||||||||||||
Net realized gain | — | — | (1.83 | ) | (1.42 | ) | (0.88 | ) | — | |||||||||||||||
Total dividends and distributions | (0.24 | ) | (0.32 | ) | (1.93 | ) | (1.83 | ) | (1.28 | ) | (0.32 | ) | ||||||||||||
Net asset value, end of period | $ | 11.96 | $ | 12.72 | $ | 11.00 | $ | 16.36 | $ | 17.52 | $ | 16.84 | ||||||||||||
Total return(b) | (4.19 | )% | 19.07 | % | (22.64 | )% | 3.60 | % | 12.37 | % | 7.89 | % | ||||||||||||
Net assets, end of period, (000’s) | $ | 14,440 | $ | 16,210 | $ | 17,048 | $ | 27,535 | $ | 30,562 | $ | 27,970 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 1.08 | %(c) | 1.07 | %(d) | 1.09 | %(d) | 1.03 | % | 0.99 | % | 0.95 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 1.12 | %(c) | ||||||||||||||||||||||
Net investment income | 1.35 | %(c) | 1.66 | %(d) | 2.40 | %(d) | 2.19 | % | 2.17 | % | 1.82 | % | ||||||||||||
Rebate from affiliates | — | 0.01 | % | 0.01 | % | — | — | — | ||||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(e) | 26 | % | 77 | % | 65 | % | 86 | % | 45 | % | 55 | % | ||||||||||||
(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 return. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $15,974. | |
(d) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(e) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
Invesco V.I. Select Dimensions Funds
NOTE 11—Financial Highlights—(continued)
Invesco V.I. Select Dimensions Dividend Growth Fund
For the six | ||||||||||||||||||||||||
months ended | ||||||||||||||||||||||||
June 30, | For the year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Series I | ||||||||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 14.34 | $ | 11.77 | $ | 18.64 | $ | 18.09 | $ | 16.48 | $ | 15.81 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.10 | 0.21 | 0.26 | 0.22 | 0.22 | 0.20 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (1.09 | ) | 2.61 | (7.06 | ) | 0.55 | 1.62 | 0.67 | ||||||||||||||||
Total income (loss) from investment operations | (0.99 | ) | 2.82 | (6.80 | ) | 0.77 | 1.84 | 0.87 | ||||||||||||||||
Less dividends from net investment income | (0.25 | ) | (0.25 | ) | (0.07 | ) | (0.22 | ) | (0.23 | ) | (0.20 | ) | ||||||||||||
Net asset value, end of period | $ | 13.10 | $ | 14.34 | $ | 11.77 | $ | 18.64 | $ | 18.09 | $ | 16.48 | ||||||||||||
Total return(b) | (7.01 | )% | 24.39 | % | (36.60 | )% | 4.27 | % | 11.25 | % | 5.57 | % | ||||||||||||
Net assets, end of period, (000’s) | $ | 63,963 | $ | 75,962 | $ | 77,428 | $ | 153,676 | $ | 201,169 | $ | 249,516 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 0.73 | %(c) | 0.72 | %(d) | 0.71 | %(d) | 0.67 | % | 0.67 | % | 0.63 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 0.75 | %(c) | ||||||||||||||||||||||
Net investment income | 1.35 | %(c) | 1.72 | %(d) | 1.63 | %(d) | 1.18 | % | 1.31 | % | 1.26 | % | ||||||||||||
Rebate from affiliates | — | 0.00 | %(e) | 0.01 | % | — | — | — | ||||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(f) | 40 | % | 44 | % | 61 | % | 48 | % | 115 | % | 38 | % | ||||||||||||
(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 return. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $73,400. | |
(d) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(e) | Amount is less than 0.005%. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
Invesco V.I. Select Dimensions Funds
NOTE 11—Financial Highlights—(continued)
Invesco V.I. Select Dimensions Dividend Growth Fund
For the six | ||||||||||||||||||||||||
months ended | ||||||||||||||||||||||||
June 30, | For the year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Series II | ||||||||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 14.30 | $ | 11.73 | $ | 18.61 | $ | 18.07 | $ | 16.45 | $ | 15.79 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.08 | 0.18 | 0.22 | 0.17 | 0.18 | 0.16 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (1.09 | ) | 2.60 | (7.04 | ) | 0.55 | 1.62 | 0.66 | ||||||||||||||||
Total income (loss) from investment operations | (1.01 | ) | 2.78 | (6.82 | ) | 0.72 | 1.80 | 0.82 | ||||||||||||||||
Less dividends from net investment income | (0.21 | ) | (0.21 | ) | (0.06 | ) | (0.18 | ) | (0.18 | ) | (0.16 | ) | ||||||||||||
Net asset value, end of period | $ | 13.08 | $ | 14.30 | $ | 11.73 | $ | 18.61 | $ | 18.07 | $ | 16.45 | ||||||||||||
Total return(b) | (7.13 | )% | 24.11 | % | (36.76 | )% | 3.95 | % | 10.98 | % | 5.32 | % | ||||||||||||
Net assets, end of period, (000’s) | $ | 19,793 | $ | 23,361 | $ | 24,355 | $ | 49,021 | $ | 54,255 | $ | 56,061 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
With fee waivers and/or expense reimbursements | 0.98 | %(c) | 0.97 | %(d) | 0.96 | %(d) | 0.92 | % | 0.92 | % | 0.88 | % | ||||||||||||
Without fee waivers and/or expense reimbursements | 1.00 | %(c) | ||||||||||||||||||||||
Net investment income | 1.10 | %(c) | 1.47 | %(d) | 1.38 | %(d) | 0.93 | % | 1.06 | % | 1.01 | % | ||||||||||||
Rebate from affiliates | — | 0.00 | %(e) | 0.01 | % | — | — | — | ||||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(f) | 40 | % | 44 | % | 61 | % | 48 | % | 115 | % | 38 | % | ||||||||||||
(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 return. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $22,632. | |
(d) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(e) | Amount is less than 0.005%. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
Invesco V.I. Select Dimensions Funds
NOTE 11—Financial Highlights—(continued)
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
For the six | ||||||||||||||||||||||||
months ended | ||||||||||||||||||||||||
June 30, | For the year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Series I | ||||||||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 15.69 | $ | 11.61 | $ | 25.37 | $ | 27.75 | $ | 25.71 | $ | 24.45 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.11 | 0.22 | 0.32 | 0.41 | 0.37 | 0.32 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.66 | ) | 4.75 | (8.73 | ) | 0.20 | 3.45 | 1.54 | ||||||||||||||||
Total income (loss) from investment operations | (0.55 | ) | 4.97 | (8.41 | ) | 0.61 | 3.82 | 1.86 | ||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.24 | ) | (0.34 | ) | (0.45 | ) | (0.42 | ) | (0.34 | ) | (0.23 | ) | ||||||||||||
Net realized gain | — | (0.55 | ) | (4.90 | ) | (2.57 | ) | (1.44 | ) | (0.37 | ) | |||||||||||||
Total dividends and distributions | (0.24 | ) | (0.89 | ) | (5.35 | ) | (2.99 | ) | (1.78 | ) | (0.60 | ) | ||||||||||||
Net asset value, end of period | $ | 14.90 | $ | 15.69 | $ | 11.61 | $ | 25.37 | $ | 27.75 | $ | 25.71 | ||||||||||||
Total return(b) | (3.59 | )% | 45.08 | % | (40.02 | )% | 1.47 | % | 15.69 | % | 7.81 | % | ||||||||||||
Net assets, end of period, (000’s) | $ | 38,230 | $ | 43,553 | $ | 36,814 | $ | 77,688 | $ | 103,824 | $ | 120,117 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | 0.32 | %(c) | 0.37 | %(d) | 0.31 | %(d) | 0.28 | % | 0.27 | % | 0.27 | % | ||||||||||||
Net investment income | 1.41 | %(c) | 1.72 | %(d) | 1.70 | %(d) | 1.48 | % | 1.40 | % | 1.30 | % | ||||||||||||
Rebate from affiliates | — | 0.00 | %(e) | 0.00 | %(e) | — | — | — | ||||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(f) | 13 | % | 13 | % | 32 | % | 17 | % | 17 | % | 17 | % | ||||||||||||
(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 return. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $43,334. | |
(d) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(e) | Amount is less than 0.005%. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
Invesco V.I. Select Dimensions Funds
NOTE 11—Financial Highlights—(continued)
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
For the six | ||||||||||||||||||||||||
months ended | ||||||||||||||||||||||||
June 30, | For the year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Series II | ||||||||||||||||||||||||
Selected per share data: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 15.49 | $ | 11.45 | $ | 25.08 | $ | 27.47 | $ | 25.48 | $ | 24.25 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income(a) | 0.09 | 0.19 | 0.27 | 0.34 | 0.30 | 0.26 | ||||||||||||||||||
Net realized and unrealized gain (loss) | (0.65 | ) | 4.69 | (8.63 | ) | 0.19 | 3.42 | 1.53 | ||||||||||||||||
Total income (loss) from investment operations | (0.56 | ) | 4.88 | (8.36 | ) | 0.53 | 3.72 | 1.79 | ||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||
Net investment income | (0.21 | ) | (0.29 | ) | (0.37 | ) | (0.35 | ) | (0.29 | ) | (0.19 | ) | ||||||||||||
Net realized gain | — | (0.55 | ) | (4.90 | ) | (2.57 | ) | (1.44 | ) | (0.37 | ) | |||||||||||||
Total dividends and distributions | (0.21 | ) | (0.84 | ) | (5.27 | ) | (2.92 | ) | (1.73 | ) | (0.56 | ) | ||||||||||||
Net asset value, end of period | $ | 14.72 | $ | 15.49 | $ | 11.45 | $ | 25.08 | $ | 27.47 | $ | 25.48 | ||||||||||||
Total return(b) | (3.73 | )% | 44.79 | % | (40.19 | )% | 1.23 | % | 15.34 | % | 7.57 | % | ||||||||||||
Net assets, end of period, (000’s) | $ | 50,216 | $ | 57,578 | $ | 46,447 | $ | 99,861 | $ | 112,897 | $ | 101,156 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Total expenses | 0.57 | %(c) | 0.62 | %(d) | 0.56 | %(d) | 0.53 | % | 0.52 | % | 0.52 | % | ||||||||||||
Net investment income | 1.16 | %(c) | 1.47 | %(d) | 1.45 | %(d) | 1.23 | % | 1.15 | % | 1.05 | % | ||||||||||||
Rebate from affiliates | — | 0.00 | %(e) | 0.00 | %(e) | — | — | — | ||||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Portfolio turnover(f) | 13 | % | 13 | % | 32 | % | 17 | % | 17 | % | 17 | % | ||||||||||||
(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 return. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $56,720. | |
(d) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from affiliate”. | |
(e) | Amount is less than 0.005%. | |
(f) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
NOTE 12—Change in Independent Registered Public Accounting Firm
The Fund is a new fund that was formed to acquire the assets and liabilities of a predecessor fund in a shell fund reorganization (the “Reorganization”). In connection with the organization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
Invesco V.I. Select Dimensions Funds
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; 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, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees of 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 only, and will not help you determine the relative total costs of owning different funds.
Invesco V.I. Select Dimensions Balanced Fund
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 | (01/01/10) | (06/30/10)1 | Period2,3 | (06/30/10) | Period2,3 | Ratio3 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 959.20 | $ | 4.03 | $ | 1,020.68 | $ | 4.16 | 0.83 | % | ||||||||||||||||||
Series II | 1,000.00 | 958.10 | 5.24 | 1,019.44 | 5.41 | 1.08 | ||||||||||||||||||||||||
Invesco V.I. Select Dimensions Dividend Growth Fund
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 | (01/01/10) | (06/30/10)1 | Period2,3 | (06/30/10) | Period2,3 | Ratio3 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 929.90 | $ | 3.49 | $ | 1,021.17 | $ | 3.66 | 0.73 | % | ||||||||||||||||||
Series II | 1,000.00 | 928.70 | 4.69 | 1,019.93 | 4.91 | 0.98 | ||||||||||||||||||||||||
Invesco V.I. Select Dimensions Funds
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
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 | (01/01/10) | (06/30/10)1 | Period2,3 | (06/30/10) | Period2,3 | Ratio3 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 964.10 | $ | 1.56 | $ | 1,023.21 | $ | 1.61 | 0.32 | % | ||||||||||||||||||
Series II | 1,000.00 | 962.70 | 2.77 | 1,021.97 | 2.86 | 0.57 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Funds for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on each Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to each Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
3 | Effective on June 1, 2010, the expense limit rate changed for all classes of each fund. The annualized expense ratios, the actual expenses paid and the hypothetical expenses paid restated as if the rate changes had been in effect throughout the entire most recent fiscal half year for each fund are as follows: |
HYPOTHETICAL | ||||||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||||||
Restated Expenses | Restated Expenses | Restated | ||||||||||||||||||||||||||||||||
Paid During | Paid During | Annualized | ||||||||||||||||||||||||||||||||
Period | Period | Expense Ratio | ||||||||||||||||||||||||||||||||
Share Class | Series I | Series II | Series I | Series II | Series I | Series II | ||||||||||||||||||||||||||||
Invesco V.I. Select Dimensions Balanced Fund | $ | 3.98 | $ | 5.19 | $ | 4.11 | $ | 5.36 | 0.82 | % | 1.07 | % | ||||||||||||||||||||||
Invesco V.I. Select Dimensions Dividend Growth Fund | 3.45 | 4.64 | 3.61 | 4.86 | 0.72 | 0.97 | ||||||||||||||||||||||||||||
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund | 1.80 | 3.02 | 1.86 | 3.11 | 0.37 | 0.62 | ||||||||||||||||||||||||||||
Invesco V.I. Select Dimensions Funds
Approval of Investment Advisory and Sub-advisory Agreements
(Invesco V.I. Select Dimensions Balanced Fund, Invesco V.I. Select Dimensions Dividend Growth Fund and Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund)
(Invesco V.I. Select Dimensions Balanced Fund, Invesco V.I. Select Dimensions Dividend Growth Fund and Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund)
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Company) is required under the Investment Company Act of 1940 to approve annually the renewal of each series portfolio of Invesco Variable Insurance Funds (each, a Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add each Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). In doing so, the Board determined that the investment advisory agreements are in the best interests of each Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under each Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
Each Fund was formed to acquire the assets and liabilities of a Morgan Stanley retail fund (each, an Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, no Fund had any assets or any performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of each Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of each Fund’s investment advisory agreement. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
1. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to each Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve each Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to each Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which each Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit each Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing each Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
2. | Fund Performance |
Each Fund will retain the performance track record of its Acquired Fund. The Board considered the performance of each Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed each Acquired Fund. The Board did not view fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of any Fund.
3. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of each Fund is the same as that of its Acquired Fund, that the board of each Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of each Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of each Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to each Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on any Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of each Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that each Fund’s advisory and sub-advisory fees were fair and reasonable.
4. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to each Fund. The Board also considered whether each Fund benefits from such economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. The Board noted that each Fund’s contractual advisory fee schedule provides for breakpoints. The Board also noted that each 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 Invesco Funds and other clients advised by Invesco Advisers.
5. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that each Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under each Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
6. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with each Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the
Invesco V.I. Select Dimensions Funds
performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to each Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to each Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to each Fund and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are consistent with regulatory requirements.
The Board considered the fact that any Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by each Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that each 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.
Invesco V.I. Select Dimensions Funds
Proxy Results
Special Meetings (“Meetings”) of Shareholders of Morgan Stanley Select Dimensions Investment Series — Balanced Portfolio, Morgan Stanley Select Dimensions Investment Series — Dividend Growth Portfolio and Morgan Stanley Select Dimensions Investment Series — Equally Weighted S&P 500 Portfolio were held on Tuesday, May 11, 2010. The Meetings were held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization. | |||||||||||||||||
Morgan Stanley Select Dimensions Investment Series — Balanced Portfolio | 2,988,457 | 60,378 | 210,082 | 0 | ||||||||||||||
Morgan Stanley Select Dimensions Investment Series — Dividend Growth Portfolio | 6,151,950 | 181,214 | 443,507 | 0 | ||||||||||||||
Morgan Stanley Select Dimensions Investment Series — Equally Weighted S&P 500 Portfolio | 5,771,820 | 206,452 | 350,088 | 0 |
Invesco V.I. Select Dimensions Funds
Invesco V.I. Small Cap Equity Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VISCE-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -0.78 | % | ||
Series II Shares | -0.95 | |||
S&P 500 Index▼ (Broad Market Index) | -6.64 | |||
Russell 2000 Index▼ (Style-Specific Index) | -1.95 | |||
Lipper VUF Small-Cap Core Funds Index▼ (Peer Group Index) | -2.47 |
▼ | Lipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Russell 2000® Index is an unmanaged index considered representative of small-cap stocks. The Russell 2000 Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Small-Cap Core Funds Index is an unmanaged index considered representative of small-cap core variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (8/29/03) | 4.78 | % | ||
5 Years | 1.93 | |||
1 Year | 15.87 | |||
Series II Shares | ||||
Inception (8/29/03) | 4.54 | % | ||
5 Years | 1.67 | |||
1 Year | 15.47 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.09% and 1.34%, 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.
Invesco V.I. Small Cap Equity Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses in the past, performance would have been lower.
Invesco V.I. Small Cap Equity Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–96.90% | ||||||||
Advertising–1.03% | ||||||||
Interpublic Group of Cos., Inc. (The)(b) | 302,336 | $ | 2,155,656 | |||||
Aerospace & Defense–1.93% | ||||||||
AAR Corp.(b) | 100,393 | 1,680,579 | ||||||
Aerovironment Inc.(b) | 44,567 | 968,441 | ||||||
Curtiss-Wright Corp. | 47,488 | 1,379,051 | ||||||
4,028,071 | ||||||||
Agricultural Products–0.97% | ||||||||
Corn Products International, Inc. | 67,093 | 2,032,918 | ||||||
Air Freight & Logistics–0.89% | ||||||||
UTI Worldwide, Inc. | 149,682 | 1,853,063 | ||||||
Airlines–1.15% | ||||||||
Allegiant Travel Co. | 39,260 | 1,676,009 | ||||||
Continental Airlines, Inc.–Class B(b) | 32,597 | 717,134 | ||||||
2,393,143 | ||||||||
Apparel Retail–2.79% | ||||||||
Citi Trends Inc.(b) | 63,709 | 2,098,574 | ||||||
Genesco Inc.(b) | 76,408 | 2,010,295 | ||||||
J. Crew Group, Inc.(b) | 46,739 | 1,720,463 | ||||||
5,829,332 | ||||||||
Apparel, Accessories & Luxury Goods–3.27% | ||||||||
Carter’s, Inc.(b) | 78,121 | 2,050,676 | ||||||
Hanesbrands, Inc.(b) | 92,867 | 2,234,380 | ||||||
Phillips-Van Heusen Corp. | 54,964 | 2,543,185 | ||||||
6,828,241 | ||||||||
Application Software–3.30% | ||||||||
Parametric Technology Corp.(b) | 123,435 | 1,934,227 | ||||||
Quest Software, Inc.(b) | 123,601 | 2,229,762 | ||||||
TIBCO Software Inc.(b) | 226,717 | 2,734,207 | ||||||
6,898,196 | ||||||||
Asset Management & Custody Banks–1.75% | ||||||||
Affiliated Managers Group, Inc.(b) | 23,905 | 1,452,707 | ||||||
SEI Investments Co. | 108,242 | 2,203,807 | ||||||
3,656,514 | ||||||||
Auto Parts & Equipment–1.11% | ||||||||
TRW Automotive Holdings Corp.(b) | 84,100 | 2,318,637 | ||||||
Automotive Retail–0.74% | ||||||||
Penske Automotive Group, Inc.(b) | 136,330 | 1,548,709 | ||||||
Shares | ||||||||
Biotechnology–0.26% | ||||||||
InterMune, Inc.(b) | 58,267 | 544,796 | ||||||
Casinos & Gaming–0.83% | ||||||||
Bally Technologies Inc.(b) | 53,690 | 1,739,019 | ||||||
Communications Equipment–2.89% | ||||||||
Comtech Telecommunications Corp.(b) | 50,100 | 1,499,493 | ||||||
JDS Uniphase Corp.(b) | 258,484 | 2,543,482 | ||||||
Tellabs, Inc. | 312,640 | 1,997,770 | ||||||
6,040,745 | ||||||||
Construction, Farm Machinery & Heavy Trucks–1.84% | ||||||||
Titan International, Inc. | 245,661 | 2,449,240 | ||||||
Trinity Industries, Inc. | 78,783 | 1,396,035 | ||||||
3,845,275 | ||||||||
Data Processing & Outsourced Services–0.95% | ||||||||
Wright Express Corp.(b) | 66,601 | 1,978,050 | ||||||
Diversified Chemicals–0.93% | ||||||||
FMC Corp. | 33,978 | 1,951,357 | ||||||
Diversified Metals & Mining–1.05% | ||||||||
Compass Minerals International, Inc. | 31,302 | 2,199,905 | ||||||
Electrical Components & Equipment–3.15% | ||||||||
Baldor Electric Co. | 61,013 | 2,201,349 | ||||||
Belden Inc. | 90,184 | 1,984,048 | ||||||
GrafTech International Ltd.(b) | 163,142 | 2,385,136 | ||||||
6,570,533 | ||||||||
Electronic Equipment & Instruments–1.71% | ||||||||
OSI Systems, Inc.(b) | 93,270 | 2,590,108 | ||||||
Rofin-Sinar Technologies, Inc.(b) | 47,559 | 990,178 | ||||||
3,580,286 | ||||||||
Environmental & Facilities Services–2.95% | ||||||||
ABM Industries Inc. | 122,037 | 2,556,675 | ||||||
Team, Inc.(b) | 125,980 | 1,644,039 | ||||||
Waste Connections, Inc.(b) | 56,183 | 1,960,225 | ||||||
6,160,939 | ||||||||
Gas Utilities–1.53% | ||||||||
Energen Corp. | 33,993 | 1,506,909 | ||||||
UGI Corp. | 66,629 | 1,695,042 | ||||||
3,201,951 | ||||||||
Health Care Distributors–0.85% | ||||||||
Owens & Minor, Inc. | 62,626 | 1,777,326 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Shares | Value | |||||||
Health Care Equipment–0.85% | ||||||||
Invacare Corp. | 85,778 | $ | 1,779,036 | |||||
Health Care Facilities–1.48% | ||||||||
Hanger Orthopedic Group, Inc.(b) | 12,749 | 228,972 | ||||||
Universal Health Services, Inc.–Class B | 74,919 | 2,858,160 | ||||||
3,087,132 | ||||||||
Health Care Services–1.69% | ||||||||
Emdeon, Inc.–Class A(b) | 122,769 | 1,538,296 | ||||||
Gentiva Health Services, Inc.(b) | 74,025 | 1,999,415 | ||||||
3,537,711 | ||||||||
Health Care Supplies–1.29% | ||||||||
Cooper Cos., Inc. (The) | 67,643 | 2,691,515 | ||||||
Health Care Technology–0.71% | ||||||||
Omnicell, Inc.(b) | 126,480 | 1,478,551 | ||||||
Home Furnishings–0.83% | ||||||||
Ethan Allen Interiors Inc. | 124,262 | 1,738,425 | ||||||
Industrial Machinery–2.92% | ||||||||
Gardner Denver Inc. | 49,685 | 2,215,454 | ||||||
IDEX Corp. | 70,431 | 2,012,214 | ||||||
Valmont Industries, Inc. | 25,737 | 1,870,050 | ||||||
6,097,718 | ||||||||
Insurance Brokers–0.90% | ||||||||
Arthur J. Gallagher & Co. | 77,078 | 1,879,162 | ||||||
Integrated Telecommunication Services–1.79% | ||||||||
Alaska Communications Systems Group Inc. | 212,271 | 1,802,181 | ||||||
Cincinnati Bell Inc.(b) | 642,408 | 1,933,648 | ||||||
3,735,829 | ||||||||
Internet Software & Services–2.09% | ||||||||
GSI Commerce, Inc.(b) | 82,867 | 2,386,570 | ||||||
Open Text Corp. (Canada)(b) | 52,928 | 1,986,917 | ||||||
4,373,487 | ||||||||
Investment Banking & Brokerage–0.82% | ||||||||
KBW Inc.(b) | 80,013 | 1,715,479 | ||||||
IT Consulting & Other Services–0.87% | ||||||||
CACI International Inc.–Class A(b) | 42,845 | 1,820,056 | ||||||
Life Sciences Tools & Services–1.63% | ||||||||
Dionex Corp.(b) | 27,909 | 2,078,104 | ||||||
eResearch Technology, Inc.(b) | 168,724 | 1,329,545 | ||||||
3,407,649 | ||||||||
Metal & Glass Containers–0.95% | ||||||||
AptarGroup, Inc. | 52,148 | 1,972,237 | ||||||
Movies & Entertainment–0.98% | ||||||||
World Wrestling Entertainment, Inc.–Class A | 131,257 | 2,042,359 | ||||||
Office REIT’s–1.99% | ||||||||
Alexandria Real Estate Equities, Inc. | 27,924 | 1,769,544 | ||||||
Digital Realty Trust, Inc. | 41,500 | 2,393,720 | ||||||
4,163,264 | ||||||||
Oil & Gas Equipment & Services–2.86% | ||||||||
Complete Production Services, Inc.(b) | 152,669 | 2,183,167 | ||||||
Dresser-Rand Group, Inc.(b) | 66,530 | 2,099,021 | ||||||
Oceaneering International, Inc.(b) | 37,650 | 1,690,485 | ||||||
5,972,673 | ||||||||
Oil & Gas Exploration & Production–3.64% | ||||||||
Arena Resources, Inc.(b) | 49,379 | 1,575,190 | ||||||
Comstock Resources, Inc.(b) | 70,120 | 1,943,726 | ||||||
Forest Oil Corp.(b) | 81,315 | 2,224,779 | ||||||
Penn Virginia Corp. | 92,669 | 1,863,574 | ||||||
7,607,269 | ||||||||
Packaged Foods & Meats–2.16% | ||||||||
Flowers Foods, Inc. | 83,508 | 2,040,101 | ||||||
TreeHouse Foods, Inc.(b) | 53,902 | 2,461,165 | ||||||
4,501,266 | ||||||||
Pharmaceuticals–3.20% | ||||||||
Biovail Corp. (Canada) | 137,916 | 2,653,504 | ||||||
ViroPharma Inc.(b) | 191,748 | 2,149,495 | ||||||
VIVUS, Inc.(b) | 196,208 | 1,883,597 | ||||||
6,686,596 | ||||||||
Property & Casualty Insurance–1.46% | ||||||||
FPIC Insurance Group, Inc.(b) | 53,829 | 1,380,714 | ||||||
Hanover Insurance Group Inc. (The) | 38,349 | 1,668,181 | ||||||
3,048,895 | ||||||||
Regional Banks–7.07% | ||||||||
BancFirst Corp. | 54,989 | 2,006,549 | ||||||
Columbia Banking System, Inc. | 112,769 | 2,059,162 | ||||||
Commerce Bancshares, Inc. | 47,440 | 1,707,366 | ||||||
Community Trust Bancorp, Inc. | 58,255 | 1,462,200 | ||||||
First Financial Bankshares, Inc. | 28,362 | 1,363,928 | ||||||
First Midwest Bancorp, Inc. | 169,623 | 2,062,616 | ||||||
FirstMerit Corp. | 104,562 | 1,791,147 | ||||||
Zions Bancorp. | 106,716 | 2,301,864 | ||||||
14,754,832 | ||||||||
Restaurants–3.90% | ||||||||
Brinker International, Inc. | 124,939 | 1,806,618 | ||||||
DineEquity, Inc.(b) | 57,110 | 1,594,511 | ||||||
Papa John’s International, Inc.(b) | 58,459 | 1,351,572 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Shares | Value | |||||||
Restaurants–(continued) | ||||||||
Sonic Corp.(b) | 148,207 | $ | 1,148,604 | |||||
Texas Roadhouse, Inc.(b) | 177,446 | 2,239,369 | ||||||
8,140,674 | ||||||||
Semiconductor Equipment–1.97% | ||||||||
ATMI, Inc.(b) | 19,011 | 278,321 | ||||||
Cymer, Inc.(b) | 59,418 | 1,784,917 | ||||||
MKS Instruments, Inc.(b) | 108,969 | 2,039,899 | ||||||
4,103,137 | ||||||||
Semiconductors–1.02% | ||||||||
Semtech Corp.(b) | 129,930 | 2,126,954 | ||||||
Specialized REIT’s–2.57% | ||||||||
LaSalle Hotel Properties | 115,748 | 2,380,936 | ||||||
Senior Housing Properties Trust | 78,746 | 1,583,582 | ||||||
Universal Health Realty Income Trust | 43,789 | 1,406,941 | ||||||
5,371,459 | ||||||||
Specialty Chemicals–1.35% | ||||||||
PolyOne Corp.(b) | 249,425 | 2,100,158 | ||||||
Zep, Inc. | 41,434 | 722,609 | ||||||
2,822,767 | ||||||||
Systems Software–1.68% | ||||||||
Ariba Inc.(b) | 219,967 | 3,504,074 | ||||||
Technology Distributors–0.88% | ||||||||
Ingram Micro Inc.–Class A(b) | 121,133 | 1,840,010 | ||||||
Trading Companies & Distributors–1.06% | ||||||||
Beacon Roofing Supply, Inc.(b) | 122,867 | 2,214,063 | ||||||
Trucking–2.08% | ||||||||
Landstar System, Inc. | 52,132 | 2,032,627 | ||||||
Old Dominion Freight Line, Inc.(b) | 65,553 | 2,303,532 | ||||||
4,336,159 | ||||||||
Water Utilities–0.34% | ||||||||
Cascal N.V. (United Kingdom) | 105,469 | 706,642 | ||||||
Total Common Stocks & Other Equity Interests (Cost $192,593,266) | 202,389,742 | |||||||
Money Market Funds–2.55% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 2,669,802 | 2,669,802 | ||||||
Premier Portfolio–Institutional Class(c) | 2,669,802 | 2,669,802 | ||||||
Total Money Market Funds (Cost $5,339,604) | 5,339,604 | |||||||
TOTAL INVESTMENTS–99.45% (Cost $197,932,870) | 207,729,346 | |||||||
OTHER ASSETS LESS LIABILITIES–0.55% | 1,139,790 | |||||||
NET ASSETS–100.00% | $ | 208,869,136 | ||||||
Investment Abbreviations:
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
as of June 30, 2010
Industrials | 17.9 | % | ||
Information Technology | 17.4 | |||
Financials | 16.5 | |||
Consumer Discretionary | 15.5 | |||
Health Care | 12.0 | |||
Energy | 6.5 | |||
Materials | 4.3 | |||
Consumer Staples | 3.1 | |||
Utilities | 1.9 | |||
Telecommunication Services | 1.8 | |||
Money Market Funds Plus Other Assets Less Liabilities | 3.1 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $192,593,266) | $ | 202,389,742 | ||
Investments in affiliated money market funds, at value and cost | 5,339,604 | |||
Total investments, at value (Cost $197,932,870) | 207,729,346 | |||
Receivables for: | ||||
Investments sold | 544,131 | |||
Fund shares sold | 722,443 | |||
Dividends | 259,870 | |||
Investment for trustee deferred compensation and retirement plans | 14,369 | |||
Other assets | 1,281 | |||
Total assets | 209,271,440 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 149,053 | |||
Fund shares reacquired | 33,918 | |||
Accrued fees to affiliates | 157,682 | |||
Accrued other operating expenses | 36,821 | |||
Trustee deferred compensation and retirement plans | 24,830 | |||
Total liabilities | 402,304 | |||
Net assets applicable to shares outstanding | $ | 208,869,136 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 237,240,412 | ||
Undistributed net investment income (loss) | (189,009 | ) | ||
Undistributed net realized gain (loss) | (37,978,743 | ) | ||
Unrealized appreciation | 9,796,476 | |||
$ | 208,869,136 | |||
Net Assets: | ||||
Series I | $ | 188,426,241 | ||
Series II | $ | 20,442,895 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 14,769,245 | |||
Series II | 1,625,737 | |||
Series I: | ||||
Net asset value per share | $ | 12.76 | ||
Series II: | ||||
Net asset value per share | $ | 12.57 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $3,584) | $ | 972,204 | ||
Dividends from affiliated money market funds (includes securities lending income of $11,834) | 15,665 | |||
Total investment income | 987,869 | |||
Expenses: | ||||
Advisory fees | 786,425 | |||
Administrative services fees | 288,762 | |||
Custodian fees | 5,939 | |||
Distribution fees — Series II | 23,098 | |||
Transfer agent fees | 10,026 | |||
Trustees’ and officers’ fees and benefits | 11,995 | |||
Other | 30,987 | |||
Total expenses | 1,157,232 | |||
Less: Fees waived | (4,419 | ) | ||
Net expenses | 1,152,813 | |||
Net investment income (loss) | (164,944 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from investment securities | 940,912 | |||
Change in net unrealized appreciation (depreciation) of investment securities | (4,750,410 | ) | ||
Net realized and unrealized gain (loss) | (3,809,498 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (3,974,442 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (164,944 | ) | $ | (40,537 | ) | ||
Net realized gain (loss) | 940,912 | (20,760,004 | ) | |||||
Change in net unrealized appreciation (depreciation) | (4,750,410 | ) | 54,460,389 | |||||
Net increase (decrease) in net assets resulting from operations | (3,974,442 | ) | 33,659,848 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (278,362 | ) | |||||
Series II | — | (15,577 | ) | |||||
Total distributions from net investment income | — | (293,939 | ) | |||||
Share transactions–net: | ||||||||
Series I | 12,871,293 | (4,469,997 | ) | |||||
Series II | 6,975,585 | 6,233,450 | ||||||
Net increase in net assets resulting from share transactions | 19,846,878 | 1,763,453 | ||||||
Net increase in net assets | 15,872,436 | 35,129,362 | ||||||
Net assets: | ||||||||
Beginning of period | 192,996,700 | 157,867,338 | ||||||
End of period (includes undistributed net investment income (loss) of $(189,009) and $(24,065), respectively) | $ | 208,869,136 | $ | 192,996,700 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Small Cap Equity Fund, formerly AIM V.I. Small Cap Equity Fund, (the “Fund”), is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. |
Invesco V.I. Small Cap Equity Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. | ||
Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. Small Cap Equity Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .745% | ||
Next $250 million | 0 | .73% | ||
Next $500 million | 0 | .715% | ||
Next $1.5 billion | 0 | .70% | ||
Next $2.5 billion | 0 | .685% | ||
Next $2.5 billion | 0 | .67% | ||
Next $2.5 billion | 0 | .655% | ||
Over $10 billion | 0 | .64% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2011, 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. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the net annual operating expenses to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $4,419.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
Invesco V.I. Small Cap Equity Fund
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $263,967 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 207,729,346 | $ | — | $ | — | $ | 207,729,346 | ||||||||
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2010, the Fund engaged in securities purchases of $95,723.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $1,506 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.
Invesco V.I. Small Cap Equity 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, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—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, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 12,193,641 | ||
December 31, 2017 | 22,760,741 | |||
Total capital loss carryforward | $ | 34,954,382 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
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, 2010 was $56,095,759 and $40,384,615, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 23,572,866 | ||
Aggregate unrealized (depreciation) of investment securities | (17,185,604 | ) | ||
Net unrealized appreciation of investment securities | $ | 6,387,262 | ||
Cost of investments for tax purposes is $201,342,084. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 2,718,516 | $ | 38,295,936 | 3,683,269 | $ | 39,156,749 | ||||||||||
Series II | 590,353 | 7,945,765 | 780,951 | 8,298,387 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 22,558 | 278,362 | ||||||||||||
Series II | — | — | 1,279 | 15,577 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,863,841 | ) | (25,424,643 | ) | (4,128,279 | ) | (43,905,108 | ) | ||||||||
Series II | (71,511 | ) | (970,180 | ) | (204,276 | ) | (2,080,514 | ) | ||||||||
Net increase in share activity | 1,373,517 | $ | 19,846,878 | 155,502 | $ | 1,763,453 | ||||||||||
(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 adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Small Cap Equity Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | (losses) on | Dividends | Distributions | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||||
value, | investment | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | (loss)(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 12.86 | $ | (0.01 | ) | $ | (0.09 | ) | $ | (0.10 | ) | $ | — | $ | — | $ | — | $ | 12.76 | (0.78 | )% | $ | 188,426 | 1.07 | %(d) | 1.07 | %(d) | (0.13 | )%(d) | 20 | % | |||||||||||||||||||||||||
Year ended 12/31/09 | 10.62 | (0.00 | ) | 2.26 | 2.26 | (0.02 | ) | — | (0.02 | ) | 12.86 | 21.29 | 178,949 | 1.09 | 1.09 | (0.01 | ) | 46 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 15.53 | 0.02 | (4.88 | ) | (4.86 | ) | — | (0.05 | ) | (0.05 | ) | 10.62 | (31.31 | ) | 152,310 | 1.09 | 1.09 | 0.16 | 55 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 15.19 | (0.01 | ) | 0.81 | 0.80 | (0.01 | ) | (0.45 | ) | (0.46 | ) | 15.53 | 5.19 | 168,286 | 1.12 | 1.15 | (0.07 | ) | 45 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 13.46 | (0.01 | ) | 2.37 | 2.36 | — | (0.63 | ) | (0.63 | ) | 15.19 | 17.44 | 93,243 | 1.15 | 1.33 | (0.06 | ) | 52 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 12.45 | (0.06 | ) | 1.07 | 1.01 | — | — | — | 13.46 | 8.11 | 42,752 | 1.22 | 1.57 | (0.44 | ) | 70 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 12.69 | (0.03 | ) | (0.09 | ) | (0.12 | ) | — | — | — | 12.57 | (0.95 | ) | 20,443 | 1.32 | (d) | 1.32 | (d) | (0.38 | )(d) | 20 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 10.51 | (0.03 | ) | 2.23 | 2.20 | (0.02 | ) | — | (0.02 | ) | 12.69 | 20.90 | 14,048 | 1.34 | 1.34 | (0.26 | ) | 46 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 15.39 | 0.00 | (4.83 | ) | (4.83 | ) | — | (0.05 | ) | (0.05 | ) | 10.51 | (31.40 | ) | 5,557 | 1.34 | 1.34 | (0.09 | ) | 55 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 15.10 | (0.05 | ) | 0.79 | 0.74 | — | (0.45 | ) | (0.45 | ) | 15.39 | 4.84 | 32 | 1.37 | 1.40 | (0.32 | ) | 45 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 13.41 | (0.04 | ) | 2.36 | 2.32 | — | (0.63 | ) | (0.63 | ) | 15.10 | 17.20 | 854 | 1.40 | 1.58 | (0.31 | ) | 52 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 12.43 | (0.08 | ) | 1.06 | 0.98 | — | — | — | 13.41 | 7.88 | 679 | 1.42 | 1.82 | (0.64 | ) | 70 | ||||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the period ending December 31, 2007, the portfolio turnover calculation excludes the value of securities purchased of $17,709,035 and sold of $19,432,514 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Small Cap Growth Fund into the Fund. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $194,239 and $18,631 for Series I and Series II shares, respectively. |
Invesco V.I. Small Cap Equity Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 992.20 | $ | 5.29 | $ | 1,019.49 | $ | 5.36 | 1.07 | % | ||||||||||||||||||
Series II | 1,000.00 | 990.50 | 6.51 | 1,018.25 | 6.61 | 1.32 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Small Cap Equity Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Small Cap Equity Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund.
Invesco V.I. Small Cap Equity Fund
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser and against the Lipper VA Underlying Funds — Small-Cap Core Index. The Board noted that the performance of Series I shares of the Fund was in the fifth quintile of its performance universe for the one year period, the second quintile for the three year period and the first quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that the performance of Series I shares of the Fund was below the performance of the Index for the one year period and above the performance of the Index for the three and five year periods. The Board noted that the investment management team has a conservative, quality bias that underperformed during the low-quality rally in 2009. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year.
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 mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including one mutual fund advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was above the effective fee rate for the other mutual fund. The Board also noted that Invesco Advisers serves as a sub-adviser to two mutual funds and that the effective fee sub-advisory rate is below the effective fee advisory rate for the Fund.
Other than the mutual funds described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client accounts in a manner substantially similar to the management of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes seven breakpoints and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Small Cap Equity Fund
Semiannual Report to Shareholders ■ June 30, 2010 | ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
I-VITEC-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary | ||||
Fund vs. Indexes | ||||
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | ||||
Series I Shares | -8.26 | % | ||
Series II Shares | -8.40 | |||
S&P 500 Index▼ (Broad Market Index) | -6.64 | |||
BofA Merrill Lynch 100 Technology Index▼ (Style-Specific Index) | -8.41 | |||
Lipper VUF Science & Technology Funds Category Average▼ (Peer Group) | -6.98 | |||
▼Lipper Inc. | ||||
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market. | ||||
The BofA Merrill Lynch 100 Technology Index is a price-only equal-dollar weighted index of 100 stocks designed to measure the performance of a cross section of large, actively traded technology stocks and American Depositary Receipts. | ||||
The Lipper VUF Science & Technology Funds Category Average represents an average of all of the variable insurance underlying funds in the Lipper Science & Technology Funds category. | ||||
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. | ||||
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. |
Average Annual Total Returns | ||||
As of 6/30/10 | ||||
Series I Shares | ||||
Inception (5/20/97) | 1.53 | % | ||
10 Years | -11.88 | |||
5 Years | 0.78 | |||
1 Year | 18.39 | |||
Series II Shares | ||||
10 Years | -12.12 | % | ||
5 Years | 0.50 | |||
1 Year | 18.07 |
Series II shares incepted on April 30, 2004. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.20% and 1.45%, 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.
Invesco V.I. Technology Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Technology Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–94.46% | ||||||||
Application Software–5.28% | ||||||||
Autodesk, Inc.(b) | 45,231 | $ | 1,101,827 | |||||
NICE Systems Ltd.–ADR (Israel) | 69,746 | 1,777,826 | ||||||
Quest Software, Inc.(b) | 63,951 | 1,153,676 | ||||||
TIBCO Software Inc.(b) | 117,238 | 1,413,890 | ||||||
5,447,219 | ||||||||
Communications Equipment–9.60% | ||||||||
Ciena Corp.(b) | 52,587 | 666,803 | ||||||
Cisco Systems, Inc.(b) | 127,198 | 2,710,589 | ||||||
Finisar Corp.(b)(c) | 31,448 | 468,575 | ||||||
JDS Uniphase Corp.(b) | 105,735 | 1,040,432 | ||||||
Plantronics, Inc. | 42,456 | 1,214,242 | ||||||
Polycom, Inc.(b) | 33,143 | 987,330 | ||||||
QUALCOMM Inc. | 63,177 | 2,074,733 | ||||||
Research In Motion Ltd. (Canada)(b) | 14,938 | 735,846 | ||||||
9,898,550 | ||||||||
Computer Hardware–12.05% | ||||||||
Apple Inc.(b) | 30,196 | 7,595,200 | ||||||
Dell, Inc.(b) | 61,505 | 741,750 | ||||||
Hewlett-Packard Co. | 94,655 | 4,096,669 | ||||||
12,433,619 | ||||||||
Computer Storage & Peripherals–6.91% | ||||||||
EMC Corp.(b) | 174,523 | 3,193,771 | ||||||
NetApp, Inc.(b) | 27,344 | 1,020,205 | ||||||
QLogic Corp.(b) | 71,875 | 1,194,562 | ||||||
Seagate Technology(b) | 58,025 | 756,646 | ||||||
Western Digital Corp.(b) | 31,993 | 964,909 | ||||||
7,130,093 | ||||||||
Data Processing & Outsourced Services–3.58% | ||||||||
Alliance Data Systems Corp.(b)(c) | 29,425 | 1,751,376 | ||||||
MasterCard, Inc.–Class A | 5,444 | 1,086,241 | ||||||
Western Union Co. | 57,260 | 853,747 | ||||||
3,691,364 | ||||||||
Electronic Components–2.17% | ||||||||
Corning Inc. | 71,857 | 1,160,491 | ||||||
Dolby Laboratories Inc.–Class A(b) | 17,212 | 1,079,020 | ||||||
2,239,511 | ||||||||
Electronic Equipment & Instruments–0.79% | ||||||||
Cogent Inc.(b) | 89,947 | 810,422 | ||||||
Shares | ||||||||
Electronic Manufacturing Services–4.93% | ||||||||
Flextronics International Ltd. (Singapore)(b) | 335,887 | 1,880,967 | ||||||
Jabil Circuit, Inc. | 41,496 | 551,897 | ||||||
Tyco Electronics Ltd. (Switzerland) | 104,334 | 2,647,997 | ||||||
5,080,861 | ||||||||
Home Entertainment Software–0.65% | ||||||||
Nintendo Co., Ltd. (Japan) | 2,300 | 670,171 | ||||||
Internet Retail–1.22% | ||||||||
Amazon.com, Inc.(b) | 11,495 | 1,255,944 | ||||||
Internet Software & Services–6.72% | ||||||||
Google Inc.–Class A(b) | 9,599 | 4,271,075 | ||||||
GSI Commerce, Inc.(b) | 44,192 | 1,272,730 | ||||||
VeriSign, Inc.(b) | 26,276 | 697,628 | ||||||
Yahoo! Inc.(b) | 49,973 | 691,126 | ||||||
6,932,559 | ||||||||
IT Consulting & Other Services–6.59% | ||||||||
Amdocs Ltd.(b) | 44,071 | 1,183,306 | ||||||
Cognizant Technology Solutions Corp.–Class A(b) | 84,550 | 4,232,573 | ||||||
International Business Machines Corp. | 11,210 | 1,384,211 | ||||||
6,800,090 | ||||||||
Other Diversified Financial Services–0.93% | ||||||||
BlueStream Ventures L.P. (Acquired 08/03/00-06/13/08; Cost $3,149,655)(d)(e) | — | 958,423 | ||||||
Semiconductor Equipment–4.16% | ||||||||
Applied Materials, Inc. | 129,394 | 1,555,316 | ||||||
ASML Holding N.V.–New York Shares (Netherlands) | 64,396 | 1,768,958 | ||||||
Cymer, Inc.(b) | 32,309 | 970,562 | ||||||
4,294,836 | ||||||||
Semiconductors–13.79% | ||||||||
Avago Technologies Ltd. (Singapore)(b) | 95,719 | 2,015,842 | ||||||
Intel Corp. | 174,354 | 3,391,185 | ||||||
Marvell Technology Group Ltd.(b) | 191,217 | 3,013,580 | ||||||
Microsemi Corp.(b) | 126,482 | 1,850,432 | ||||||
ON Semiconductor Corp.(b) | 245,289 | 1,564,944 | ||||||
Semtech Corp.(b) | 73,731 | 1,206,976 | ||||||
Xilinx, Inc. | 46,991 | 1,186,993 | ||||||
14,229,952 | ||||||||
Systems Software–13.88% | ||||||||
Ariba Inc.(b) | 135,516 | 2,158,770 | ||||||
Check Point Software Technologies Ltd. (Israel)(b) | 112,696 | 3,322,278 | ||||||
McAfee Inc.(b) | 34,320 | 1,054,310 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Technology Fund
Shares | Value | |||||||
Systems Software–(continued) | ||||||||
Microsoft Corp. | 155,470 | $ | 3,577,365 | |||||
Oracle Corp. | 93,925 | 2,015,631 | ||||||
Rovi Corp.(b) | 15,298 | 579,947 | ||||||
SonicWALL, Inc.(b) | 65,159 | 765,618 | ||||||
Symantec Corp.(b) | 60,523 | 840,059 | ||||||
14,313,978 | ||||||||
Technology Distributors–1.21% | ||||||||
Anixter International Inc.(b) | 29,410 | 1,252,866 | ||||||
Total Common Stocks & Other Equity Interests (Cost $91,307,213) | 97,440,458 | |||||||
Money Market Funds–5.74% | ||||||||
Liquid Assets Portfolio–Institutional Class(f)(g) | 2,959,764 | 2,959,764 | ||||||
Premier Portfolio–Institutional Class(f) | 2,959,764 | 2,959,764 | ||||||
Total Money Market Funds (Cost $5,919,528) | 5,919,528 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.20% (Cost $97,226,741) | 103,359,986 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–1.67% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $1,723,524)(f)(g) | 1,723,524 | 1,723,524 | ||||||
TOTAL INVESTMENTS–101.87% (Cost $98,950,265) | 105,083,510 | |||||||
OTHER ASSETS LESS LIABILITIES–(1.87)% | (1,932,714 | ) | ||||||
NET ASSETS–100.00% | $ | 103,150,796 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | All or a portion of this security was out on loan at June 30, 2010. | |
(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, 2010 represented 0.93% of the Fund’s Net Assets. | |
(e) | The Fund has a remaining commitment of $101,250 to purchase additional interests in BlueStream Ventures L.P., which is subject to the terms of the limited partnership agreement. | |
(f) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(g) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1J. |
By sector, based on Net Assets
as of June 30, 2010
Information Technology | 92.3 | % | ||
Consumer Discretionary | 1.2 | |||
Financials | 0.9 | |||
Money Market Funds Plus Other Assets Less Liabilities | 5.6 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Technology Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $91,307,213)* | $ | 97,440,458 | ||
Investments in affiliated money market funds, at value and cost | 7,643,052 | |||
Total investments, at value (Cost $98,950,265) | 105,083,510 | |||
Foreign currencies, at value (Cost $27,466) | 27,202 | |||
Receivables for: | ||||
Fund shares sold | 35,519 | |||
Dividends | 43,324 | |||
Investment for trustee deferred compensation and retirement plans | 26,228 | |||
Other assets | 2,228 | |||
Total assets | 105,218,011 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 204,697 | |||
Collateral upon return of securities loaned | 1,723,524 | |||
Accrued fees to affiliates | 73,790 | |||
Accrued other operating expenses | 23,641 | |||
Trustee deferred compensation and retirement plans | 41,563 | |||
Total liabilities | 2,067,215 | |||
Net assets applicable to shares outstanding | $ | 103,150,796 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 141,528,703 | ||
Undistributed net investment income | 1,474,177 | |||
Undistributed net realized gain (loss) | (45,985,065 | ) | ||
Unrealized appreciation | 6,132,981 | |||
$ | 103,150,796 | |||
Net Assets: | ||||
Series I | $ | 102,622,723 | ||
Series II | $ | 528,073 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 8,483,171 | |||
Series II | 44,411 | |||
Series I: | ||||
Net asset value per share | $ | 12.10 | ||
Series II: | ||||
Net asset value per share | $ | 11.89 | ||
* | At June 30, 2010, securities with an aggregate value of $1,664,919 were on loan to brokers. |
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $2,429) | $ | 332,350 | ||
Dividends from affiliated money market funds (includes securities lending income of $4,177) | 6,390 | |||
Total investment income | 338,740 | |||
Expenses: | ||||
Advisory fees | 440,049 | |||
Administrative services fees | 169,073 | |||
Custodian fees | 4,612 | |||
Distribution fees: | ||||
Distribution fees — Series II | 600 | |||
Transfer agent fees | 14,405 | |||
Trustees’ and officers’ fees and benefits | 10,672 | |||
Other | 25,432 | |||
Total expenses | 664,843 | |||
Less: Fees waived | (2,973 | ) | ||
Net expenses | 661,870 | |||
Net investment income (loss) | (323,130 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 1,892,766 | |||
Foreign currencies | 680 | |||
1,893,446 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (11,050,080 | ) | ||
Foreign currencies | (25 | ) | ||
(11,050,105 | ) | |||
Net realized and unrealized gain (loss) | (9,156,659 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (9,479,789 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Technology Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (323,130 | ) | $ | (246,156 | ) | ||
Net realized gain (loss) | 1,893,446 | (7,709,275 | ) | |||||
Change in net unrealized appreciation (depreciation) | (11,050,105 | ) | 49,818,541 | |||||
Net increase (decrease) in net assets resulting from operations | (9,479,789 | ) | 41,863,110 | |||||
Share transactions–net: | ||||||||
Series I | (7,312,805 | ) | 6,048,496 | |||||
Series II | 158,354 | 212,164 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (7,154,451 | ) | 6,260,660 | |||||
Net increase (decrease) in net assets | (16,634,240 | ) | 48,123,770 | |||||
Net assets: | ||||||||
Beginning of period | 119,785,036 | 71,661,266 | ||||||
End of period (includes undistributed net investment income of $1,474,177 and $1,797,307, respectively) | $ | 103,150,796 | $ | 119,785,036 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Technology Fund, formerly AIM V.I. Technology Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity |
Invesco V.I. Technology Fund
are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual |
Invesco V.I. Technology Fund
results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | ||
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Other Risks — The Fund’s investments are concentrated in a comparatively narrow segment of the economy. Consequently, the Fund may tend to be more volatile than other mutual funds, and the value of the Fund’s investments may tend to rise and fall more rapidly. | |
Many of the products and services offered in technology-related industries are subject to rapid obsolescence, which may lower the value of the securities of the companies in this sector. | ||
J. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. | |
K. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
L. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
Invesco V.I. Technology Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .75% | ||
Next $250 million | 0 | .74% | ||
Next $500 million | 0 | .73% | ||
Next $1.5 billion | 0 | .72% | ||
Next $2.5 billion | 0 | .71% | ||
Next $2.5 billion | 0 | .70% | ||
Next $2.5 billion | 0 | .69% | ||
Over $10 billion | 0 | .68% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2011, 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. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the net annual operating expenses to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $2,973.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $144,278 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
Invesco V.I. Technology Fund
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the period January 1, 2010 to June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 103,454,916 | $ | 670,171 | $ | 958,423 | $ | 105,083,510 | ||||||||
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2010, the Fund engaged in securities purchases of $5,780.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $1,425 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—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 $47,527,413 of capital loss carryforward in the fiscal year ending December 31, 2010.
Invesco V.I. Technology Fund
The Fund had a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2010 | $ | 33,793,498 | ||
December 31, 2016 | 2,325,578 | |||
December 31, 2017 | 11,408,337 | |||
Total capital loss carryforward | $ | 47,527,413 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 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, 2010 was $14,288,005 and $22,920,563, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 17,605,270 | ||
Aggregate unrealized (depreciation) of investment securities | (9,670,544 | ) | ||
Net unrealized appreciation of investment securities | $ | 7,934,726 | ||
Cost of investments for tax purposes is $97,148,784. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,038,904 | $ | 13,819,290 | 2,735,605 | $ | 28,624,111 | ||||||||||
Series II | 14,176 | 182,113 | 21,914 | 249,444 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,604,745 | ) | (21,132,095 | ) | (2,226,031 | ) | (22,575,615 | ) | ||||||||
Series II | (1,855 | ) | (23,759 | ) | (3,726 | ) | (37,280 | ) | ||||||||
Net increase (decrease) in share activity | (553,520 | ) | $ | (7,154,451 | ) | 527,762 | $ | 6,260,660 | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 65% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Technology Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||
Net asset | Net | (losses) on | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||
value, | investment | securities (both | Total from | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | ||||||||||||||||||||||||||||||||||
of period | (loss) | unrealized) | operations | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | ||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 13.19 | $ | (0.04 | )(c) | $ | (1.05 | ) | $ | (1.09 | ) | $ | 12.10 | (8.26 | )% | $ | 102,623 | 1.12 | %(d) | 1.13 | %(d) | (0.54 | )%(d) | 13 | % | |||||||||||||||||||
Year ended 12/31/09 | 8.38 | (0.03 | )(c) | 4.84 | 4.81 | 13.19 | 57.40 | 119,369 | 1.18 | 1.19 | (0.27 | ) | 42 | |||||||||||||||||||||||||||||||
Year ended 12/31/08 | 15.10 | 0.01 | (c) | (6.73 | ) | (6.72 | ) | 8.38 | (44.50 | ) | 71,546 | 1.15 | 1.16 | 0.05 | 81 | |||||||||||||||||||||||||||||
Year ended 12/31/07 | 14.02 | (0.06 | ) | 1.14 | 1.08 | 15.10 | 7.70 | 158,739 | 1.10 | 1.10 | (0.38 | ) | 59 | |||||||||||||||||||||||||||||||
Year ended 12/31/06 | 12.69 | (0.08 | ) | 1.41 | 1.33 | 14.02 | 10.48 | 173,321 | 1.12 | 1.12 | (0.54 | ) | 116 | |||||||||||||||||||||||||||||||
Year ended 12/31/05 | 12.42 | (0.07 | ) | 0.34 | 0.27 | 12.69 | 2.17 | 190,700 | 1.12 | 1.12 | (0.60 | ) | 114 | |||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 12.98 | (0.05 | )(c) | (1.04 | ) | (1.09 | ) | 11.89 | (8.40 | ) | 528 | 1.37 | (d) | 1.38 | (d) | (0.79 | )(d) | 13 | ||||||||||||||||||||||||||
Year ended 12/31/09 | 8.26 | (0.06 | )(c) | 4.78 | 4.72 | 12.98 | 57.14 | 417 | 1.43 | 1.44 | (0.52 | ) | 42 | |||||||||||||||||||||||||||||||
Year ended 12/31/08 | 14.95 | (0.02 | )(c) | (6.67 | ) | (6.69 | ) | 8.26 | (44.75 | ) | 115 | 1.40 | 1.41 | (0.20 | ) | 81 | ||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.91 | (0.10 | ) | 1.14 | 1.04 | 14.95 | 7.48 | 130 | 1.35 | 1.35 | (0.63 | ) | 59 | |||||||||||||||||||||||||||||||
Year ended 12/31/06 | 12.62 | (0.12 | ) | 1.41 | 1.29 | 13.91 | 10.22 | 134 | 1.37 | 1.37 | (0.79 | ) | 116 | |||||||||||||||||||||||||||||||
Year ended 12/31/05 | 12.39 | (0.11 | ) | 0.34 | 0.23 | 12.62 | 1.86 | 142 | 1.37 | 1.37 | (0.85 | ) | 114 | |||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns 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) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $117,835 and $484 for Series I and Series II shares, respectively. |
Invesco 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, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 917.40 | $ | 5.32 | $ | 1,019.24 | $ | 5.61 | 1.12 | % | ||||||||||||||||||
Series II | 1,000.00 | 916.00 | 6.51 | 1,018.00 | 6.85 | 1.37 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Technology Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Technology Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund.
Invesco V.I. Technology Fund
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an Affiliated Sub-Adviser and against the Lipper VA Underlying Funds — Science & Technology Index. The Board noted that the performance of Series I shares of the Fund was in the third quintile of its performance universe for the one year period and the fourth quintile for the 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 performance of Series I shares of the Fund was above the performance of the Index for the one year period and below the performance of the Index for the three and five year periods. The Board noted that Invesco Advisers made changes to the Fund’s portfolio management team in 2008 and added a co-manager in 2009. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year.
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 mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including one mutual fund advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was above the effective fee rate for the other mutual fund.
Other than the mutual fund described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other mutual funds or client accounts in a manner substantially similar to the management of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the 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. The Board noted that the Fund’s contractual advisory fee schedule includes seven breakpoints and that the Fund would share in economies of scale as the Fund’s net assets exceeded the breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Technology Fund
Invesco V.I. Utilities Fund Semiannual Report to Shareholders ■ June 30, 2010 | ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2010, is available at our website, invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
I-VIUTI-SAR-1
Fund Performance
Performance summary
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -7.99 | % | ||
Series II Shares | -8.18 | |||
S&P 500 Index▼ (Broad Market Index) | -6.64 | |||
S&P 500 Utilities Index▼ (Style-Specific Index) | -7.14 | |||
Lipper VUF Utility Funds Category Average▼(Peer Group) | -7.66 | |||
▼ Lipper Inc.
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The S&P 500 Utilities Index is an unmanaged index considered representative of the utilities market.
The Lipper VUF Utility Funds Category Average represents an average of all of the variable insurance underlying funds in the Lipper Utility Funds category.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (12/30/94) | 5.70 | % | ||
10 Years | -0.02 | |||
5 Years | 2.76 | |||
1 Year | 5.51 | |||
Series II Shares | ||||
10 Years | -0.27 | % | ||
5 Years | 2.48 | |||
1 Year | 5.15 |
Series II shares incepted on April 30, 2004. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.94% and 1.19%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.05% and 1.30%, 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.
Invesco V.I. Utilities Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2011. See current prospectus for more information. |
Invesco V.I. Utilities Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks–98.12% | ||||||||
Electric Utilities–45.10% | ||||||||
American Electric Power Co., Inc. | 77,283 | $ | 2,496,241 | |||||
Duke Energy Corp. | 123,952 | 1,983,232 | ||||||
E.ON AG (Germany) | 53,357 | 1,436,652 | ||||||
Edison International | 78,139 | 2,478,569 | ||||||
Entergy Corp. | 41,886 | 2,999,875 | ||||||
Exelon Corp. | 47,435 | 1,801,107 | ||||||
FirstEnergy Corp. | 53,693 | 1,891,605 | ||||||
NextEra Energy, Inc. | 26,512 | 1,292,725 | ||||||
Northeast Utilities | 59,859 | 1,525,207 | ||||||
Pepco Holdings, Inc. | 152,313 | 2,388,268 | ||||||
Portland General Electric Co. | 127,636 | 2,339,568 | ||||||
PPL Corp. | 95,357 | 2,379,157 | ||||||
Southern Co. | 75,289 | 2,505,618 | ||||||
27,517,824 | ||||||||
Gas Utilities–8.45% | ||||||||
AGL Resources Inc. | 44,203 | 1,583,351 | ||||||
EQT Corp. | 21,018 | 759,591 | ||||||
ONEOK, Inc. | 40,857 | 1,767,065 | ||||||
Questar Corp.(b) | 17,541 | 283,287 | ||||||
UGI Corp. | 29,949 | 761,903 | ||||||
5,155,197 | ||||||||
Independent Power Producers & Energy Traders–3.25% | ||||||||
NRG Energy, Inc.(b) | 93,586 | 1,984,959 | ||||||
Integrated Oil & Gas–0.69% | ||||||||
QEP Resources Inc.(b) | 13,692 | 422,124 | ||||||
Integrated Telecommunication Services–4.52% | ||||||||
AT&T Inc. | 50,663 | 1,225,538 | ||||||
Verizon Communications Inc. | 54,675 | 1,531,993 | ||||||
2,757,531 | ||||||||
Multi-Utilities–31.45% | ||||||||
CMS Energy Corp. | 205,431 | 3,009,564 | ||||||
Dominion Resources, Inc. | 77,828 | 3,015,057 | ||||||
National Grid PLC (United Kingdom) | 320,668 | 2,361,719 | ||||||
PG&E Corp. | 70,436 | 2,894,920 | ||||||
Public Service Enterprise Group, Inc. | 65,698 | 2,058,318 | ||||||
Sempra Energy | 43,756 | 2,047,343 | ||||||
Wisconsin Energy Corp. | 23,501 | 1,192,441 | ||||||
Xcel Energy, Inc. | 126,774 | 2,612,812 | ||||||
19,192,174 | ||||||||
Oil & Gas Storage & Transportation–4.66% | ||||||||
El Paso Corp. | 54,162 | 601,740 | ||||||
Southern Union Co. | 44,355 | 969,600 | ||||||
Williams Cos., Inc. (The) | 69,599 | 1,272,270 | ||||||
2,843,610 | ||||||||
Total Common Stocks (Cost $57,369,267) | 59,873,419 | |||||||
Money Market Funds–1.85% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 564,038 | 564,038 | ||||||
Premier Portfolio–Institutional Class(c) | 564,038 | 564,038 | ||||||
Total Money Market Funds (Cost $1,128,076) | 1,128,076 | |||||||
TOTAL INVESTMENTS–99.97% (Cost $58,497,343) | 61,001,495 | |||||||
OTHER ASSETS LESS LIABILITIES–0.03% | 18,385 | |||||||
NET ASSETS–100.00% | $ | 61,019,880 | ||||||
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
as of June 30, 2010
Utilities | 89.7 | % | ||
Telecommunication Services | 4.5 | |||
Energy | 3.9 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.9 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Utilities Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $57,369,267) | $ | 59,873,419 | ||
Investments in affiliated money market funds, at value and cost | 1,128,076 | |||
Total investments, at value (Cost $58,497,343) | 61,001,495 | |||
Receivables for: | ||||
Investments sold | 130,299 | |||
Fund shares sold | 8,272 | |||
Dividends | 323,200 | |||
Fund expenses absorbed | 5,846 | |||
Investment for trustee deferred compensation and retirement plans | 33,418 | |||
Other assets | 2,114 | |||
Total assets | 61,504,644 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 287,444 | |||
Fund shares reacquired | 88,304 | |||
Accrued fees to affiliates | 39,517 | |||
Accrued other operating expenses | 23,626 | |||
Trustee deferred compensation and retirement plans | 45,873 | |||
Total liabilities | 484,764 | |||
Net assets applicable to shares outstanding | $ | 61,019,880 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 58,213,356 | ||
Undistributed net investment income | 3,493,627 | |||
Undistributed net realized gain (loss) | (3,191,477 | ) | ||
Unrealized appreciation | 2,504,374 | |||
$ | 61,019,880 | |||
Net Assets: | ||||
Series I | $ | 59,529,165 | ||
Series II | $ | 1,490,715 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 4,460,536 | |||
Series II | 112,468 | |||
Series I: | ||||
Net asset value per share | $ | 13.35 | ||
Series II: | ||||
Net asset value per share | $ | 13.25 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $15,446) | $ | 1,479,985 | ||
Dividends from affiliated money market funds (includes securities lending income of $8,025) | 9,401 | |||
Total investment income | 1,489,386 | |||
Expenses: | ||||
Advisory fees | 200,575 | |||
Administrative services fees | 99,874 | |||
Custodian fees | 3,838 | |||
Distribution fees — Series II | 2,024 | |||
Transfer agent fees | 10,627 | |||
Trustees’ and officers’ fees and benefits | 9,954 | |||
Professional services fees | 18,079 | |||
Other | 4,734 | |||
Total expenses | 349,705 | |||
Less: Fees waived | (39,315 | ) | ||
Net expenses | 310,390 | |||
Net investment income | 1,178,996 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 756,400 | |||
Foreign currencies | 9,569 | |||
765,969 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (7,464,782 | ) | ||
Foreign currencies | (5,634 | ) | ||
(7,470,416 | ) | |||
Net realized and unrealized gain (loss) | (6,704,447 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (5,525,451 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Utilities Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,178,996 | $ | 2,365,392 | ||||
Net realized gain (loss) | 765,969 | (3,566,259 | ) | |||||
Change in net unrealized appreciation (depreciation) | (7,470,416 | ) | 9,982,838 | |||||
Net increase (decrease) in net assets resulting from operations | (5,525,451 | ) | 8,781,971 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (3,146,581 | ) | |||||
Series II | — | (69,727 | ) | |||||
Total distributions from net investment income | — | (3,216,308 | ) | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | — | (793,124 | ) | |||||
Series II | — | (19,073 | ) | |||||
Total distributions from net realized gains | — | (812,197 | ) | |||||
Share transactions–net: | ||||||||
Series I | (5,753,037 | ) | (14,677,265 | ) | ||||
Series II | (74,688 | ) | (124,013 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (5,827,725 | ) | (14,801,278 | ) | ||||
Net increase (decrease) in net assets | (11,353,176 | ) | (10,047,812 | ) | ||||
Net assets: | ||||||||
Beginning of period | 72,373,056 | 82,420,868 | ||||||
End of period (includes undistributed net investment income of $3,493,627 and $2,314,631, respectively) | $ | 61,019,880 | $ | 72,373,056 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Utilities Fund, formerly AIM V.I. Utilities Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objectives are long-term growth of capital and secondarily, current income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an |
Invesco V.I. Utilities Fund
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 make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to |
Invesco V.I. Utilities Fund
federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | ||
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Other Risks — The Fund’s investments are concentrated in a comparatively narrow segment of the economy. Consequently, the Fund may tend to be more volatile than other mutual funds, and the value of the Fund’s investments may tend to rise and fall more rapidly. | |
The Fund may invest a large percentage of assets in securities of a limited number of companies, such that each investment may have a greater effect on the Fund’s overall performance, and any change in the value of those securities could significantly affect the value of your investment in the Fund. | ||
Government regulation, difficulties in obtaining adequate financing and investment return, environmental issues, prices of fuel for generation of electricity, availability of natural gas, risks associated with power marketing and trading, and risks associated with nuclear power facilities may adversely affect the market value of the Fund’s holdings. | ||
J. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. | |
K. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
L. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
Invesco V.I. Utilities Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of 0.60% of the Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2011, 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. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the net annual operating expenses to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2010, the Adviser waived advisory fees of $39,315.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2010, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $75,079 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2010, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities 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. |
Invesco V.I. Utilities Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 57,203,124 | $ | 3,798,371 | $ | — | $ | 61,001,495 | ||||||||
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2010, the Fund paid legal fees of $1,374 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—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, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2017 | $ | 3,645,250 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2010 was $2,910,356 and $4,800,948, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 6,907,980 | ||
Aggregate unrealized (depreciation) of investment securities | (4,716,024 | ) | ||
Net unrealized appreciation of investment securities | $ | 2,191,956 | ||
Cost of investments for tax purposes is $58,809,539. |
Invesco V.I. Utilities Fund
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 281,741 | $ | 3,950,655 | 609,839 | $ | 8,004,977 | ||||||||||
Series II | 4,486 | 62,310 | 12,671 | 166,300 | ||||||||||||
Issued as reinvestment of dividends: | �� | |||||||||||||||
Series I | — | — | 276,664 | 3,939,705 | ||||||||||||
Series II | — | — | 6,267 | 88,800 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (692,836 | ) | (9,703,692 | ) | (2,046,142 | ) | (26,621,947 | ) | ||||||||
Series II | (10,006 | ) | (136,998 | ) | (30,065 | ) | (379,113 | ) | ||||||||
Net increase (decrease) in share activity | (416,615 | ) | $ | (5,827,725 | ) | (1,170,766 | ) | $ | (14,801,278 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 57% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco 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.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 14.51 | $ | 0.24 | $ | (1.40 | ) | $ | (1.16 | ) | $ | — | $ | — | $ | — | $ | 13.35 | (7.99 | )% | $ | 59,529 | 0.92 | %(d) | 1.04 | %(d) | 3.54 | %(d) | 5 | % | ||||||||||||||||||||||||||
Year ended 12/31/09 | 13.38 | 0.45 | 1.53 | 1.98 | (0.68 | ) | (0.17 | ) | (0.85 | ) | 14.51 | 14.93 | 70,671 | 0.93 | 1.04 | 3.35 | 14 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 23.97 | 0.52 | (8.36 | ) | (7.84 | ) | (0.59 | ) | (2.16 | ) | (2.75 | ) | 13.38 | (32.35 | ) | 80,704 | 0.93 | 0.96 | 2.53 | 15 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 21.23 | 0.47 | 3.94 | 4.41 | (0.47 | ) | (1.20 | ) | (1.67 | ) | 23.97 | 20.64 | 155,748 | 0.93 | 0.94 | 1.97 | 30 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 17.83 | 0.47 | 4.06 | 4.53 | (0.70 | ) | (0.43 | ) | (1.13 | ) | 21.23 | 25.46 | 139,080 | 0.93 | 0.96 | 2.40 | 38 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 15.61 | 0.42 | 2.21 | 2.63 | (0.41 | ) | — | (0.41 | ) | 17.83 | 16.83 | 114,104 | 0.93 | 0.96 | 2.49 | 49 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 14.43 | 0.22 | (1.40 | ) | (1.18 | ) | — | — | — | 13.25 | (8.18 | ) | 1,491 | 1.17 | (d) | 1.29 | (d) | 3.29 | (d) | 5 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 13.30 | 0.41 | 1.52 | 1.93 | (0.63 | ) | (0.17 | ) | (0.80 | ) | 14.43 | 14.61 | 1,702 | 1.18 | 1.29 | 3.10 | 14 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 23.80 | 0.46 | (8.28 | ) | (7.82 | ) | (0.52 | ) | (2.16 | ) | (2.68 | ) | 13.30 | (32.51 | ) | 1,717 | 1.18 | 1.21 | 2.28 | 15 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 21.12 | 0.41 | 3.91 | 4.32 | (0.44 | ) | (1.20 | ) | (1.64 | ) | 23.80 | 20.32 | 3,293 | 1.18 | 1.19 | 1.72 | 30 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 17.76 | 0.42 | 4.06 | 4.48 | (0.69 | ) | (0.43 | ) | (1.12 | ) | 21.12 | 25.25 | 2,462 | 1.18 | 1.21 | 2.15 | 38 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 15.57 | 0.38 | 2.20 | 2.58 | (0.39 | ) | — | (0.39 | ) | 17.76 | 16.55 | 801 | 1.18 | 1.21 | 2.24 | 49 | ||||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns 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) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $65,780 and $1,632 for Series I and Series II shares, respectively. |
Invesco V.I. Utilities Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 920.10 | $ | 4.38 | $ | 1,020.23 | $ | 4.61 | 0.92 | % | ||||||||||||||||||
Series II | 1,000.00 | 918.20 | 5.56 | 1,018.99 | 5.86 | 1.17 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Utilities Fund
Approval of Investment Advisory and Sub-advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Utilities Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 15-16, 2010, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 85% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2010. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided and determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreement and sub-advisory contracts is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risk of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to all their assigned funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer, which is prepared as part of his responsibility to manage the process by which the Invesco 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. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. The independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in private sessions with the Senior Officer and counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board considered the information provided to them as part of the contract renewal process as well as information provided at their meetings throughout the year as part of their ongoing oversight of the Fund, and did not identify any information that was controlling. One Trustee may weigh a particular piece of information differently than another Trustee. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other Invesco Funds are the result of years of review and negotiation between the Trustees and Invesco Advisers, 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 regarding these same arrangements throughout the year and in prior years.
The discussion below serves as 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 contracts. Unless otherwise stated, this information is current as of June 16, 2010, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Advisers’ 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 Advisers are appropriate and that Invesco Advisers 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, the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund’s investment advisory agreement or sub-advisory contracts, as applicable.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Advisers and its affiliates continue to take to improve the services they provide to the Invesco Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board considered Invesco Advisers’ independent credit analysis and investment risk management procedures as they apply to the Fund and the other Invesco Funds. The Board also considered the acquisition by Invesco Ltd. of the retail mutual fund business of Morgan Stanley and how that is expected to affect product line diversification. The Board also considered assurances from Invesco Advisers that it does not expect the acquisition to diminish the quality of services provided to the Invesco Funds and that it plans to increase staffing. The Board concluded that the quality and efficiency of the services Invesco Advisers and its affiliates provide to the Invesco Funds support the Board’s approval of the continuance of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund.
Invesco V.I. Utilities Fund
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe that are not managed by Invesco Advisers or an affiliated Sub-Adviser and against the Lipper VA Underlying Funds — Utility Index. The Board noted that the performance of Series I shares of the Fund was in the fourth quintile of its Lipper performance universe for the one year period, the third quintile for the three year period and the second quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that the performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. Although the independent written evaluation of the Fund’s Senior Officer only considered Fund performance through the most recent calendar year, the Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-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 Lipper expense group that are not managed by Invesco Advisers or an Affiliated Sub-Adviser, at a common asset level. The Board noted that the contractual advisory fee rate of Series I shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund, including one mutual fund advised by Invesco Advisers. The Board noted that the Fund’s effective fee rate was below the effective fee rate for the other mutual fund.
Other than the mutual fund described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other client accounts with investment strategies comparable to those of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2011 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 also considered the effect this fee waiver would have on the Fund’s total estimated expenses.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
After taking account of the Fund’s contractual advisory and sub-advisory fee rates, the comparative advisory fee information discussed above, the advisory fee after fee waivers and expense limitations and other relevant factors, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board noted that the Fund did not benefit from breakpoints, but did share directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit with respect to the services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board also noted that Invesco Advisers continues to support the Invesco Funds with spending on regulatory compliance, attribution systems, global trading initiatives and a focus on building out the product line-up for the benefit of all shareholders of the Invesco Funds. The Board concluded that the Fund’s fees are fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive in light of the nature, quality and extent of the services provided and the support provided to the Invesco Funds. The Board considered whether Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts and concluded that Invesco Advisers and each Affiliated Sub-Adviser have the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates resulting from the relationship with the Fund, including the fees received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates are providing these services in accordance with the terms of their contracts, and are qualified to continue to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for the research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that the soft dollar arrangements are appropriate. The Board also concluded that, based on their review and representations made by the Chief Compliance Officer of the Invesco Funds, these arrangements are consistent with regulatory requirements.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco V.I. Utilities Fund
Invesco Van Kampen V.I. Capital Growth Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VK-VICGR-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -4.12 | % | ||
Series II Shares | -4.21 | |||
Russell 1000 Growth Index 6 (Broad Market/Style-Specific Index) | -7.65 | |||
6 Lipper Inc. |
The Russell 1000® Growth Index is an unmanaged index considered representative of large-cap growth stocks. The Russell 1000 Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (7/3/95) | 7.01 | % | ||
10 Years | -6.06 | |||
5 Years | 1.14 | |||
1 Year | 26.17 |
Series II Shares | ||||
Inception (9/18/00) | -6.77 | % | ||
5 Years | 0.89 | |||
1 Year | 25.84 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Capital Growth Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco Van Kampen V.I. Capital Growth Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.84% and 1.09%, respectively. The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.10% and 1.35%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco Van Kampen V.I. Capital Growth Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco Van Kampen V.I. Capital Growth Fund
Schedule of Investments
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks–87.7% | ||||||||
Aerospace & Defense–1.9% | ||||||||
Goodrich Corp. | 50,745 | $ | 3,361,856 | |||||
Air Freight & Logistics–2.1% | ||||||||
C.H. Robinson Worldwide, Inc. | 30,600 | 1,703,196 | ||||||
Expeditors International of Washington, Inc. | 54,633 | 1,885,385 | ||||||
3,588,581 | ||||||||
Airlines–0.5% | ||||||||
Continental Airlines, Inc., Class B(a) | 36,465 | 802,230 | ||||||
Apparel Retail–1.1% | ||||||||
Limited Brands, Inc. | 50,515 | 1,114,866 | ||||||
Ross Stores, Inc. | 14,595 | 777,768 | ||||||
1,892,634 | ||||||||
Application Software–1.9% | ||||||||
Adobe Systems, Inc.(a) | 2,470 | 65,282 | ||||||
Salesforce.com, Inc.(a) | 37,957 | 3,257,470 | ||||||
3,322,752 | ||||||||
Broadcasting & Cable TV–2.0% | ||||||||
Comcast Corp., Class A | 196,807 | 3,418,538 | ||||||
Broadcasting–Diversified–0.6% | ||||||||
Time Warner Cable, Inc. | 20,235 | 1,053,839 | ||||||
Casinos & Gaming–3.5% | ||||||||
Las Vegas Sands Corp. (a) | 98,422 | 2,179,063 | ||||||
Wynn Resorts Ltd. | 50,157 | 3,825,474 | ||||||
6,004,537 | ||||||||
Communications Equipment–1.0% | ||||||||
Cisco Systems, Inc.(a) | 78,386 | 1,670,406 | ||||||
Computer Hardware–8.6% | ||||||||
Apple, Inc.(a) | 45,637 | 11,479,075 | ||||||
IBM Corp. | 27,357 | 3,378,042 | ||||||
14,857,117 | ||||||||
Computer Storage & Peripherals–2.5% | ||||||||
EMC Corp.(a) | 234,971 | 4,299,969 | ||||||
Construction Materials–1.2% | ||||||||
Cemex SAB de CV–ADR (Mexico)(a) | 161,260 | 1,559,387 | ||||||
Martin Marietta Materials, Inc. | 5,590 | 474,088 | ||||||
2,033,475 | ||||||||
Consumer Finance–2.8% | ||||||||
American Express Co. | 122,249 | 4,853,285 | ||||||
Data Processing & Outsourced Services–2.9% | ||||||||
MasterCard, Inc., Class A | 17,632 | 3,518,113 | ||||||
Visa, Inc., Class A | 22,682 | 1,604,751 | ||||||
5,122,864 | ||||||||
Department Stores–0.5% | ||||||||
Sears Holdings Corp.(a) | 14,719 | 951,583 | ||||||
Diversified Commercial & Professional Services–0.1% | ||||||||
Corporate Executive Board Co. | 5,658 | 148,636 | ||||||
Electrical Components & Equipment–0.8% | ||||||||
Cooper Industries PLC (Ireland) | 27,937 | 1,229,228 | ||||||
First Solar, Inc.(a) | 1,118 | 127,262 | ||||||
1,356,490 | ||||||||
Fertilizers & Agricultural Chemicals–1.3% | ||||||||
Monsanto Co. | 47,358 | 2,188,887 | ||||||
Gas Utilities–1.0% | ||||||||
Questar Corp. | 36,521 | 1,661,340 | ||||||
General Merchandise Stores–0.6% | ||||||||
Dollar Tree, Inc.(a) | 26,896 | 1,119,680 | ||||||
Gold–3.3% | ||||||||
Barrick Gold Corp. (Canada) | 56,296 | 2,556,401 | ||||||
Newmont Mining Corp. | 50,187 | 3,098,546 | ||||||
5,654,947 | ||||||||
Health Care Distributors–3.0% | ||||||||
AmerisourceBergen Corp. | 70,468 | 2,237,359 | ||||||
Cardinal Health, Inc. | 43,248 | 1,453,565 | ||||||
McKesson Corp. | 21,434 | 1,439,508 | ||||||
5,130,432 | ||||||||
Health Care Equipment–3.5% | ||||||||
Edwards Lifesciences Corp.(a) | 19,566 | 1,096,087 | ||||||
Hospira, Inc.(a) | 29,668 | 1,704,427 | ||||||
Intuitive Surgical, Inc.(a) | 10,306 | 3,252,780 | ||||||
6,053,294 | ||||||||
Health Care Services–1.3% | ||||||||
Express Scripts, Inc.(a) | 49,299 | 2,318,039 | ||||||
Human Resource & Employment Services–0.3% | ||||||||
Monster Worldwide, Inc.(a) | 47,130 | 549,064 | ||||||
Industrial Machinery–1.4% | ||||||||
Ingersoll-Rand PLC (Ireland) | 73,212 | 2,525,082 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Capital Growth Fund
Shares | Value | |||||||
Integrated Oil & Gas–1.9% | ||||||||
Occidental Petroleum Corp. | 42,550 | $ | 3,282,733 | |||||
Internet Retail–2.8% | ||||||||
Amazon.com, Inc.(a) | 44,578 | 4,870,592 | ||||||
Internet Software & Services–5.0% | ||||||||
Baidu, Inc.–ADR (Cayman Islands)(a) | 44,683 | 3,042,019 | ||||||
eBay, Inc.(a) | 33,720 | 661,249 | ||||||
Google, Inc., Class A(a) | 11,302 | 5,028,825 | ||||||
8,732,093 | ||||||||
IT Consulting & Other Services–0.8% | ||||||||
Cognizant Technology Solutions Corp., Class A(a) | 29,033 | 1,453,392 | ||||||
Life Sciences Tools & Services–1.9% | ||||||||
Illumina, Inc.(a) | 11,125 | 484,271 | ||||||
Thermo Fisher Scientific, Inc.(a) | 58,067 | 2,848,187 | ||||||
3,332,458 | ||||||||
Multi-Sector Holdings–0.2% | ||||||||
Leucadia National Corp.(a) | 14,889 | 290,484 | ||||||
Oil & Gas Exploration & Production–1.5% | ||||||||
Range Resources Corp. | 25,117 | 1,008,448 | ||||||
Ultra Petroleum Corp. (Canada)(a) | 37,098 | 1,641,586 | ||||||
2,650,034 | ||||||||
Packaged Foods & Meats–1.9% | ||||||||
General Mills, Inc. | 93,133 | 3,308,084 | ||||||
Personal Products–0.4% | ||||||||
Estee Lauder Cos., Inc., Class A | 12,181 | 678,847 | ||||||
Pharmaceuticals–2.8% | ||||||||
Allergan, Inc. | 27,112 | 1,579,545 | ||||||
Mead Johnson Nutrition Co., Class A | 65,972 | 3,306,517 | ||||||
4,886,062 | ||||||||
Property & Casualty Insurance–2.9% | ||||||||
Berkshire Hathaway, Inc., Class B(a) | 63,700 | 5,076,253 | ||||||
Publishing–0.5% | ||||||||
McGraw-Hill Cos., Inc. | 29,172 | 820,900 | ||||||
Railroads–2.1% | ||||||||
Union Pacific Corp. | 52,604 | 3,656,504 | ||||||
Restaurants–3.6% | ||||||||
McDonald’s Corp. | 38,686 | 2,548,247 | ||||||
Starbucks Corp. | 149,880 | 3,642,084 | ||||||
6,190,331 | ||||||||
Semiconductors–1.9% | ||||||||
Broadcom Corp., Class A | 50,517 | 1,665,545 | ||||||
Xilinx, Inc. | 62,445 | 1,577,361 | ||||||
3,242,906 | ||||||||
Soft Drinks–3.1% | ||||||||
Dr. Pepper Snapple Group, Inc. | 142,641 | 5,333,347 | ||||||
Specialized Finance–1.1% | ||||||||
CME Group, Inc. | 6,852 | 1,929,181 | ||||||
Systems Software–1.3% | ||||||||
Rovi Corp.(a) | 28,297 | 1,072,739 | ||||||
VMware, Inc., Class A(a) | 19,916 | 1,246,543 | ||||||
2,319,282 | ||||||||
Wireless Telecommunication Services–2.3% | ||||||||
America Movil SAB de CV, Ser L–ADR (Mexico) | 50,931 | 2,419,222 | ||||||
American Tower Corp., Class A(a) | 35,132 | 1,563,374 | ||||||
3,982,596 | ||||||||
Total Common Stocks–87.7% | 151,975,636 | |||||||
Money Market Funds–4.9% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 4,245,547 | 4,245,547 | ||||||
Premier Portfolio–Institutional Class(b) | 4,245,547 | 4,245,547 | ||||||
Total Money Market Funds–4.9% | 8,491,094 | |||||||
Investment Companies–4.4% | ||||||||
iShares Russell 1000 Growth Index Fund | 105,711 | 4,845,792 | ||||||
Powershares QQQ, Ser 1(b) | 10,084 | 430,688 | ||||||
SPDR S&P ETF Trust | 23,479 | 2,423,502 | ||||||
Total Investment Companies–4.4% | 7,699,982 | |||||||
TOTAL INVESTMENTS–97.0% (Cost $164,267,189) | 168,166,712 | |||||||
OTHER ASSETS IN EXCESS OF LIABILITIES–3.0% | 5,229,478 | |||||||
NET ASSETS–100.0% | $ | 173,396,190 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
Percentages are calculated as a percentage of net assets.
(a) | Non-income producing security. | |
(b) | Each underlying fund and the Fund are affiliated by either having the same investment adviser or an investment adviser under common control with the Funds’ investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Capital Growth Fund
By sector, based on Net Assets
Information Technology | 26.2 | % | ||
Consumer Discretionary | 15.2 | |||
Health Care | 12.5 | |||
Financials | 11.2 | |||
Industrials | 9.2 | |||
Materials | 5.7 | |||
Consumer Staples | 5.4 | |||
Energy | 3.4 | |||
Telecommunication Services | 2.3 | |||
Utilities | 1.0 | |||
Money Market Funds and Other Assets in Excess of Liabilities | 7.9 | |||
Fair Value Measurements
Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below. (See Note 1(B) in the Notes to Financial Statements for further information regarding fair value measurements.)
Level 1 | Level 2 | Level 3 | ||||||||||||||
Other Significant | Significant | |||||||||||||||
Quoted Prices | Observable Inputs | Unobservable Inputs | Total | |||||||||||||
Equity Securities | $ | 168,166,712 | $ | — | $ | — | $ | 168,166,712 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Capital Growth Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
(Unaudited)
Assets: | ||||
Investments at value (Cost $155,282,533) | $ | 159,244,930 | ||
Investments in affiliates (Cost $8,984,656) | 8,921,782 | |||
Receivables: | ||||
Investments sold | 47,642,203 | |||
Fund shares sold | 10,621,153 | |||
Dividends | 63,650 | |||
Other | 1,983 | |||
Total assets | 226,495,701 | |||
Liabilities: | ||||
Payables: | ||||
Investments purchased | 52,773,367 | |||
Fund shares repurchased | 150,016 | |||
Distributor and affiliates | 61,529 | |||
Custodian bank | 35,578 | |||
Accrued expenses | 79,021 | |||
Total liabilities | 53,099,511 | |||
Net assets | $ | 173,396,190 | ||
Net assets consist of: | ||||
Capital (par value of $0.001 per share with an unlimited number of shares authorized) | $ | 352,900,692 | ||
Net unrealized appreciation | 3,899,523 | |||
Accumulated net investment loss | (564,020 | ) | ||
Accumulated net realized loss | (182,840,005 | ) | ||
Net assets | $ | 173,396,190 | ||
Net asset value, offering price and redemption price per share: | ||||
Series I Shares (Based on net assets of $76,651,828 and 2,817,847 shares of beneficial interest issued and outstanding) | 27.20 | |||
Series II Shares (Based on net assets of $96,744,362 and 3,606,251 shares of beneficial interest issued and outstanding) | 26.83 | |||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $4,206) | $ | 444,536 | ||
Dividends from affiliated investments | 5,101 | |||
Interest | 7,551 | |||
Total income | 457,188 | |||
Expenses: | ||||
Investment advisory fee | 633,966 | |||
Distribution (12b-1) and service fees | ||||
Series II | 136,249 | |||
Accounting and administrative expenses | 34,128 | |||
Trustees’ fees and related expenses | 13,676 | |||
Custody | 11,655 | |||
Transfer agent fees | 9,278 | |||
Total expenses | 838,952 | |||
Less credits earned on cash balances | 33 | |||
Net expenses | 838,919 | |||
Net investment loss | $ | (381,731 | ) | |
Realized and unrealized gain/loss: | ||||
Realized gain/loss: | ||||
Investments | $ | (8,908,093 | ) | |
Investments in affiliates | (229,737 | ) | ||
Foreign currency transactions | (33,250 | ) | ||
Net realized loss | (9,171,080 | ) | ||
Unrealized appreciation/depreciation: | ||||
Beginning of the period | 1,387,413 | |||
End of the period | 3,899,523 | |||
Net unrealized appreciation during the period | 2,512,110 | |||
Net realized and unrealized loss | $ | (6,658,970 | ) | |
Net decrease in net assets from operations | $ | (7,040,701 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Capital Growth Fund
Statements of Changes in Net Assets
(Unaudited)
For the | For the | |||||||
six months ended | year ended | |||||||
June 30, 2010 | December 31, 2009 | |||||||
From Investment Activities: | ||||||||
Operations: | ||||||||
Net investment income/loss | $ | (381,731 | ) | $ | 42,137 | |||
Net realized loss | (9,171,080 | ) | (9,935,026 | ) | ||||
Net unrealized appreciation during the period | 2,512,110 | 86,278,618 | ||||||
Change in net assets from operations | (7,040,701 | ) | 76,385,729 | |||||
Distributions from net investment income: | ||||||||
Series I Shares | 0 | (60,146 | ) | |||||
Series II Shares | 0 | 0 | ||||||
0 | (60,146 | ) | ||||||
Return of capital distributions: | ||||||||
Series I shares | 0 | (11,587 | ) | |||||
Series II shares | 0 | 0 | ||||||
0 | (11,587 | ) | ||||||
Total distributions | 0 | (71,733 | ) | |||||
Net change in net assets from investment activities | (7,040,701 | ) | 76,313,996 | |||||
From capital transactions: | ||||||||
Proceeds from shares sold | 18,391,728 | 32,081,935 | ||||||
Net asset value of shares issued through dividend reinvestment | 0 | 71,733 | ||||||
Cost of shares repurchased | (24,702,224 | ) | (39,516,705 | ) | ||||
Net change in net assets from capital transactions | (6,310,496 | ) | (7,363,037 | ) | ||||
Total increase/decrease in net assets | (13,351,197 | ) | 68,950,959 | |||||
Net assets: | ||||||||
Beginning of the period | 186,747,387 | 117,796,428 | ||||||
End of the period (including accumulated net investment loss of $564,020 and $182,289, respectively) | $ | 173,396,190 | $ | 186,747,387 | ||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Capital Growth Fund
Financial Highlights
(Unaudited)
The following schedule presents financial highlights for one share of the Fund outstanding throughout the periods indicated.
Six months ended | ||||||||||||||||||||||||
June 30, | Year ended December 31, | |||||||||||||||||||||||
2010, | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Series I Shares | ||||||||||||||||||||||||
Net asset value, beginning of the period | $ | 28.37 | $ | 17.10 | $ | 33.68 | $ | 28.81 | 28.01 | 26.02 | ||||||||||||||
Net investment income/loss(a) | (0.00 | )(b) | 0.04 | (0.01 | ) | 0.11 | 0.04 | 0.03 | ||||||||||||||||
Net realized and unrealized gain/loss | (1.17 | ) | 11.26 | (16.43 | ) | 4.77 | 0.76 | 2.03 | ||||||||||||||||
Total from investment operations | (1.17 | ) | 11.30 | (16.44 | ) | 4.88 | 0.80 | 2.06 | ||||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | -0- | 0.03 | 0.14 | 0.01 | -0- | 0.07 | ||||||||||||||||||
Return of capital distribution | -0- | 0.00 | (b) | -0- | -0- | -0- | -0- | |||||||||||||||||
Total distributions | -0- | 0.03 | 0.14 | 0.01 | -0- | 0.07 | ||||||||||||||||||
Net asset value, end of the period | $ | 27.20 | $ | 28.37 | $ | 17.10 | $ | 33.68 | 28.81 | 28.01 | ||||||||||||||
Total return* | (4.12 | )%** | 66.07 | % | (48.99 | )% | 16.96 | % | 2.86 | % | 7.93 | % | ||||||||||||
Net assets at end of the period (in millions) | $ | 76.7 | $ | 74.2 | $ | 48.6 | $ | 143.6 | 160.5 | 204.0 | ||||||||||||||
Ratio of expenses to average net assets* | 0.77 | % | 0.84 | % | 0.85 | % | 0.80 | % | 0.78 | % | 0.77 | % | ||||||||||||
Ratio of net investment income/loss to average net assets* | (0.27 | )% | 0.17 | % | (0.04 | )% | 0.35 | % | 0.16 | % | 0.13 | % | ||||||||||||
Portfolio turnover | 63 | %** | 13 | % | 42 | % | 177 | % | 128 | % | 98 | % | ||||||||||||
* If certain expenses had not been voluntarily assumed by the adviser, total return would have been lower and the ratios would have been as follows: | ||||||||||||||||||||||||
Ratio of expenses to average net assets | N/A | N/A | 0.87 | % | N/A | N/A | N/A | |||||||||||||||||
Ratio of net investment loss to average net assets | N/A | N/A | (0.02 | )% | N/A | N/A | N/A | |||||||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Amount is less than $0.01 per share. | |
** | Non-Annualized |
N/A=Not Applicable
On June 1, 2010, the Fund’s former Class I shares were reorganized into Series I shares. |
Six months ended | ||||||||||||||||||||||||
June 30, | Year ended December 31, | |||||||||||||||||||||||
2010, | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Series II Shares | ||||||||||||||||||||||||
Net asset value, beginning of the period | $ | 28.01 | $ | 16.91 | $ | 33.29 | $ | 28.54 | 27.81 | 25.84 | ||||||||||||||
Net investment income/loss(a) | (0.00 | )(b) | 0.02 | (0.08 | ) | 0.03 | (0.02 | ) | (0.03 | ) | ||||||||||||||
Net realized and unrealized gain/loss | (1.18 | ) | 11.12 | (16.25 | ) | 4.72 | 0.75 | 2.00 | ||||||||||||||||
Total from investment operations | (1.18 | ) | 11.10 | (16.33 | ) | 4.75 | 0.73 | 1.97 | ||||||||||||||||
Less distributions from net investment income | -0- | -0- | 0.05 | -0- | -0- | -0- | ||||||||||||||||||
Net asset value, end of the period | $ | 26.83 | $ | 28.01 | $ | 16.91 | $ | 33.29 | 28.54 | 27.81 | ||||||||||||||
Total return*(c) | (4.21 | )%** | 65.64 | % | (49.11 | )% | 16.64 | % | 2.62 | % | 7.64 | % | ||||||||||||
Net assets at end of the period (in millions) | $ | 96.7 | $ | 112.5 | $ | 69.2 | $ | 261.2 | 257.4 | 268.1 | ||||||||||||||
Ratio of expenses to average net assets* | 1.02 | % | 1.09 | % | 1.10 | % | 1.05 | % | 1.03 | % | 1.02 | % | ||||||||||||
Ratio of net investment income/loss to average net assets* | (0.52 | )% | (0.07 | )% | (0.29 | )% | 0.11 | % | (0.09 | )% | (0.12 | )% | ||||||||||||
Portfolio turnover | 63 | %** | 13 | % | 42 | % | 177 | % | 128 | % | 98 | % | ||||||||||||
* If certain expenses had not been voluntarily assumed by the adviser, total return would have been lower and the ratios would have been as follows: | ||||||||||||||||||||||||
Ratio of expenses to average net assets | N/A | N/A | 1.12 | % | N/A | N/A | N/A | |||||||||||||||||
Ratio of net investment loss to average net assets | N/A | N/A | (0.27 | )% | N/A | N/A | N/A | |||||||||||||||||
(a) | Based on average shares outstanding. | |
(b) | Amount is less than $0.01 per share. | |
(c) | These returns include combined Rule 12b-1 fees and service fees of up to 0.25%. | |
** | Non-Annualized |
N/A=Not Applicable
On June 1, 2010 the Fund’s former Class II shares were reorganized into Series II shares. |
Invesco Van Kampen V.I. Capital Growth Fund
Notes to Financial Statements |
June 30, 2010
(Unaudited)
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. Capital Growth Fund (the “Fund”) is organized as a series of the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly AIM Variable Insurance Funds, (the “Trust”), a Delaware statutory trust, and is registered as a diversified, open-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Trust consists of forty-one separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each portfolio or class.
Prior to June 1, 2010, the Fund operated as Van Kampen Life Investment Trust Capital Growth Portfolio (the “Acquired Fund”), an investment portfolio of Van Kampen Life Investment Trust. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class I and Class II Shares received Series I and Series II Shares, respectively of the Fund.
Information for the Acquired Fund’s — Class I and Class II Shares prior to the Reorganization are included with Series I and Series II Shares, respectively, of the Fund throughout this report.
The Fund’s investment objective is to seek capital appreciation.
The Fund currently offers two classes of shares, Series I and Series II Shares, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies.
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
A. | Security Valuation — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. |
Invesco Van Kampen V.I. Capital Growth Fund
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Fair Value Measurements — GAAP defines fair value as the price that the Fund would receive to sell an investment or pay to transfer a liability in an orderly transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. GAAP establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund’s investments. The inputs are summarized in the three broad levels listed below. | |
Level 1 — Prices are based on quoted prices in active markets for identical investments. | ||
Level 2 — Prices are based on other significant observable inputs which may include quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc. | ||
Level 3 — Prices are based on significant unobservable inputs including the Fund’s own assumptions in determining the fair value of investments. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer’s financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances. | ||
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. | ||
C. | Security Transactions — Security transactions are recorded on a trade date basis. Realized gains and losses are determined on an identified cost basis. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
D. | Income and Expenses — Dividend income is recorded net of applicable withholding taxes on the ex-dividend date and interest income is recorded on an accrual basis. Income and expenses of the Fund are allocated on a pro rata basis to each class of shares, except for distribution and service fees and incremental transfer agency costs which are unique to each class of shares. | |
E. | Federal Income Taxes — It is the Fund’s policy to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income earned or gains realized or repatriated. Taxes are accrued and applied to net investment income, net realized capital gains and net unrealized appreciation, as applicable, as the income is earned or capital gains are recorded. Management has concluded there are no significant uncertain tax positions that would require recognition in the financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in “Interest Expense” and penalties in “Other” expenses on the Statement of Operations. The Fund files tax returns with the U.S. Internal Revenue Service and various states. Generally, each of the tax years in the four year period ended December 31, 2009, remains subject to examination by taxing authorities. | |
The Fund intends to utilize provisions of the federal income tax law which allow it to carry a realized capital loss forward for eight years following the year of the loss and offset such losses against any future realized capital gains. At December 31, 2009, the Fund had an accumulated capital loss carryforward for tax purposes of $164,997,039, which will expire according to the following schedule: |
Amount | Expiration | |||||
$ | 144,941,795 | December 31, 2010 | ||||
1,891,381 | December 31, 2011 | |||||
12,927,582 | December 31, 2016 | |||||
5,236,281 | December 31, 2017 | |||||
Invesco Van Kampen V.I. Capital Growth Fund
Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end. |
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 14,661,332 | ||
Aggregate unrealized (depreciation) of investment securities | (14,013,804 | ) | ||
Net unrealized appreciation of investment securities | $ | 647,528 | ||
Cost of investments for tax purposes is $167,519,184. |
F. | Distribution of Income and Gains — The Fund declares and pays dividends at least annually from net investment income and from net realized gains, if any. Distributions from net realized gains for book purposes may include short-term capital gains which are included as ordinary income for tax purposes. Distributions from the Fund are recorded on the ex-distribution date. | |
The tax character of distributions paid during the year ended December 31, 2009 were as follows: |
Distributions paid from: | ||||
Ordinary income | $ | 60,146 | ||
Return of Capital | 11,587 | |||
$ | 71,733 | |||
Net realized gains or losses may differ for financial reporting and tax purposes primarily as a result of gains or losses recognized on securities for tax purposes but not for book purposes and the deferral of losses relating to wash sale transactions. | ||
G. | Foreign Currency Translation — Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated at the rate of exchange prevailing when such securities were acquired or sold. Income and expenses are translated at rates prevailing when accrued. Unrealized gains and losses on investments resulting from changes in exchange rates and the unrealized gains or losses on translations of other assets or liabilities denominated in foreign currencies are included in foreign currency translation on the Statement of Operations. Realized gains and losses on investments resulting from changes in exchange rates and the realized gains or losses on translations of other assets or liabilities denominated in foreign currencies are included in foreign currency transactions on the Statement of Operations. | |
H. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. |
NOTE 2—Investment Advisory Agreement and Other Transactions with Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | % Per Annum | |||
First $500 million | 0 | .70% | ||
Next $500 million | 0 | .65% | ||
Over $1 billion | 0 | .60% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee to Van Kampen Asset Management (“Van Kampen”) based on the annual rates above of the Acquired Funds’s average daily net assets.
Under the terms of a master sub-advisory agreement approved by shareholders of the Funds between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Invesco Van Kampen V.I. Capital Growth Fund
Effective on the Reorganization Date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit the Fund’s expenses (excluding certain items discussed below) of Series I Shares to 0.84% and Series II Shares to 1.09% of average daily net assets, respectively. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the Fund’s expenses to exceed the limit reflected above: (i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary or non-routine items; and (v) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco Advisers, Inc. mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012. The Advisor did not waive fees and/or reimburse expenses during the period under this limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds. For the period ended June 30, 2010, the Adviser did not waive any advisory fees under this agreement.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the period ended June 30, 2010, Invesco was paid $2,376 for accounting and fund administrative services and reimbursed $20,756 for services provided by insurance companies. Prior to the Reorganization, under separate accounting services and chief compliance officer (“CCO”) employment agreements, Van Kampen Investment Inc., provided accounting services and the CCO provided compliance services to the Acquired Fund. Pursuant to such agreements, the Acquired Fund paid $10,997 to Van Kampen Investments Inc.
Also, the Trust has entered into service agreements whereby State Street Bank & Trust Company (“SSB”) serves as custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. Prior to the Reorganization, the Acquired Fund paid $8,107 to Van Kampen Investor Services Inc., which served as the Acquired Fund’s transfer agent. For the six months ended June 30, 2010, expenses incurred under these agreements are shown in the Statement of Operations as Transfer Agent Fees.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or Invesco Distributors, Inc. (“IDI”).
“Trustees’ Fees and Related Expenses” 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’ Fees and Related Expenses” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco 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’ Fees and Related Expenses” 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.
For the period ended June 30, 2010, the Fund paid legal fees of approximately $0 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.
Prior to the Reorganization, the Acquired Fund paid brokerage commissions to Morgan Stanley & Co., Inc., an affiliate of the Acquired Fund, totaling $2,138.
Transactions with Affiliates
The Fund invests in Affiliates of Invesco Advisers, Inc. A summary of the Fund’s transactions in shares of the Affiliates during the six months ended June 30, 2010 is as follows:
Change in | ||||||||||||||||||||||||||||
Purchase | Sales | Realized | Unrealized | Income | Value | Value | ||||||||||||||||||||||
Investment | Cost | Proceeds | Gain/(Loss) | Gain/Loss | Earned | 12/31/2009 | 6/30/2010 | |||||||||||||||||||||
Powershares QQQ, Ser 1 | $ | 2,884,041 | $ | 2,160,741 | $ | (229,737 | ) | $ | (62,875 | ) | $ | 5,101 | $ | 0 | $ | 430,688 | ||||||||||||
Invesco Van Kampen V.I. Capital Growth Fund
NOTE 3—Share Information
For the six months ended June 30, 2010 and the year ended December 31, 2009, transactions were as follows:
For the | For the | |||||||||||||||
six months ended | year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Value | Shares | Value | |||||||||||||
Sales: | ||||||||||||||||
Series I | 509,551 | $ | 14,062,425 | 707,974 | $ | 14,460,316 | ||||||||||
Series II | 151,244 | 4,329,303 | 797,284 | 17,621,619 | ||||||||||||
Total sales | 660,795 | $ | 18,391,728 | 1,505,258 | $ | 32,081,935 | ||||||||||
Dividend Reinvestment: | ||||||||||||||||
Series I | 0 | $ | 0 | 2,584 | $ | 71,733 | ||||||||||
Series II | 0 | 0 | 0 | 0 | ||||||||||||
Total dividend reinvestment | 0 | $ | 0 | 2,584 | $ | 71,733 | ||||||||||
Repurchases: | ||||||||||||||||
Series I | (307,488 | ) | $ | (8,803,699 | ) | (937,388 | ) | $ | (20,613,290 | ) | ||||||
Series II | (561,952 | ) | (15,898,525 | ) | (873,368 | ) | (18,903,415 | ) | ||||||||
Total repurchases | (869,440 | ) | $ | (24,702,224 | ) | (1,810,756 | ) | $ | (39,516,705 | ) | ||||||
(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. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 4—Investment Transactions
During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments and money market funds, were $105,383,262 and $107,116,554, respectively.
NOTE 5—Distribution and Service Plans
The Trust has entered into a master distribution agreement with IDI to serve as the distributor for the Fund. The Trust has adopted a distribution 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 IDI 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. Prior to the Reorganization, the Acquired Fund paid distribution fees of $114,899 to Van Kampen Funds Inc. based on the annual rate of 0.25% of the Acquired Funds’s average daily net assets of Class II shares. For the six months ended June 30, 2010, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees.
NOTE 6—Indemnifications
Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
Invesco Van Kampen V.I. Capital Growth Fund
NOTE 8—Change in Independent Registered Public Accounting Firm
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
Invesco Van Kampen V.I. Capital Growth Fund
Calculating your ongoing Fund expenses
Expense example
As a policyholder of the Fund, you incur ongoing costs, including management fees, distribution and service (12b-1) fees; 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 the 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 1/1/10–6/30/10.
Actual expense
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, 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 first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The second line of the table below 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 cost of investing in the Fund and other portfolios. 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 only. Therefore, the second line of the table is useful in comparing ongoing costs and will not help you determine the relative total costs of owning different funds that have transactional costs, such as sales charges (loads) and redemption fees, or exchanges.
HYPOTHETICAL | |||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | ||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | |||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | |||||||||||||||||||||
Series | (1/1/10) | (6/30/10) | Period* | (6/30/10) | Period* | ||||||||||||||||||||
I | $ | 1,000.00 | $ | 958.76 | $ | 3.74 | $ | 1,020.98 | $ | 3.86 | |||||||||||||||
II | 1,000.00 | 957.87 | 4.95 | 1,019.74 | 5.11 | ||||||||||||||||||||
* | Expenses are equal to the Fund’s annualized expense ratio of 0.77% and 1.02% for Series I and II Shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
Assumes all dividends and distributions were reinvested.
Invesco Van Kampen V.I. Capital Growth Fund
Approval of Investment Advisory and Sub-Advisory Agreements
with Invesco Advisers, Inc. and its Affiliates
with Invesco Advisers, Inc. and its Affiliates
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Van Kampen V.I. Capital Growth Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Van Kampen retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-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 the 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. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the
Invesco Van Kampen V.I. Capital Growth Fund
terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are 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 Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco Van Kampen V.I. Capital Growth Fund
Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Van Kampen Life Investment Trust Capital Growth Portfolio was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 5,521,134 | 188,150 | 360,153 | 0 |
Invesco Van Kampen V.I. Capital Growth Fund
Invesco Van Kampen V.I. Comstock Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VK-VICOM-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -5.71 | % | ||
Series II Shares | -5.92 | |||
S&P 500 Index▼ (Broad Market Index) | -6.64 | |||
Russell 1000 Value Index▼ (Style-Specific Index) | -5.12 |
▼ | Lipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (4/30/99) | 2.95 | % | ||
10 Years | 3.70 | |||
5 Years | -1.28 | |||
1 Year | 17.76 |
Series II Shares | ||||
Inception (9/18/00) | 2.62 | % | ||
5 Years | -1.54 | |||
1 Year | 17.27 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Comstock Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco Van Kampen V.I. Comstock Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.62% and 0.87%, respectively. 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 0.87% and 1.12%, 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.
Invesco Van Kampen V.I. Comstock Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Comstock Fund
Schedule of Investments
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks–96.7% | ||||||||
Aerospace & Defense–1.0% | ||||||||
Honeywell International, Inc. | 404,500 | $ | 15,787,635 | |||||
Aluminum–0.7% | ||||||||
Alcoa, Inc. | 1,043,324 | 10,495,839 | ||||||
Asset Management & Custody Banks–2.2% | ||||||||
Bank of New York Mellon Corp. | 1,189,208 | 29,361,545 | ||||||
State Street Corp. | 150,700 | 5,096,674 | ||||||
34,458,219 | ||||||||
Broadcasting & Cable TV–4.9% | ||||||||
Comcast Corp., Class A | 4,349,792 | 75,555,887 | ||||||
Broadcasting–Diversified–2.3% | ||||||||
DIRECTV, Class A(a) | 391,386 | 13,275,813 | ||||||
Time Warner Cable, Inc. | 435,982 | 22,705,943 | ||||||
35,981,756 | ||||||||
Communications Equipment–1.0% | ||||||||
Cisco Systems, Inc.(a) | 739,611 | 15,761,110 | ||||||
Computer Hardware–1.8% | ||||||||
Dell, Inc.(a) | 940,798 | 11,346,024 | ||||||
Hewlett-Packard Co. | 383,197 | 16,584,766 | ||||||
27,930,790 | ||||||||
Data Processing & Outsourced Services–0.3% | ||||||||
Western Union Co. | 278,095 | 4,146,396 | ||||||
Department Stores–0.8% | ||||||||
J.C. Penney Co., Inc. | 351,432 | 7,548,759 | ||||||
Macy’s, Inc. | 260,165 | 4,656,954 | ||||||
12,205,713 | ||||||||
Diversified Banks–1.8% | ||||||||
U.S. Bancorp | 481,681 | 10,765,570 | ||||||
Wells Fargo & Co. | 649,981 | 16,639,514 | ||||||
27,405,084 | ||||||||
Diversified Chemicals–0.6% | ||||||||
Du Pont (E.I.) de Nemours & Co. | 265,155 | 9,171,711 | ||||||
Drug Retail–1.1% | ||||||||
CVS Caremark Corp. | 586,315 | 17,190,756 | ||||||
Electric Utilities–0.3% | ||||||||
American Electric Power Co., Inc. | 132,400 | 4,276,520 | ||||||
Electrical Components & Equipment–0.8% | ||||||||
Emerson Electric Co. | 269,775 | 11,786,470 | ||||||
Electronic Equipment Manufacturers–0.1% | ||||||||
Cognex Corp. | 77,765 | 1,367,109 | ||||||
General Merchandise Stores–0.4% | ||||||||
Target Corp. | 117,878 | 5,796,061 | ||||||
Health Care Distributors–1.6% | ||||||||
Cardinal Health, Inc. | 743,311 | 24,982,683 | ||||||
Health Care Equipment–0.3% | ||||||||
Boston Scientific Corp.(a) | 874,337 | 5,071,155 | ||||||
Home Improvement Retail–1.7% | ||||||||
Home Depot, Inc. | 462,571 | 12,984,368 | ||||||
Lowe’s Cos., Inc. | 668,721 | 13,655,283 | ||||||
26,639,651 | ||||||||
Household Products–0.5% | ||||||||
Procter & Gamble Co. | 120,800 | 7,245,584 | ||||||
Hypermarkets & Super Centers–2.0% | ||||||||
Wal-Mart Stores, Inc. | 643,867 | 30,950,686 | ||||||
Industrial Conglomerates–2.8% | ||||||||
General Electric Co. | 1,350,889 | 19,479,819 | ||||||
Textron, Inc. | 92,599 | 1,591,187 | ||||||
Tyco International Ltd. (Switzerland) | 605,400 | 21,328,242 | ||||||
42,399,248 | ||||||||
Industrial Machinery–1.0% | ||||||||
Ingersoll-Rand PLC (Ireland) | 458,700 | 15,820,563 | ||||||
Integrated Oil & Gas–5.7% | ||||||||
BP PLC–ADR (United Kingdom) | 227,139 | 6,559,774 | ||||||
Chevron Corp. | 422,300 | 28,657,278 | ||||||
ConocoPhillips | 465,930 | 22,872,504 | ||||||
Royal Dutch Shell PLC–ADR (United Kingdom) | 428,734 | 21,531,022 | ||||||
Total SA–ADR (France) | 196,230 | 8,759,707 | ||||||
88,380,285 | ||||||||
Integrated Telecommunication Services–3.3% | ||||||||
AT&T, Inc. | 862,403 | 20,861,529 | ||||||
Verizon Communications, Inc. | 1,089,864 | 30,537,989 | ||||||
51,399,518 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Comstock Fund
Shares | Value | |||||||
Internet Software & Services–3.8% | ||||||||
eBay, Inc.(a) | 1,937,126 | $ | 37,987,041 | |||||
Yahoo!, Inc.(a) | 1,498,617 | 20,725,873 | ||||||
58,712,914 | ||||||||
Investment Banking & Brokerage–1.0% | ||||||||
Goldman Sachs Group, Inc. | 122,029 | 16,018,747 | ||||||
IT Consulting & Other Services–0.5% | ||||||||
Accenture PLC, Class A (Ireland) | 192,000 | 7,420,800 | ||||||
Life & Health Insurance–2.9% | ||||||||
Aflac, Inc. | 165,873 | 7,077,801 | ||||||
MetLife, Inc. | 635,000 | 23,977,600 | ||||||
Torchmark Corp. | 288,637 | 14,290,418 | ||||||
45,345,819 | ||||||||
Managed Health Care–1.8% | ||||||||
UnitedHealth Group, Inc. | 631,602 | 17,937,497 | ||||||
WellPoint, Inc.(a) | 203,851 | 9,974,429 | ||||||
27,911,926 | ||||||||
Movies & Entertainment–6.4% | ||||||||
News Corp., Class B | 1,409,659 | 19,523,777 | ||||||
Time Warner, Inc. | 782,715 | 22,628,291 | ||||||
Viacom, Inc., Class B | 1,819,002 | 57,062,093 | ||||||
99,214,161 | ||||||||
Multi-Utilities–0.3% | ||||||||
Sempra Energy | 103,200 | 4,828,728 | ||||||
Oil & Gas Drilling–0.4% | ||||||||
Noble Corp. (Switzerland)(a) | 179,192 | 5,538,825 | ||||||
Oil & Gas Equipment & Services–1.5% | ||||||||
Halliburton Co. | 933,769 | 22,924,029 | ||||||
Oil & Gas Exploration & Production–0.3% | ||||||||
Anadarko Petroleum Corp. | 125,890 | 4,543,370 | ||||||
Other Diversified Financial Services–6.1% | ||||||||
Bank of America Corp. | 2,486,054 | 35,724,596 | ||||||
Citigroup, Inc.(a) | 3,992,700 | 15,012,552 | ||||||
JPMorgan Chase & Co. | 1,170,523 | 42,852,847 | ||||||
93,589,995 | ||||||||
Packaged Foods & Meats–4.4% | ||||||||
Kraft Foods, Inc., Class A | 1,431,281 | 40,075,868 | ||||||
Unilever NV (Netherlands) | 1,001,477 | 27,360,352 | ||||||
67,436,220 | ||||||||
Paper Products–2.7% | ||||||||
International Paper Co. | 1,837,517 | 41,583,010 | ||||||
Personal Products–0.5% | ||||||||
Avon Products, Inc. | 302,379 | 8,013,043 | ||||||
Pharmaceuticals–9.5% | ||||||||
Abbott Laboratories | 260,729 | 12,196,903 | ||||||
Bristol-Myers Squibb Co. | 1,728,440 | 43,107,294 | ||||||
Eli Lilly & Co. | 183,193 | 6,136,965 | ||||||
GlaxoSmithKline PLC–ADR (United Kingdom) | 211,777 | 7,202,536 | ||||||
Merck & Co., Inc. | 877,566 | 30,688,483 | ||||||
Pfizer, Inc. | 2,627,971 | 37,474,866 | ||||||
Roche Holdings AG–ADR (Switzerland) | 304,098 | 10,511,664 | ||||||
147,318,711 | ||||||||
Property & Casualty Insurance–8.2% | ||||||||
Berkshire Hathaway, Inc., Class B(a) | 213,550 | 17,017,799 | ||||||
Chubb Corp. | 1,452,901 | 72,659,579 | ||||||
Travelers Cos., Inc. | 751,102 | 36,991,774 | ||||||
126,669,152 | ||||||||
Regional Banks–1.4% | ||||||||
PNC Financial Services Group, Inc. | 369,989 | 20,904,378 | ||||||
Semiconductor Equipment–0.5% | ||||||||
KLA-Tencor Corp. | 251,619 | 7,015,138 | ||||||
Semiconductors–1.4% | ||||||||
Intel Corp. | 1,146,235 | 22,294,271 | ||||||
Soft Drinks–1.4% | ||||||||
Coca-Cola Co. | 332,496 | 16,664,700 | ||||||
PepsiCo, Inc. | 81,100 | 4,943,045 | ||||||
21,607,745 | ||||||||
Systems Software–0.3% | ||||||||
Microsoft Corp. | 205,237 | 4,722,503 | ||||||
Tobacco–1.6% | ||||||||
Altria Group, Inc. | 515,417 | 10,328,957 | ||||||
Philip Morris International, Inc. | 321,036 | 14,716,290 | ||||||
25,045,247 | ||||||||
Wireless Telecommunication Services–0.8% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 624,100 | 12,900,147 | ||||||
Total Long-Term Investments–96.7% (Cost $1,869,125,928) | 1,493,765,308 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Comstock Fund
Shares | Value | |||||||
Money Market Funds–2.4% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 18,348,082 | $ | 18,348,082 | |||||
Premier Portfolio–Institutional Class(b) | 18,348,082 | 18,348,082 | ||||||
Total Money Market Funds–2.4% (Cost $36,696,164) | 36,696,164 | |||||||
TOTAL INVESTMENTS–99.1% (Cost $1,905,822,092) | 1,530,461,472 | |||||||
OTHER ASSETS IN EXCESS OF LIABILITIES–0.9% | 14,299,105 | |||||||
NET ASSETS–100.0% | $ | 1,544,760,577 | ||||||
Investment Abbreviations:
ADR – American Depositary Receipt |
Notes to Schedule of Investments:
Percentages are calculated as a percentage of net assets.
(a) | Non-income producing security. | |
(b) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
Financials | 23.5 | % | ||
Consumer Discretionary | 16.4 | |||
Health Care | 13.3 | |||
Consumer Staples | 11.5 | |||
Information Technology | 9.7 | |||
Energy | 7.9 | |||
Industrials | 5.6 | |||
Telecommunication Services | 4.2 | |||
Materials | 4.0 | |||
Utilities | 0.6 | |||
Money Market Funds Plus Other Assets in Excess of Liabilities | 3.3 | |||
Fair Value Measurements
Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below. (See Note 1(B) in the Notes to Financial Statements for further information regarding fair value measurements.)
Level 1 | Level 2 | Level 3 | ||||||||||||||
Other Significant | Significant | |||||||||||||||
Quoted Prices | Observable Inputs | Unobservable Inputs | Total | |||||||||||||
Equity Securities | $ | 1,530,461,472 | $ | — | $ | — | $ | 1,530,461,472 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Comstock Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $1,869,125,928) | $ | 1,493,765,308 | ||
Investments in affiliated money market funds, at value and cost | 36,696,164 | |||
Receivables: | ||||
Investments sold | 18,427,657 | |||
Fund shares sold | 5,147,615 | |||
Dividends | 3,896,500 | |||
Other | 624 | |||
Total assets | 1,557,933,868 | |||
Liabilities: | ||||
Payables: | ||||
Investments purchased | 10,584,251 | |||
Fund shares repurchased | 1,260,785 | |||
Distributor and affiliates | 716,255 | |||
Accrued expenses | 612,000 | |||
Total liabilities | 13,173,291 | |||
Net assets | $ | 1,544,760,577 | ||
Net assets consist of: | ||||
Capital (par value of $0.001 per share with an unlimited number of shares authorized) | $ | 2,473,767,576 | ||
Accumulated undistributed net investment income | 14,512,004 | |||
Net unrealized depreciation | (375,360,620 | ) | ||
Accumulated net realized loss | (568,158,383 | ) | ||
Net assets | $ | 1,544,760,577 | ||
Net assets value, offering price and redemption price per share: | ||||
Series I Shares | ||||
(Based on net assets of $128,669,050 and 13,518,449 shares of beneficial interest issued and outstanding) | $ | 9.52 | ||
Series II Shares | ||||
(Based on net assets of $1,416,091,527 and 149,143,243 shares of beneficial interest issued and outstanding) | $ | 9.49 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment Income: | ||||
Dividends (net of foreign withholding taxes of $345,230) | $ | 24,242,025 | ||
Interest | 38,074 | |||
Total income | 24,280,099 | |||
Expenses: | ||||
Investment advisory fee | 6,105,869 | |||
Distribution (12b-1) and service fees | 2,546,280 | |||
Accounting and administrative expenses | 503,162 | |||
Professional fees | 56,438 | |||
Reports to shareholders | 56,222 | |||
Trustees’ fees and related expenses | 52,983 | |||
Custody | 40,777 | |||
Transfer agent fees | 7,934 | |||
Other | 60,037 | |||
Total expenses | 9,429,702 | |||
Net investment income | $ | 14,850,397 | ||
Realized and unrealized gain/loss: | ||||
Realized gain/loss: | ||||
Investments | $ | 56,807,022 | ||
Futures | (11,884,840 | ) | ||
Net realized gain | 44,922,182 | |||
Unrealized appreciation/depreciation: | ||||
Beginning of the period | (217,426,062 | ) | ||
End of the period | (375,360,620 | ) | ||
Net unrealized depreciation during the period | (157,934,558 | ) | ||
Net realized and unrealized loss | $ | (113,012,376 | ) | |
Net decrease in net assets from operations | $ | (98,161,979 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Comstock Fund
Statements of Changes in Net Assets
(Unaudited)
For the | For the | |||||||
six months ended | year ended | |||||||
June 30, 2010 | December 31, 2009 | |||||||
From Investment Activities: | ||||||||
Operations: | ||||||||
Net investment income | $ | 14,850,397 | $ | 36,407,520 | ||||
Net realized gain/loss | 44,922,182 | (111,063,024 | ) | |||||
Net unrealized appreciation/depreciation during the period | (157,934,558 | ) | 592,297,754 | |||||
Change in net assets from operations | (98,161,979 | ) | 517,642,250 | |||||
Distributions from net investment income: | ||||||||
Series I shares | (193,187 | ) | (8,041,700 | ) | ||||
Series II shares | (2,889,112 | ) | (95,569,652 | ) | ||||
Total distributions | (3,082,299 | ) | (103,611,352 | ) | ||||
Net change in net assets from investment activities | (101,244,278 | ) | 414,030,898 | |||||
From capital transactions: | ||||||||
Proceeds from shares sold | 55,256,740 | 193,807,400 | ||||||
Net asset value of shares issued through dividend reinvestment | 3,082,299 | 103,611,352 | ||||||
Cost of shares repurchased | (725,713,934 | ) | (859,429,553 | ) | ||||
Net change in net assets from capital transactions | (667,374,895 | ) | (562,010,801 | ) | ||||
Total decrease in net assets | (768,619,173 | ) | (147,979,903 | ) | ||||
Net assets: | ||||||||
Beginning of the period | 2,313,379,750 | 2,461,359,653 | ||||||
End of the period (including accumulated undistributed net investment income of $14,512,004 and $2,743,906, respectively) | $ | 1,544,760,577 | $ | 2,313,379,750 | ||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Comstock Fund
Financial Highlights
(Unaudited)
The following schedule presents financial highlights for one share of the Fund outstanding throughout the periods indicated.
Six months ended | Year ended December 31, | |||||||||||||||||||||||
June 30, 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Series I Shares | ||||||||||||||||||||||||
Net asset value, beginning of the period | $ | 10.11 | $ | 8.25 | $ | 13.86 | $ | 14.75 | $ | 13.69 | $ | 13.73 | ||||||||||||
Net investment income(a) | 0.08 | 0.16 | 0.26 | 0.30 | 0.30 | 0.26 | ||||||||||||||||||
Net realized and unrealized gain/loss | (0.66 | ) | 2.12 | (4.93 | ) | (0.60 | ) | 1.81 | 0.31 | |||||||||||||||
Total from investment operations | (0.58 | ) | 2.28 | (4.67 | ) | (0.30 | ) | 2.11 | 0.57 | |||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | 0.01 | 0.42 | 0.30 | 0.26 | 0.21 | 0.16 | ||||||||||||||||||
Distributions from net realized gain | — | — | 0.64 | 0.33 | 0.84 | 0.45 | ||||||||||||||||||
Total distributions | 0.01 | 0.42 | 0.94 | 0.59 | 1.05 | 0.61 | ||||||||||||||||||
Net asset value, end of the period | $ | 9.52 | $ | 10.11 | $ | 8.25 | $ | 13.86 | $ | 14.75 | $ | 13.69 | ||||||||||||
Total return | (5.71 | )%* | 28.78 | % | (35.67 | )% | (2.04 | )% | 16.28 | % | 4.37 | % | ||||||||||||
Net assets at end of the period (In millions) | $ | 128.7 | $ | 148.1 | $ | 192.5 | $ | 309.6 | $ | 400.7 | $ | 402.2 | ||||||||||||
Ratio of Expenses to average net assets(b) | 0.64 | % | 0.62 | % | 0.60 | % | 0.59 | % | 0.59 | % | 0.59 | % | ||||||||||||
Ratio of net investment income to average net assets | 1.62 | % | 1.91 | % | 2.38 | % | 2.03 | % | 2.17 | % | 2.00 | % | ||||||||||||
Portfolio turnover | 10 | %* | 27 | % | 38 | % | 25 | % | 27 | % | 28 | % | ||||||||||||
Six months ended | Year ended December 31, | |||||||||||||||||||||||
June 30, 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Series II Shares | ||||||||||||||||||||||||
Net asset value, beginning of the period | $ | 10.10 | $ | 8.22 | $ | 13.80 | $ | 14.70 | $ | 13.65 | $ | 13.69 | ||||||||||||
Net investment income (a) | 0.07 | 0.14 | 0.23 | 0.26 | 0.26 | 0.23 | ||||||||||||||||||
Net realized and unrealized gain/loss | (0.67 | ) | 2.11 | (4.91 | ) | (0.59 | ) | 1.81 | 0.31 | |||||||||||||||
Total from investment operations | (0.60 | ) | 2.25 | (4.68 | ) | (0.33 | ) | 2.07 | 0.54 | |||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | 0.01 | 0.37 | 0.26 | 0.24 | 0.18 | 0.13 | ||||||||||||||||||
Distributions from net realized gain | — | — | 0.64 | 0.33 | 0.84 | 0.45 | ||||||||||||||||||
Total distributions | 0.01 | 0.37 | 0.90 | 0.57 | 1.02 | 0.58 | ||||||||||||||||||
Net asset value, end of the period | $ | 9.49 | $ | 10.10 | $ | 8.22 | $ | 13.80 | $ | 14.70 | $ | 13.65 | ||||||||||||
Total return(c) | (5.92 | )%* | 28.41 | % | (35.80 | )% | (2.33 | )% | 16.04 | % | 4.11 | % | ||||||||||||
Net assets at end of the period (In millions) | $ | 1,416.1 | $ | 2,165.3 | $ | 2,268.8 | $ | 3,521.5 | $ | 3,440.8 | $ | 2,421.4 | ||||||||||||
Ratio of expenses to average net assets(b) | 0.88 | % | 0.87 | % | 0.85 | % | 0.84 | % | 0.84 | % | 0.84 | % | ||||||||||||
Ratio of net investment income to average net assets | 1.34 | % | 1.63 | % | 2.13 | % | 1.78 | % | 1.91 | % | 1.76 | % | ||||||||||||
Portfolio turnover | 10 | %* | 27 | % | 38 | % | 25 | % | 27 | % | 28 | % | ||||||||||||
* | Non-Annualized | |
(a) | Based on average shares outstanding. | |
(b) | The Ratio of Expenses to Average Net Assets does not reflect credits earned on cash balances. If these credits were reflected as a reduction of expenses, the ratio would decrease by 0.01% for the year ended December 31, 2005. | |
(c) | These returns include combined Rule 12b-1 fees and service fees of up to 0.25%. | |
On June 1, 2010, the Fund’s former Class I and Class II Shares were reorganized into Series I and Series II Shares, respectively. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Comstock Fund
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. Comstock Fund (the “Fund”) is organized as a series of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly AIM Variable Insurance Funds, (the “Trust”), a Delaware statutory trust, and is registered as a diversified, open-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Trust consists of forty-one separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each portfolio or class.
Prior to June 1, 2010, the Fund operated as Van Kampen Life Investment Trust Comstock Portfolio (the “Acquired Fund”), an investment portfolio of Van Kampen Life Investment Trust. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class I and Class II Shares received Series I and Series II Shares, respectively of the Fund.
Information for the Acquired Fund’s — Class I and Class II Shares prior to the Reorganization are included with Series I and Series II Shares, respectively, of the Fund throughout this report.
The Fund’s investment objective is to seek capital growth and income through investments in equity securities, including common and preferred stocks and securities convertible into common and preferred stocks.
The Fund currently offers two classes of shares, Series I and Series II Shares, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies.
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. |
Invesco Van Kampen V.I. Comstock Fund
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Fair Value Measurements — GAAP defines fair value as the price that the Fund would receive to sell an investment or pay to transfer a liability in an orderly transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. GAAP establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund’s investments. The inputs are summarized in the three broad levels listed below. | |
Level 1— Prices are based on quoted prices in active markets for identical investments. | ||
Level 2— Prices are based on other significant observable inputs which may include quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc. | ||
Level 3— Prices are based on significant unobservable inputs including the Fund’s own assumptions in determining the fair value of investments. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer’s financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances. | ||
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. | ||
C. | Security Transactions — Security transactions are recorded on a trade date basis. Realized gains and losses are determined on an identified cost basis. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included on 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 on the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share on 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 on 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 on the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
D. | Income and Expenses — Dividend income is recorded on the ex-dividend date and interest income is recorded on an accrual basis. Income and expenses of the Fund are allocated on a pro rata basis to each class of shares, except for distribution and service fees and incremental transfer agency costs which are unique to each class of shares. | |
E. | Federal Income Taxes — It is the Fund’s policy to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income earned or gains realized or repatriated. Taxes are accrued and applied to net investment income, net realized capital gains and net unrealized appreciation, as applicable, as the income is earned or capital gains are recorded. Management has concluded there are no significant uncertain tax positions that would require recognition in the financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in “Interest Expense” and penalties in “Other” expenses on the Statement of Operations. The Fund files tax returns with the U.S. Internal Revenue Service. Generally, each of the tax years in the four year period ended December 31, 2009, remains subject to examination by taxing authorities. | |
The Fund intends to utilize provisions of the federal income tax laws which allow it to carry a realized capital loss forward for eight years following the year of the loss and offset such losses against any future realized capital gains. At December 31, 2009, the Fund had an accumulated capital loss carryforward for tax purposes of $598,306,138, which will expire according to the following schedule: |
Amount | Expiration Date | |||||
$ | 257,208,309 | December 31, 2016 | ||||
341,097,829 | December 31, 2017 | |||||
Invesco Van Kampen V.I. Comstock Fund
Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end. |
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 34,542,296 | ||
Aggregate unrealized (depreciation) of investment securities | (423,850,211 | ) | ||
Net unrealized depreciation of investment securities | $ | (389,307,915 | ) | |
Cost of investments for tax purposes is $1,919,769,387. |
F. | Distribution of Income and Gains — The Fund declares and pays dividends at least annually from net investment income and net realized gains, if any. Distributions from net realized gains for book purposes may include short-term capital gains and a portion of futures gains, which are included in ordinary income for tax purposes. Distributions from the Fund are recorded on the ex-distribution date. | |
The tax character of distributions paid during the year ended December 31, 2009 was as follows: |
Distributions paid from: | ||||
Ordinary income | $ | 103,611,352 | ||
As of December 31, 2009, the component of distributable earnings on a tax basis was as follows: |
Undistributed ordinary income | $ | 3,091,375 | ||
Net realized gains or losses may differ for financial reporting and tax purposes primarily as a result of the deferral of losses relating to wash sale transactions. |
NOTE 2—Investment Advisory Agreement and Other Transactions with Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | % Per Annum | |||
First $500 million | 0 | .60% | ||
Over $500 million | 0 | .55% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee to Van Kampen Asset Management (“Van Kampen”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Funds, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization Date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit the Fund’s expenses (excluding certain items discussed below) of Series I Shares to 0.62% and Series II Shares to 0.87% of average daily net assets, respectively. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the Fund’s expenses to exceed the limit reflected above: (i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary or non-routine items; and (v) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012. The Advisor did not waive fees and/or reimburse expenses during the period under this limitation.
Prior to the Reorganization, Van Kampen had voluntarily agreed to reimburse the Acquired Fund for all expenses as a percentage of average daily net assets in excess of 0.95% and 1.20% for Class I and Class II Shares, respectively. Van Kampen did not waive fees and/or reimburse expenses under this agreement.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds. For the period ended June 30, 2010, the Adviser did not waive any advisory fees under this agreement.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the period ended June 30, 2010, Invesco was paid $30,740 for accounting and fund administrative services and reimbursed $340,343 for services provided by insurance companies. Prior to the Reorganization, under separate accounting services and Chief Compliance Officer (“CCO”) employment agreements, Van Kampen Investments Inc. provided accounting services and the CCO provided compliance services to the Acquired Fund. Pursuant to such agreements, the Acquired Fund paid $132,079 to Van Kampen Investments Inc.
Invesco Van Kampen V.I. Comstock Fund
Also, the Trust has entered into service agreements whereby State Street Bank & Trust Company (“SSB”) serves as custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. Prior to the Reorganization, the Acquired Fund paid $6,763 to Van Kampen Investor Services Inc., which served as the Acquired Fund’s transfer agent. For the six months ended June 30, 2010, expenses incurred under these agreements are shown on the Statement of Operations as “Transfer Agent Fees”.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or Invesco Distributors, Inc. (“IDI”).
“Trustees’ Fees and Related Expenses” 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’ Fees and Related Expenses” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco 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’ Fees and Related Expenses” 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.
For the period ended June 30, 2010, the Fund paid legal fees of $0 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.
Prior to the Reorganization, the Acquired Fund paid brokerage commissions to Morgan Stanley & Co., Inc., an affiliate of the Acquired Fund, totaling $310,622.
NOTE 3—Share Information
For the six months ended June 30, 2010 and year ended December 31, 2009, transactions were as follows:
For the | For the | |||||||||||||||
six months ended | year ended | |||||||||||||||
June 30, 2010 (a) | December 31, 2009 | |||||||||||||||
Shares | Value | Shares | Value | |||||||||||||
Sales: | ||||||||||||||||
Series I | 481,179 | $ | 5,019,578 | 2,067,749 | $ | 18,516,951 | ||||||||||
Series II | 4,884,337 | 50,237,162 | 22,069,383 | 175,290,449 | ||||||||||||
Total Sales | 5,365,516 | $ | 55,256,740 | 24,137,132 | $ | 193,807,400 | ||||||||||
Dividend Reinvestment: | ||||||||||||||||
Series I | 18,487 | $ | 193,187 | 714,104 | $ | 8,041,700 | ||||||||||
Series II | 277,000 | 2,889,112 | 11,583,228 | 95,569,652 | ||||||||||||
Total Dividend Reinvestment | 295,487 | $ | 3,082,299 | 12,297,332 | $ | 103,611,352 | ||||||||||
Repurchases: | ||||||||||||||||
Series I | (1,629,725 | ) | $ | (16,767,354 | ) | (11,459,451 | ) | $ | (93,050,713 | ) | ||||||
Series II | (70,497,867 | ) | (708,946,580 | ) | (95,145,270 | ) | (766,378,840 | ) | ||||||||
Total Repurchases | (72,127,592 | ) | $ | (725,713,934 | ) | (106,604,721 | ) | $ | (859,429,553 | ) | ||||||
(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. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 4—Investment Transactions
During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investment and money market funds, were $210,781,964 and $822,849,539, respectively.
NOTE 5—Derivative Financial Instruments
A derivative financial instrument in very general terms refers to a security whose value is “derived” from the value of an underlying asset, reference rate or index.
The Fund may use derivative instruments for a variety of reasons, such as to attempt to protect the Fund against possible changes in the market value of its portfolio or to manage the Fund’s foreign currency exposure or to generate potential gain. All of the Fund’s portfolio holdings, including derivative instruments, are marked to market each day with the change in value reflected in the unrealized appreciation/depreciation. Upon disposition, a realized gain or loss is generally recognized. Risk may arise as a result of the potential inability of the counterparties to meet the terms of their contracts.
Summarized below are specific types of derivative financial instruments used by the Fund.
Invesco Van Kampen V.I. Comstock Fund
A. | Futures Contracts — The Fund is subject to equity price risk in the normal course of pursing its investment objectives. The Fund may use futures contracts to gain exposure to, or hedge against changes in the value of equities. A futures contract is an agreement involving the delivery of a particular asset on a specified future date at an agreed upon price. Upon entering into futures contracts, the Fund maintains an amount of cash or liquid securities with a value equal to a percentage of the contract amount with either a futures commission merchant pursuant to rules and regulations promulgated in the 1940 Act, or with its custodian in an account in the broker’s name. This amount is known as initial margin. During the period the futures contract is open, payments are received from or made to the broker based upon changes in the value of the contract (the variation margin). When entering into futures contracts, the Fund bears the risk of securities prices moving unexpectedly, in which case, the Fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. With futures, there is minimal counterparty credit risk to the Fund since futures are exchange traded and the exchanges clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against defaults. The risk of loss associated with a futures contract is in excess of the variation margin reflected on the Statement of Assets and Liabilities. Restricted cash, if any, for segregating purposes is shown on the Statement of Assets and Liabilities. | |
Transactions in futures contracts for the six months ended June 30, 2010, were as follows: |
Contracts | ||||
Outstanding at December 31, 2009 | -0- | |||
Futures Opened | 11,184 | |||
Futures Closed | (11,184 | ) | ||
Outstanding at June 30, 2010 | �� | -0- | ||
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. GAAP has intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position and financial performance. The enhanced disclosure has no impact on the results of operations reported in the financial statements. | ||
The following table sets forth by primary risk exposure the Fund’s realized gains/losses by type of derivative contract for the six months ended June 30, 2010. |
Amount of Realized Gain/Loss on Derivative Contracts | ||||
Primary Risk Exposure | Futures | |||
Equity Contracts | $ | (11,884,840 | ) | |
NOTE 6—Distribution and Service Plans
The Trust has entered into a master distribution agreement with IDI to serve as the distributor for the Fund. The Trust has adopted a distribution 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 IDI 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. Prior to the Reorganization, the Acquired Fund paid distribution fees of $2,234,083 to Van Kampen Funds Inc. based on the annual rate of 0.25% of the Acquired Fund’s average daily net assets of Class II Shares. For the six months ended June 30, 2010, expenses incurred under the Plan are detailed on the Statement of Operations as “Distribution (12b-1) and Service Fees”.
NOTE 7—Indemnifications
Under the Trust’s organizational documents, each trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote.
NOTE 8—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
Invesco Van Kampen V.I. Comstock Fund
NOTE 9—Change in Independent Registered Public Accounting Firm
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
Invesco Van Kampen V.I. Comstock Fund
Calculating your ongoing Fund expenses
Expense Example
As a policyholder of the Fund, you incur ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing cost (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 1/1/10 — 6/30/10.
Actual Expense
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, 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 first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below 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 cost 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 only. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds that have transactional costs, such as sales charges (loads), or exchanges fees.
HYPOTHETICAL | |||||||||||||||||||||||||
(5% annual return before | |||||||||||||||||||||||||
ACTUAL | expenses) | ||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | |||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | |||||||||||||||||||||
Series | (1/1/10) | (6/30/10) | Period* | (6/30/10) | Period* | ||||||||||||||||||||
I | $ | 1,000.00 | $ | 942.87 | $ | 3.08 | $ | 1,021.62 | $ | 3.21 | |||||||||||||||
II | 1,000.00 | 940.83 | 4.23 | 1,020.43 | 4.41 | ||||||||||||||||||||
* | Expenses are equal to the Fund’s annualized expense ratio of 0.64% and 0.88% for Series I and II Shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
Assumes all dividends and distributions were reinvested.
Invesco Van Kampen V.I. Comstock Fund
Approval of Investment Advisory and Sub-Advisory Agreements With Invesco Advisers, Inc. and Its Affiliates
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Van Kampen V.I. Comstock Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Van Kampen retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-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 the 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. The Board noted that the Fund’s contractual advisory fee schedule provides for
breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be
Invesco Van Kampen V.I. Comstock Fund
provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are 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 Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco Van Kampen V.I. Comstock Fund
Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Van Kampen Life Investment Trust Comstock Portfolio was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 206,723,730 | 6,459,774 | 13,400,553 | 0 |
Invesco Van Kampen V.I. Comstock Fund
Invesco Van Kampen V.I. Equity and Income Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VK-VIEQI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -4.55 | % | ||
Series II Shares | -4.55 | |||
Russell 1000 Value Index▼ (Broad Market Index) | -5.12 | |||
Barclays Capital U.S. Government/Credit Index▼ (Style-Specific Index) | 5.49 |
▼ | Lipper Inc. |
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Barclays Capital U.S. Government/Credit Index includes treasuries and agencies that represent the government portion of the index, and includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements to represent the credit interests.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception | 5.59 | % | ||
5 Years | 2.21 | |||
1 Year | 14.46 | |||
Series II Shares | ||||
Inception (4/30/03) | 5.59 | % | ||
5 Years | 2.21 | |||
1 Year | 14.46 |
Effective June 1, 2010, Class II shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Series II shares of Invesco Van Kampen V.I. Equity and Income Fund. Returns shown above for Series II shares are blended returns of the predecessor fund and Invesco Van Kampen V.I. Equity and Income Fund. Share class returns will differ from the predecessor fund because of different expenses.
Series I shares incepted on June 1, 2010. Series I shares performance shown prior to that date is that of the predecessor fund’s Class II shares and includes the 12b-1 fees applicable to the predecessor fund’s Class II shares. Class II shares performance reflects any applicable fee waivers or expense reimbursements. The inception date of the predecessor fund’s Class II shares is April 30, 2003.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.71% and 0.76%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.73% and 0.98%, 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.
Invesco Van Kampen V.I. Equity and Income Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
Invesco Van Kampen V.I. Equity and Income Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–62.0% | ||||||||
Aerospace & Defense–0.3% | ||||||||
General Dynamics Corp. | 33,000 | $ | 1,932,480 | |||||
Air Freight & Logistics–0.4% | ||||||||
FedEx Corp. | 42,100 | 2,951,631 | ||||||
Apparel Retail–0.6% | ||||||||
Gap, Inc. (The) | 202,700 | 3,944,542 | ||||||
Asset Management & Custody Banks–0.9% | ||||||||
Janus Capital Group, Inc. | 216,299 | 1,920,735 | ||||||
State Street Corp. | 113,300 | 3,831,806 | ||||||
5,752,541 | ||||||||
Automobile Manufacturers–0.4% | ||||||||
Ford Motor Co.(b) | 246,100 | 2,480,688 | ||||||
Biotechnology–0.8% | ||||||||
Genzyme Corp.(b) | 102,632 | 5,210,627 | ||||||
Cable & Satellite–1.9% | ||||||||
Comcast Corp. (Class A) | 406,765 | 7,065,508 | ||||||
Time Warner Cable, Inc. | 99,521 | 5,183,054 | ||||||
12,248,562 | ||||||||
Communications Equipment–0.9% | ||||||||
Cisco Systems, Inc.(b) | 274,220 | 5,843,628 | ||||||
Computer Hardware–1.8% | ||||||||
Dell, Inc.(b) | 377,981 | 4,558,451 | ||||||
Hewlett-Packard Co. | 175,130 | 7,579,626 | ||||||
12,138,077 | ||||||||
Consumer Electronics–0.7% | ||||||||
Sony Corp. (ADR) (Japan) | 162,650 | 4,339,502 | ||||||
Data Processing & Outsourced Services–0.6% | ||||||||
Western Union Co. (The) | 254,982 | 3,801,782 | ||||||
Diversified Banks–1.1% | ||||||||
US Bancorp | 123,232 | 2,754,235 | ||||||
Wells Fargo & Co. | 185,400 | 4,746,240 | ||||||
7,500,475 | ||||||||
Diversified Chemicals–1.1% | ||||||||
Dow Chemical Co. (The) | 179,900 | 4,267,228 | ||||||
PPG Industries, Inc. | 49,000 | 2,960,090 | ||||||
7,227,318 | ||||||||
Diversified Metals & Mining–0.4% | ||||||||
Freeport-McMoRan Copper & Gold, Inc. | 42,100 | 2,489,373 | ||||||
Diversified Support Services–0.4% | ||||||||
Cintas Corp. | 97,000 | 2,325,090 | ||||||
Drug Retail–0.5% | ||||||||
Walgreen Co. | 129,802 | 3,465,713 | ||||||
Electric Utilities–2.6% | ||||||||
American Electric Power Co., Inc. | 273,205 | 8,824,522 | ||||||
Edison International | 63,900 | 2,026,908 | ||||||
Entergy Corp. | 45,457 | 3,255,630 | ||||||
FirstEnergy Corp. | 97,590 | 3,438,096 | ||||||
17,545,156 | ||||||||
Food Distributors–0.8% | ||||||||
Sysco Corp. | 180,700 | 5,162,599 | ||||||
Health Care Distributors–0.4% | ||||||||
Cardinal Health, Inc. | 85,600 | 2,877,016 | ||||||
Health Care Equipment–0.8% | ||||||||
Covidien PLC (Ireland) | 132,617 | 5,328,551 | ||||||
Home Improvement Retail–1.1% | ||||||||
Home Depot, Inc. | 252,016 | 7,074,089 | ||||||
Human Resource & Employment Services–0.6% | ||||||||
Manpower, Inc. | 52,839 | 2,281,588 | ||||||
Robert Half International, Inc. | 81,900 | 1,928,745 | ||||||
4,210,333 | ||||||||
Hypermarkets & Super Centers–1.1% | ||||||||
Wal-Mart Stores, Inc. | 157,057 | 7,549,730 | ||||||
Industrial Conglomerates–3.7% | ||||||||
General Electric Co. | 970,579 | 13,995,749 | ||||||
Siemens AG (ADR) (Germany) | 48,910 | 4,378,912 | ||||||
Tyco International Ltd. | 181,447 | 6,392,378 | ||||||
24,767,039 | ||||||||
Industrial Machinery–1.3% | ||||||||
Dover Corp. | 110,738 | 4,627,741 | ||||||
Ingersoll-Rand PLC (Ireland) | 118,858 | 4,099,412 | ||||||
8,727,153 | ||||||||
Insurance Brokers–2.0% | ||||||||
Marsh & McLennan Cos., Inc. | 589,250 | 13,287,587 | ||||||
Integrated Oil & Gas–4.6% | ||||||||
ConocoPhillips | 95,825 | 4,704,049 | ||||||
Exxon Mobil Corp. | 73,260 | 4,180,948 | ||||||
Hess Corp. | 84,617 | 4,259,620 | ||||||
Occidental Petroleum Corp. | 128,170 | 9,888,315 | ||||||
Royal Dutch Shell PLC (ADR) (United Kingdom) | 146,030 | 7,333,627 | ||||||
30,366,559 | ||||||||
Integrated Telecommunication Services–0.6% | ||||||||
Verizon Communications, Inc. | 143,430 | 4,018,909 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Shares | Value | |||||||
Internet Software & Services–2.1% | ||||||||
eBay, Inc.(b) | 488,650 | $ | 9,582,427 | |||||
Yahoo!, Inc.(b) | 320,298 | 4,429,721 | ||||||
14,012,148 | ||||||||
Investment Banking & Brokerage–0.9% | ||||||||
Charles Schwab Corp. (The) | 413,944 | 5,869,726 | ||||||
IT Consulting & Other Services–0.6% | ||||||||
Amdocs Ltd.(b) | 147,392 | 3,957,475 | ||||||
Life & Health Insurance–0.4% | ||||||||
Principal Financial Group, Inc. | 124,699 | 2,922,945 | ||||||
Managed Health Care–0.9% | ||||||||
UnitedHealth Group, Inc. | 212,140 | 6,024,776 | ||||||
Motorcycle Manufacturers–0.3% | ||||||||
Harley-Davidson, Inc. | 93,120 | 2,070,058 | ||||||
Movies & Entertainment–3.1% | ||||||||
Time Warner, Inc. | 291,820 | 8,436,516 | ||||||
Viacom, Inc. (Class B) | 379,595 | 11,907,895 | ||||||
20,344,411 | ||||||||
Multi-Utilities–0.2% | ||||||||
PG&E Corp. | 34,267 | 1,383,825 | ||||||
Office Services & Supplies–0.4% | ||||||||
Avery Dennison Corp. | 78,700 | 2,528,631 | ||||||
Oil & Gas Equipment & Services–0.8% | ||||||||
Schlumberger Ltd. | 89,930 | 4,976,726 | ||||||
Oil & Gas Exploration & Production–1.6% | ||||||||
Anadarko Petroleum Corp. | 126,822 | 4,577,006 | ||||||
Devon Energy Corp. | 66,200 | 4,032,904 | ||||||
Noble Energy, Inc. | 32,300 | 1,948,659 | ||||||
10,558,569 | ||||||||
Other Diversified Financial Services–5.3% | ||||||||
Bank of America Corp. | 727,625 | 10,455,971 | ||||||
Citigroup, Inc. | 1,150,904 | 4,327,399 | ||||||
JPMorgan Chase & Co. | 561,940 | 20,572,624 | ||||||
35,355,994 | ||||||||
Packaged Foods & Meats–1.9% | ||||||||
Kraft Foods, Inc. (Class A) | 337,400 | 9,447,200 | ||||||
Unilever N.V. (NY Registered Shares) (Netherlands) | 108,490 | 2,963,947 | ||||||
12,411,147 | ||||||||
Personal Products–0.6% | ||||||||
Avon Products, Inc. | 160,904 | 4,263,956 | ||||||
Pharmaceuticals–4.9% | ||||||||
Abbott Laboratories | 67,350 | 3,150,633 | ||||||
Bayer AG (ADR) (Germany) | 78,110 | 4,391,586 | ||||||
Bristol-Myers Squibb Co. | 314,420 | 7,841,635 | ||||||
Merck & Co., Inc. | 198,588 | 6,944,622 | ||||||
Pfizer, Inc. | 411,300 | 5,865,138 | ||||||
Roche Holding AG (ADR) (Switzerland) | 124,720 | 4,311,159 | ||||||
32,504,773 | ||||||||
Property & Casualty Insurance–0.8% | ||||||||
Chubb Corp. | 99,556 | 4,978,796 | ||||||
Regional Banks–2.4% | ||||||||
BB&T Corp. | 142,800 | 3,757,068 | ||||||
Fifth Third Bancorp | 257,000 | 3,158,530 | ||||||
PNC Financial Services Group, Inc. | 157,280 | 8,886,320 | ||||||
15,801,918 | ||||||||
Semiconductor Equipment–0.3% | ||||||||
Lam Research Corp.(b) | 55,563 | 2,114,728 | ||||||
Semiconductors–0.7% | ||||||||
Intel Corp. | 247,940 | 4,822,433 | ||||||
Soft Drinks–0.5% | ||||||||
Coca-Cola Co. (The) | 66,960 | 3,356,035 | ||||||
Wireless Telecommunication Services–0.9% | ||||||||
Vodafone Group PLC (ADR) (United Kingdom) | 302,200 | 6,246,474 | ||||||
Total Common Stocks & Other Equity Interests (Cost $425,658,678) | 411,072,294 | |||||||
Principal | ||||||||
Amount | ||||||||
Convertible Bonds–15.0% | ||||||||
Advertising–0.5% | ||||||||
Interpublic Group of Cos., Inc., 4.25%, 03/15/23 | $ | 1,805,000 | 1,816,281 | |||||
Interpublic Group of Cos., Inc., 4.75%, 03/15/23 | 1,638,000 | 1,676,903 | ||||||
3,493,184 | ||||||||
Application Software–0.3% | ||||||||
Cadence Design Systems, Inc., 1.375%, 12/15/11 | 153,000 | 150,705 | ||||||
Cadence Design Systems, Inc., 2.625%, 06/01/15(c) | 902,000 | 881,705 | ||||||
Cadence Design Systems, Inc., 1.50%, 12/15/13 | 860,000 | 752,500 | ||||||
1,784,910 | ||||||||
Asset Management & Custody Banks–0.5% | ||||||||
Affiliated Managers Group, Inc., 3.95%, 08/15/38 | 2,511,000 | 2,460,780 | ||||||
Janus Capital Group, Inc., 3.25%, 07/15/14 | 1,013,000 | 1,020,597 | ||||||
3,481,377 | ||||||||
Auto Parts & Equipment–0.3% | ||||||||
BorgWarner, Inc., 3.50%, 04/15/12 | 1,772,000 | 2,294,740 | ||||||
Automobile Manufacturers–0.7% | ||||||||
Ford Motor Co., 4.25%, 11/15/16 | 3,775,000 | 4,723,469 | ||||||
Biotechnology–1.8% | ||||||||
Amgen, Inc., 0.375%, 02/01/13 | 8,090,000 | 8,029,325 | ||||||
Amylin Pharmaceuticals, Inc., 3.00%, 06/15/14 | 1,628,000 | 1,385,835 | ||||||
Cephalon, Inc., 2.50%, 05/01/14 | 2,659,000 | 2,805,245 | ||||||
12,220,405 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Principal | ||||||||
Amount | Value | |||||||
Cable & Satellite–0.3% | ||||||||
Liberty Global, Inc., 4.50%, 11/15/16(c) | $ | 1,442,000 | $ | 1,679,930 | ||||
Casinos & Gaming–0.5% | ||||||||
International Game Technology, 3.25%, 05/01/14(c) | 3,013,000 | 3,314,300 | ||||||
Coal & Consumable Fuels–0.4% | ||||||||
Massey Energy Co., 3.25%, 08/01/15 | 3,271,000 | 2,735,374 | ||||||
Communications Equipment–1.0% | ||||||||
Alcatel-Lucent USA, Inc., (Series B), 2.875%, 06/15/25 | 4,401,000 | 3,729,847 | ||||||
Ciena Corp., 0.25%, 05/01/13 | 1,336,000 | 1,087,170 | ||||||
JDS Uniphase Corp., 1.00%, 05/15/26 | 662,000 | 587,525 | ||||||
JDS Uniphase Corp., 1.00%, 05/15/26(c) | 1,100,000 | 976,250 | ||||||
6,380,792 | ||||||||
Computer Storage & Peripherals–0.8% | ||||||||
SanDisk Corp., 1.00%, 05/15/13 | 6,064,000 | 5,419,700 | ||||||
Construction & Farm Machinery & Heavy Trucks–0.2% | ||||||||
Navistar International Corp., 3.00%, 10/15/14 | 967,000 | 1,138,643 | ||||||
Health Care Services–0.5% | ||||||||
Omnicare, Inc., (Series OCR), 3.25%, 12/15/35 | 4,060,000 | 3,379,950 | ||||||
Health Care Equipment–0.2% | ||||||||
Wright Medical Group, Inc., 2.625%, 12/01/14 | 1,640,000 | 1,424,750 | ||||||
Health Care Facilities–0.3% | ||||||||
LifePoint Hospitals, Inc., 3.50%, 05/15/14 | 1,868,000 | 1,734,905 | ||||||
Hotels, Resorts & Cruise Lines–0.3% | ||||||||
Gaylord Entertainment Co., 3.75%, 10/01/14(c) | 1,728,000 | 1,810,080 | ||||||
Industrial Conglomerates–0.6% | ||||||||
3M CO, 0.00%, 11/21/32(d) | 3,312,000 | 3,001,500 | ||||||
Textron, Inc., (Series TXT), 4.50%, 05/01/13 | 474,000 | 688,485 | ||||||
3,689,985 | ||||||||
Investment Banking & Brokerage–0.7% | ||||||||
Goldman Sachs Group, Inc. (The), (Series 0000) (MTN), 1.00%, 03/15/17(c) | 3,328,000 | 3,178,639 | ||||||
Jefferies Group, Inc., 3.875%, 11/01/29 | 1,414,200 | 1,332,884 | ||||||
4,511,523 | ||||||||
Life Sciences Tools & Services–0.4% | ||||||||
Life Technologies Corp., 1.50%, 02/15/24 | 2,545,000 | 2,809,044 | ||||||
Movies & Entertainment–0.8% | ||||||||
Liberty Media LLC, 3.125%, 03/30/23 | 4,735,200 | 4,977,879 | ||||||
Oil & Gas Equipment & Services–0.2% | ||||||||
Helix Energy Solutions Group, Inc., 3.25%, 12/15/25 | 1,208,000 | 1,050,960 | ||||||
Pharmaceuticals–1.3% | ||||||||
Allergan Inc, 1.50%, 04/01/26 | 1,914,000 | 2,095,830 | ||||||
Endo Pharmaceuticals Holdings, Inc., 1.75%, 04/15/15(c) | 1,493,000 | 1,418,350 | ||||||
King Pharmaceuticals, Inc., 1.25%, 04/01/26 | 2,368,000 | 2,063,120 | ||||||
Mylan, Inc., 1.25%, 03/15/12 | 3,362,000 | 3,362,000 | ||||||
8,939,300 | ||||||||
Semiconductors–1.0% | ||||||||
Linear Technology Corp., 3.00%, 05/01/27(c) | 1,193,000 | 1,173,614 | ||||||
Linear Technology Corp., 3.00%, 05/01/27 | 819,000 | 805,691 | ||||||
Micron Technology, Inc., 1.875%, 06/01/14 | 3,414,000 | 3,017,122 | ||||||
Xilinx, Inc., 3.125%, 03/15/37(c) | 1,302,000 | 1,192,958 | ||||||
Xilinx, Inc., 3.125%, 03/15/37 | 763,000 | 699,099 | ||||||
6,888,484 | ||||||||
Specialized Finance–0.2% | ||||||||
NASDAQ OMX Group, Inc. (The), 2.50%, 08/15/13 | 1,601,000 | 1,526,954 | ||||||
Steel–0.4% | ||||||||
Allegheny Technologies, Inc., 4.25%, 06/01/14 | 2,058,000 | 2,657,392 | ||||||
Systems Software–0.5% | ||||||||
Symantec Corp., 0.75%, 06/15/11 | 1,799,000 | 1,792,254 | ||||||
Symantec Corp., 1.00%, 06/15/13 | 1,738,000 | 1,774,932 | ||||||
3,567,186 | ||||||||
Thrifts & Mortgage Finance–0.0% | ||||||||
MGIC Investment Corp., 5.00%, 05/01/17 | 247,000 | 221,991 | ||||||
Wireless Telecommunication Services–0.3% | ||||||||
SBA Communications Corp., 1.875%, 05/01/13 | 1,711,000 | 1,728,110 | ||||||
Total Convertible Bonds (Cost $96,300,397) | 99,585,317 | |||||||
U.S. Treasury Securities–8.1% | ||||||||
U.S. Treasury Bills–0.1% | ||||||||
U.S. Treasury Bill, 0.201%, 10/28/10(e)(f) | 345,000 | 344,842 | ||||||
U.S. Treasury Bonds–2.8% | ||||||||
8.125%, 08/15/21 | 2,700,000 | 3,948,750 | ||||||
6.625%, 02/15/27 | 2,500,000 | 3,441,016 | ||||||
5.375%, 02/15/31 | 8,800,000 | 10,822,625 | ||||||
4.25%, 05/15/39 | 250,000 | 264,336 | ||||||
4.625%, 02/15/40 | 200,000 | 224,812 | ||||||
18,701,539 | ||||||||
U.S. Treasury Notes–5.2% | ||||||||
1.50%, 12/31/13 | 500,000 | 504,141 | ||||||
1.75%, 03/31/14 | 2,300,000 | 2,331,984 | ||||||
2.625%, 07/31/14 | 1,000,000 | 1,045,000 | ||||||
2.375%, 10/31/14 | 18,800,000 | 19,393,375 | ||||||
2.25%, 01/31/15 | 6,000,000 | 6,148,125 | ||||||
4.00%, 08/15/18 | 3,055,000 | 3,359,545 | ||||||
3.625%, 08/15/19 | 1,260,000 | 1,332,056 | ||||||
3.375%, 11/15/19 | 300,000 | 310,688 | ||||||
34,424,914 | ||||||||
Total U.S. Treasury Securities (Cost $51,009,867) | 53,471,295 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Principal | ||||||||
Amount | Value | |||||||
Bonds & Notes–7.9% | ||||||||
Advertising–0.0% | ||||||||
WPP Finance (United Kingdom), 8.00%, 09/15/14 | $ | 100,000 | $ | 117,320 | ||||
Aerospace & Defense–0.0% | ||||||||
Systems 2001 AT LLC, 6.664%, 09/15/13(c) | 96,076 | 101,840 | ||||||
Agricultural Products–0.0% | ||||||||
Bunge Ltd. Finance Corp., 8.50%, 06/15/19 | 90,000 | 107,349 | ||||||
Air Freight & Logistics–0.0% | ||||||||
FedEx Corp., 7.25%, 02/15/11 | 10,000 | 10,375 | ||||||
Airlines–0.0% | ||||||||
Delta Air Lines, Inc., 6.20%, 07/02/18 | 230,000 | 233,162 | ||||||
Application Software–0.0% | ||||||||
Adobe Systems, Inc., 4.75%, 02/01/20 | 185,000 | 189,886 | ||||||
Automobile Manufacturers–0.1% | ||||||||
Daimler Finance North America LLC, 7.30%, 01/15/12 | 170,000 | 182,937 | ||||||
Daimler Finance North America LLC, 8.50%, 01/18/31 | 35,000 | 44,622 | ||||||
Nissan Motor Acceptance Corp., 4.50%, 01/30/15(c) | 105,000 | 108,540 | ||||||
336,099 | ||||||||
Biotechnology–0.0% | ||||||||
Biogen Idec, Inc., 6.875%, 03/01/18 | 180,000 | 206,775 | ||||||
Brewers–0.1% | ||||||||
Anheuser-Busch InBev Worldwide, Inc., 7.20%, 01/15/14(c) | 215,000 | 247,484 | ||||||
FBG Finance Ltd. (Australia), 5.125%, 06/15/15(c) | 295,000 | 321,431 | ||||||
568,915 | ||||||||
Broadcasting–0.0% | ||||||||
COX Communications, Inc., 8.375%, 03/01/39(c) | 50,000 | 65,854 | ||||||
Cable & Satellite–0.2% | ||||||||
Comcast Corp., 5.70%, 05/15/18 | 400,000 | 439,210 | ||||||
Comcast Corp., 5.15%, 03/01/20 | 160,000 | 167,310 | ||||||
Time Warner Cable, Inc., 8.75%, 02/14/19 | 200,000 | 252,123 | ||||||
Time Warner Cable, Inc., 6.75%, 06/15/39 | 130,000 | 143,680 | ||||||
1,002,323 | ||||||||
Communications Equipment–0.1% | ||||||||
Cisco Systems, Inc., 4.95%, 02/15/19 | 215,000 | 236,883 | ||||||
Cisco Systems, Inc., 5.90%, 02/15/39 | 30,000 | 33,188 | ||||||
Corning, Inc., 6.625%, 05/15/19 | 35,000 | 40,752 | ||||||
310,823 | ||||||||
Construction Materials–0.0% | ||||||||
Holcim US Finance Sarl & Cie SCS (Switzerland), 6.00%, 12/30/19(c) | 85,000 | 91,967 | ||||||
Consumer Finance–0.3% | ||||||||
American Express Co., 8.125%, 05/20/19 | 555,000 | 688,467 | ||||||
Capital One Bank USA NA, 8.80%, 07/15/19 | 400,000 | 498,087 | ||||||
HSBC Finance Corp., 6.75%, 05/15/11 | 120,000 | 125,053 | ||||||
HSBC Finance Corp., 6.375%, 10/15/11 | 445,000 | 467,615 | ||||||
1,779,222 | ||||||||
Department Stores–0.0% | ||||||||
Kohl’s Corp., 6.875%, 12/15/37 | 190,000 | 228,814 | ||||||
Diversified Banks–1.0% | ||||||||
Abbey National Treasury Services PLC, 3.875%, 11/10/14(c) | 210,000 | 209,583 | ||||||
Ally Financial, Inc., 2.20%, 12/19/12 | 500,000 | 514,732 | ||||||
Bank of Nova Scotia (Canada), 2.375%, 12/17/13 | 360,000 | 368,629 | ||||||
Barclays Bank PLC (United Kingdom), 6.75%, 05/22/19 | 485,000 | 540,992 | ||||||
Commonwealth Bank of Australia (Australia), 5.00%, 10/15/19(c) | 285,000 | 297,721 | ||||||
Credit Suisse, 6.00%, 02/15/18 | 70,000 | 72,888 | ||||||
HBOS PLC (United Kingdom), 6.75%, 05/21/18(c) | 325,000 | 307,681 | ||||||
HSBC Finance Corp., 8.00%, 07/15/10 | 85,000 | 85,153 | ||||||
Lloyds TSB Bank PLC (United Kingdom), 5.80%, 01/13/20(c) | 185,000 | 174,654 | ||||||
National Australia Bank Ltd., 3.75%, 03/02/15(c) | 190,000 | 195,157 | ||||||
Nordea Bank AB, 4.875%, 01/27/20(c) | 245,000 | 253,829 | ||||||
Rabobank Nederland N.V. (Netherlands), 4.75%, 01/15/20(c) | 490,000 | 502,910 | ||||||
Royal Bank of Scotland PLC (The) (United Kingdom), 4.875%, 03/16/15 | 420,000 | 418,383 | ||||||
Santander US Debt SA Unipersonal, 3.724%, 01/20/15(c) | 200,000 | 196,543 | ||||||
Standard Chartered PLC (United Kingdom), 3.85%, 04/27/15(c) | 255,000 | 255,227 | ||||||
Svenska Handelsbanken AB, 5.125%, 03/30/20(c) | 240,000 | 245,840 | ||||||
US Bancorp, 2.00%, 06/14/13 | 480,000 | 485,805 | ||||||
US Bank NA, 3.778%, 04/29/20(d) | 450,000 | 457,532 | ||||||
Wells Fargo & Co., 5.625%, 12/11/17 | 795,000 | 866,957 | ||||||
6,450,216 | ||||||||
Diversified Capital Markets–0.2% | ||||||||
Credit Suisse (Switzerland), 5.30%, 08/13/19 | 170,000 | 181,007 | ||||||
Credit Suisse AG (Switzerland), 5.40%, 01/14/20 | 550,000 | 548,979 | ||||||
UBS AG (Switzerland), (MTN), 5.875%, 12/20/17 | 225,000 | 238,809 | ||||||
968,795 | ||||||||
Diversified Metals & Mining–0.1% | ||||||||
Anglo American Capital PLC (United Kingdom), 9.375%, 04/08/19(c) | 300,000 | 383,317 | ||||||
Freeport-McMoRan Copper & Gold, Inc., 8.375%, 04/01/17 | 60,000 | 66,131 | ||||||
Rio Tinto Finance USA Ltd. (Australia), 9.00%, 05/01/19 | 265,000 | 347,160 | ||||||
796,608 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Principal | ||||||||
Amount | Value | |||||||
Drug Retail–0.1% | ||||||||
CVS Pass-Through Trust, 6.036%, 12/10/28 | $ | 356,718 | $ | 372,086 | ||||
CVS Pass-Through Trust, 8.353%, 07/10/31(c) | 34,465 | 42,023 | ||||||
414,109 | ||||||||
Electric Utilities–0.2% | ||||||||
EDF SA, 4.60%, 01/27/20(c) | 125,000 | 128,418 | ||||||
Enel Finance International SA, 5.125%, 10/07/19(c) | 325,000 | 325,751 | ||||||
FirstEnergy Solutions Corp., 6.05%, 08/15/21 | 350,000 | 358,422 | ||||||
Iberdrola Finance Ireland Ltd. (Ireland), 3.80%, 09/11/14(c) | 125,000 | 124,696 | ||||||
Ohio Power Co., (Series M), 5.375%, 10/01/21 | 100,000 | 108,025 | ||||||
PPL Energy Supply LLC, 6.30%, 07/15/13 | 140,000 | 155,484 | ||||||
Progress Energy, Inc., 7.05%, 03/15/19 | 270,000 | 320,833 | ||||||
1,521,629 | ||||||||
Electrical Components & Equipment–0.0% | ||||||||
Cooper US, Inc., 5.25%, 11/15/12 | 165,000 | 178,082 | ||||||
Electronic Components–0.0% | ||||||||
Amphenol Corp., 4.75%, 11/15/14 | 115,000 | 121,395 | ||||||
Corning, Inc., 7.25%, 08/15/36 | 55,000 | 65,391 | ||||||
186,786 | ||||||||
Environmental & Facilities Services–0.0% | ||||||||
Republic Services, Inc., 5.50%, 09/15/19(c) | 155,000 | 167,664 | ||||||
Fertilizers & Agricultural Chemicals–0.1% | ||||||||
Mosaic Co. (The), 7.625%, 12/01/16(c) | 260,000 | 285,350 | ||||||
Potash Corp. of Saskatchewan, Inc. (Canada), 5.875%, 12/01/36 | 35,000 | 37,680 | ||||||
323,030 | ||||||||
Food Retail–0.2% | ||||||||
Delhaize America, Inc., 9.00%, 04/15/31 | 135,000 | 183,100 | ||||||
Delhaize Group SA (Belgium), 5.875%, 02/01/14 | 165,000 | 184,377 | ||||||
WM Wrigley Jr Co, 1.912%, 06/28/11(c)(d) | 650,000 | 652,031 | ||||||
1,019,508 | ||||||||
Gas Utilities–0.0% | ||||||||
QEP Resources Inc, 6.80%, 04/01/18 | 200,000 | 209,569 | ||||||
Gold–0.1% | ||||||||
Newmont Mining Corp., 5.125%, 10/01/19 | 315,000 | 336,883 | ||||||
Health Care Services–0.1% | ||||||||
Medco Health Solutions, Inc., 7.125%, 03/15/18 | 280,000 | 334,926 | ||||||
Quest Diagnostics, Inc., 4.75%, 01/30/20 | 245,000 | 246,724 | ||||||
581,650 | ||||||||
Health Care Distributors–0.0% | ||||||||
AmerisourceBergen Corp., 4.875%, 11/15/19 | 115,000 | 118,635 | ||||||
Health Care Equipment–0.1% | ||||||||
CareFusion Corp., 4.125%, 08/01/12 | 355,000 | 371,748 | ||||||
Home Improvement Retail–0.0% | ||||||||
Home Depot, Inc., 5.875%, 12/16/36 | 210,000 | 214,746 | ||||||
Hypermarkets & Super Centers–0.0% | ||||||||
Wal-Mart Stores, Inc., 5.25%, 09/01/35 | 120,000 | 125,836 | ||||||
Wal-Mart Stores, Inc., 6.50%, 08/15/37 | 45,000 | 54,690 | ||||||
180,526 | ||||||||
Industrial Conglomerates–0.7% | ||||||||
General Electric Capital Corp., 2.625%, 12/28/12 | 3,150,000 | 3,276,375 | ||||||
General Electric Capital Corp., 5.625%, 05/01/18 | 295,000 | 314,270 | ||||||
General Electric Capital Corp., (MTN), 5.875%, 01/14/38 | 120,000 | 117,573 | ||||||
General Electric Capital Corp., (Series G), 6.00%, 08/07/19 | 595,000 | 646,725 | ||||||
General Electric Co., 5.25%, 12/06/17 | 440,000 | 480,320 | ||||||
4,835,263 | ||||||||
Integrated Oil & Gas–0.1% | ||||||||
Hess Corp., 6.00%, 01/15/40 | 175,000 | 181,685 | ||||||
Shell International Finance BV (Finland), 3.10%, 06/28/15 | 275,000 | 279,302 | ||||||
460,987 | ||||||||
Integrated Telecommunication Services–0.4% | ||||||||
AT&T Corp., 8.00%, 11/15/31 | 85,000 | 109,207 | ||||||
AT&T, Inc., 6.15%, 09/15/34 | 125,000 | 133,211 | ||||||
AT&T, Inc., 6.30%, 01/15/38 | 610,000 | 664,969 | ||||||
Deutsche Telekom International Finance BV (Netherlands), 8.75%, 06/15/30 | 140,000 | 180,763 | ||||||
NBC Universal, Inc., 5.15%, 04/30/20(c) | 200,000 | 209,249 | ||||||
Telecom Italia Capital SA (Luxembourg), 6.999%, 06/04/18 | 325,000 | 346,925 | ||||||
Telecom Italia Capital SA (Luxembourg), 7.175%, 06/18/19 | 140,000 | 150,632 | ||||||
Telefonica Europe BV (Netherlands), 8.25%, 09/15/30 | 295,000 | 364,974 | ||||||
Verizon Communications, Inc., 6.35%, 04/01/19 | 235,000 | 274,099 | ||||||
Verizon Communications, Inc., 8.95%, 03/01/39 | 280,000 | 404,166 | ||||||
2,838,195 | ||||||||
Investment Banking & Brokerage–0.3% | ||||||||
Bear Stearns Cos. LLC (The), 7.25%, 02/01/18 | 285,000 | 331,706 | ||||||
Goldman Sachs Group, Inc. (The), 6.15%, 04/01/18 | 805,000 | 843,064 | ||||||
Goldman Sachs Group, Inc. (The), 6.75%, 10/01/37 | 365,000 | 359,892 | ||||||
TD Ameritrade Holding Corp., 5.60%, 12/01/19 | 250,000 | 264,058 | ||||||
1,798,720 | ||||||||
IT Consulting & Other Services–0.0% | ||||||||
International Business Machines Corp., 5.60%, 11/30/39 | 220,000 | 244,413 | ||||||
Life & Health Insurance–0.2% | ||||||||
Aegon N.V. (Netherlands), 4.625%, 12/01/15 | 250,000 | 259,070 | ||||||
MetLife, Inc., 7.717%, 02/15/19 | 40,000 | 47,476 | ||||||
Pacific LifeCorp, 6.00%, 02/10/20(c) | 175,000 | 182,021 | ||||||
Principal Financial Group, Inc., 8.875%, 05/15/19 | 140,000 | 172,031 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Principal | ||||||||
Amount | Value | |||||||
Life & Health Insurance–(continued) | ||||||||
Prudential Financial, Inc., (MTN), 4.75%, 09/17/15 | $ | 230,000 | $ | 238,423 | ||||
Prudential Financial, Inc., (MTN), 6.625%, 12/01/37 | 95,000 | 99,289 | ||||||
Prudential Financial, Inc., (Series D), 7.375%, 06/15/19 | 70,000 | 80,421 | ||||||
1,078,731 | ||||||||
Managed Health Care–0.0% | ||||||||
UnitedHealth Group, Inc., 6.00%, 02/15/18 | 195,000 | 218,726 | ||||||
Movies & Entertainment–0.1% | ||||||||
News America, Inc., 7.85%, 03/01/39 | 270,000 | 336,459 | ||||||
Time Warner, Inc., 5.875%, 11/15/16 | 120,000 | 135,201 | ||||||
Time Warner, Inc., 7.70%, 05/01/32 | 170,000 | 204,224 | ||||||
Vivendi SA, 6.625%, 04/04/18(c) | 130,000 | 150,637 | ||||||
826,521 | ||||||||
Multi-line Insurance–0.1% | ||||||||
AIG SunAmerica Global Financing VI, 6.30%, 05/10/11(c) | 405,000 | 407,278 | ||||||
Multi-Utilities–0.1% | ||||||||
CenterPoint Energy Resources Corp., 6.25%, 02/01/37 | 75,000 | 79,240 | ||||||
CenterPoint Energy Resources Corp., (Series B), 7.875%, 04/01/13 | 70,000 | 80,454 | ||||||
Nisource Finance Corp., 6.80%, 01/15/19 | 175,000 | 197,371 | ||||||
357,065 | ||||||||
Office Electronics–0.0% | ||||||||
Xerox Corp., 6.35%, 05/15/18 | 120,000 | 133,541 | ||||||
Xerox Corp., 5.625%, 12/15/19 | 45,000 | 48,114 | ||||||
181,655 | ||||||||
Office REIT’s–0.1% | ||||||||
Boston Properties LP, 5.875%, 10/15/19 | 175,000 | 188,020 | ||||||
Digital Realty Trust LP, 4.50%, 07/15/15 | 305,000 | 304,076 | ||||||
492,096 | ||||||||
Oil & Gas Equipment & Services–0.0% | ||||||||
Weatherford International Ltd. (Switzerland), 9.625%, 03/01/19 | 245,000 | 296,767 | ||||||
Oil & Gas Exploration & Production–0.1% | ||||||||
Petrobras International Finance Co. (Cayman Islands), 5.75%, 01/20/20 | 410,000 | 412,452 | ||||||
Oil & Gas Storage & Transportation–0.2% | ||||||||
Energy Transfer Partners LP, 8.50%, 04/15/14 | 200,000 | 231,976 | ||||||
Enterprise Products Operating LLC, 5.25%, 01/31/20 | 100,000 | 103,730 | ||||||
Enterprise Products Operating LLC, (Series N), 6.50%, 01/31/19 | 220,000 | 245,744 | ||||||
Plains All American Pipeline LP / PAA Finance Corp., 8.75%, 05/01/19 | 150,000 | 180,018 | ||||||
Plains All American Pipeline LP / PAA Finance Corp., 6.70%, 05/15/36 | 175,000 | 176,188 | ||||||
Spectra Energy Capital LLC, 7.50%, 09/15/38 | 120,000 | 134,916 | ||||||
Texas Eastern Transmission LP, 7.00%, 07/15/32 | 165,000 | 197,331 | ||||||
1,269,903 | ||||||||
Other Diversified Financial Services–1.4% | ||||||||
Bank of America Corp., 5.75%, 12/01/17 | 865,000 | 904,041 | ||||||
Bank of America Corp., 7.625%, 06/01/19 | 70,000 | 80,382 | ||||||
Bank of America Corp., (Series L), 5.65%, 05/01/18 | 280,000 | 287,394 | ||||||
Citibank NA, 1.75%, 12/28/12 | 1,500,000 | 1,528,522 | ||||||
Citigroup Funding, Inc., 2.25%, 12/10/12 | 3,090,000 | 3,186,114 | ||||||
Citigroup Inc, 6.125%, 11/21/17 | 460,000 | 483,416 | ||||||
Citigroup Inc, 6.125%, 05/15/18 | 355,000 | 372,820 | ||||||
Citigroup Inc, 8.50%, 05/22/19 | 415,000 | 495,181 | ||||||
General Electric Capital Corp., 5.50%, 01/08/20 | 140,000 | 148,415 | ||||||
JPMorgan Chase & Co., 6.00%, 01/15/18 | 590,000 | 652,910 | ||||||
JPMorgan Chase & Co., 4.95%, 03/25/20 | 185,000 | 192,087 | ||||||
Merrill Lynch & Co., Inc., (MTN), 6.875%, 04/25/18 | 285,000 | 305,213 | ||||||
Xlliac Global Funding, 4.80%, 08/10/10(c) | 315,000 | 315,094 | ||||||
8,951,589 | ||||||||
Packaged Foods & Meats–0.2% | ||||||||
ConAgra Foods, Inc., 7.00%, 10/01/28 | 40,000 | 47,487 | ||||||
ConAgra Foods, Inc., 8.25%, 09/15/30 | 180,000 | 235,658 | ||||||
Grupo Bimbo SAB de CV, 4.875%, 06/30/20(c) | 270,000 | 272,358 | ||||||
Kraft Foods, Inc., 5.375%, 02/10/20 | 200,000 | 214,317 | ||||||
Kraft Foods, Inc., 7.00%, 08/11/37 | 275,000 | 325,632 | ||||||
Kraft Foods, Inc., 6.875%, 01/26/39 | 180,000 | 211,553 | ||||||
1,307,005 | ||||||||
Paper Packaging–0.0% | ||||||||
Sealed Air Corp., 7.875%, 06/15/17(c) | 95,000 | 99,413 | ||||||
Pharmaceuticals–0.2% | ||||||||
GlaxoSmithKline Capital, Inc., 5.65%, 05/15/18 | 75,000 | 85,868 | ||||||
GlaxoSmithKline Capital, Inc., 6.375%, 05/15/38 | 70,000 | 83,725 | ||||||
Merck & Co., Inc., 5.00%, 06/30/19 | 280,000 | 312,587 | ||||||
Pfizer, Inc., 6.20%, 03/15/19 | 650,000 | 776,299 | ||||||
1,258,479 | ||||||||
Property & Casualty Insurance–0.1% | ||||||||
Allstate Corp. (The), 7.45%, 05/16/19 | 140,000 | 165,220 | ||||||
Catlin Insurance Co. Ltd. (Bermuda), 7.249%, 10/19/49(c)(d)(g) | 220,000 | 177,082 | ||||||
342,302 | ||||||||
Railroads–0.0% | ||||||||
CSX Corp., 6.15%, 05/01/37 | 75,000 | 82,002 | ||||||
Union Pacific Corp., 6.125%, 02/15/20 | 105,000 | 121,628 | ||||||
203,630 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Principal | ||||||||
Amount | Value | |||||||
Real Estate Management & Development–0.0% | ||||||||
Brookfield Asset Management, Inc. (Canada), 5.80%, 04/25/17 | $ | 210,000 | $ | 212,716 | ||||
Brookfield Asset Management, Inc. (Canada), 7.125%, 06/15/12 | 10,000 | 10,745 | ||||||
223,461 | ||||||||
Regional Banks–0.2% | ||||||||
KeyBank NA, 3.20%, 06/15/12 | 500,000 | 523,959 | ||||||
Nationwide Building Society (United Kingdom), 6.25%, 02/25/20(c) | 485,000 | 522,861 | ||||||
PNC Funding Corp., 6.70%, 06/10/19 | 165,000 | 189,914 | ||||||
PNC Funding Corp., 5.125%, 02/08/20 | 330,000 | 344,636 | ||||||
1,581,370 | ||||||||
Reinsurance–0.1% | ||||||||
Platinum Underwriters Finance, Inc., (Series B), 7.50%, 06/01/17 | 145,000 | 154,290 | ||||||
Reinsurance Group of America, Inc., 6.45%, 11/15/19 | 150,000 | 160,232 | ||||||
314,522 | ||||||||
Research & Consulting Services–0.0% | ||||||||
ERAC USA Finance LLC, 2.75%, 07/01/13(c) | 205,000 | 206,240 | ||||||
Residential REIT’s–0.0% | ||||||||
AvalonBay Communities, Inc., (MTN), 6.10%, 03/15/20 | 160,000 | 177,784 | ||||||
Restaurants–0.0% | ||||||||
Yum! Brands, Inc., 6.25%, 03/15/18 | 100,000 | 114,615 | ||||||
Yum! Brands, Inc., 5.30%, 09/15/19 | 155,000 | 167,163 | ||||||
281,778 | ||||||||
Retail REIT’s–0.1% | ||||||||
Simon Property Group LP, 6.75%, 05/15/14 | 195,000 | 217,808 | ||||||
Simon Property Group LP, 5.65%, 02/01/20 | 25,000 | 26,538 | ||||||
WEA Finance LLC / WT Finance Aust Pty Ltd., 6.75%, 09/02/19(c) | 225,000 | 250,003 | ||||||
494,349 | ||||||||
Semiconductor Equipment–0.0% | ||||||||
KLA-Tencor Corp., 6.90%, 05/01/18 | 135,000 | 151,701 | ||||||
Specialized Finance–0.0% | ||||||||
NASDAQ OMX Group, Inc. (The), 5.55%, 01/15/20 | 240,000 | 245,948 | ||||||
Steel–0.1% | ||||||||
ArcelorMittal (Luxembourg), 9.85%, 06/01/19 | 410,000 | 512,893 | ||||||
Vale Overseas Ltd. (Cayman Islands), 5.625%, 09/15/19 | 160,000 | 169,622 | ||||||
682,515 | ||||||||
Tobacco–0.1% | ||||||||
BAT International Finance PLC (United Kingdom), 9.50%, 11/15/18(c) | 150,000 | 197,237 | ||||||
Philip Morris International, Inc., 5.65%, 05/16/18 | 210,000 | 230,631 | ||||||
427,868 | ||||||||
Trucking–0.0% | ||||||||
Ryder System, Inc., (MTN), 7.20%, 09/01/15 | 95,000 | 110,584 | ||||||
Total Bonds & Notes (Cost $49,339,704) | 52,170,218 | |||||||
U.S. Government Agency Obligations–0.9% | ||||||||
U.S. Government Agencies–0.9% | ||||||||
Federal Home Loan Mortgage Corp., 3.00%, 07/28/14 | 900,000 | 948,057 | ||||||
Federal Home Loan Mortgage Corp., 5.00%, 04/18/17 | 1,500,000 | 1,713,753 | ||||||
Federal Home Loan Mortgage Corp., 4.875%, 06/13/18 | 1,000,000 | 1,133,924 | ||||||
Federal Home Loan Mortgage Corp., 6.75%, 03/15/31 | 650,000 | 862,428 | ||||||
Federal National Mortgage Association, 4.375%, 10/15/15 | 1,520,000 | 1,684,389 | ||||||
6,342,551 | ||||||||
Total U.S. Government Agency Obligations (Cost $6,096,426) | 6,342,551 | |||||||
Shares | ||||||||
Convertible Preferred Stocks–2.2% | ||||||||
Agricultural Products–0.2% | ||||||||
Archer-Daniels-Midland Co. $3.125 | 34,250 | 1,240,193 | ||||||
Health Care Services–0.3% | ||||||||
Omnicare Capital Trust II (Series B) $2.00 | 44,400 | 1,580,640 | ||||||
Health Care Facilities–0.2% | ||||||||
Healthsouth Corp. $65.00 | 1,785 | 1,475,303 | ||||||
Multi-Utilities–0.3% | ||||||||
CenterPoint Energy, Inc. $0.77(d) | 62,215 | 1,822,899 | ||||||
Office Services & Supplies–0.3% | ||||||||
Avery Dennison Corp. $3.938 | 52,960 | 2,113,104 | ||||||
Oil & Gas Storage & Transportation–0.5% | ||||||||
El Paso Energy Capital Trust I $2.375 | 95,499 | 3,485,713 | ||||||
Regional Banks–FDIC Guaranteed–0.4% | ||||||||
KeyCorp (Series A) $7.75 | 30,290 | 2,885,122 | ||||||
Total Convertible Preferred Stocks (Cost $14,854,736) | 14,602,974 | |||||||
Principal | ||||||||
Amount | ||||||||
Foreign Government Obligations–0.1% | ||||||||
Export-Import Bank of Korea (South Korea), 4.125%, 09/09/15 | $ | 100,000 | 101,596 | |||||
Republic of Italy (Italy), 6.875%, 09/27/23 | 290,000 | 331,112 | ||||||
Korea Development Bank (South Korea), 4.375%, 08/10/15 | 200,000 | 205,024 | ||||||
Total Foreign Government Obligations (Cost $618,369) | 637,732 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Principal | ||||||||
Amount | Value | |||||||
Foreign Government & Corporate Bonds–0.0% | ||||||||
Diversified Banks–0.0% | ||||||||
Standard Chartered Bank (United Kingdom)(c) | $ | 100,000 | $ | 106,309 | ||||
Total Foreign Government & Corporate Bonds (Cost $106,303) | 106,309 | |||||||
Asset-Backed Security–0.0% | ||||||||
Harley-Davidson Motorcycle Trust, 2005-3 A2, 4.41%, 06/15/12 (Cost $44,989) | 44,998 | 45,069 | ||||||
U.S. Government Agencies–Mortgage-Backed Securities–0.0% | ||||||||
Federal Home Loan Mortgage Corp.–0.0% | ||||||||
Federal Home Loan Mortgage Corp., 6.50%, 02/01/26 | 9,068 | 10,064 | ||||||
Federal National Mortgage Association (FNMA)–0.0% | ||||||||
Federal National Mortgage Association, 9.50%, 04/01/30 | 15,923 | 18,713 | ||||||
Total U.S. Government Agencies–Mortgage-Backed Securities (Cost $27,590) | 28,777 | |||||||
Shares | ||||||||
Money Market Funds–3.6% | ||||||||
Liquid Assets Portfolio–Institutional Class(h) | 12,033,269 | 12,033,269 | ||||||
Premier Portfolio–Institutional Class(h) | 12,033,269 | 12,033,269 | ||||||
Total Money Market Funds (Cost $24,066,538) | 24,066,538 | |||||||
TOTAL INVESTMENTS (Cost $668,123,597)–99.8% | 662,129,074 | |||||||
OTHER ASSETS LESS LIABILITIES–0.2% | 1,067,889 | |||||||
NET ASSETS–100.0% | $ | 663,196,963 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt. | |
MTN | – Medium Term Note. | |
REIT | – Real Estate Investment Trust. |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | 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, 2010 was $24,407,119 which represented 3.7% of the Fund’s Net Assets. | |
(d) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2010. | |
(e) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund | |
(f) | All or portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1I and Note 4. | |
(g) | Perpetual bond with no specified maturity date. | |
(h) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By security type, based on Net Assets
as of June 30, 2010
Common Stocks & Other Equity Interests | 62.0 | % | ||
Convertible Bonds | 15.0 | |||
U.S. Treasury Securities | 8.1 | |||
Bonds & Notes | 7.9 | |||
Convertible Preferred Stocks | 2.2 | |||
U.S. Government Agency Obligations | 0.9 | |||
Foreign Government Obligations | 0.1 | |||
Foreign Government & Corporate Bonds | 0.0 | |||
Asset-Backed Security | 0.0 | |||
U.S. Government Agencies – Mortgage-Backed Securities | 0.0 | |||
Money Market Funds Plus Other Assets Less Liabilities | 3.8 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $644,057,059) | $ | 638,062,536 | ||
Investments in affiliated money market funds, at value and cost | 24,066,538 | |||
Total investments, at value (Cost $668,123,597) | 662,129,074 | |||
Receivables for: | ||||
Investments sold | 1,641,247 | |||
Fund shares sold | 527,998 | |||
Dividends and interest | 2,728,906 | |||
Fund expenses absorbed | 123,750 | |||
Other assets | 12,623 | |||
Total assets | 667,163,598 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 3,481,930 | |||
Fund shares reacquired | 101,346 | |||
Variation margin | 25,860 | |||
Accrued fees to affiliates | 282,243 | |||
Accrued other operating expenses | 75,256 | |||
Total liabilities | 3,966,635 | |||
Net assets applicable to shares outstanding | $ | 663,196,963 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 729,367,263 | ||
Undistributed net investment income | 3,710,708 | |||
Undistributed net realized gain (loss) | (63,535,123 | ) | ||
Unrealized appreciation (depreciation) | (6,345,885 | ) | ||
$ | 663,196,963 | |||
Net Assets: | ||||
Series I | $ | 9,754 | ||
Series II | $ | 663,187,209 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 815 | |||
Series II | 55,421,998 | |||
Series I: | ||||
Net asset value per share | $ | 11.97 | ||
Series II: | ||||
Net asset value per share | $ | 11.97 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $32,198) | $ | 5,417,168 | ||
Dividends from affiliated money market funds | 3,624 | |||
Interest | 3,351,630 | |||
Total investment income | 8,772,422 | |||
Expenses: | ||||
Advisory fees | 1,398,894 | |||
Administrative services fees | 880,621 | |||
Custodian fees | 16,536 | |||
Distribution fees — Series II | 866,382 | |||
Transfer agent fees | 3,214 | |||
Trustees’ and officers’ fees and benefits | 8,727 | |||
Other | 86,648 | |||
Total expenses | 3,261,022 | |||
Less: Fees waived | (714,259 | ) | ||
Net expenses | 2,546,763 | |||
Net investment income | 6,225,659 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 10,636,222 | |||
Futures contracts | (693,821 | ) | ||
Swap agreements | 5,123 | |||
9,947,524 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (48,058,929 | ) | ||
Futures contracts | (811,576 | ) | ||
Swap agreements | 1,778 | |||
(48,868,727 | ) | |||
Net realized and unrealized gain (loss) | (38,921,203 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (32,695,544 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 6,225,659 | $ | 11,732,832 | ||||
Net realized gain (loss) | 9,947,524 | (27,956,625 | ) | |||||
Change in net unrealized appreciation (depreciation) | (48,868,727 | ) | 134,974,013 | |||||
Net increase (decrease) in net assets resulting from operations | (32,695,544 | ) | 118,750,220 | |||||
Distributions to shareholders from net investment income — Series II | (13,994,793 | ) | (15,771,072 | ) | ||||
Share transactions–net: | ||||||||
Series I | 10,000 | — | ||||||
Series II | 37,095,516 | 52,678,233 | ||||||
Net increase in net assets resulting from share transactions | 37,105,516 | 52,678,233 | ||||||
Net increase (decrease) in net assets | (9,584,821 | ) | 155,657,381 | |||||
Net assets: | ||||||||
Beginning of period | 672,781,784 | 517,124,403 | ||||||
End of period (includes undistributed net investment income of $3,710,708 and $11,479,842, respectively) | $ | 663,196,963 | $ | 672,781,784 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. Equity and Income Fund (the “Fund”), is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
Prior to June 1, 2010, the Fund operated as Universal Institutional Funds Equity and Income Portfolio (“the Acquired Fund”), an investment portfolio of The Universal Institutional Funds, Inc. The Acquired Fund was reorganized on June 1, 2010 (“the Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class II shares received Series II shares of the Fund.
Information for the Acquired Fund’s — Class II shares prior to the Reorganization is included with Series II shares of the Fund throughout this report.
The Fund’s investment objectives are both capital appreciation and current income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the |
Invesco Van Kampen V.I. Equity and Income Fund
security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to |
Invesco Van Kampen V.I. Equity and Income Fund
federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | ||
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $150 million | 0 | .50% | ||
Next $100 million | 0 | .45% | ||
Next $100 million | 0 | .40% | ||
Over $350 million | 0 | .35% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee to Morgan Stanley Investment Management Inc. (“MS Investment Management”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization date, the Adviser has contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.70% and Series II shares to 0.75% of average daily net assets, through at least April 30, 2011. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Prior to the Reorganization, MS Investment Management had voluntarily agreed to waive fees and/or reimburse expenses of Class II shares to 1.00% of the Acquired Fund’s average daily net assets.
Invesco Van Kampen V.I. Equity and Income Fund
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds. Prior to the Reorganization, investment advisory fees paid by the Acquired Fund were reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class shares.
For the period ended June 30, 2010, MS Investment Management waived advisory fees of $21,238.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the period ended June 30, 2010, Invesco was paid $13,756 for accounting and fund administrative services and reimbursed $140,583 for services provided by insurance companies. Prior to the Reorganization, the Acquired Fund paid an administration fee of $726,282 to MS Investment Management and JPMorgan Investor Services Co.
Also, the Trust has entered into service agreements whereby State Street Bank & Trust Company (“SSB”) serves as custodian, fund accountant and provide certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. Prior to the Reorganization, the Acquired Fund paid $3,214 to Morgan Stanley Services Company Inc., which served as the Acquired Fund’s transfer agent. For the six months ended June 30, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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. IDI has contractually agreed to waive 0.20% of Rule 12b-1 plan fees on Series II shares through at least June 30, 2012.
Prior to the Reorganization, the Acquired Fund paid distribution fees to Morgan Stanley Distribution Inc. (the “MSDI”) based on the annual rate of 0.35% of the Acquired Fund’s average daily net assets of Class II shares. MSDI had voluntarily agreed to waive 0.30% distribution fee that it received from the Acquired Fund. MSDI was paid distribution fees of $145,245 after fee waivers of $580,557.
12b-1 fees before fee waivers under this agreement are shown as Distribution fees in the Statement of Operations. For the six months ended June 30, 2010, fees incurred after fee waivers for Series II shares were $173,361.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Invesco Van Kampen V.I. Equity and Income Fund
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 434,255,146 | $ | 15,486,660 | $ | — | $ | 449,741,806 | ||||||||
U.S. Treasury Securities | — | 53,471,295 | — | 53,471,295 | ||||||||||||
U.S. Government Sponsored Agency Securities | — | 6,371,328 | — | 6,371,328 | ||||||||||||
Corporate Debt Securities | — | 152,499,576 | — | 152,499,576 | ||||||||||||
Asset-Backed Securities | — | 45,069 | — | 45,069 | ||||||||||||
$ | 434,255,146 | $ | 227,873,928 | $ | — | $ | 662,129,074 | |||||||||
Futures* | (353,139 | ) | — | — | (353,139 | ) | ||||||||||
Total Investments | $ | 433,902,007 | $ | 227,873,928 | $ | — | $ | 661,775,935 | ||||||||
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure 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. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2010:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Futures contracts(a) | ||||||||
Interest rate risk | $ | 127,215 | $ | (480,354 | ) | |||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets & Liabilities. |
Effect of Derivative Instruments for the six months ended June 30, 2010
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||||||
Statement of Operations | ||||||||
Swap | ||||||||
Futures* | Agreements* | |||||||
Realized Gain (Loss) | ||||||||
Credit risk | $ | — | $ | 5,123 | ||||
Interest rate risk | (693,821 | ) | — | |||||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Credit risk | $ | — | $ | 1,778 | ||||
Interest rate risk | (811,576 | ) | — | |||||
Total | $ | (1,505,397 | ) | $ | 6,901 | |||
* | The average value of futures and swap agreements outstanding during the period was $30,031,046 and $12,857, respectively. |
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Month/ | Appreciation | ||||||||||||||
Contract | Contracts | Commitment | Value | (Depreciation) | ||||||||||||
U.S. Treasury 2 Year Notes | 136 | September-2010/Long | $ | 29,760,625 | $ | 127,215 | ||||||||||
Subtotal | $ | 29,760,625 | $ | 127,215 | ||||||||||||
U.S. Treasury 5 Year Notes | 112 | September-2010/Short | (13,255,375 | ) | (149,808 | ) | ||||||||||
U.S. Treasury 10 Year Notes | 55 | September-2010/Short | (6,740,078 | ) | (114,244 | ) | ||||||||||
U.S. Treasury 30 Year Bonds | 73 | September-2010/Short | (9,307,500 | ) | (216,302 | ) | ||||||||||
Subtotal | $ | (29,302,953 | ) | $ | (480,354 | ) | ||||||||||
Total | $ | 457,672 | $ | (353,139 | ) | |||||||||||
Invesco Van Kampen V.I. Equity and Income Fund
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—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, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 23,179,000 | ||
December 31, 2017 | 47,645,000 | |||
Total capital loss carryforward | $ | 70,824,000 | ||
* | 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, 2010 was $144,603,403 and $111,703,268, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 29,915,495 | ||
Aggregate unrealized (depreciation) of investment securities | (37,077,475 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (7,161,980 | ) | |
Cost of investments for tax purposes is $669,291,054. |
Invesco Van Kampen V.I. Equity and Income Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I(b) | 815 | $ | 10,000 | — | $ | — | ||||||||||
Series II | 4,910,826 | 64,170,750 | 10,389,966 | 116,829,247 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series II | 1,110,698 | 13,994,794 | 1,504,873 | 15,771,072 | ||||||||||||
Reacquired: | ||||||||||||||||
Series II | (3,152,210 | ) | (41,070,028 | ) | (7,373,030 | ) | (79,922,086 | ) | ||||||||
Net increase in share activity | 2,870,129 | $ | 37,105,516 | 4,521,809 | $ | 52,678,233 | ||||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 82% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
(b) | Commencement date of June 1, 2010. |
Invesco Van Kampen V.I. Equity and Income Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of net | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ratio of | Ratio of | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | income to | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
to average | to average | average | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | net assets | net assets | net assets | rebate from | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | with fee | without fee | with fee | Morgan | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | securities | Dividends | Distributions | waivers | waivers | waivers | Stanley | |||||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | and/or | and/or | and/or | Affiliates | |||||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | expenses | expenses | expenses | to average | Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | absorbed | net assets | turnover(c) | ||||||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
One month ended 06/30/10(d) | $ | 12.27 | $ | 0.12 | $ | (0.42 | ) | $ | (0.30 | ) | $ | — | $ | — | $ | — | $ | 11.97 | (2.44 | )% | $ | 10 | 0.70 | %(e) | 0.73 | %(e) | 1.83 | %(e) | — | % | 17 | % | ||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 12.80 | 0.12 | (0.69 | ) | (0.57 | ) | (0.26 | ) | — | (0.26 | ) | 11.97 | (4.55 | ) | 663,187 | 0.73 | (e) | 0.94 | (e) | 1.80 | (e) | — | 17 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 10.77 | 0.24 | 2.11 | 2.35 | (0.32 | ) | — | (0.32 | ) | 12.80 | 22.49 | 672,782 | 0.74 | (f) | 1.04 | (f) | 2.09 | (f)(g) | 0.01 | 81 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 14.74 | 0.32 | (3.56 | ) | (3.24 | ) | (0.31 | ) | (0.42 | ) | (0.73 | ) | 10.77 | (22.68 | )(h) | 517,124 | 0.75 | (f) | 1.05 | (f) | 2.50 | (f)(g) | 0.01 | 95 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 14.89 | 0.35 | 0.17 | 0.52 | (0.28 | ) | (0.39 | ) | (0.67 | ) | 14.74 | 3.36 | 711,897 | 0.74 | (f) | 1.04 | (f) | 2.31 | (f)(g) | 0.00 | (i) | 70 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 13.69 | 0.32 | 1.35 | 1.67 | (0.16 | ) | (0.31 | ) | (0.47 | ) | 14.89 | 12.58 | 570,626 | 0.78 | 1.08 | 2.25 | (g) | — | 56 | |||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 12.97 | 0.24 | 0.71 | 0.95 | (0.09 | ) | (0.14 | ) | (0.23 | ) | 13.69 | 7.38 | 406,725 | 0.83 | 1.13 | 1.79 | (g) | — | 46 | |||||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Commencement date of June 1, 2010. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $2 and $698,848 for Series I and Series II shares, respectively. | |
(f) | The ratios reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate is disclosed in the above table as “Ratio of Rebate from Morgan Stanley Affiliates to Average Net Assets”. | |
(g) | Ratio of net investment income to average net assets without fee waivers and/or expenses absorbed was 1.79%, 2.20%, 2.01%, 1.95% and 1.49% for the years ended December 31, 2009 through December 31, 2005, respectively. | |
(h) | The Adviser reimbursed the Fund for losses incurred on derivative transactions which breached an investment guideline of the Fund during the period. The impact of this reimbursement is reflected in the total return shown above. Without this reimbursement, the total return for Series II would have been (22.68)%. | |
(i) | Amount is less than 0.005%. |
NOTE 11—Change in Independent Registered Public Accounting Firm
The Fund is a new fund that was formed to acquire the assets and liabilities of a predecessor fund in a shell fund reorganization (the “Reorganization”). In connection with the organization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
Invesco Van Kampen V.I. Equity and Income Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. With the exception of the actual ending account value and expenses of the Series I shares, 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, 2010 through June 30, 2010. The actual ending account value and expenses of the Series I shares in the below example are based on an investment of $1,000 invested as of close of business June 1, 2010 (the date the share class commenced operations) and held through June 30, 2010.
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 (as of close of business June 1, 2010 through June 30, 2010 for the Series I shares). Because the actual ending account value and expense information in the example is not based upon a six month period for the Series I shares, the ending account value and expense information may not provide a meaningful comparison to mutual funds that provide such information for a full six month period..
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2,3 | (06/30/10) | Period2,4 | Ratio2 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 975.60 | $ | 0.57 | $ | 1,021.32 | $ | 3.51 | 0.70 | % | ||||||||||||||||||
Series II | 1,000.00 | 954.50 | 3.54 | 1,021.17 | 3.66 | 0.73 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010, through June 30, 2010 (as of close of business June 1, 2010, through June 30, 2010 for the Series I shares), after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. For the Series I shares actual expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 30 (as of close of business June 1, 2010, through June 30, 2010)/365. Because the Series I shares have not been in existence for a full six month period, the actual ending account value and expense information shown may not provide a meaningful comparison to fund expense information of classes that show such data for a full six month period and, because the actual ending account value and expense information in the expense example covers a short time period, return and expense data may not be indicative of return and expense data for longer time periods. Effective June 1, 2010, the Fund’s adviser has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses of Series II shares to 0.75% of average daily net assets. The annualized expense ratio restated as if this agreement had been in effect throughout the entire most recent fiscal half year is 0.75%. |
3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year is $3.63 for the Series II shares. |
4 | Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect a one-half year period. The hypothetical ending account value and expenses may be used to compare ongoing costs of investing in Series I shares of the Fund and other funds because such data is based on a full six month period. The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year is $3.76 for the Series II shares. |
Invesco Van Kampen V.I. Equity and Income Fund
Approval of Investment Advisory and Sub-Advisory Agreements With Invesco Advisers, Inc. and Its Affiliates
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Van Kampen V.I. Equity and Income Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Van Kampen retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-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 the 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. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services.
Invesco Van Kampen V.I. Equity and Income Fund
The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are 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 Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco Van Kampen V.I. Equity and Income Fund
Proxy Results
A Special Meeting (“Meeting”) of Shareholders of The Universal Institutional Funds, Inc. — Equity and Income Portfolio was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 48,048,088 | 1,441,484 | 3,456,602 | 0 |
Invesco Van Kampen V.I. Equity and Income Fund
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VK-VIGTAA-SAR-1
NOT FDIC INSURED| MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -6.33 | % | ||
Series II Shares | -6.43 | |||
MSCI World Index▼ (Broad Market/Style-Specific Index) | -9.84 |
▼ | Lipper Inc. |
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (1/23/09) | 13.63 | % | ||
1 Year | 8.88 | |||
Series II Shares | ||||
Inception (1/23/09) | 13.33 | % | ||
1 Year | 8.67 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.98% and 1.23%, respectively. The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.58% and 1.83%, 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.
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
Schedule of Investments
June 30, 2010
(Unaudited)
(Unaudited)
Shares | Value | |||||||
Common Stocks–61.7% | ||||||||
Australia–2.1% | ||||||||
BHP Billiton Ltd. | 22,861 | $ | 710,974 | |||||
Centennial Coal Company Ltd | 26,408 | 97,745 | ||||||
Commonwealth Bank of Australia | 852 | 34,532 | ||||||
Rio Tinto Ltd. | 2,622 | 145,217 | ||||||
Westpac Banking Corp. | 14,291 | 252,369 | ||||||
1,240,837 | ||||||||
Bermuda–1.1% | ||||||||
Allied World Assurance Co. Holdings Ltd. | 2,000 | 90,760 | ||||||
Arch Capital Group Ltd(a) | 7,700 | 573,650 | ||||||
664,410 | ||||||||
Canada–3.4% | ||||||||
Atco, Ltd., Class 1 | 4,500 | 201,381 | ||||||
Bank of Montreal | 1,500 | 81,358 | ||||||
BCE, Inc. | 38,300 | 1,117,466 | ||||||
Canadian Imperial Bank of Commerce | 1,900 | 118,046 | ||||||
Canadian Utilities, Ltd., Class A | 4,400 | 187,482 | ||||||
Penn West Energy Trust | 10,900 | 207,853 | ||||||
Royal Bank of Canada | 1,600 | 76,201 | ||||||
1,989,787 | ||||||||
Denmark–1.7% | ||||||||
Coloplast A/S, Class B | 1,184 | 117,528 | ||||||
Novo Nordisk A/S, Class B | 11,254 | 907,812 | ||||||
1,025,340 | ||||||||
Finland–0.5% | ||||||||
Fortum Oyj | 14,501 | 319,228 | ||||||
France–1.5% | ||||||||
GDF Suez | 1,942 | 54,944 | ||||||
Sanofi-Aventis SA | 11,943 | 720,197 | ||||||
Total SA | 1,392 | 61,950 | ||||||
Valeo SA(a) | 1,777 | 47,871 | ||||||
884,962 | ||||||||
Germany–1.5% | ||||||||
Deutsche Bank AG | 527 | 29,796 | ||||||
Deutsche Lufthansa AG(a) | 19,377 | 266,992 | ||||||
Hannover Rueckversicherung AG | 8,503 | 366,287 | ||||||
RWE AG | 3,562 | 232,173 | ||||||
895,248 | ||||||||
Hong Kong–1.5% | ||||||||
BOC Hong Kong Holdings Ltd. | 94,500 | 214,804 | ||||||
Cheung Kong Holdings Ltd. | 29,000 | 333,246 | ||||||
Swire Pacific Ltd., Class A | 27,500 | 311,597 | ||||||
859,647 | ||||||||
Ireland–0.6% | ||||||||
Seagate Technology(a) | 17,900 | 233,416 | ||||||
Warner Chilcott PLC, Class A(a) | 5,600 | 127,960 | ||||||
361,376 | ||||||||
Italy–2.2% | ||||||||
Enel SpA | 28,902 | 122,270 | ||||||
ENI SpA | 6,225 | 114,273 | ||||||
Mediaset SpA | 102,572 | 584,016 | ||||||
Mediobanca SpA (warrants, expiring 03/18/11)(a) | 429 | 17 | ||||||
Snam Rete Gas SpA | 9,191 | 36,539 | ||||||
Terna Rete Elettrica Nationale SpA | 116,363 | 419,071 | ||||||
Unione di Banche Italiane ScpA (warrants, expiring 06/30/11)(a) | 623 | 13 | ||||||
1,276,199 | ||||||||
Japan–7.9% | ||||||||
Astellas Pharma, Inc. | 15,100 | 504,982 | ||||||
Canon, Inc. | 27,200 | 1,014,100 | ||||||
DAITO Trust Construction Co., Ltd. | 2,600 | 146,982 | ||||||
East Japan Railway Co. | 1,300 | 86,658 | ||||||
Honda Motor Co., Ltd. | 8,600 | 249,757 | ||||||
Hoya Corp. | 5,600 | 118,910 | ||||||
JGC Corp. | 2,000 | 30,320 | ||||||
Lawson, Inc. | 2,900 | 126,745 | ||||||
Mizuho Financial Group, Inc. | 197,300 | 323,832 | ||||||
Nissan Motor Co., Ltd. | 155,500 | 1,077,960 | ||||||
Takeda Pharmaceutical Co., Ltd. | 6,800 | 291,020 | ||||||
Tokio Marine Holdings, Inc. | 18,900 | 495,078 | ||||||
Toyota Motor Corp. | 5,700 | 196,019 | ||||||
4,662,363 | ||||||||
Luxembourg–0.1% | ||||||||
Tenaris SA | 5,487 | 95,227 | ||||||
Netherlands–0.1% | ||||||||
STMicroelectronics NV | 9,454 | 74,894 | ||||||
Norway–0.2% | ||||||||
StatoilHydro ASA | 6,233 | 120,215 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
Shares | Value | |||||||
Singapore–0.4% | ||||||||
United Overseas Bank Ltd. | 16,000 | $ | 222,274 | |||||
Spain–1.2% | ||||||||
Banco Bilbao Vizcaya Argentaria SA | 29,182 | 301,056 | ||||||
Banco Santander SA | 37,620 | 395,310 | ||||||
696,366 | ||||||||
Sweden–1.2% | ||||||||
Alfa Laval AB | 14,716 | 190,082 | ||||||
Nordea Bank AB | 26,014 | 214,557 | ||||||
Svenska Handelsbanken AB, Class A | 12,606 | 308,752 | ||||||
713,391 | ||||||||
Switzerland–3.5% | ||||||||
Banque Cantonale Vaudis | 119 | 48,970 | ||||||
Credit Suisse Group AG | 8,707 | 327,242 | ||||||
Nestle SA | 3,201 | 154,448 | ||||||
Noble Corp. | 5,000 | 154,550 | ||||||
Novartis AG | 15,266 | 740,652 | ||||||
Roche Holding AG | 1,690 | 232,077 | ||||||
Schindler Holding AG | 3,285 | 276,217 | ||||||
Tyco International Ltd. | 3,700 | 130,351 | ||||||
2,064,507 | ||||||||
United Kingdom–4.8% | ||||||||
BHP Billiton PLC | 29,018 | 750,895 | ||||||
BP PLC | 50,435 | 242,225 | ||||||
British American Tobacco PLC | 25,745 | 815,211 | ||||||
BT Group PLC | 190,724 | 364,214 | ||||||
HSBC Holdings PLC | 4,067 | 37,103 | ||||||
IG Group Holdings PLC | 11,733 | 73,212 | ||||||
International Power PLC | 1,288 | 5,706 | ||||||
Next PLC | 14,625 | 432,786 | ||||||
Standard Chartered PLC | 5,240 | 127,206 | ||||||
2,848,558 | ||||||||
United States–26.2% | ||||||||
American Express Co. | 9,000 | 357,300 | ||||||
AmeriCredit Corp.(a) | 3,200 | 58,304 | ||||||
Amgen, Inc.(a) | 7,300 | 383,980 | ||||||
Apple, Inc.(a) | 500 | 125,765 | ||||||
Automatic Data Processing, Inc. | 14,600 | 587,796 | ||||||
Avis Budget Group, Inc.(a) | 22,100 | 217,022 | ||||||
Bank of America Corp. | 5,800 | 83,346 | ||||||
Brinker International, Inc. | 4,400 | 63,624 | ||||||
Capital One Financial Corp. | 4,300 | 173,290 | ||||||
Cardinal Health, Inc. | 7,800 | 262,158 | ||||||
Cheesecake Factory, Inc.(a) | 2,100 | 46,746 | ||||||
Chevron Corp. | 7,000 | 475,020 | ||||||
Cimarex Energy Co. | 1,400 | 100,212 | ||||||
Cisco Systems, Inc.(a) | 7,600 | 161,956 | ||||||
Citigroup, Inc.(a) | 20,700 | 77,832 | ||||||
ConocoPhillips | 8,300 | 407,447 | ||||||
D.R. Horton, Inc. | 29,400 | 289,002 | ||||||
Exxon Mobil Corp. | 19,900 | 1,135,693 | ||||||
Ford Motor Co.(a) | 11,600 | 116,928 | ||||||
Forest Laboratories, Inc.(a) | 3,600 | 98,748 | ||||||
Franklin Resources, Inc. | 3,200 | 275,808 | ||||||
Gannett Co., Inc. | 10,300 | 138,638 | ||||||
Gap, Inc. | 50,100 | 974,946 | ||||||
Goldman Sachs Group, Inc. | 1,700 | 223,159 | ||||||
Humana, Inc.(a) | 1,300 | 59,371 | ||||||
IAC/InteractiveCorp(a) | 3,100 | 68,107 | ||||||
IBM Corp. | 9,700 | 1,197,756 | ||||||
InterDigital, Inc.(a) | 6,900 | 170,361 | ||||||
Johnson & Johnson | 6,300 | 372,078 | ||||||
Jones Apparel Group, Inc. | 21,100 | 334,435 | ||||||
JPMorgan Chase & Co. | 1,100 | 40,271 | ||||||
Limited Brands, Inc. | 2,400 | 52,968 | ||||||
M & T Bank Corp. | 3,700 | 314,315 | ||||||
Macy’s, Inc. | 4,200 | 75,180 | ||||||
McDonald’s Corp. | 6,000 | 395,220 | ||||||
Micron Technology, Inc.(a) | 7,400 | 62,826 | ||||||
Microsoft Corp. | 47,400 | 1,090,674 | ||||||
Moody’s Corp. | 3,900 | 77,688 | ||||||
Northrop Grumman Corp. | 5,600 | 304,864 | ||||||
Oil States International, Inc.(a) | 2,400 | 94,992 | ||||||
Oshkosh Corp.(a) | 20,700 | 645,012 | ||||||
Peabody Energy Corp. | 5,400 | 211,302 | ||||||
Procter & Gamble Co. | 4,600 | 275,908 | ||||||
Reliance Steel & Aluminum | 3,300 | 119,295 | ||||||
Rent-A-Center, Inc.(a) | 5,400 | 109,404 | ||||||
R.R. Donnelley & Sons Co. | 17,300 | 283,201 | ||||||
Sprint Nextel Corp.(a) | 34,600 | 146,704 | ||||||
Texas Instruments, Inc. | 10,300 | 239,784 | ||||||
Time Warner, Inc. | 3,533 | 102,139 | ||||||
Travelers Cos., Inc. | 900 | 44,325 | ||||||
TRW Automotive Holdings Corp.(a) | 12,900 | 355,653 | ||||||
UnitedHealth Group, Inc. | 14,800 | 420,320 | ||||||
U.S. Bancorp | 2,700 | 60,345 | ||||||
Valeant Pharmaceuticals International(a) | 2,400 | 125,496 | ||||||
Vishay Intertechnology, Inc.(a) | 14,600 | 113,004 | ||||||
Walter Industries, Inc. | 4,400 | 267,740 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
Shares | Value | |||||||
United States–(continued) | ||||||||
Wells Fargo & Co. | 2,200 | $ | 56,320 | |||||
Windstream Corp. | 36,000 | 380,160 | ||||||
15,501,938 | ||||||||
Total Common Stocks–61.7% | 36,516,767 | |||||||
Investment Companies–8.1% | ||||||||
iShares Barclays 3-7 Year Treasury Bond Fund | 6,700 | $ | 772,711 | |||||
iShares MSCI EAFE Index Fund | 18,500 | 860,435 | ||||||
SPDR Barclays Capital International Treasury Bond Fund ETF | 43,000 | 2,311,250 | ||||||
SPDR S&P 500 ETF | 8,200 | 846,404 | ||||||
Total Investment Companies–8.1% | 4,790,800 | |||||||
United States Government Agency Obligations–5.1% | ||||||||
United States Treasury Bill ($3,000,000 par, yielding 0.149%, 09/02/10 maturity) | 2,999,190 | |||||||
Total Long-Term Investments–74.9% (Cost $45,353,983) | 44,306,757 | |||||||
Money Market Funds–18.4% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 5,443,630 | 5,443,630 | ||||||
Premier Portfolio–Institutional Class(b) | 5,443,630 | 5,443,630 | ||||||
Total Money Market Funds–18.4% (Cost $10,887,260) | 10,887,260 | |||||||
TOTAL INVESTMENTS–93.3% (Cost $56,241,243) | 55,194,017 | |||||||
FOREIGN CURRENCY–3.3% (Cost $1,988,251) | 1,968,185 | |||||||
OTHER ASSETS IN EXCESS OF LIABILITIES–3.4% | 2,023,557 | |||||||
NET ASSETS–100.0% | $ | 59,185,759 | ||||||
Notes to Schedule of Investments:
Percentages are calculated as a percentage of net assets.
(a) | Non-income producing security | |
(b) | The money market fund & the fund are affiliated by having the same investment adviser |
By sector, based on Net Assets
as of June 30, 2010
Financials | 12.2 | % | ||
Consumer Discretionary | 9.8 | |||
Health Care | 9.0 | |||
Information Technology | 8.9 | |||
Energy | 5.6 | |||
Industrials | 4.5 | |||
Telecommunication Services | 3.4 | |||
Materials | 3.3 | |||
Utilities | 2.7 | |||
Consumer Staples | 2.3 | |||
Money Market Funds Plus Other Assets in Excess of Liabilities | 38.3 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
Forward Foreign Currency Contracts Outstanding as of June 30, 2010: | ||||||||||||
Unrealized | ||||||||||||
Appreciation/ | ||||||||||||
Current | In Exchange for | Value | Depreciation | |||||||||
Long Contracts: | ||||||||||||
Taiwan Dollar 11,500,000 expiring 07/21/10 | US$ | $ | 358,126 | $ | (912 | ) | ||||||
Futures Contracts Outstanding as of June 30, 2010: | ||||||||
Unrealized | ||||||||
Number of | Appreciation/ | |||||||
Contracts | Depreciation | |||||||
Long Contracts: | ||||||||
10-Year Government of Canada Bond Futures, September 2010 (Current Notional Value of $116,529 per contract) | 27 | $ | 73,662 | |||||
Australian Treasury Bond 10-Year Futures, September 2010 (Current Notional Value of $90,328 per contract) | 10 | 20,863 | ||||||
German Euro Bond Futures, September 2010 (Current Notional Value of $158,490 per contract) | 20 | 9,073 | ||||||
JGB Mini 10-Year Futures, September 2010 (Current Notional Value of $1,600,900 per contract) | 6 | 70,922 | ||||||
Russell 2000 Mini Index Futures, September 2010 (Current Notional Value of $60,780 per contract) | 12 | (10,549 | ) | |||||
UK Long Gilt Bond Futures, September 2010 (Current Notional Value of $181,103 per contract) | 17 | 58,842 | ||||||
U.S. Treasury Note 10-Year Futures, September 2010 (Current Notional Value of $122,547 per contract) | 25 | 54,648 | ||||||
Total Long Contracts | 117 | $ | 277,461 | |||||
Unrealized | ||||||||
Number of | Appreciation/ | |||||||
Contracts | Depreciation | |||||||
Short Contracts: | ||||||||
ASX SPI 200 Index Futures, September 2010 (Current Notional Value of $89,997 per contract) | 4 | $ | 19,934 | |||||
CAC 40 Index Futures, July 2010 (Current Notional Value of $42,161 per contract) | 8 | 14,209 | ||||||
FTSE JSE Top 40 Index Futures, September 2010 (Current Notional Value of $30,427 per contract) | 13 | 20,045 | ||||||
FTSE MIB Index Futures, September 2010 (Current Notional Value of $118,485 per contract) | 2 | 6,541 | ||||||
Hang Seng Index Futures, July 2010 (Current Notional Value of $128,925 per contract) | 3 | 12,155 | ||||||
Hang Seng China Ent Index Futures, July 2010 (Current Notional Value of $73,294 per contract) | 4 | 11,429 | ||||||
IBEX 35 Index Futures, July 2010 (Current Notional Value of $3,758 per contract) | 3 | 8,396 | ||||||
MSCI Taiwan Index Futures, July 2010 (Current Notional Value of $25,220 per contract) | 14 | 8,960 | ||||||
SGX MSCI Singapore Index Futures, July 2010 (Current Notional Value of $48,148 per contract) | 7 | 2,908 | ||||||
S&P 500 E-Mini Index Futures, September 2010 (Current Notional Value of $51,330 per contract) | 34 | 20,655 | ||||||
S&P/TSE 60 Index Futures, September 2010 (Current Notional Value of $124,067 per contract) | 5 | 5,887 | ||||||
Topix index Futures, September 2010 (Current Notional Value of $94,759 per contract) | 4 | 9,357 | ||||||
Total Short Contracts | 101 | 140,476 | ||||||
Total Futures Contracts | 218 | $ | 417,937 | |||||
Notional | ||||||||||||||||||
Amount | ||||||||||||||||||
Swap Contracts | Counterparty | (000) | ||||||||||||||||
J.P. Morgan Global Government Bond Index | J.P. Morgan Chase Bank, N.A. | 34,250 | June 2011/Long | $ | 15,196 | $ | 438,929 | |||||||||||
Fair Value Measurements
Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below. (See Note 1(B) in the Notes to Financial Statements for further information regarding fair value measurements.)
The following is a summary of the inputs used as of June 30, 2010 in valuing the Fund’s investments carried at value.
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
Level 1 | Level 2 | Level 3 | ||||||||||||||||||
Quotes | Other Significant | Significant | Percent of | |||||||||||||||||
Investments | Prices | Observable Inputs | Unobservable Inputs | Total | Net Assets | |||||||||||||||
Investments in an Asset Position | ||||||||||||||||||||
Common Stocks | ||||||||||||||||||||
Aerospace & Defense | $ | 304,864 | $ | — | $ | — | $ | 304,864 | 0.5 | % | ||||||||||
Airlines | — | 266,992 | — | 266,992 | 0.4 | |||||||||||||||
Apparel Retail | 1,027,914 | — | — | 1,027,914 | 1.7 | |||||||||||||||
Apparel, Accessories & Luxury Goods | 334,435 | — | — | 334,435 | 0.6 | |||||||||||||||
Asset Management & Custody Banks | 275,808 | — | — | 275,808 | 0.5 | |||||||||||||||
Auto Parts & Equipment | 355,653 | 47,871 | — | 403,524 | 0.7 | |||||||||||||||
Automobile Manufacturers | 116,928 | 1,523,737 | — | 1,640,665 | 2.8 | |||||||||||||||
Biotechnology | 383,980 | — | — | 383,980 | 0.6 | |||||||||||||||
Broadcasting & Cable TV | — | 584,016 | — | 584,016 | 1.0 | |||||||||||||||
Coal & Consumable Fuels | — | 97,745 | — | 97,745 | 0.2 | |||||||||||||||
Commercial Printing | 283,201 | — | — | 283,201 | 0.5 | |||||||||||||||
Communications Equipment | 332,317 | — | — | 332,317 | 0.5 | |||||||||||||||
Computer Hardware | 1,323,521 | — | — | 1,323,521 | 2.2 | |||||||||||||||
Computer Storage & Peripherals | 233,416 | — | — | 233,416 | 0.4 | |||||||||||||||
Construction & Engineering | — | 30,320 | — | 30,320 | 0.1 | |||||||||||||||
Construction & Farm Machinery & Heavy Trucks | 645,012 | — | — | 645,012 | 1.1 | |||||||||||||||
Consumer Finance | 588,894 | — | — | 588,894 | 1.0 | |||||||||||||||
Data Processing & Outsourced Services | 587,796 | — | — | 587,796 | 1.0 | |||||||||||||||
Department Stores | 75,180 | 432,786 | — | 507,966 | 0.8 | |||||||||||||||
Diversified Banks | 392,270 | 2,431,808 | — | 2,824,078 | 4.8 | |||||||||||||||
Diversified Capital Markets | — | 357,037 | — | 357,037 | 0.6 | |||||||||||||||
Diversified Metals & Mining | 211,302 | 1,607,085 | — | 1,818,387 | 3.1 | |||||||||||||||
Electric Utilities | — | 860,568 | — | 860,568 | 1.4 | |||||||||||||||
Electronic Equipment Manufacturers | 113,004 | 118,910 | — | 231,914 | 0.4 | |||||||||||||||
Food Retail | — | 126,745 | — | 126,745 | 0.2 | |||||||||||||||
Gas Utilities | — | 36,539 | — | 36,539 | 0.1 | |||||||||||||||
Health Care Distributors | 262,158 | — | — | 262,158 | 0.4 | |||||||||||||||
Health Care Supplies | — | 117,528 | — | 117,528 | 0.2 | |||||||||||||||
Home Furnishing Retail | 109,404 | — | — | 109,404 | 0.2 | |||||||||||||||
Homebuilding | 289,002 | 146,982 | — | 435,984 | 0.7 | |||||||||||||||
Household Products | 275,908 | — | — | 275,908 | 0.5 | |||||||||||||||
Independent Power Producers & Energy Traders | — | 5,706 | — | 5,706 | 0.0 | * | ||||||||||||||
Industrial Conglomerates | 398,091 | — | — | 398,091 | 0.7 | |||||||||||||||
Industrial Machinery | — | 466,300 | — | 466,300 | 0.8 | |||||||||||||||
Integrated Oil & Gas | 2,018,160 | 538,664 | — | 2,556,824 | 4.3 | |||||||||||||||
Integrated Telecommunication Services | 1,497,626 | 364,214 | — | 1,861,840 | 3.1 | |||||||||||||||
Internet Software & Services | 68,107 | — | — | 68,107 | 0.1 | |||||||||||||||
Investment Banking & Brokerage | 223,159 | 17 | — | 223,176 | 0.4 | |||||||||||||||
Managed Health Care | 479,691 | — | — | 479,691 | 0.8 | |||||||||||||||
Movies & Entertainment | 102,139 | — | — | 102,139 | 0.2 | |||||||||||||||
Multi-Utilities | 388,863 | 287,117 | — | 675,980 | 1.1 | |||||||||||||||
Office Electronics | — | 1,014,100 | — | 1,014,100 | 1.7 | |||||||||||||||
Oil & Gas Drilling | 154,550 | — | — | 154,550 | 0.3 | |||||||||||||||
Oil & Gas Equipment & Services | 94,992 | 95,228 | — | 190,220 | 0.3 | |||||||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
Level 1 | Level 2 | Level 3 | ||||||||||||||||||
Quotes | Other Significant | Significant | Percent of | |||||||||||||||||
Investments | Prices | Observable Inputs | Unobservable Inputs | Total | Net Assets | |||||||||||||||
Oil & Gas Exploration & Production | 308,065 | — | — | 308,065 | 0.5 | |||||||||||||||
Other Diversified Financial Services | 201,449 | — | — | 201,449 | 0.3 | |||||||||||||||
Packaged Foods & Meats | — | 154,448 | — | 154,448 | 0.3 | |||||||||||||||
Pharmaceuticals | 724,282 | 3,396,740 | — | 4,121,022 | 6.9 | |||||||||||||||
Property & Casualty Insurance | 135,085 | 495,078 | — | 630,163 | 1.1 | |||||||||||||||
Publishing | 138,638 | — | — | 138,638 | 0.2 | |||||||||||||||
Railroads | — | 86,658 | — | 86,658 | 0.2 | |||||||||||||||
Real Estate Management & Development | — | 644,842 | — | 644,842 | 1.1 | |||||||||||||||
Regional Banks | 314,315 | 48,970 | — | 363,285 | 0.6 | |||||||||||||||
Reinsurance | 573,650 | 366,287 | — | 939,937 | 1.6 | |||||||||||||||
Restaurants | 505,590 | — | — | 505,590 | 0.9 | |||||||||||||||
Semiconductors | 302,610 | 74,894 | — | 377,504 | 0.6 | |||||||||||||||
Specialized Finance | 77,688 | 73,212 | — | 150,900 | 0.3 | |||||||||||||||
Steel | 119,295 | — | — | 119,295 | 0.2 | |||||||||||||||
Systems Software | 1,090,674 | — | — | 1,090,674 | 1.8 | |||||||||||||||
Tobacco | — | 815,211 | — | 815,211 | 1.4 | |||||||||||||||
Trucking | 217,022 | — | — | 217,022 | 0.4 | |||||||||||||||
Wireless Telecommunication Services | 146,704 | — | — | 146,704 | 0.3 | |||||||||||||||
Total Common Stocks | 18,802,412 | 17,714,355 | — | 36,516,767 | 61.7 | |||||||||||||||
United States Government Agency Obligations | — | 2,999,190 | — | 2,999,190 | 5.1 | |||||||||||||||
Investment Companies | 4,790,800 | — | — | 4,790,800 | 8.1 | |||||||||||||||
Mutual Funds | 10,887,260 | — | — | 10,887,260 | 18.4 | |||||||||||||||
Futures | 428,486 | — | — | 428,486 | 0.7 | |||||||||||||||
Swap Contracts | — | 438,929 | — | 438,929 | 0.7 | |||||||||||||||
Total Investments in an Asset Position | $ | 34,908,958 | $ | 21,152,474 | $ | — | $ | 56,061,432 | 94.7 | % | ||||||||||
Investments in a Liability Position | ||||||||||||||||||||
Forward Foreign Currency Contracts | $ | — | $ | (912 | ) | $ | — | $ | (912 | ) | ||||||||||
Futures | (10,549 | ) | — | — | (10,549 | ) | ||||||||||||||
Total Investments in a Liability Position | $ | (10,549 | ) | $ | (912 | ) | $ | — | $ | (11,461 | ) | |||||||||
* | Amount Is less than 0.1% |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $45,353,983) | $ | 44,306,757 | ||
Investments in affiliated money market funds, at value and cost | 10,887,260 | |||
Foreign currency (Cost $1,988,251) | 1,968,185 | |||
Cash | 1,223,237 | |||
Receivables: | ||||
Variation margin on futures | 417,937 | |||
Dividends | 108,017 | |||
Fund shares sold | 12,513 | |||
Investments sold | 454 | |||
Swap contracts | 438,929 | |||
Total assets | 59,363,289 | |||
Liabilities: | ||||
Payables: | ||||
Offering costs | 53,026 | |||
Distributor and affiliates | 29,335 | |||
Investment advisory fee | 2,295 | |||
Trustees deferred comp retirement plan | 490 | |||
Fund shares repurchased | 109 | |||
Forward foreign currency contracts | 912 | |||
Accrued expenses | 91,363 | |||
Total liabilities | 177,530 | |||
Net assets | $ | 59,185,179 | ||
Net assets consist of: | ||||
Capital (par value of $0.001 per share with an unlimited number of shares authorized) | $ | 56,618,609 | ||
Net unrealized depreciation | (212,212 | ) | ||
Accumulated undistributed net investment income | 194,140 | |||
Accumulated net realized gain | 2,585,222 | |||
Net assets | $ | 59,185,759 | ||
Net asset value and offering price per share | ||||
Series I Shares: (Based on net assets of $112,021 and 10,000 shares of beneficial interest issued and outstanding) | $ | 11.20 | ||
Series II Shares: (Based on net assets of $59,073,738 and 5,286,076 shares of beneficial interest issued and outstanding) | $ | 11.18 | ||
Statement of Operations
For the Six Months Ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $43,720) | $ | 769,561 | ||
Interest | 44,395 | |||
Total income | 813,956 | |||
Expenses: | ||||
Investment advisory fee | 348,953 | |||
Distribution (12b-1) and service fees | 116,171 | |||
Custody | 72,818 | |||
Accounting and administrative expenses | 54,575 | |||
Professional fees | 29,904 | |||
Reports to shareholders | 10,025 | |||
Offering costs | 8,560 | |||
Transfer agent fees | 7,679 | |||
Trustees’ fees and related expenses | 6,784 | |||
Other | 6,131 | |||
Total expenses | 661,600 | |||
Expense reduction | 126,656 | |||
Net expenses | 534,944 | |||
Net investment income | 279,012 | |||
Realized and unrealized gain/loss: | ||||
Realized gain/loss: | ||||
Investments | $ | 3,665,569 | ||
Futures | 1,068,962 | |||
Foreign currency transactions | 891,657 | |||
Forward foreign currency contracts | (2,749,855 | ) | ||
Net realized gain | 2,876,333 | |||
Unrealized appreciation/depreciation: | ||||
Beginning of the period | 6,962,088 | |||
End of the period: | ||||
Investments | (1,047,226 | ) | ||
Swap contracts | 438,929 | |||
Futures | 417,937 | |||
Forward commitments | (912 | ) | ||
Foreign currency translation | (20,940 | ) | ||
(212,212 | ) | |||
Net unrealized depreciation during the period | (7,174,300 | ) | ||
Net realized and unrealized loss | $ | (4,297,967 | ) | |
Net decrease in net assets from operations | $ | (4,018,955 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
Statement of Changes in Net Assets
(Unaudited)
For the Period | ||||||||
For the | January 23, 2009 | |||||||
Six Months | (Commencement | |||||||
Ended | of Operations) to | |||||||
June 30, 2010 | December 31, 2009 | |||||||
From investment activities: | ||||||||
Operations: | ||||||||
Net investment income | $ | 279,012 | $ | 241,262 | ||||
Net realized gain | 2,876,333 | 6,738,510 | ||||||
Net unrealized appreciation/depreciation during the period | (7,174,300 | ) | 6,962,088 | |||||
Change in net assets from operations | (4,018,955 | ) | 13,941,860 | |||||
Distributions from net investment income: | ||||||||
Series I Shares | (196 | ) | (2,462 | ) | ||||
Series II Shares | (185,515 | ) | (1,961,058 | ) | ||||
(185,711 | ) | (1,963,520 | ) | |||||
Distributions from net realized gain: | ||||||||
Series I Shares | (1,436 | ) | (4,587 | ) | ||||
Series II Shares | (1,359,183 | ) | (3,885,689 | ) | ||||
(1,360,619 | ) | (3,890,276 | ) | |||||
Total distributions | (1,546,330 | ) | (5,853,796 | ) | ||||
Net change in net assets from investment activities | (5,565,285 | ) | 8,088,064 | |||||
From capital transactions: | ||||||||
Proceeds from shares sold | 19,296,045 | 105,224,572 | ||||||
Net asset value of shares issued through dividend reinvestment | 1,546,330 | 5,853,796 | ||||||
Cost of shares repurchased | (65,785,791 | ) | (9,471,972 | ) | ||||
Net change in net assets from capital transactions | (44,943,416 | ) | 101,606,396 | |||||
Total increase/decrease in net assets | (50,508,701 | ) | 109,694,460 | |||||
Net assets: | ||||||||
Beginning of the period | 109,694,460 | 0 | ||||||
End of the period (including accumulated undistributed net investment income of $194,140 and $100,839, respectively) | $ | 59,185,759 | $ | 109,694,460 | ||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
Financial Highlights
(Unaudited)
The following schedule presents financial highlights for one share of the Fund outstanding throughout the periods indicated.
Series I Sharesˆ | ||||||||
January 23, 2009 | ||||||||
Six months | (commencement of | |||||||
ended | operations) to | |||||||
June 30, 2010 | December 31, 2009 | |||||||
Net asset value, beginning of the period | $ | 12.00 | $ | 10.00 | ||||
Net investment income(a) | 0.06 | 0.04 | ||||||
Net realized and unrealized gain/loss | (0.70 | ) | 2.67 | |||||
Total from investment operations | (0.64 | ) | 2.71 | |||||
Less: | ||||||||
Distributions from net investment Income | 0.02 | 0.25 | ||||||
Distributions from net realized gain | 0.14 | 0.46 | ||||||
Total distributions | 0.16 | 0.71 | ||||||
Net asset value, end of the period | $ | 11.20 | $ | 12.00 | ||||
Total return* | (6.33 | )%** | 28.21 | %** | ||||
Net assets at end of the period (in millions) | $ | 0.1 | $ | 0.1 | ||||
Ratio of expenses to average net assets*(b) | 0.90 | % | 0.90 | % | ||||
Ratio of net investment income to average net assets*(b) | 0.97 | % | 0.41 | % | ||||
Portfolio turnover | 116 | %** | 87 | %** | ||||
* If certain expenses had not been voluntarily assumed by the adviser, total returns would have been lower and the ratios would have been as follows: | ||||||||
Ratio of expenses to average net assets(b) | 1.17 | % | 1.46 | % | ||||
Ratio of net investment income/loss to average net assets(b) | 0.70 | % | (0.15 | %) | ||||
Series II Sharesˆ | ||||||||
January 23, 2009 | ||||||||
Six months | (commencement of | |||||||
ended | operations) to | |||||||
June 30, 2010 | December 31, 2009 | |||||||
Net asset value, beginning of the period | $ | 12.10 | $ | 10.00 | ||||
Net investment income(a) | 0.05 | 0.05 | ||||||
Net realized and unrealized gain/loss | (0.81 | ) | 2.74 | |||||
Total from investment operations | (0.76 | ) | 2.79 | |||||
Less: | ||||||||
Distributions from net investment income | 0.02 | 0.23 | ||||||
Distributions from net realized gain | 0.14 | 0.46 | ||||||
Total distributions | 0.16 | 0.69 | ||||||
Net asset value, end of the period | $ | 11.18 | $ | 12.10 | ||||
Total return*(c) | (6.43 | )** | 27.86 | %** | ||||
Net assets at end of the period (in millions) | $ | 59.1 | $ | 109.6 | ||||
Ratio of expenses to average net assets*(b) | 1.15 | % | 1.15 | % | ||||
Ratio of net investment income to average net assets*(b) | 0.60 | % | 0.44 | % | ||||
Portfolio turnover | 116 | %** | 87 | %** | ||||
* If certain expenses had not been voluntarily assumed by the adviser, total returns would have been lower and the ratios would have been as follows: | ||||||||
Ratio of expenses to average net assets(b) | 1.42 | % | 1.71 | % | ||||
Ratio of net investment income/loss to average net assets(b) | 0.33 | % | (0.12 | )% | ||||
(a) | Based on average shares outstanding. | |
(b) | Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average ratio of expense to average net assets for the Underlying Funds was 0.09% and 0.08% at June 30, 2010 and December 31, 2009, respectively. | |
(c) | These returns include combined Rule 12b-1 fees and service fees of up to 0.25%. | |
ˆ | On June 1, 2010, the Fund’s former Class I and Class II Shares were reorganized into Series I and Series II Shares, respectively. | |
** | Non-Annualized |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
Notes to Financial Statements
June 30, 2010
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund (the ”Fund”) is organized as a series of the Variable Insurance Funds (Invesco Variable Insurance Funds), formerly AIM Variable Insurance Funds, (the ”Trust”), a Delaware statutory trust, and is registered as a diversified, open-end management investment company under the Investment Company Act of 1940, as amended (the ”1940 Act”). The Trust consists of forty-one separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Portfolio or class will be voted on exclusively by the shareholders of such Portfolio or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Portfolio or class.
Prior to June 1, 2010, the Fund operated as Van Kampen Life Investment Trust Global Tactical Asset Allocation Portfolio (the “Acquired Fund”), an investment portfolio of Van Kampen Life Investment Trust. The Acquired Fund was reorganized June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class I and Class II Shares received Series I and Series II Shares, respectively of the Fund.
Information for the Acquired Fund’s — Class I and Class II Shares prior to the Reorganization are included with Series I and Series II Shares, respectively, of the Fund throughout this report.
The Fund’s investment objective is to seek capital appreciation over time by investing primarily in a diversified mix of equity securities and fixed income securities of U.S. and non-U.S. issuers.
The Fund currently offers two classes of shares, Series I Shares and Series II Shares, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies.
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. |
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Fair Value Measurements — GAAP defines fair value as the price that the Fund would receive to sell an investment or pay to transfer a liability in an orderly transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. GAAP establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund’s investments. The inputs are summarized in the three broad levels listed below. |
Level 1 — | Prices are based on quoted prices in active markets for identical investments. | |
Level 2 — | Prices are based on other significant observable inputs which may include quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc. | |
Level 3 — | Prices are based on significant unobservable inputs including the Fund’s own assumptions in determining the fair value of investments. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer’s financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances. |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. | ||
C. | Security Transactions — Security transactions are recorded on a trade date basis. Realized gains and losses are determined on an identified cost basis. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
D. | Income and Expenses — Dividend income is recorded net of applicable withholding taxes on the ex-dividend date and interest income is recorded on an accrual basis. Income and expenses of the Fund are allocated on a pro rata basis to each class of shares, except for distribution and service fees and incremental transfer agency costs which are unique to each class of shares. | |
E. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
F. | Federal Income Taxes — It is the Fund’s policy to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income earned or gains realized or repatriated. Taxes are accrued and applied to net investment income, net realized capital gains and net unrealized appreciation, as applicable, as the income is earned or capital gains are recorded. Management has concluded there are no significant uncertain tax positions that would require recognition in the financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in “Interest Expense” and penalties in “Other” expenses in the Statement of Operations. The Fund files tax returns with the U.S. Internal Revenue Service and various states. Generally, the tax period ended December 31, 2009, remains subject to examination by taxing authorities. |
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end. |
Unrealized appreciation (depreciation) of investment securities on a tax basis | ||||
Aggregate unrealized appreciation on investment securities | $ | 876,362 | ||
Aggregate unrealized (depreciation) on investment securities | (1,999,504 | ) | ||
Net unrealized (depreciation) on investment securities | $ | (1,123,142 | ) | |
Cost of investments for tax purposes is $56,317,159. |
G. | Distribution of Income and Gains — The Fund declares and pays dividends at least annually from net investment income and net realized gains, if any. Distributions from net realized gains for book purposes may include short-term capital gains and a portion of futures gains, which are included in ordinary income for tax purposes. Distributions from the Fund are recorded on the ex-distribution date. | |
The tax character of distributions paid during the period ended December 31, 2009 was as follows: |
Distributions paid from: | ||||
Ordinary income | $ | 5,145,625 | ||
Long-term capital gain | 708,171 | |||
$ | 5,853,796 | |||
As of December 31, 2009, the components of distributable earnings on a tax basis were as follows: |
Undistributed ordinary income | $ | 1,157,086 | ||
Undistributed long-term capital gain | 389,877 | |||
Net realized gains or losses may differ for financial reporting and tax purposes primarily as a result of mark to market on open futures contracts and deferral of losses relating to wash sale transactions. | ||
H. | Foreign Currency Translation — Assets and liabilities denominated in foreign currencies and commitments under forward currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated at the rate of exchange prevailing when such securities were acquired or sold. Income and expenses are translated at rates prevailing when accrued. Realized and unrealized gains and losses on securities resulting from changes in exchange rates are not segregated for financial reporting purposes from amounts arising from changes in the market prices of securities. The unrealized gains and losses on translations of other assets or liabilities denominated in foreign currencies are included in foreign currency translation in the Statement of Operations. Realized gains and losses on foreign currency transactions in the Statement of Operations include the net realized amount from the sale of the foreign currency and the amount realized between trade date and settlement date on security transactions. | |
I. | Offering Costs — Offering costs are amortized, on a straight-line basis, over a twelve month period. |
NOTE 2—Investment Advisory Agreement and Other Transactions with Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | % Per Annum | |||
First $750 million | 0. | 75 | % | |
Next $750 million | . | 0.70 | % | |
Over $1.5 billion | 0. | 65 | % | |
Prior to the reorganization, the Acquired Fund paid an advisory fee to Van Kampen Asset Management (“Van Kampen”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Effective on the Reorganization Date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit the Fund’s expenses (excluding certain items discussed below) of Series I shares to 0.90% and Series II shares to 1.15% of average daily net assets, respectively. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the Fund’s expenses to exceed the limit reflected above: (i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary or non-routine items; and (v) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and the Adviser mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012. For the period June 1, 2010 to June 30, 2010, the Adviser did not waive advisory fees under this limitation.
Prior to the Reorganization, Van Kampen had voluntarily agreed to waive fees and/or reimburse expenses of the Acquired Fund’s Series I and the Acquired Fund’s Series II Shares resulting in net expense ratios of 0.90% and 1.15%, respectively. For the period July 1, 2009 to May 31, 2010 Van Kampen waived advisory fees of $126,656.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds. For the period ended June 30, 2010, the Adviser did not waive any advisory fees under the agreement.
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the period ended June 30, 2010, Invesco was paid $4,110 for accounting and fund administrative services and reimbursed $12,464 for services provided by insurance companies. Prior to the Reorganization, under separate accounting services and Chief Compliance Officer (“CCO”) employment agreements, Van Kampen Investments, Inc. provided accounting services and the CCO provided compliance services to the Acquired Fund. Pursuant to such agreement, the Acquired Fund paid $38.001 to Van Kampen Investments Inc.
Also, the Trust has entered into service agreements whereby State Street Bank & Trust Company (“SSB”) serves as custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. Prior to the Reorganization, the Acquired Fund paid $6,508 to Van Kampen Investor Services, Inc., which served as the Acquired Fund’s transfer agent. For the six months ended June 30, 2010, expenses incurred under these agreements are shown in the Statement of Operations as “Transfer Agent Fees”.
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or Invesco Distributors, Inc. (“IDI”).
“Trustees’ Fees and Related Expenses” 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’ Fees and Related Expenses” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco 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’ Fees and Related Expenses” 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.
For the period ended June 30, 2010, the Fund paid legal fees of $0 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.
Prior to the Reorganization, the Acquired Fund paid brokerage commissions to Morgan Stanley & Co., Inc., an affiliate of the Acquired Fund, totaling $37,343.
NOTE 3—Share Information
For the six months ended June 30, 2010 and the period ended December 31, 2009, transactions were as follows:
For the | For the | |||||||||||||||
six months | period ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Value | Shares | Value | |||||||||||||
Sales: | ||||||||||||||||
Series I | 0 | $ | 0 | 10,000 | $ | 100,000 | ||||||||||
Series II | 1,614,576 | 19,296,045 | 9,353,445 | 105,124,572 | ||||||||||||
Total sales | 1,614,576 | $ | 19,296,045 | 9,363,445 | $ | 105,224,572 | ||||||||||
Dividend reinvestment: | ||||||||||||||||
Series I | 0 | $ | 0 | 0 | $ | 0 | ||||||||||
Series II | 101,831 | 1,546,330 | 367,564 | 5,853,796 | ||||||||||||
Total dividend reinvestment | 101,831 | $ | 1,546,330 | 367,564 | $ | 5,853,796 | ||||||||||
Repurchases: | ||||||||||||||||
Series I | 0 | $ | 0 | 0 | $ | 0 | ||||||||||
Series II | (5,485,983 | ) | (65,785,791 | ) | (665,357 | ) | (9,471,972 | ) | ||||||||
Total repurchases | (5,485,983 | ) | $ | (65,785,791 | ) | (665,357 | ) | $ | (9,471,972 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 97% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
NOTE 4—Investment Transactions
During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, Money Market Funds, and U.S. Government Securities, were $63,207,127 and $80,258,174, respectively. The cost of purchases and proceeds from sales of long-term U.S. Government Securities for the period were $0 and $1,891,527, respectively.
NOTE 5—Risks of Investing in Underlying Funds
Each of the Underlying Funds in which the Fund invests has its own investment risks, and those risks can affect the value of the Underlying Funds’ shares and therefore the value of the Fund’s investments.
Each Underlying Fund’s prospectus and statement of additional information discuss the investment objectives and risks associated with each Underlying Fund. Copies of these documents along with the Underlying Fund’s financial statements are available on the Securities and Exchange Commission’s website, http://www.sec.gov.
NOTE 6—Derivative Financial Instruments
A derivative financial instrument in very general terms refers to a security whose value is “derived” from the value of an underlying asset, reference rate or index.
The Fund may use derivative instruments for a variety of reasons, such as to attempt to protect the Fund against possible changes in the market value of its portfolio or to manage the Fund’s foreign currency exposure or to generate potential gain. All of the Fund’s holdings, including derivative instruments, are marked to market each day with the change in value reflected in unrealized appreciation/depreciation. Upon disposition, a realized gain or loss is recognized accordingly except when taking delivery of a security underlying a contract. In these instances, the recognition of gain or loss is postponed until the disposal of the security underlying the contract.
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. GAAP has intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position and financial performance. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
A. | Forward Foreign Currency Contracts — A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The Fund may enter into forward foreign currency contracts to attempt to protect securities and related receivables and payables against changes in future foreign currency exchange rates. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked-to-market daily and the change in market value is recorded by the Fund as unrealized appreciation/depreciation on foreign currency translation in the Statement of Operations. The gain or loss arising from the difference between the original value of the contract and the closing value of such contract is included as a component of realized gain (loss) on foreign currency transactions. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts. Risks may also arise from the unanticipated movements in the value of a foreign currency relative to the U.S. dollar. During the six months ended June 30, 2010, the cost of purchases and the proceeds from sales of forward foreign currency contracts were $218,786,080 and $213,068,316 respectively. | |
B. | Futures Contracts — The Fund is subject to equity price risk, interest rate risk and foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The Fund may use futures contracts to gain exposure to, or hedge against changes in the value of equities, interest rates or foreign currencies. A futures contract is an agreement involving the delivery of a particular asset on a specified future date at an agreed upon price. Upon entering into futures contracts, the Fund maintains an amount of cash or liquid securities with a value equal to a percentage of the contract amount with either a futures commission merchant pursuant to rules and regulations promulgated under the 1940 Act, or with its custodian in an account in the broker’s name. This amount is known as initial margin. During the period the futures contract is open, payments are received from or made to the broker based upon changes in the value of the contract (variation margin). When entering into futures contracts, the Fund bears the risk of interest or exchange rates or securities prices moving unexpectedly, in which case, the Fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. With futures, there is minimal counterparty credit risk to the Fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. The risk of loss associated with a futures contract is in excess of the variation margin reflected in the Statement of Assets and Liabilities. Restricted cash, if any, for segregating purposes is shown in the Statement of Assets and Liabilities. | |
Transactions in futures contracts for the six months ended June 30, 2010, were as follows: |
Contracts | ||||
Outstanding at December 31, 2009 | 486 | |||
Futures opened | 1819 | |||
Futures closed | (2087 | ) | ||
Outstanding at June 30, 2010 | 218 | |||
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
C. | Swap Contracts — The Fund may enter into various swap transactions, including interest rate, total return, index, currency exchange rate and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. | |
Interest rate, total return, index, and currency exchange rate swap agreements are two-party contracts entered into primarily to exchange the returns (or differentials in rates of returns) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a notional amount, i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or return of an underlying asset, in a particular foreign currency, or in a “basket” of securities representing a particular index. | ||
A CDS is an agreement between two parties (“Counterparties”) to exchange the credit risk of an issuer. A buyer of a CDS is said to buy protection by paying a fixed payment over the life of the agreement and in some situations an upfront payment to the seller of the CDS. If a defined credit event occurs (such as payment default or bankruptcy), the Fund as a protection buyer would cease paying its fixed payment, the Fund would deliver eligible bonds issued by the reference entity to the seller, and the seller would pay the full notional value, or the “par value”, of the referenced obligation to the Fund. A seller of a CDS is said to sell protection and thus would receive a fixed payment over the life of the agreement and an upfront payment, if applicable. If a credit event occurs, the Fund as a protection seller would cease to receive the fixed payment stream, the Fund would pay the buyer “par value” or the full notional value of the referenced obligation, and the Fund would receive the eligible bonds issued by the reference entity. In turn, these bonds may be sold in order to realize a recovery value. Alternatively, the seller of the CDS and its counterparty may agree to net the notional amount and the market value of the bonds and make a cash payment equal to the difference to the buyer of protection. If no credit event occurs, the Fund receives the fixed payment over the life of the agreement. As the seller, the Fund would effectively add leverage to its portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the CDS. In connection with these agreements, cash and securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default under the swap agreement or bankruptcy/insolvency of a party to the swap agreement. | ||
Implied credit spreads represent the current level at which protection could be bought or sold given the terms of the existing CDS contract and serve as an indicator of the current status of the payment/performance risk of the CDS. An implied spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets. | ||
Changes in the value of swap agreements are recognized as unrealized gains (losses) in the Statement of Operations by “marking to market” on a daily basis to reflect the value of the swap agreement at the end of each trading day. Payments received or paid at the beginning of the agreement are reflected as such on the Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund accrues for the fixed payment stream and amortizes upfront payments, if any, on swap agreements on a daily basis with the net amount, recorded as a component of realized gain (loss) on the Statement of Operations. A liquidation payment received or made at the termination of a swap agreement is recorded as realized gain (loss) on the Statement of Operations. The Fund segregates liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. The Fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the value of the contract. The risk may be mitigated by having a master netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to cover the Fund’s exposure to the counterparty. Entering into these agreements involves, to varying degrees, lack of liquidity and elements of credit, market, and counterparty risk in excess of amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that a swap is difficult to sell or liquidate; the counterparty does not honor its obligations under the agreement and unfavorable interest rates and market fluctuations. For the six months ended June 30, 2010, the average notional amount of total return swap contracts entered into by the Fund was $15,196,000. |
The following table sets forth the fair value of the Fund’s derivative contracts by primary risk exposure as of June 30, 2010.
Asset Derivatives | Liability Derivatives | |||||||||||
Balance Sheet | Balance Sheet | |||||||||||
Primary Risk Exposure | Location | Fair Value | Location | Fair Value | ||||||||
Total return contracts | Swap contracts | $ | 438,929 | * | Swap contracts | $ | 0 | * | ||||
Interest rate contracts | Variation margin on futures | 288,008 | * | Variation margin on futures | 0 | * | ||||||
Equity contracts | Variation margin on futures | 140,478 | * | Variation margin on futures | (10,549 | )* | ||||||
Foreign exchange contracts | Forward foreign currency contracts | 0 | Forward foreign currency contracts | (912 | ) | |||||||
Total | 867,415 | (11,461 | ) | |||||||||
* | Includes cumulative appreciation/depreciation of futures contracts as reported in Schedule of Investments/footnotes. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
The following tables set forth by primary risk exposures the Fund’s realized gains (losses) and change in unrealized appreciation/depreciation by type of derivative contract for the period ended June 30, 2010.
Amount of Realized Gain/(Loss) on Derivative Contracts | ||||||||||||
Forward Foreign | ||||||||||||
Primary Risk Exposure | Futures | Currency Contracts | Total | |||||||||
Interest rate contracts | $ | 475,142 | $ | 0 | $ | 475,142 | ||||||
Equity contracts | 593,820 | 0 | 593,820 | |||||||||
Foreign exchange contracts | 0 | (2,749,855 | ) | (2,749,855 | ) | |||||||
Total | $ | 1,068,962 | $ | (2,749,855 | ) | $ | (1,680,893 | ) | ||||
Change in Unrealized Appreciation/(Depreciation) on Derivative Contracts | ||||||||||||||||
Forward Foreign | ||||||||||||||||
Primary Risk Exposure | Futures | Currency Contracts | Swaps | Total | ||||||||||||
Total return contracts | $ | 0 | $ | 0 | $ | 438,929 | $ | 438,929 | ||||||||
Interest rate contracts | 428,020 | 0 | 428,020 | |||||||||||||
Equity contracts | (437,703 | ) | 0 | (437,703 | ) | |||||||||||
Foreign exchange contracts | 0 | 365,087 | 365,087 | |||||||||||||
Total | $ | (9,683 | ) | $ | 365,087 | $ | 438,929 | $ | 794,333 | |||||||
NOTE 7—Distribution and Service Plans
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a distribution 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 IDI 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. Prior to the Reorganization, the Acquired Fund paid distribution fees of $103,780 to Van Kampen Funds Inc. based on the annual rate of 0.25% of the Acquired Funds’s average daily net assets of Class II shares. For the six months ended June 30, 2010, expenses incurred under the Plan are detailed in the Statement of Operations as “Distribution (12b-1) and Service Fees”.
NOTE 8—Indemnifications
Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote.
NOTE 9—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 10—Change in Independent Registered Public Accounting Firm
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the period did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
Calculating your ongoing Fund expenses
Expense Example
As a policyholder of the Fund, you incur ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing cost (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 1/1/10-6/30/10.
Actual Expense
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, 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 first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below 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 cost 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 only. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds that have transactional costs, such as sales charges (loads) or exchanges fees.
HYPOTHETICAL | |||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | ||||||||||||||||||||||||
Expenses | Expenses | ||||||||||||||||||||||||
Beginning | Ending | Paid During | Ending | Paid During | |||||||||||||||||||||
Account Value | Account Value | Period* | Account Value | Period* | |||||||||||||||||||||
Class | 01/01/10 | 06/30/10 | 01/01/10–06/30/10 | 06/30/10 | 01/01/10–06/30/10 | ||||||||||||||||||||
I | $ | 1,000.00 | $ | 929.97 | $ | 4.31 | 1,020.33 | 4.51 | |||||||||||||||||
II | 1,000.00 | 929.01 | 5.50 | 1,019.09 | 5.76 | ||||||||||||||||||||
* | Expenses are equal to the Fund’s annualized expense ratio of 0.90% and 1.15% for Series I and II Shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). These expense ratios reflect an expense waiver. |
Assumes all dividends and distributions were reinvested.
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
Approval of Investment Advisory and Sub-Advisory Agreements with Invesco Advisers, Inc. and its Affiliates
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Van Kampen retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as the Board was not advised whether an Affiliated Sub-Adviser would manage assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-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 the 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. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are 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 Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Van Kampen Life Investment Trust Global Tactical Asset Allocation Portfolio was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 8,481,729 | 124,146 | 693,606 | 0 |
Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund
Invesco Van Kampen V.I. Global Value Equity Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VK-VIGVE-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -9.35 | % | ||
Series II Shares | -9.59 | |||
MSCI World Index ▼ (Broad Market/Style-Specific Index) | -9.84 |
▼ | Lipper Inc. |
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (1/2/97) | 3.25 | % | ||
10 Years | 0.46 | |||
5 Years | -2.72 | |||
1 Year | 6.41 | |||
Series II Shares | ||||
10 Years | 0.19 | % | ||
5 Years | -2.99 | |||
1 Year | 6.00 |
Effective June 1, 2010, Class I shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Series I shares of Invesco Van Kampen V.I. Global Value Equity Fund. Returns shown above for Series I shares are blended returns of the predecessor fund and Invesco Van Kampen V.I. Global Value Equity Fund. Share class returns will differ from the predecessor fund because of different expenses.
Series II shares incepted on June 1, 2010. Series II shares performance shown prior to that date is that of the predecessor fund’s Class I shares restated to reflect the higher 12b-1 fees applicable to the fund’s Series II shares. Class I shares performance reflects any applicable fee waivers or expense reimbursements. The inception date of the predecessor fund’s Class I shares is January 2, 1997.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.15% and 1.40%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.31% and 1.56%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco Van Kampen V.I. Global Value Equity Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect, through at least June 30, 2011. See current prospectus for more information. |
Invesco Van Kampen V.I. Global Value Equity Fund
Schedule of Investments
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–96.4% | ||||||||
Australia–2.7% | ||||||||
Australia & New Zealand Banking Group Ltd. | 18,406 | $ | 330,427 | |||||
Macquarie Group Ltd. | 9,844 | 302,939 | ||||||
Telstra Corp. Ltd. | 147,175 | 400,463 | ||||||
1,033,829 | ||||||||
Austria–0.1% | ||||||||
Telekom Austria AG | 1,328 | 14,762 | ||||||
Bermuda–0.8% | ||||||||
Partnerre Ltd. | 4,480 | 314,227 | ||||||
Brazil–0.5% | ||||||||
Cia Energetica de Minas Gerais (ADR) | 3,544 | 51,990 | ||||||
Petroleo Brasileiro SA (ADR) | 2,469 | 84,736 | ||||||
Vale SA(a) | 2,759 | 67,182 | ||||||
203,908 | ||||||||
Canada–3.8% | ||||||||
Agrium, Inc. | 6,466 | 315,843 | ||||||
EnCana Corp. | 8,453 | 256,000 | ||||||
Intact Financial Corp. | 7,059 | 297,731 | ||||||
Nexen, Inc. | 12,566 | 247,177 | ||||||
Toronto-Dominion Bank (The) | 5,290 | 342,778 | ||||||
1,459,529 | ||||||||
Finland–0.7% | ||||||||
Nokia OYJ (ADR) | 34,110 | 277,997 | ||||||
France–6.1% | ||||||||
BNP Paribas | 5,907 | 315,401 | ||||||
Bouygues SA | 12,297 | 471,014 | ||||||
GDF Suez | 17,332 | 490,368 | ||||||
ICADE | 2,915 | 258,071 | ||||||
Sanofi-Aventis SA | 8,139 | 490,806 | ||||||
Total SA | 7,449 | 331,515 | ||||||
Vallourec SA | 84 | 13,407 | ||||||
2,370,582 | ||||||||
Germany–2.9% | ||||||||
Bayerische Motoren Werke AG | 9,525 | 460,708 | ||||||
Porsche Automobil Holding SE | 8,803 | 374,438 | ||||||
Salzgitter AG | 4,494 | 268,927 | ||||||
1,104,073 | ||||||||
Greece–0.5% | ||||||||
National Bank of Greece SA(a) | 17,392 | 189,497 | ||||||
India–0.1% | ||||||||
State Bank of India | 233 | 23,037 | ||||||
Ireland–0.1% | ||||||||
Dragon Oil PLC(a) | 8,389 | 50,483 | ||||||
Israel–0.4% | ||||||||
Bezeq Israeli Telecommunication Corp. Ltd. | 74,826 | 163,697 | ||||||
Italy–1.1% | ||||||||
Eni SpA | 22,933 | 420,985 | ||||||
Japan–14.4% | ||||||||
Canon, Inc. | 9,300 | 346,733 | ||||||
Daifuku Co., Ltd. | 44,500 | 272,657 | ||||||
FUJIFILM Holdings Corp. | 13,600 | 391,218 | ||||||
Mitsubishi Corp. | 15,400 | 320,902 | ||||||
Mitsubishi UFJ Financial Group, Inc. | 136,600 | 619,230 | ||||||
Murata Manufacturing Co., Ltd. | 6,800 | 323,870 | ||||||
Nippon Telegraph & Telephone Corp. | 7,400 | 302,135 | ||||||
Nippon Yusen KK | 145,000 | 526,568 | ||||||
Nissan Motor Co., Ltd.(a) | 58,500 | 405,535 | ||||||
NTT DoCoMo, Inc. | 234 | 353,862 | ||||||
Seven & I Holdings Co., Ltd. | 16,400 | 376,286 | ||||||
Sumitomo Chemical Co., Ltd. | 124,000 | 478,759 | ||||||
Sumitomo Osaka Cement Co., Ltd. | 91,000 | 173,475 | ||||||
Takeda Pharmaceutical Co., Ltd. | 8,700 | 372,334 | ||||||
Tokyo Tomin Bank Ltd. (The) | 26,500 | 301,595 | ||||||
5,565,159 | ||||||||
Mexico–0.1% | ||||||||
Desarrolladora Homex SAB de CV (ADR)(a) | 1,960 | 49,470 | ||||||
Netherlands–2.0% | ||||||||
TNT N.V. | 17,354 | 437,396 | ||||||
Unilever N.V. | 12,433 | 338,990 | ||||||
776,386 | ||||||||
Norway–0.9% | ||||||||
Statoil ASA | 17,875 | 344,753 | ||||||
Republic of Korea–1.2% | ||||||||
Hyundai Mipo Dockyard | 643 | 67,537 | ||||||
Hyundai Mobis | 528 | 88,428 | ||||||
LG Electronics, Inc. | 424 | 32,378 | ||||||
Lotte Shopping Co. Ltd. | 117 | 33,508 | ||||||
POSCO | 184 | 69,835 | ||||||
Samsung Electronics Co., Ltd. | 147 | 92,300 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Global Value Equity Fund
Shares | Value | |||||||
Republic of Korea–(continued) | ||||||||
Shinhan Financial Group Co., Ltd. | 1,500 | $ | 55,243 | |||||
SK Telecom Co. Ltd. (ADR) | 2,351 | 34,630 | ||||||
473,859 | ||||||||
Russia–0.2% | ||||||||
Gazprom OAO | 2,761 | 51,930 | ||||||
Rosneft Oil Co.(a) | 6,409 | 39,517 | ||||||
91,447 | ||||||||
Singapore–1.8% | ||||||||
ComfortDelgro Corp., Ltd. | 354,000 | 366,662 | ||||||
Singapore Post Ltd. | 414,000 | 333,414 | ||||||
700,076 | ||||||||
Spain–2.9% | ||||||||
Banco Santander SA | 49,431 | 519,421 | ||||||
Iberdrola SA | 41,807 | 234,490 | ||||||
Telefonica SA | 20,262 | 374,169 | ||||||
1,128,080 | ||||||||
Switzerland–5.3% | ||||||||
ACE Ltd. | 8,836 | 454,877 | ||||||
Holcim Ltd. | 7,381 | 494,063 | ||||||
Kuoni Reisen Holding AG (Registered Shares) | 677 | 184,299 | ||||||
Swisscom AG (Registered Shares) | 1,401 | 474,638 | ||||||
Zurich Financial Services AG | 2,061 | 452,412 | ||||||
2,060,289 | ||||||||
Taiwan–0.6% | ||||||||
Acer, Inc. | 8,000 | 18,553 | ||||||
AU Optronics Corp. (ADR) | 5,073 | 45,048 | ||||||
HTC Corp. | 6,000 | 79,603 | ||||||
Powertech Technology, Inc. | 25,000 | 69,295 | ||||||
U-Ming Marine Transport Corp. | 11,000 | 20,976 | ||||||
233,475 | ||||||||
United Kingdom–10.5% | ||||||||
BHP Billiton PLC | 25,047 | 648,137 | ||||||
BP PLC | 62,986 | 302,551 | ||||||
GlaxoSmithKline PLC | 21,767 | 368,889 | ||||||
Imperial Tobacco Group PLC | 27,648 | 770,888 | ||||||
Informa PLC | 42,561 | 281,778 | ||||||
National Grid PLC | 46,205 | 340,437 | ||||||
Royal Dutch Shell PLC (Class A) | 33,630 | 849,273 | ||||||
Vodafone Group PLC | 246,484 | 510,769 | ||||||
4,072,722 | ||||||||
United States–36.7% | ||||||||
3M Co. | 8,068 | 637,301 | ||||||
Aflac, Inc. | 8,661 | 369,565 | ||||||
Allete, Inc. | 8,206 | 280,973 | ||||||
Apache Corp. | 4,080 | 343,495 | ||||||
Apollo Group, Inc. (Class A)(a) | 5,957 | 252,994 | ||||||
Archer-Daniels-Midland Co. | 13,192 | 340,617 | ||||||
Avon Products, Inc. | 11,681 | 309,547 | ||||||
Bank of America Corp. | 30,615 | 439,938 | ||||||
Bank of New York Mellon Corp. (The) | 17,775 | 438,865 | ||||||
Best Buy Co., Inc. | 8,636 | 292,415 | ||||||
Chevron Corp. | 10,372 | 703,844 | ||||||
Coach, Inc. | 14,585 | 533,082 | ||||||
ConocoPhillips | 11,448 | 561,982 | ||||||
DaVita, Inc.(a) | 6,751 | 421,532 | ||||||
Diebold, Inc. | 11,916 | 324,711 | ||||||
DTE Energy Co. | 10,429 | 475,667 | ||||||
Energen Corp. | 9,111 | 403,891 | ||||||
GameStop Corp. (Class A)(a) | 20,710 | 389,141 | ||||||
International Business Machines Corp. | 2,545 | 314,257 | ||||||
Johnson & Johnson | 12,315 | 727,324 | ||||||
Kroger Co. (The) | 26,600 | 523,754 | ||||||
Merck & Co., Inc. | 21,411 | 748,743 | ||||||
Microsoft Corp. | 18,433 | 424,143 | ||||||
Morgan Stanley | 18,549 | 430,522 | ||||||
Oracle Corp. | 30,218 | 648,478 | ||||||
Pfizer, Inc. | 25,171 | 358,938 | ||||||
Philip Morris International, Inc. | 8,664 | 397,158 | ||||||
Potlatch Corp. | 6,462 | 230,887 | ||||||
Sonoco Products Co. | 5,037 | 153,528 | ||||||
Stryker Corp. | 7,300 | 365,438 | ||||||
Valero Energy Corp. | 21,536 | 387,217 | ||||||
WellPoint, Inc.(a) | 13,267 | 649,154 | ||||||
WR Berkley Corp. | 12,132 | 321,013 | ||||||
14,200,114 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $38,122,770) | 37,322,436 | |||||||
Money Market Funds–2.4% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 474,430 | 474,430 | ||||||
Premier Portfolio–Institutional Class(b) | 474,430 | 474,430 | ||||||
Total Money Market Funds (Cost $948,860) | 948,860 | |||||||
TOTAL INVESTMENTS (Cost $39,071,630)–98.8% | 38,271,296 | |||||||
OTHER ASSETS IN EXCESS OF LIABILITIES–1.2% | 447,946 | |||||||
NET ASSETS–100.0% | $ | 38,719,242 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Global Value Equity Fund
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Non-income producing security. | |
(b) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
as of June 30, 2010
Financials | 18.1 | % | ||
Energy | 12.8 | |||
Health Care | 11.6 | |||
Industrials | 9.0 | |||
Consumer Discretionary | 8.7 | |||
Information Technology | 8.7 | |||
Consumer Staples | 7.9 | |||
Materials | 6.9 | |||
Telecommunication Services | 6.8 | |||
Utilities | 5.9 | |||
Money Market Funds Plus Other Assets Less Liabilities | 3.6 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Global Value Equity Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $38,122,770) | $ | 37,322,436 | ||
Investments in affiliated money market funds, at value and cost | 948,860 | |||
Total investments, at value (Cost $39,071,630) | 38,271,296 | |||
Cash | 36,687 | |||
Foreign currencies, at value (Cost $185,154) | 185,691 | |||
Receivables for: | ||||
Investments sold | 28,280,566 | |||
Fund shares sold | 492 | |||
Dividends | 182,469 | |||
Other assets | 5,367 | |||
Total assets | 66,962,568 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 28,126,228 | |||
Fund shares reacquired | 16,327 | |||
Foreign currency contracts outstanding | 53,618 | |||
Accrued fees to affiliates | 10,093 | |||
Accrued other operating expenses | 37,060 | |||
Total liabilities | 28,243,326 | |||
Net assets applicable to shares outstanding | $ | 38,719,242 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 60,661,990 | ||
Undistributed net investment income | 490,484 | |||
Undistributed net realized gain (loss) | (21,585,761 | ) | ||
Unrealized appreciation (depreciation) | (847,471 | ) | ||
$ | 38,719,242 | |||
Net Assets: | ||||
Series I | $ | 38,709,372 | ||
Series II | $ | 9,870 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 6,011,806 | |||
Series II | 1,534 | |||
Series I: | ||||
Net asset value per share | $ | 6.44 | ||
Series II: | ||||
Net asset value per share | $ | 6.43 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $80,137) | $ | 913,209 | ||
Dividends from affiliated money market funds | 67 | |||
Total investment income | 913,276 | |||
Expenses: | ||||
Advisory fees | 146,164 | |||
Administrative services fees | 58,552 | |||
Custodian fees | 16,294 | |||
Distribution fees — Series II | 2 | |||
Transfer agent fees | 568 | |||
Trustees’ and officers’ fees and benefits | 1,522 | |||
Professional services fees | 12,393 | |||
Other | 6,109 | |||
Total expenses | 241,604 | |||
Less: Fees waived | (15 | ) | ||
Net expenses | 241,589 | |||
Net investment income | 671,687 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (8,305 | ) | ||
Foreign currencies | 513,673 | |||
Foreign currency contracts | 241,751 | |||
747,119 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (5,184,808 | ) | ||
Foreign currencies | 6,402 | |||
Foreign currency contracts | (267,331 | ) | ||
(5,445,737 | ) | |||
Net realized and unrealized gain (loss) | (4,698,618 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (4,026,931 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Global Value Equity Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 671,687 | $ | 1,451,529 | ||||
Net realized gain | 747,119 | 858,582 | ||||||
Change in net unrealized appreciation (depreciation) | (5,445,737 | ) | 3,798,012 | |||||
Net increase (decrease) in net assets resulting from operations | (4,026,931 | ) | 6,108,123 | |||||
Distributions to shareholders from net investment income: | ||||||||
Distributions to shareholders from net investment income — Series I | (823,810 | ) | (3,097,718 | ) | ||||
Share transactions–net: | ||||||||
Series I | (2,411,925 | ) | (5,647,809 | ) | ||||
Series II | 10,000 | — | ||||||
Net increase (decrease) in net assets resulting from share transactions | (2,401,925 | ) | (5,647,809 | ) | ||||
Net increase (decrease) in net assets | (7,252,666 | ) | (2,637,404 | ) | ||||
Net assets: | ||||||||
Beginning of period | 45,971,908 | 48,609,312 | ||||||
End of period (includes undistributed net investment income of $490,484 and $642,607, respectively) | $ | 38,719,242 | $ | 45,971,908 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1— | Significant Accounting Policies |
Invesco Van Kampen V.I. Global Value Equity Fund (the “Fund”), is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
Prior to June 1, 2010, the Fund operated as Universal Funds Global Value Equity Portfolio (the “Acquired Fund”), an investment portfolio of The Universal Institutional Funds, Inc. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund Class I shares received Series I shares of the Fund.
Information for the Acquired Fund — Class I shares prior to the Reorganization is included with Series I shares of the Fund throughout this report.
The Fund’s investment objective is long-term capital appreciation by investing primarily in equity securities of issuers throughout the world, including U.S. issuers.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an |
Invesco Van Kampen V.I. Global Value Equity Fund
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 make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to |
Invesco Van Kampen V.I. Global Value Equity Fund
federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | ||
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
J. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $1 billion | 0 | .67% | ||
Next $500 million | 0 | .645% | ||
Next $1 billion | 0 | .62% | ||
Next $1 billion | 0 | .595% | ||
Next $1 billion | 0 | .57% | ||
Over $4.5 billion | 0 | .545% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee to Morgan Stanley Investment Management Inc. (“MS Investment Management”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s). Prior to the Reorganization, Morgan Stanley Investment Management Limited served as sub-adviser to the Acquired Fund.
Invesco Van Kampen V.I. Global Value Equity Fund
Effective on the Reorganization date, the Adviser has contractually agreed, through at least June 30, 2012 to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 1.15% and Series II shares to 1.40% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Prior to the Reorganization, MS Investment Management had voluntarily agreed to waive fees and/or reimburse expenses of Class I shares to 1.15% of the Acquired Fund’s average daily net assets.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds. Prior to the Reorganization, investment advisory fees paid by the Acquired Fund were reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class shares.
For the period ended June 30, 2010, MS Investment Management waived advisory fees of $15.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2010, Invesco Ltd. did not reimburse any expenses.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the period ended June 30, 2010, Invesco was paid $4,110 for accounting and fund administrative services and reimbursed $8,266 for services provided by insurance companies. Prior to the Reorganization, the Acquired Fund paid an administration fee of $46,176 to MS Investment Management and JPMorgan Investor Services Co.
Also, the Trust has entered into service agreements whereby State Street Bank & Trust Company (“SSB”) serves as custodian, fund accountant and provide certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. Prior to the Reorganization, the Acquired Fund paid $568 to Morgan Stanley Services Company Inc., which served as the Acquired Fund’s transfer agent. For the six months ended June 30, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities 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. |
Invesco Van Kampen V.I. Global Value Equity Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Australia | $ | 1,033,829 | $ | — | $ | — | $ | 1,033,829 | ||||||||
Austria | — | 14,762 | — | 14,762 | ||||||||||||
Bermuda | 314,227 | — | — | 314,227 | ||||||||||||
Brazil | 203,908 | — | — | 203,908 | ||||||||||||
Canada | 1,459,529 | — | — | 1,459,529 | ||||||||||||
Finland | 277,997 | — | — | 277,997 | ||||||||||||
France | 961,820 | 1,408,762 | — | 2,370,582 | ||||||||||||
Germany | 1,104,073 | — | — | 1,104,073 | ||||||||||||
Greece | 189,497 | — | — | 189,497 | ||||||||||||
India | 23,037 | — | — | 23,037 | ||||||||||||
Ireland | 50,483 | — | — | 50,483 | ||||||||||||
Israel | — | 163,697 | — | 163,697 | ||||||||||||
Italy | — | 420,985 | — | 420,985 | ||||||||||||
Japan | 4,470,699 | 1,094,460 | — | 5,565,159 | ||||||||||||
Mexico | 49,470 | — | — | 49,470 | ||||||||||||
Netherlands | 437,396 | 338,990 | — | 776,386 | ||||||||||||
Norway | 344,753 | — | — | 344,753 | ||||||||||||
Republic of Korea | 473,859 | — | — | 473,859 | ||||||||||||
Russia | — | 91,447 | — | 91,447 | ||||||||||||
Singapore | — | 700,076 | — | 700,076 | ||||||||||||
Spain | 608,659 | 519,421 | — | 1,128,080 | ||||||||||||
Switzerland | 1,875,990 | 184,299 | — | 2,060,289 | ||||||||||||
Taiwan | 214,922 | 18,553 | — | 233,475 | ||||||||||||
United Kingdom | 1,413,877 | 2,658,845 | — | 4,072,722 | ||||||||||||
United States | 15,148,974 | — | — | 15,148,974 | ||||||||||||
$ | 30,656,999 | $ | 7,614,297 | $ | — | $ | 38,271,296 | |||||||||
Foreign Currency Contracts** | — | (53,618 | ) | — | (53,618 | ) | ||||||||||
Total Investments | $ | 30,656,999 | $ | 7,560,679 | $ | — | $ | 38,217,678 | ||||||||
** | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
The Fund has implemented the required disclosures about derivative instruments and hedging activities in accordance with GAAP. This disclosure 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. The enhanced disclosure has no impact on the results of operations reported in the financial statements.
Value of Derivative Instruments at Period-End
The Table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2010:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk(a)/Foreign currency contracts | $ | — | $ | (58,618 | ) | |||
(a) | Values are disclosed on the Statement of Assets and Liabilities under foreign currency contracts outstanding. |
Invesco Van Kampen V.I. Global Value Equity Fund
Effect of Derivative Instruments for the six months ended June 30, 2010
The table below summarizes the gains on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain on | ||||
Statement of Operations | ||||
Foreign Currency | ||||
Contracts* | ||||
Realized Gain | ||||
Currency risk | $ | 241,751 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Currency risk | (267,331 | ) | ||
Total | $ | (25,580 | ) | |
* | The average value of foreign currency contracts outstanding during the period was and $6,794,120. |
Open Foreign Currency Contracts | ||||||||||||||||||||
Unrealized | ||||||||||||||||||||
Settlement | Contract to | Appreciation | ||||||||||||||||||
Date | Deliver | Receive | Value | (Depreciation) | ||||||||||||||||
07/06/10 | EUR | 1,635,000 | USD | 1,983,893 | $ | 1,999,406 | $ | (15,513 | ) | |||||||||||
07/06/10 | GBP | 830,000 | USD | 1,201,981 | 1,240,086 | (38,105 | ) | |||||||||||||
Total open foreign currency contracts | ||||||||||||||||||||
$ | (53,618 | ) | ||||||||||||||||||
Currency Abbreviations:
EUR | – Euro | |
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—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, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 4,176 | ||
December 31, 2017 | 17,957 | |||
Total capital loss carryforward | $ | 22,133 | ||
Invesco Van Kampen V.I. Global Value Equity Fund
* 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, 2010 was $41,334,989 and $43,616,988, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 423,561 | ||
Aggregate unrealized (depreciation) of investment securities | (1,422,533 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (998,972 | ) | |
Cost of investments for tax purposes is $39,270,268. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 205,618 | $ | 1,495,917 | 610,980 | $ | 4,100,196 | ||||||||||
Series II(b) | 1,534 | 10,000 | — | — | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 123,510 | 823,810 | 507,823 | 3,097,721 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (663,452 | ) | (4,731,652 | ) | (1,974,372 | ) | (12,845,726 | ) | ||||||||
Net increase (decrease) in share activity | (332,790 | ) | $ | (2,401,925 | ) | (855,569 | ) | $ | (5,647,809 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 93% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
(b) | Commencement date of June 1, 2010. |
Invesco Van Kampen V.I. Global Value Equity Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | net assets | assets without | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | securities | Dividends | Distributions | with fee waivers | fee waivers | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | and/or | and/or | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | expenses | expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 7.24 | $ | 0.11 | $ | (0.77 | ) | $ | (0.66 | ) | $ | (0.14 | ) | $ | — | $ | (0.14 | ) | $ | 6.44 | (9.21 | )% | $ | 38,709 | 1.11 | %(d) | 1.11 | %(d) | 3.08 | %(d) | 97 | % | ||||||||||||||||||||||||
Year ended 12/31/09 | 6.75 | 0.22 | 0.77 | 0.99 | (0.50 | ) | — | (0.50 | ) | 7.24 | 15.99 | 45,972 | 1.15 | (e) | 1.20 | (e) | 3.33 | (e)(f) | 79 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 16.46 | 0.30 | (5.71 | ) | (5.41 | ) | (0.35 | ) | (3.95 | ) | (4.30 | ) | 6.75 | (40.15 | ) | 48,610 | 1.11 | (e) | 1.11 | 2.69 | (e) | 93 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 16.99 | 0.25 | 0.94 | 1.19 | (0.33 | ) | (1.39 | ) | (1.72 | ) | 16.46 | 6.64 | 107,470 | 1.00 | (e) | 1.00 | 1.47 | (e) | 36 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 14.87 | 0.24 | 2.78 | 3.02 | (0.26 | ) | (0.64 | ) | (0.90 | ) | 16.99 | 21.21 | 151,300 | 1.50 | 1.50 | 1.53 | 29 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 14.30 | 0.23 | 0.59 | 0.82 | (0.15 | ) | (0.10 | ) | (0.25 | ) | 14.87 | 5.83 | 133,950 | 1.02 | 1.02 | 1.60 | 26 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10(g) | 6.52 | 0.02 | (0.11 | ) | (0.09 | ) | — | — | — | 6.43 | (1.38 | ) | 10 | 1.40 | (d) | 1.40 | (d) | 2.79 | (d) | 97 | ||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $44,037 and $2 for Series I and Series II shares, respectively. | |
(e) | Ratios reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios was less than 0.005% for the years ended December 31, 2009, December 31, 2008 and December 31, 2007, respectively. | |
(f) | Ratio of net investment income to average net assets without fee waivers and/or expenses absorbed was 3.28% for the year ended December 31, 2009. | |
(g) | Commencement date of June 1, 2010. |
NOTE 11—Change in Independent Registered Public Accounting Firm
The Fund is a new fund that was formed to acquire the assets and liabilities of a predecessor fund in a shell fund reorganization (the “Reorganization”). In connection with the organization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report
Invesco Van Kampen V.I. Global Value 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. With the exception of the actual ending account value and expenses of the Series II shares, 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, 2010 through June 30, 2010. The actual ending account value and expenses of the Series II shares in the example below are based on an investment of $1,000 invested as of close of business June 1, 2010 (the date the share class commenced operations) and held through June 30, 2010.
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 (as of close of business June 1, 2010 through June 30, 2010 for the Series II). Because the actual ending account value and expense information in the example is not based upon a six month period for the Series II shares, the ending account value and expense information may not provide a meaningful comparison to mutual funds that provide such information for a full six month period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Hypothetical | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
Actual | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2,3 | (06/30/10) | Period2,4 | Ratio2 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 906.50 | $ | 5.25 | $ | 1,019.29 | $ | 5.56 | 1.11 | % | ||||||||||||||||||
Series II | 1,000.00 | 984.70 | 1.14 | 1,017.85 | 7.00 | 1.40 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010 (as of close of business June 1, 2010 through June 30, 2010 for the Series II shares), after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. For the Series II shares actual expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 30 (as of close of business June 1, 2010, through June 30, 2010)/365. Because the Series II shares have not been in existence for a full six month period, the actual ending account value and expense information shown may not provide a meaningful comparison to fund expense information of classes that show such data for a full six month period and, because the actual ending account value and expense information in the expense example covers a short time period, return and expense data may not be indicative of return and expense data for longer time periods |
Effective June 1, 2010, the Fund’s adviser has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses of Series I and Series II shares to 1.15% and 1.40% of average daily net assets, respectively. The annualized expense ratios restated as if these agreements had been in effect throughout the entire most recent fiscal half year are 1.15% and 1.40% for Series I and Series II shares, respectively. |
3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $5.44 and $1.14 for the Series I and Series II shares, respectively. |
4 | Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect a one-half year period. The hypothetical ending account value and expenses may be used to compare ongoing costs of investing in Series I shares of the Fund and other funds because such data is based on a full six month period. |
The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $5.76 and $7.00 for the Series I and Series II shares, respectively. |
Invesco Van Kampen V.I. Global Value Equity Fund
Approval of Investment Advisory and Sub-Advisory Agreements with Invesco Advisers, Inc. and Its Affiliates
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Van Kampen V.I. Global Value Equity Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund, (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund, and (iii) a Temporary Investment Services Agreement (TISA) by and among Invesco Advisers and Morgan Stanley Investment Management Limited (the MS Sub-Adviser) for the possible provision of temporary investment services to the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers, the Affiliated Sub-Advisers and the MS Sub-Adviser under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Van Kampen retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers and MS Sub-Adviser |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
The Board considered that the TISA is necessary because certain portfolio managers cannot be migrated to the Invesco Advisers front-end compliance system immediately upon reorganization with the Acquired Fund. The TISA permits those portfolio managers, who will remain employed by the MS Sub-Adviser for a temporary period following the reorganization with the Acquired Fund, to continue to be primarily responsible for the day-to-day management of the Fund. The Board considered that the MS Sub-Adviser had managed the Acquired Fund and that the board of the Acquired Fund had approved an investment advisory agreement with the MS Sub-Adviser. The Board concluded that the nature, extent and quality of the services to be provided by the MS Sub-Adviser are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as the Board was not advised whether an Affiliated Sub-Adviser would manage assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates. The Board also noted that the sub-advisory fees paid under the TISA have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rates, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-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 the 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. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of
Invesco Van Kampen V.I. Global Value Equity Fund
Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations. Given the temporary nature of the TISA, the Board did not consider the profitability of the MS Sub-Adviser.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are 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 Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco Van Kampen V.I. Global Value Equity Fund
Proxy Results
A Special Meeting (“Meeting”) of Shareholders of The Universal Institutional Funds, Inc. Global Value Equity Portfolio was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 5,558,793 | 296,008 | 331,493 | 0 |
Invesco Van Kampen V.I. Global Value Equity Fund
Invesco Van Kampen V.I. Government Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VK-VIGOV-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 4.78 | % | ||
Series II Shares | 4.66 | |||
Barclays U.S. Government/Mortgage Index▼ (Broad Market/Style-Specific Index) | 4.96 |
▼ | Lipper Inc. |
The Barclays U.S. Government/Mortgage Index is generally representative of U.S. government treasury securities and agency mortgage-backed securities.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (4/7/86) | 5.95 | % | ||
10 Years | 5.17 | |||
5 Years | 3.69 | |||
1 Year | 6.58 | |||
Series II Shares | ||||
Inception (12/15/00) | 4.40 | % | ||
5 Years | 3.45 | |||
1 Year | 6.47 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Government Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco Van Kampen V.I. Government Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.60% and 0.85%, respectively. 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 0.86% and 1.11%, 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.
Invesco Van Kampen V.I. Government Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco Van Kampen V.I. Government Fund
Schedule of Investments
June 30, 2010
(Unaudited)
Par | |||||||||||||||
Amount | |||||||||||||||
Coupon | Maturity | (000) | Value | ||||||||||||
Mortgage Backed Securities–35.5% | |||||||||||||||
Federal Home Loan Mortgage Corp., July(a) | 6.000 | % | TBA | $ | 285 | $ | 309,359 | ||||||||
Federal Home Loan Mortgage Corp. | 4.500 | 01/01/40 | 5,342 | 5,542,952 | |||||||||||
Federal Home Loan Mortgage Corp. | 5.000 | 01/01/37 to 01/01/40 | 6,647 | 7,043,166 | |||||||||||
Federal Home Loan Mortgage Corp. | 5.500 | 05/01/38 to 11/01/39 | 9,390 | 10,090,222 | |||||||||||
Federal Home Loan Mortgage Corp. | 6.000 | 06/01/29 to 07/01/38 | 5,936 | 6,452,851 | |||||||||||
Federal Home Loan Mortgage Corp. | 6.500 | 06/01/29 | 19 | 20,914 | |||||||||||
Federal Home Loan Mortgage Corp. | 7.500 | 05/01/35 | 274 | 314,090 | |||||||||||
Federal Home Loan Mortgage Corp. | 8.000 | 08/01/32 | 146 | 168,406 | |||||||||||
Federal Home Loan Mortgage Corp. | 8.500 | 08/01/31 | 171 | 201,935 | |||||||||||
Federal National Mortgage Association | 4.500 | 11/01/24 to 08/01/39 | 11,612 | 12,144,237 | |||||||||||
Federal National Mortgage Association | 5.000 | 05/01/35 to 03/01/40 | 27,682 | 29,358,565 | |||||||||||
Federal National Mortgage Association | 5.500 | 04/01/35 to 08/01/38 | 25,856 | 27,815,328 | |||||||||||
Federal National Mortgage Association | 6.000 | 01/01/14 to 10/01/38 | 9,498 | 10,333,820 | |||||||||||
Federal National Mortgage Association | 6.500 | 11/01/10 to 04/01/38 | 186 | 206,370 | |||||||||||
Federal National Mortgage Association | 7.000 | 06/01/11 to 06/01/32 | 38 | 43,377 | |||||||||||
Federal National Mortgage Association | 7.500 | 08/01/37 | 482 | 549,336 | |||||||||||
Federal National Mortgage Association | 8.000 | 04/01/33 | 356 | 413,065 | |||||||||||
Federal National Mortgage Association | 8.500 | 10/01/32 | 333 | 387,362 | |||||||||||
Government National Mortgage Association | 6.500 | 05/15/23 to 03/15/29 | 45 | 50,242 | |||||||||||
Government National Mortgage Association | 7.000 | 04/15/23 to 11/15/27 | 64 | 72,970 | |||||||||||
Government National Mortgage Association | 8.000 | 05/15/17 to 01/15/23 | 15 | 17,165 | |||||||||||
Total Mortgage Backed Securities–35.5% | 111,535,732 | ||||||||||||||
United States Treasury Obligations–20.3% | |||||||||||||||
United States Treasury Bonds | 4.250 | 05/15/39 | 1,685 | 1,781,624 | |||||||||||
United States Treasury Bonds | 4.375 | 11/15/39 | 3,000 | 3,238,594 | |||||||||||
United States Treasury Bonds | 4.625 | 02/15/40 | 3,700 | 4,159,031 | |||||||||||
United States Treasury Bonds | 5.375 | 02/15/31 | 3,800 | 4,673,406 | |||||||||||
United States Treasury Bonds | 6.875 | 08/15/25 | 1,400 | 1,942,063 | |||||||||||
United States Treasury Bonds | 7.500 | 11/15/24 | 8,270 | 11,995,376 | |||||||||||
United States Treasury Notes | 1.125 | 06/15/13 | 3,000 | 3,012,187 | |||||||||||
United States Treasury Notes | 1.375 | 05/15/13 | 3,000 | 3,036,094 | |||||||||||
United States Treasury Notes | 2.125 | 05/31/15 | 9,000 | 9,154,688 | |||||||||||
United States Treasury Notes | 2.250 | 01/31/15 | 3,500 | 3,586,406 | |||||||||||
United States Treasury Notes | 2.375 | 10/31/14 | 600 | 618,937 | |||||||||||
United States Treasury Notes | 2.500 | 03/31/15 | 9,037 | 9,364,591 | |||||||||||
United States Treasury Notes | 3.500 | 05/15/20 | 4,000 | 4,185,625 | |||||||||||
United States Treasury Notes | 3.625 | 02/15/20 | 2,729 | 2,882,933 | |||||||||||
Total United States Treasury Obligations–20.3% | 63,631,555 | ||||||||||||||
United States Government Agency Obligations–15.1% | |||||||||||||||
Federal Home Loan Mortgage Corp. | 1.125 | 07/27/12 | 7,000 | 7,061,860 | |||||||||||
Federal Home Loan Mortgage Corp. | 4.875 | 06/13/18 | 5,130 | 5,817,030 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Government Fund
Par | |||||||||||||||
Amount | |||||||||||||||
Coupon | Maturity | (000) | Value | ||||||||||||
United States Government Agency Obligations–(continued) | |||||||||||||||
Federal Home Loan Mortgage Corp. | 5.500 | % | 08/23/17 | $ | 4,650 | $ | 5,467,973 | ||||||||
Federal National Mortgage Association | 1.125 | 07/30/12 | 8,000 | 8,061,741 | |||||||||||
Federal National Mortgage Association | 1.500 | 06/26/13 | 8,500 | 8,593,647 | |||||||||||
Federal National Mortgage Association | 5.000 | 05/11/17 | 1,000 | 1,142,050 | |||||||||||
Federal National Mortgage Association | 5.375 | 06/12/17 | 480 | 559,293 | |||||||||||
Financing Corp. | 9.650 | 11/02/18 | 1,985 | 2,890,963 | |||||||||||
Financing Corp. | 9.800 | 04/06/18 | 700 | 1,008,128 | |||||||||||
Tennessee Valley Authority, Ser D | 4.875 | 12/15/16 | 2,420 | 2,708,721 | |||||||||||
Tennessee Valley Authority, Ser G | 7.125 | 05/01/30 | 2,960 | 3,972,162 | |||||||||||
Total United States Government Agency Obligations–15.1% | 47,283,568 | ||||||||||||||
Collateralized Mortgage Obligations–13.6% | |||||||||||||||
FDIC Structured Sale Guaranteed Notes(b)(c) | 0.904 | 02/25/48 | 1,835 | 1,842,843 | |||||||||||
Federal Home Loan Mortgage Corp.(b) | 0.607 | 04/15/28 | 1,700 | 1,701,328 | |||||||||||
Federal Home Loan Mortgage Corp.(b) | 0.650 | 03/15/36 | 3,484 | 3,485,317 | |||||||||||
Federal Home Loan Mortgage Corp.(a)(b) | 0.704 | 11/15/36 | 4,000 | 4,000,000 | |||||||||||
Federal Home Loan Mortgage Corp.(b) | 0.750 | 06/15/37 | 4,487 | 4,466,762 | |||||||||||
Federal Home Loan Mortgage Corp.(b) | 1.210 | 11/15/39 | 2,069 | 2,094,683 | |||||||||||
Federal Home Loan Mortgage Corp. | 3.770 | 09/15/17 | 2,175 | 2,246,999 | |||||||||||
Federal Home Loan Mortgage Corp. | 3.835 | 09/15/17 | 2,872 | 2,969,654 | |||||||||||
Federal Home Loan Mortgage Corp. | 4.160 | 07/15/17 | 2,587 | 2,676,628 | |||||||||||
Federal Home Loan Mortgage Corp. | 4.250 | 01/15/19 | 2,183 | 2,283,297 | |||||||||||
Federal Home Loan Mortgage Corp. | 4.380 | 05/15/17 | 2,271 | 2,354,649 | |||||||||||
Federal Home Loan Mortgage Corp. | 4.500 | 06/15/19 to 06/15/22 | 1,401 | 1,465,966 | |||||||||||
Federal Home Loan Mortgage Corp. | 4.750 | 07/15/14 | 1,009 | 1,044,031 | |||||||||||
Federal National Mortgage Association(b) | 0.647 | 05/25/36 | 3,252 | 3,240,703 | |||||||||||
Federal National Mortgage Association | 3.000 | 07/25/22 | 813 | 831,007 | |||||||||||
Federal National Mortgage Association | 4.500 | 07/25/19 | 2,438 | 2,574,689 | |||||||||||
Federal National Mortgage Association | 6.022 | 11/25/10 | 750 | 761,796 | |||||||||||
Federal National Mortgage Association | 6.500 | 01/25/30 | 613 | 653,390 | |||||||||||
Government National Mortgage Association | 4.500 | 08/20/35 | 1,884 | 1,956,371 | |||||||||||
Total Collateralized Mortgage Obligations–13.6% | 42,650,113 | ||||||||||||||
Agency Bonds–7.8% | |||||||||||||||
Banking–2.7% | |||||||||||||||
GMAC, Inc. | 2.200 | 12/19/12 | 8,200 | 8,441,601 | |||||||||||
Banking–Savings and Loans–0.8% | |||||||||||||||
US Central Federal Credit Union | 1.900 | 10/19/12 | 2,260 | 2,307,381 | |||||||||||
Commercial Bank–2.9% | |||||||||||||||
Citibank NA | 1.750 | 12/28/12 | 9,000 | 9,171,134 | |||||||||||
Diversified Financial Services–0.9% | |||||||||||||||
General Electric Capital Corp. | 2.625 | 12/28/12 | 2,800 | 2,912,334 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Government Fund
Par | |||||||||||||||
Amount | |||||||||||||||
Coupon | Maturity | (000) | Value | ||||||||||||
Diversified Financial Securities–Other Services–0.5% | |||||||||||||||
Private Export Funding Corp. | 4.300 | % | 12/15/21 | $ | 1,540 | $ | 1,626,956 | ||||||||
Total Agency Bonds–7.8% | 24,459,406 | ||||||||||||||
Adjustable Rate Mortgage Backed Securities–1.1% | |||||||||||||||
Federal Home Loan Mortgage Corp.(b) | 5.529 | 01/01/38 | 552 | 588,160 | |||||||||||
Federal Home Loan Mortgage Corp.(b) | 5.947 | 10/01/36 | 1,032 | 1,098,480 | |||||||||||
Federal National Mortgage Association(b) | 2.628 | 05/01/35 | 1,483 | 1,547,423 | |||||||||||
Federal National Mortgage Association(b) | 5.708 | 03/01/38 | 385 | 409,951 | |||||||||||
Total Adjustable Rate Mortgage Backed Securities–1.1% | 3,644,014 | ||||||||||||||
Total Long-Term Investments 93.4% (Cost $283,509,947) | $ | 293,204,388 | |||||||||||||
Money Market Funds–7.4% | |||||||||||||||
Government & Agency Portfolio–Institutional Class (23,156,409 Common Shares) (Cost $23,156,409)(d) | 23,156,409 | ||||||||||||||
United States Government Agency Obligation–1.3% | |||||||||||||||
United States Treasury Bill ($4,019,000 par, yielding 0.202%, 10/28/10 maturity) (Cost $4,016,359)(e) | 4,017,151 | ||||||||||||||
TOTAL INVESTMENTS–102.1% (Cost $310,682,715) | 320,377,948 | ||||||||||||||
LIABILITIES IN EXCESS OF OTHER ASSETS–(2.1%) | (6,646,534 | ) | |||||||||||||
NET ASSETS–100.0% | $ | 313,731,414 | |||||||||||||
Percentages are calculated as a percentage of net assets.
(a) | Security purchased on a when-issued, delayed delivery or forward commitment basis. | |
(b) | Floating Rate Coupon | |
(c) | 144A-Private Placement security which is exempt from registration under Rule 144A of the Securities Act of 1933, as amended. This security may only be resold in transactions exempt from registration which are normally those transactions with qualified institutional buyers. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(e) | All or a portion of this security has been physically segregated in connection with open futures contracts. |
TBA | – To be announced, maturity date has not yet been established. Upon settlement and delivery of the mortgage pools, maturity dates will be assigned. |
By sector, based on Net Assets
FNMA | 26.5 | % | ||
U.S. Treasury Obligations | 20.3 | |||
U.S. Government Agency Obligations | 15.1 | |||
CMO | 13.6 | |||
FHLMC | 10.1 | |||
Agency Bonds | 7.8 | |||
GNMA | 0.0 | * | ||
Money Market Funds Less Liabilities in Excess of Other Assets | 6.6 | |||
* | Amount is less than 0.1% |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Government Fund
Futures Contracts Outstanding as of June 30, 2010: | ||||||||
Number | Unrealized | |||||||
of | Appreciation/ | |||||||
Contracts | Depreciation | |||||||
Long Contracts: | ||||||||
U.S. Treasury Notes 5-Year Futures, September 2010 (Current Notional Value of $118,352 per contract) | 244 | $ | 429,599 | |||||
Short Contracts: | ||||||||
U.S. Treasury Bonds 30-Year Futures, September 2010 (Current Notional Value of $127,500 per contract) | 11 | (23 | ) | |||||
U.S. Treasury Bonds Ultra Long Futures, September 2010 (Current Notional Value of $135,813 per contract) | 2 | (16,255 | ) | |||||
U.S. Treasury Notes 2-Year Futures, September 2010 (Current Notional Value of $218,828 per contract) | 36 | (34,107 | ) | |||||
U.S. Treasury Notes 10-Year Futures, September 2010 (Current Notional Value of $122,547 per contract) | 73 | (151,632 | ) | |||||
Total Short Contracts: | 122 | (202,017 | ) | |||||
Total Futures Contracts | 366 | $ | 227,582 | |||||
Fair Value Measurements
Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below. (See Note 1(B) in the Notes to Financial Statements for further information regarding fair value measurements.)
Level 1 | Level 2 | Level 3 | ||||||||||||||
Quoted | Other Significant | Significant | ||||||||||||||
Investments in an Asset Position: | Prices | Observable Inputs | Unobservable Inputs | Total | ||||||||||||
Mortgage Backed Securities | $ | — | $ | 111,535,732 | $ | — | $ | 111,535,732 | ||||||||
Agency Bonds | — | 24,459,406 | — | 24,459,406 | ||||||||||||
Debt Securities issued by the United States | — | 110,915,123 | — | 110,915,123 | ||||||||||||
Collateralized Mortgage Obligations | — | 42,650,113 | — | 42,650,113 | ||||||||||||
Adjustable Rate Mortgage Backed Securities | — | 3,644,014 | — | 3,644,014 | ||||||||||||
Money Market Funds | 23,156,409 | — | — | 23,156,409 | ||||||||||||
U.S. Treasury Bill | — | 4,017,151 | — | 4,017,151 | ||||||||||||
Futures | 429,599 | — | — | 429,599 | ||||||||||||
Total Investments in an Asset Position | 23,586,008 | 297,221,539 | — | 320,807,547 | ||||||||||||
Investments in a Liability Position: | ||||||||||||||||
Futures | (202,017 | ) | — | — | (202,017 | ) | ||||||||||
Total Investments in a Liability Position | $ | (202,017 | ) | $ | — | $ | — | $ | (202,017 | ) | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Government Fund
Statement of Assets and Liabilities
June 30, 2010 (Unaudited)
Assets: | ||||
Investments, at value (Cost $287,526,306) | $ | 297,221,539 | ||
Investments in affiliated money market funds, at value and cost | 23,156,409 | |||
Cash | 3,995,417 | |||
Receivables: | ||||
Investments sold | 53,942,033 | |||
Interest | 1,244,320 | |||
Principal paydowns | 38,782 | |||
Fund shares sold | 12,011 | |||
Expense reimbursement from adviser | 2,946 | |||
Other | 13,045 | |||
Total assets | 379,626,502 | |||
Liabilities: | ||||
Payables: | ||||
Investments purchased | 64,884,450 | |||
Fund shares repurchased | 788,028 | |||
Distributor and affiliates | 131,518 | |||
Variation margin on futures | 19,418 | |||
Accrued expenses | 71,674 | |||
Total liabilities | 65,895,088 | |||
Net assets | $ | 313,731,414 | ||
Net assets consist of: | ||||
Capital (par value of $0.001 per share with an unlimited number of shares authorized) | $ | 315,312,833 | ||
Net unrealized appreciation | 9,922,815 | |||
Accumulated undistributed net investment income | 2,626,411 | |||
Accumulated net realized loss | (14,130,645 | ) | ||
Net assets | $ | 313,731,414 | ||
Net asset value, offering price and redemption price per share: | ||||
Series I shares (based on net assets of $32,267,826 and 3,519,352 shares of beneficial interest issued and outstanding) | $ | 9.17 | ||
Series II shares (based on net assets of $281,463,588 and 30,701,341 shares of beneficial interest issued and outstanding) | $ | 9.17 | ||
Statement of Operations
For the six months ended June 30, 2010 (Unaudited)
Investment Income: | ||||
Interest | $ | 4,788,137 | ||
Expenses: | ||||
Investment advisory fee | 782,361 | |||
Distribution (12b-1) and service fees | 350,196 | |||
Accounting and administrative expenses | 104,905 | |||
Reports to shareholders | 21,407 | |||
Custody | 19,455 | |||
Professional fees | 17,385 | |||
Trustees’ fees and related expenses | 16,854 | |||
Transfer agent fees | 9,195 | |||
Other | 12,912 | |||
Total expenses | 1,334,670 | |||
Expense reduction | 45,567 | |||
Net expenses | 1,289,103 | |||
Net investment income | $ | 3,499,034 | ||
Realized and unrealized Gain/Loss: | ||||
Realized gain/loss: | ||||
Investments | $ | 2,699,493 | ||
Futures | 1,398,648 | |||
Swap contracts | (4,581,402 | ) | ||
Net Realized loss | (483,261 | ) | ||
Unrealized appreciation/depreciation: | ||||
Beginning of the period | (1,193,281 | ) | ||
End of the period: | ||||
Investments | 9,695,233 | |||
Futures | 227,582 | |||
9,922,815 | ||||
Net unrealized appreciation during the period | 11,116,096 | |||
Net realized and unrealized gain | $ | 10,632,835 | ||
Net increase in net assets from operations | $ | 14,131,869 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Government Fund
Statements of Changes in Net Assets
(Unaudited)
For the | For the | |||||||
six months ended | year ended | |||||||
June 30, 2010 | December 31, 2009 | |||||||
From investment activities: | ||||||||
Operations: | ||||||||
Net investment income | $ | 3,499,034 | $ | 6,415,830 | ||||
Net realized gain/loss | (483,261 | ) | 12,018,216 | |||||
Net unrealized appreciation/depreciation during the period | 11,116,096 | (15,898,968 | ) | |||||
Change in net assets from operations | 14,131,869 | 2,535,078 | ||||||
Distributions from net investment income: | ||||||||
Series I shares | (67,352 | ) | (2,682,417 | ) | ||||
Series II shares | (590,082 | ) | (15,211,001 | ) | ||||
Total distributions | (657,434 | ) | (17,893,418 | ) | ||||
Net change in net assets from investment activities | 13,474,435 | (15,358,340 | ) | |||||
From capital transactions: | ||||||||
Proceeds from shares sold | 34,451,173 | 122,570,783 | ||||||
Net asset value of shares issued through dividend reinvestment | 657,434 | 17,893,418 | ||||||
Cost of shares repurchased | (45,227,316 | ) | (93,695,171 | ) | ||||
Net change in net assets from capital transactions | (10,118,709 | ) | 46,769,030 | |||||
Total increase in net assets | 3,355,726 | 31,410,690 | ||||||
Net assets: | ||||||||
Beginning of the period | 310,375,688 | 278,964,998 | ||||||
End of the period (including accumulated undistributed net investment income of $2,626,411 and $(215,189), respectively) | $ | 313,731,414 | $ | 310,375,688 | ||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Government Fund
Financial Highlights
(Unaudited)
The following schedule presents financial highlights for one share of the Fund outstanding throughout the periods indicated.
Series I Shares | ||||||||||||||||||||||||
Six months ended | ||||||||||||||||||||||||
June 30, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 8.77 | $ | 9.28 | $ | 9.52 | $ | 9.30 | $ | 9.42 | $ | 9.48 | ||||||||||||
Net investment income(a) | 0.11 | 0.22 | 0.35 | 0.45 | 0.44 | 0.35 | ||||||||||||||||||
Net realized and unrealized gain/loss | 0.31 | (0.13 | ) | (0.18 | ) | 0.21 | (0.14 | ) | (0.03 | ) | ||||||||||||||
Total from investment operations | 0.42 | 0.09 | 0.17 | 0.66 | 0.30 | 0.32 | ||||||||||||||||||
Less distributions from net investment income | 0.02 | 0.60 | 0.41 | 0.44 | 0.42 | 0.38 | ||||||||||||||||||
Net asset value, end of the period | $ | 9.17 | $ | 8.77 | $ | 9.28 | $ | 9.52 | $ | 9.30 | $ | 9.42 | ||||||||||||
Total return* | 4.78 | %** | 0.98 | % | 1.81 | % | 7.33 | % | 3.34 | % | 3.54 | % | ||||||||||||
Net assets at end of the period (in millions) | $ | 32.3 | $ | 34.7 | $ | 51.4 | $ | 55.0 | $ | 57.5 | $ | 63.1 | ||||||||||||
Ratio of expenses to average net assets* | 0.60 | % | 0.60 | % | 0.60 | % | 0.60 | % | 0.60 | % | 0.60 | % | ||||||||||||
Ratio of net investment income to average net assets* | 2.47 | % | 2.45 | % | 3.80 | % | 4.91 | % | 4.84 | % | 3.78 | % | ||||||||||||
Portfolio turnover | 216 | %** | 407 | % | 411 | % | 324 | % | 242 | % | 261 | % | ||||||||||||
* If certain expenses had not been voluntarily assumed by the adviser, total return would have been lower and the ratios would have been as follows: | ||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.63 | % | 0.61 | % | 0.60 | % | 0.62 | % | 0.65 | % | 0.64 | % | ||||||||||||
Ratio of net investment income to average net assets | 2.44 | % | 2.44 | % | 3.80 | % | 4.90 | % | 4.79 | % | 3.75 | % | ||||||||||||
(a) | Based on average shares outstanding. | |
** | Non-Annualized |
On June 1, 2010, the Fund’s former Class I Shares were reorganized into Series I Shares. |
Series II Shares | ||||||||||||||||||||||||
Six months ended | ||||||||||||||||||||||||
June 30, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 8.78 | $ | 9.26 | $ | 9.51 | $ | 9.30 | $ | 9.42 | $ | 9.48 | ||||||||||||
Net investment income(a) | 0.10 | 0.20 | 0.32 | 0.43 | 0.42 | 0.33 | ||||||||||||||||||
Net realized and unrealized gain/loss | 0.31 | (0.12 | ) | (0.18 | ) | 0.20 | (0.14 | ) | (0.03 | ) | ||||||||||||||
Total from investment operations | 0.41 | 0.08 | 0.14 | 0.63 | 0.28 | 0.30 | ||||||||||||||||||
Less distributions from net investment income | 0.02 | 0.56 | 0.39 | 0.42 | 0.40 | 0.36 | ||||||||||||||||||
Net asset value, end of the period | $ | 9.17 | $ | 8.78 | $ | 9.26 | $ | 9.51 | $ | 9.30 | $ | 9.42 | ||||||||||||
Total return*(b) | 4.66 | %** | 0.86 | % | 1.51 | % | 7.02 | % | 3.11 | % | 3.28 | % | ||||||||||||
Net assets at end of the period (in millions) | $ | 281.5 | $ | 275.7 | $ | 227.6 | $ | 223.4 | $ | 147.2 | $ | 108.4 | ||||||||||||
Ratio of expenses to average net assets* | 0.85 | % | 0.85 | % | 0.85 | % | 0.85 | % | 0.85 | % | 0.85 | % | ||||||||||||
Ratio of net investment income to average net assets* | 2.21 | % | 2.19 | % | 3.50 | % | 4.63 | % | 4.62 | % | 3.52 | % | ||||||||||||
Portfolio turnover | 216 | %** | 407 | % | 411 | % | 324 | % | 242 | % | 261 | % | ||||||||||||
* If certain expenses had not been voluntarily assumed by the adviser, total return would have been lower and the ratios would have been as follows: | ||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.88 | % | 0.86 | % | 0.85 | % | 0.87 | % | 0.90 | % | 0.89 | % | ||||||||||||
Ratio of net investment income to average net assets | 2.18 | % | 2.18 | % | 3.50 | % | 4.62 | % | 4.57 | % | 3.49 | % | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | These returns include combined Rule 12b-1 fees and service fees of up to 0.25%. | |
** | Non-Annualized |
On June 1, 2010, the Fund’s former Class II Shares were reorganized into Series II Shares. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Government Fund
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. Government Fund (the “Fund”) is organized as a series of the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly AIM Variable Insurance Funds, (the “Trust”), a Delaware statutory trust, and is registered as a diversified, open-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Trust consists of forty-one separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio 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 portfolio or class.
Prior to June 1, 2010, the Fund operated as Van Kampen Life Investment Trust Government Portfolio (the “Acquired Fund”), an investment portfolio of Van Kampen Life Investment Trust. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class I and Class II Shares received Series I and Series II Shares, respectively of the Fund.
Information for the Acquired Fund’s — Class I and Class II Shares prior to the Reorganization are included with Series I and Series II Shares, respectively, of the Fund throughout this report.
The Fund’s investment objective is to seek to provide investors with high current return consistent with preservation of capital.
The Fund currently offers two classes of shares, Series I and Series II Shares, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies.
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
A. | Security Valuation — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. |
Invesco Van Kampen V.I. Government Fund
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Fair Value Measurements — GAAP defines fair value as the price that the Fund would receive to sell an investment or pay to transfer a liability in an orderly transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. GAAP establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund’s investments. The inputs are summarized in the three broad levels listed below. | |
Level 1 — Prices are based on quoted prices in active markets for identical investments. | ||
Level 2 — Prices are based on other significant observable inputs which may include quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc. | ||
Level 3 — Prices are based on significant unobservable inputs including the Fund’s own assumptions in determining the fair value of investments. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer’s financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances. | ||
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. | ||
C. | Security Transactions — Security transactions are recorded on a trade date basis. Realized gains and losses are determined on an identified cost basis. | |
The Fund may purchase and sell securities on a “when-issued”, “delayed delivery” or “forward commitment” basis, with settlement to occur at a later date. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security so purchased is subject to market fluctuations during this period. Purchasing securities on this basis involves a risk that the market value at the time of delivery may be lower than the agreed upon purchase price resulting in an unrealized loss. The Fund will segregate assets with the custodian having an aggregate value at least equal to the amount of the when-issued, delayed delivery or forward purchase commitments until payment is made. At June 30, 2010, the Fund had $4,278,654 of when-issued, delayed delivery or forward purchase commitments. | ||
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included on 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 on the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share on 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 on the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
D. | Income and Expenses — Interest income is recorded on an accrual basis. Discounts are accreted and premiums are amortized over the expected life of each applicable security. Income and expenses of the Fund are allocated on a pro rata basis to each class of shares, except for distribution and service fees and incremental transfer agency costs which are unique to each class of shares. | |
E. | Federal Income Taxes — It is the Fund’s policy to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. Management has concluded there are no significant uncertain tax positions that would require recognition in the financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in “Interest Expense” and penalties in “Other” expenses on the Statement of Operations. The Fund files tax returns with the U.S. Internal Revenue Service and various states. Generally, each of the tax years in the four year period ended December 31, 2009, remains subject to examination by taxing authorities. | |
The Fund intends to utilize provisions of the federal income tax laws which allow it to carry a realized capital loss forward for eight years following the year of the loss and offset such losses against any future realized capital gains. During the prior fiscal year, the Fund utilized capital losses carried forward of $8,076,228. At December 31, 2009, the Fund had an accumulated capital loss carryforward for tax purposes of $10,072,819 which will expire on December 31, 2016. |
Invesco Van Kampen V.I. Government Fund
Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end. |
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 9,096,763 | ||
Aggregate unrealized (depreciation) of investment securities | (21,725 | ) | ||
Net unrealized appreciation of investment securities | $ | 9,075,038 | ||
Cost of Investments for tax purposes is $311,302,910. |
F. | Distribution of Income and Gains — The Fund declares and pays dividends at least annually from net investment income and from net realized gains, if any. Distributions from net realized gains for book purposes may include short-term capital gains, including a portion of premiums received from written options, and gains on futures transactions. All short-term capital gains and a portion of futures gains are included in ordinary income for tax purposes. | |
The tax character of distributions paid during the year ended December 31, 2009 were as follows: |
Distribution paid from ordinary income | $ | 17,893,418 | ||
As of December 31, 2009, the components of distributable earnings on a tax basis were as follows: |
Undistributed ordinary income | $ | 658,137 | ||
Net realized gains or losses may differ for financial reporting and tax purposes primarily as a result of gains or losses recognized on securities for tax purposes but not for book purposes and the deferral of losses relating to wash sale transactions. | ||
G. | Foreign Currency Translation — Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated at the rate of exchange prevailing when such securities were acquired or sold. Income and expenses are translated at rates prevailing when accrued. Unrealized gains and losses on investments resulting from changes in exchange rates and the unrealized gains or losses on translations of other assets or liabilities denominated in foreign currencies are included in foreign currency translation on the Statement of Operations. Realized gains and losses on investments resulting from changes in exchange rates and the realized gains or losses on translations of other assets or liabilities denominated in foreign currencies are included in foreign currency transactions on the Statement of Operations. |
NOTE 2—Investment Advisory Agreement and Other Transactions with Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | % Per Annum | |||
First $500 million | 0 | .50% | ||
Next $500 million | 0 | .45% | ||
Over $1 billion | 0 | .40% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee to Van Kampen Asset Management (“Van Kampen”) based on the annual rates above of the Acquired Funds’s average daily net assets.
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization Date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit the Fund’s expenses (excluding certain items discussed below) of Series I Shares to 0.60% and Series II Shares to 0.85% of average daily net assets, respectively. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the Fund’s expenses to exceed the limit reflected above: (i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary or non-routine items; and (v) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012. For the period June 1, 2010 to June 30, 2010, the Adviser waived advisory fees of $45,567 under this limitation.
Prior to the Reorganization, Van Kampen had voluntarily agreed to waive fees and/or reimburse expenses of Class I and Class II Shares resulting in net expense ratios of 0.60% and 0.85%, respectively. Van Kampen did not waive fees and/or reimburse expenses under this agreement.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds. For the period ended June 30, 2010, the Adviser did not waive any advisory fees under this agreement.
Invesco Van Kampen V.I. Government Fund
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the period ended June 30, 2010, Invesco was paid $6,748 for accounting and fund administrative services and reimbursed $64,370 for services provided by insurance companies. Prior to the Reorganization, under separate accounting services and Chief Compliance Officer (“CCO”) employment agreements, Van Kampen Investments Inc. provided accounting services and the CCO provided compliance services to the Acquired Fund. Pursuant to such agreements, the Acquired Fund paid $33,787 to Van Kampen Investments Inc.
Also, the Trust has entered into service agreements whereby State Street Bank & Trust Company (“SSB”) serves as custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. Prior to the Reorganization, the Acquired Fund paid $8,024 to Van Kampen Investor Services Inc., which served as the Acquired Fund’s transfer agent. For the six months ended June 30, 2010, expenses incurred under these agreements are shown on the Statement of Operations as “Transfer Agent Fees.”
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or Invesco Distributors, Inc. (“IDI”).
“Trustees’ Fees and Related Expenses” 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’ Fees and Related Expenses” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco 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’ Fees and Related Expenses” 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.
For the period ended June 30, 2010, the Fund paid legal fees of approximately $0 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 3—Share Information
For the six months ended June 30, 2010 and the year ended December 31, 2009, transactions were as follows:
For the | For the | |||||||||||||||
six months ended | year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Value | Shares | Value | |||||||||||||
Sales: | ||||||||||||||||
Series I | 221,985 | $ | 1,971,324 | 495,270 | $ | 4,487,721 | ||||||||||
Series II | 3,642,039 | 32,479,849 | 13,183,520 | 118,083,062 | ||||||||||||
Total Sales | 3,864,024 | $ | 34,451,173 | 13,678,790 | $ | 122,570,783 | ||||||||||
Dividend Reinvestment: | ||||||||||||||||
Series I | 7,593 | $ | 67,352 | 301,921 | $ | 2,682,417 | ||||||||||
Series II | 66,525 | 590,082 | 1,712,142 | 15,211,001 | ||||||||||||
Total Dividend Reinvestment | 74,118 | $ | 657,434 | 2,014,063 | $ | 17,893,418 | ||||||||||
Repurchases: | ||||||||||||||||
Series I | (662,630 | ) | $ | (5,904,696 | ) | (2,383,350 | ) | $ | (21,385,604 | ) | ||||||
Series II | (4,413,635 | ) | (39,322,620 | ) | (8,057,502 | ) | (72,309,567 | ) | ||||||||
Total Repurchases | (5,076,265 | ) | $ | (45,227,316 | ) | (10,440,852 | ) | $ | (93,695,171 | ) | ||||||
(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. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 4—Investment Transactions
During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, money market funds and U.S. Government securities, were $10,557,574 and $57,589,077, respectively. The cost of purchases and proceeds from sales of long-term U.S. Government securities, including paydowns on mortgage-backed securities, for the period were $654,356,355 and $632,452,527 respectively.
Invesco Van Kampen V.I. Government Fund
NOTE 5—Derivative Financial Instruments
A derivative financial instrument in very general terms refers to a security whose value is “derived” from the value of an underlying asset, reference rate, or index.
The Fund may use derivative instruments for a variety of reasons, such as to attempt to protect the Fund against possible changes in the market value of its portfolio or to manage the Fund’s foreign currency exposure or to generate potential gain. All of the Fund’s holdings, including derivative instruments, are marked to market each day with the change in value reflected in unrealized appreciation/depreciation. Upon disposition, a realized gain or loss is generally recognized.
Summarized below are the specific types of derivative financial instruments used by the Fund.
A. | Futures Contracts — The Fund is subject to interest rate risk or exchange rate risk in the normal course of pursuing its investment objectives. The Fund may use futures contracts to gain exposure to, or hedge against changes in the value of interest rates or exchange rates. A futures contract is an agreement involving the delivery of a particular asset on a specified future date at an agreed upon price. Upon entering into futures contracts, the Fund maintains an amount of cash or liquid securities with a value equal to a percentage of the contract amount with either a futures commission merchant pursuant to the rules and regulations promulgated under the 1940 Act, or with its custodian in an account in the broker’s name. This amount is known as initial margin. During the period the futures contract is open, payments are received from or made to the broker based upon changes in the value of the contract (variation margin). When entering into futures contracts, the Fund bears the risk of interest or exchange rates or securities prices moving unexpectedly, in which case, the Fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. With futures, there is minimal counterparty credit risk to the Fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. The risk of loss associated with a futures contract is in excess of the variation margin reflected on the Statement of Assets and Liabilities. | |
Transactions in futures contracts for the six months ended June 30, 2010 were as follows: |
Contracts | ||||
Outstanding at December 31, 2009 | 669 | |||
Futures Opened | 3,301 | |||
Futures Closed | (3,604 | ) | ||
Outstanding at June 30, 2010 | 366 | |||
B. | Option Contracts — The Fund is subject to interest rate risk or exchange rate risk in the normal course of pursing its investment objectives. The Fund may use options contracts to gain exposure to, or hedge against changes in the value of interest rates or exchange rates. An option contract gives the buyer the right, but not the obligation to buy (call) or sell (put) an underlying item at a fixed exercise (strike) price during a specified period. The Fund may purchase put and call options. Purchasing call options tends to increase the Fund’s exposure to the underlying (or similar) instrument. Purchasing put options tends to decrease the Fund’s exposure to the underlying (or similar) instrument. When entering into purchased option contracts, the Fund bears the risk of interest or exchange rates or securities prices moving unexpectedly, in which case, the Fund may not achieve the anticipated benefits of the purchased option contracts; however the risk of loss is limited to the premium paid. Purchased options are reported as part of “Total Investments” on the Statement of Assets and Liabilities. Premiums paid for purchasing options which expire are treated as realized losses. | |
The Fund may write covered call and put options. Writing put options tends to increase the Fund’s exposure to the underlying instrument. Writing call options tends to decrease the Fund’s exposure to the underlying instrument. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and subsequently marked to market to reflect the current value of the option written. These liabilities are reflected as written options outstanding on the Statement of Assets and Liabilities. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or closed are added to the proceeds or offset against amounts paid on the underlying securities to determine the realized gain or loss. The Fund as a writer of an option has no control over whether the underlying security may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. | ||
There were no transactions in written call options for the six months ended June 30, 2010. | ||
C. | Interest Rate Swaps — The Fund is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Fund holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Fund may enter into interest rate swap contracts, including inflation asset swaps. Interest rate swaps, including inflation asset swaps, are contractual agreements to exchange interest payments calculated on a predetermined notional principal amount except in the case of inflation asset swaps where the principal amount is periodically adjusted for inflation. Interest rate swaps generally involve one party paying a fixed interest rate and the other party paying a variable rate. The Fund will usually enter into interest rate swaps on a net basis, i.e., the two payments are netted out in a cash settlement on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. The Fund accrues the net amount with respect to each swap on a daily basis. This net amount is recorded within unrealized appreciation/depreciation on swap contracts. In a zero-coupon interest rate swap, payments only occur at maturity, at which time one counterparty pays the total compounded fixed rate over the life of the swap and the other pays the total compounded floating rate that would have been earned had a series of LIBOR investments been rolled over through the life of the swap. Upon cash settlement of the payments, the net amount is recorded as realized gain/loss on swap contracts on the Statement of Operations. The risks of interest rate swaps include changes in market conditions that will affect the value of the contract or the cash flows and the possible inability of the counterparty to fulfill its obligation under the agreement. The Fund’s maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from/paid to the counterparty of the contract’s remaining life, to the extent that the amount is positive. This risk is mitigated by having a master netting arrangement between the Fund and |
Invesco Van Kampen V.I. Government Fund
the counterparty and by posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty. For the six months ended June 30, 2010, the average notional amount of interest rate swap contracts entered into by the Fund was $103,242 | ||
Swap agreements are not entered into or traded on exchanges and there is no central clearing or guaranty function for swaps. Therefore, swaps are subject to the risk of default or non-performance by the counterparty. If there is a default by the counterparty to a swap agreement, the Fund will have contractual remedies pursuant to the agreements related to the transaction. Counterparties are required to pledge collateral daily (based on the valuation of each swap) on behalf of the Fund with a value approximately equal to the amount of any unrealized gain. Reciprocally, when the Fund has an unrealized loss on a swap contract, the Fund has instructed the custodian to pledge cash or liquid securities as collateral with a value approximately equal to the amount of the unrealized loss. Collateral pledges are monitored and subsequently adjusted if and when the swap valuations fluctuate. Cash collateral is disclosed in the table following the Schedule of Investments. Cash collateral has been offset against open swap contracts and are included within “Swap Contracts” on the Statement of Assets and Liabilities. For cash collateral received, the Fund pays a monthly fee to the counterparty based on the effective rate for Federal Funds. This fee, when paid, is included within realized loss on swap contracts on the Statement of Operations. | ||
The following table sets forth the fair value of the Fund’s derivative contracts by primary risk exposure as of June 30, 2010. |
Asset Derivatives | Liability Derivatives | |||||||||||||||
Balance Sheet | Balance Sheet | |||||||||||||||
Primary Risk Exposure | Location | Fair Value | Location | Fair Value | ||||||||||||
Interest Rate Contracts | Variation Margin on Futures | $ | 429,599 | * | Variation Margin on Futures | $ | (202,017 | )* | ||||||||
* Includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments Footnotes. Only current day’s variation margin is reported within the Statement of Assets & Liabilities. | ||
The following tables set forth by primary risk exposure the Fund’s realized gains/losses and change in unrealized appreciation/depreciation by type of derivative contract for the six months ended June 30, 2010. |
Amount of Realized Gain/Loss on Derivative Contracts | ||||||||||||
Primary Risk Exposure | Futures | Swaps | Total | |||||||||
Interest Rate Contracts | $ | 1,398,648 | $ | (4,581,402 | ) | $ | (3,182,754 | ) | ||||
Change in Unrealized Appreciation/Depreciation on Derivative Contracts | ||||||||||||
Primary Risk Exposure | Futures | Swaps | Total | |||||||||
Interest Rate Contracts | $ | 20,756 | $ | 1,777,683 | $ | 1,798,439 | ||||||
NOTE 6—Mortgage Backed Securities
The Fund may invest in various types of Mortgage Backed Securities. A Mortgage Backed Security (MBS) is a pass-through security created by pooling mortgages and selling participations in the principal and interest payments received from borrowers. Most of these securities are guaranteed by federally sponsored agencies — Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC). GNMA is a wholly owned corporate instrumentality of the United States whose securities and guarantees are backed by the full faith and credit of the United States. FNMA, a federally chartered and privately owned corporation, and FHLMC, a federal corporation, are instrumentalities of the United States. Securities of FNMA and FHLMC include those issued in principal only or interest only components. On September 7, 2008, FNMA and FHLMC were placed into conservatorship by their new regulator, the Federal Housing Finance Agency. Simultaneously, the U.S. Treasury made a commitment of indefinite duration to maintain the positive net worth of both entities. No assurance can be given that the initiatives discussed above with respect to the debt and mortgage-backed securities issued by FNMA and FHLMC will be successful. A Collateralized Mortgage Obligation (CMO) is a bond, which is collateralized by a pool of MBS’s.
These securities derive their value from or represent interests in a pool of mortgages, or mortgage securities. Mortgage securities are subject to prepayment risk — the risk that, as mortgage interest rates fall, borrowers will refinance and “prepay” principal. A fund holding mortgage securities that are experiencing prepayments will have to reinvest these payments at lower prevailing interest rates. On the other hand, when interest rates rise, borrowers are less likely to refinance resulting in lower prepayments. This can effectively extend the maturity of a fund’s mortgage securities resulting in greater price volatility. It can be difficult to measure precisely the remaining life of a mortgage security or the average life of a portfolio of such securities.
To the extent a fund invests in mortgage securities offered by non-governmental issuers, such as commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers, the Fund may be subject to additional risks. Timely payment of interest and principal of non-governmental issuers are supported by various forms of private insurance or guarantees, including individual loan, title, pool and hazard insurance purchased by the issuer. There can be no assurance that the private insurers can meet their obligations under the policies.
An unexpectedly high rate of defaults on the mortgages held by a mortgage pool may adversely affect the value of a mortgage backed security and could result in losses to a Fund. The risk of such defaults is generally higher in the case of mortgage pools that include subprime mortgages. Subprime mortgages refer to loans made to borrowers with weakened credit histories or with a lower capacity to make timely payment on their mortgages.
NOTE 7—Distribution and Service Plans
The Trust has entered into a master distribution agreement with IDI to serve as the distributor for the Fund. The Trust has adopted a distribution 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 IDI 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
Invesco Van Kampen V.I. Government Fund
Fund. Prior to the Reorganization, the Acquired Fund paid distribution fees of $292,458 to Van Kampen Funds Inc. based on the annual rate of 0.25% of the Acquired Funds’s average daily net assets of Series II shares. For the six months ended June 30, 2010, expenses incurred under the Plan are detailed on the Statement of Operations as “Distribution (12b-1) and Service fees.”
NOTE 8—Indemnifications
Under the Trust’s organizational documents, each trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote.
NOTE 9—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 10—Change in Independent Registered Public Accounting Firm
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
Invesco Van Kampen V.I. Government Fund
Calculating your ongoing Fund expenses
Expense Example
As a policyholder of the Fund, you incur ongoing costs, including management fees, distribution and service (12b-1) fees; 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 the ongoing costs of investing in other funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 1/1/10 — 6/30/10.
Actual Expense
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, 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 first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below 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 cost 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 only. Therefore, the second line of the table is useful in comparing ongoing costs and will not help you determine the relative total costs of owning different funds that have transactional costs, such as sales charges (loads), or exchanges fees.
HYPOTHETICAL | |||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | ||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | |||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | |||||||||||||||||||||
Series | (1/1/10) | (6/30/10) | Period* | (6/30/10) | Period* | ||||||||||||||||||||
I | $ | 1,000.00 | $ | 1,047.76 | $ | 3.05 | $ | 1,021.82 | $ | 3.01 | |||||||||||||||
II | 1,000.00 | 1,046.56 | 4.31 | 1,020.58 | 4.26 | ||||||||||||||||||||
* | Expenses are equal to the Fund’s annualized expense ratio of 0.60% and 0.85% for Series I and II Shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). These expense ratios reflect an expense waiver. |
Assumes all dividends and distributions were reinvested.
Invesco Van Kampen V.I. Government Fund
Approval of Investment Advisory and Sub-Advisory Agreements With Invesco Advisers, Inc. And Its Affiliates
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Van Kampen V.I. Government Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Van Kampen retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-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 the 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. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these
Invesco Van Kampen V.I. Government Fund
services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are 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 Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco Van Kampen V.I. Government Fund
Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Van Kampen Life Investment Trust Government Portfolio was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 31,103,476 | 647,467 | 1,876,694 | 0 |
Invesco Van Kampen V.I. Government Fund
Invesco Van Kampen V.I. Growth and Income Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VK-VIGRI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -8.28 | % | ||
Series II Shares | -8.45 | |||
Russell 1000 Value Index▼ (Broad Market/Style-Specific Index) | -5.12 |
▼ | Lipper Inc. |
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (12/23/96) | 6.67 | % | ||
10 Years | 3.15 | |||
5 Years | -0.07 | |||
1 Year | 15.20 | |||
Series II Shares | ||||
Inception (9/18/00) | 2.15 | % | ||
5 Years | -0.32 | |||
1 Year | 14.90 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Growth and Income Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco Van Kampen V.I. Growth and Income Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.62% and 0.87%, respectively. 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.
Invesco Van Kampen V.I. Growth and Income Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco Van Kampen V.I. Growth and Income Fund
Schedule of Investments
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks–96.5% | ||||||||
Aerospace & Defense–0.5% | ||||||||
General Dynamics Corp. | 122,314 | $ | 7,162,708 | |||||
Air Freight & Logistics–0.7% | ||||||||
FedEx Corp. | 151,591 | 10,628,045 | ||||||
Apparel Retail–0.9% | ||||||||
Gap, Inc. | 718,361 | 13,979,305 | ||||||
Application Software–0.9% | ||||||||
Amdocs Ltd. (Guernsey)(a) | 529,709 | 14,222,687 | ||||||
Asset Management & Custody Banks–1.3% | ||||||||
Janus Capital Group, Inc. | 776,526 | 6,895,551 | ||||||
State Street Corp. | 401,917 | 13,592,833 | ||||||
20,488,384 | ||||||||
Automobile Manufacturers–0.6% | ||||||||
Ford Motor Co.(a) | 874,176 | 8,811,694 | ||||||
Biotechnology–1.2% | ||||||||
Genzyme Corp.(a) | 368,510 | 18,709,253 | ||||||
Broadcasting & Cable TV–1.6% | ||||||||
Comcast Corp., Class A | 1,445,377 | 25,106,198 | ||||||
Broadcasting–Diversified–1.3% | ||||||||
Time Warner Cable, Inc. | 369,411 | 19,238,925 | ||||||
Communications Equipment–1.4% | ||||||||
Cisco Systems, Inc.(a) | 1,003,240 | 21,379,044 | ||||||
Computer Hardware–2.9% | ||||||||
Dell, Inc.(a) | 1,342,257 | 16,187,619 | ||||||
Hewlett-Packard Co. | 650,057 | 28,134,467 | ||||||
44,322,086 | ||||||||
Consumer Electronics–1.0% | ||||||||
Sony Corp.–ADR (Japan) | 580,446 | 15,486,299 | ||||||
Data Processing & Outsourced Services–0.9% | ||||||||
Western Union Co. | 904,918 | 13,492,327 | ||||||
Diversified Banks–1.7% | ||||||||
U.S. Bancorp | 438,047 | 9,790,350 | ||||||
Wells Fargo & Co. | 662,461 | 16,959,002 | ||||||
26,749,352 | ||||||||
Diversified Chemicals–2.7% | ||||||||
Bayer AG–ADR (Germany) | 277,501 | 15,601,966 | ||||||
Dow Chemical Co. | 667,765 | 15,839,386 | ||||||
PPG Industries, Inc. | 174,089 | 10,516,717 | ||||||
41,958,069 | ||||||||
Diversified Commercial & Professional Services–0.5% | ||||||||
Cintas Corp. | 347,883 | 8,338,755 | ||||||
Diversified Metals & Mining–0.6% | ||||||||
Freeport-McMoRan Copper & Gold, Inc. | 156,405 | 9,248,228 | ||||||
Drug Retail–0.8% | ||||||||
Walgreen Co. | 461,835 | 12,330,994 | ||||||
Electric Utilities–4.2% | ||||||||
American Electric Power Co., Inc. | 1,014,156 | 32,757,239 | ||||||
Edison International | 218,102 | 6,918,195 | ||||||
Entergy Corp. | 168,762 | 12,086,734 | ||||||
FirstEnergy Corp. | 362,285 | 12,763,301 | ||||||
64,525,469 | ||||||||
Food Distributors–1.2% | ||||||||
Sysco Corp. | 618,545 | 17,671,831 | ||||||
Health Care Distributors–0.7% | ||||||||
Cardinal Health, Inc. | 317,623 | 10,675,309 | ||||||
Health Care Equipment–1.3% | ||||||||
Covidien PLC (Ireland) | 492,421 | 19,785,476 | ||||||
Home Improvement Retail–1.6% | ||||||||
Home Depot, Inc. | 895,482 | 25,136,180 | ||||||
Human Resource & Employment Services–1.0% | ||||||||
Manpower, Inc. | 196,302 | 8,476,320 | ||||||
Robert Half International, Inc. | 303,869 | 7,156,115 | ||||||
15,632,435 | ||||||||
Hypermarkets & Super Centers–1.8% | ||||||||
Wal-Mart Stores, Inc. | 563,880 | 27,105,712 | ||||||
Industrial Conglomerates–5.8% | ||||||||
General Electric Co. | 3,438,525 | 49,583,531 | ||||||
Siemens AG–ADR (Germany) | 181,604 | 16,259,006 | ||||||
Tyco International Ltd. (Switzerland) | 648,865 | 22,859,514 | ||||||
88,702,051 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Growth and Income Fund
Shares | Value | |||||||
Industrial Machinery–2.0% | ||||||||
Dover Corp. | 392,907 | $ | 16,419,584 | |||||
Ingersoll-Rand PLC (Ireland) | 421,531 | 14,538,604 | ||||||
30,958,188 | ||||||||
Insurance Brokers–3.2% | ||||||||
Marsh & McLennan Cos., Inc. | 2,187,368 | 49,325,148 | ||||||
Integrated Oil & Gas–7.2% | ||||||||
ConocoPhillips | 340,078 | 16,694,429 | ||||||
Exxon Mobil Corp. | 259,178 | 14,791,289 | ||||||
Hess Corp. | 305,291 | 15,368,349 | ||||||
Occidental Petroleum Corp. | 475,669 | 36,697,863 | ||||||
Royal Dutch Shell PLC–ADR (United Kingdom) | 541,895 | 27,213,967 | ||||||
110,765,897 | ||||||||
Integrated Telecommunication Services–1.0% | ||||||||
Verizon Communications, Inc. | 532,502 | 14,920,706 | ||||||
Internet Software & Services–3.2% | ||||||||
eBay, Inc.(a) | 1,734,451 | 34,012,584 | ||||||
Yahoo!, Inc.(a) | 1,136,669 | 15,720,132 | ||||||
49,732,716 | ||||||||
Investment Banking & Brokerage–1.4% | ||||||||
Charles Schwab Corp. | 1,469,259 | 20,834,093 | ||||||
Life & Health Insurance–0.7% | ||||||||
Principal Financial Group, Inc. | 442,609 | 10,374,755 | ||||||
Managed Health Care–1.4% | ||||||||
UnitedHealth Group, Inc. | 761,710 | 21,632,564 | ||||||
Motorcycle Manufacturers–0.5% | ||||||||
Harley-Davidson, Inc. | 345,664 | 7,684,111 | ||||||
Movies & Entertainment–4.8% | ||||||||
Time Warner, Inc. | 994,725 | 28,757,500 | ||||||
Viacom, Inc., Class B | 1,409,145 | 44,204,878 | ||||||
72,962,378 | ||||||||
Office Services & Supplies–0.6% | ||||||||
Avery Dennison Corp. | 278,817 | 8,958,390 | ||||||
Oil & Gas Equipment & Services–1.2% | ||||||||
Schlumberger Ltd. (Netherlands Antilles) | 333,627 | 18,462,918 | ||||||
Oil & Gas Exploration & Production–2.5% | ||||||||
Anadarko Petroleum Corp. | 455,784 | 16,449,244 | ||||||
Devon Energy Corp. | 245,453 | 14,952,997 | ||||||
Noble Energy, Inc. | 116,400 | 7,022,412 | ||||||
38,424,653 | ||||||||
Other Diversified Financial Services–8.2% | ||||||||
Bank of America Corp. | 2,586,449 | 37,167,272 | ||||||
Citigroup, Inc.(a) | 4,091,053 | 15,382,360 | ||||||
JPMorgan Chase & Co. | 1,997,497 | 73,128,365 | ||||||
125,677,997 | ||||||||
Packaged Foods & Meats–2.9% | ||||||||
Kraft Foods, Inc., Class A | 1,206,831 | 33,791,268 | ||||||
Unilever NV (Netherlands) | 402,899 | 11,007,201 | ||||||
44,798,469 | ||||||||
Personal Products–1.0% | ||||||||
Avon Products, Inc. | 574,599 | 15,226,873 | ||||||
Pharmaceuticals–6.7% | ||||||||
Abbott Laboratories | 249,825 | 11,686,813 | ||||||
Bristol-Myers Squibb Co. | 1,168,555 | 29,143,762 | ||||||
Merck & Co., Inc. | 716,935 | 25,071,217 | ||||||
Pfizer, Inc. | 1,482,897 | 21,146,111 | ||||||
Roche Holdings AG–ADR (Switzerland) | 462,867 | 15,999,785 | ||||||
103,047,688 | ||||||||
Property & Casualty Insurance–1.2% | ||||||||
Chubb Corp. | 353,886 | 17,697,839 | ||||||
Regional Banks–3.8% | ||||||||
BB&T Corp. | 510,378 | 13,428,045 | ||||||
Fifth Third Bancorp | 918,485 | 11,288,181 | ||||||
PNC Financial Services Group, Inc. | 583,836 | 32,986,734 | ||||||
57,702,960 | ||||||||
Semiconductor Equipment–0.5% | ||||||||
Lam Research Corp.(a) | 198,452 | 7,553,083 | ||||||
Semiconductors–1.2% | ||||||||
Intel Corp. | 920,313 | 17,900,088 | ||||||
Soft Drinks–0.8% | ||||||||
Coca-Cola Co. | 238,498 | 11,953,520 | ||||||
Wireless Telecommunication Services–1.4% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 1,073,710 | 22,193,586 | ||||||
Total Common Stocks–96.5% (Cost $1,563,570,500) | 1,479,675,436 | |||||||
Money Market Funds–2.5% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 19,149,546 | 19,149,546 | ||||||
Premier Portfolio–Institutional Class(b) | 19,149,546 | 19,149,546 | ||||||
Total Money Market Funds–2.5% (Cost $38,299,092) | 38,299,092 | |||||||
TOTAL INVESTMENTS–99.0% (Cost $1,601,869,592) | 1,517,974,528 | |||||||
OTHER ASSETS IN EXCESS OF LIABILITIES–1.0% | �� | 15,994,347 | ||||||
NET ASSETS–100.0% | $ | 1,533,968,875 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Growth and Income Fund
Investment Abbreviations:
ADR — American Depositary Receipt |
Notes to Schedule of Investments:
Percentages are calculated as a percentage of net assets.
(a) | Non-income producing security. | |
(b) | The money market fund and the Fund are affiliated by having the same investment advisor. |
By sector, based on Net Assets
Financials | 21.4 | % | ||
Consumer Discretionary | 12.3 | |||
Health Care | 11.3 | |||
Industrials | 11.1 | |||
Information Technology | 11.0 | |||
Energy | 10.9 | |||
Consumer Staples | 8.5 | |||
Utilities | 4.2 | |||
Materials | 3.3 | |||
Telecommunication Services | 2.5 | |||
Money Market Funds Plus Other Assets in Excess of Liabilities | 3.5 | |||
Fair Value Measurements
Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below. (See Note 1(B) in the Notes to Financial Statements for further information regarding fair value measurements.)
Level 1 | Level 2 | Level 3 | ||||||||||||||
Other | ||||||||||||||||
Significant | Significant | |||||||||||||||
Quoted | Observable | Unobservable | ||||||||||||||
Prices | Inputs | Inputs | Total | |||||||||||||
Equity Securities | $ | 1,486,372,777 | $ | 31,601,751 | $ | — | $ | 1,517,974,528 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Growth and Income Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $1,563,570,500) | $ | 1,479,675,436 | ||
Investment in affiliated money market funds, at value and cost | 38,299,092 | |||
Receivables: | ||||
Fund shares sold | 18,196,512 | |||
Dividends | 4,100,497 | |||
Investments sold | 3,667,090 | |||
Other | 946 | |||
Total assets | 1,543,939,573 | |||
Liabilities: | ||||
Payables: | ||||
Investments purchased | 8,810,346 | |||
Distributor and affiliates | 649,086 | |||
Fund shares repurchased | 270,351 | |||
Investment advisory fee | 2,811 | |||
Accrued expenses | 238,104 | |||
Total liabilities | 9,970,698 | |||
Net assets | $ | 1,533,968,875 | ||
Net assets consist of: | ||||
Capital (par value of $0.001 per share with an unlimited number of shares authorized) | $ | 1,769,322,627 | ||
Accumulated undistributed net investment income | 10,735,859 | |||
Net unrealized depreciation | (83,895,064 | ) | ||
Accumulated net realized loss | (162,194,547 | ) | ||
Net assets | $ | 1,533,968,875 | ||
Net asset value, offering price and redemption price per share: | ||||
Series I shares (Based on net assets of $135,057,374 and 9,003,605 shares of beneficial interest issued and outstanding) | $ | 15.00 | ||
Series II shares (Based on net assets of $1,398,911,501 and 93,304,100 shares of beneficial interest issued and outstanding) | $ | 14.99 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment Income: | ||||
Dividends (net of foreign withholding taxes of $306,715) | $ | 18,327,562 | ||
Interest | 24,741 | |||
Total income | 18,352,303 | |||
Expenses: | ||||
Investment advisory fee | 4,745,465 | |||
Distribution (12b-1) and service fees | 1,909,618 | |||
Accounting and administrative expenses | 455,658 | |||
Reports to shareholders | 48,094 | |||
Trustees’ fees and related expenses | 41,948 | |||
Professional fees | 37,196 | |||
Custody | 35,044 | |||
Transfer agent fees | 10,316 | |||
Other | 21,852 | |||
Total expenses | 7,305,191 | |||
Net investment income | $ | 11,047,112 | ||
Realized and unrealized gain/loss: | ||||
Net realized gain | $ | 36,543,397 | ||
Unrealized appreciation/depreciation: | ||||
Beginning of the period | 102,462,825 | |||
End of the period | (83,895,064 | ) | ||
Net unrealized depreciation during the period | (186,357,889 | ) | ||
Net realized and unrealized loss | $ | (149,814,492 | ) | |
Net decrease in net assets from operations | $ | (138,767,380 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Growth and Income Fund
Statements of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
From investment activities: | ||||||||
Operations: | ||||||||
Net investment income | $ | 11,047,112 | $ | 21,012,021 | ||||
Net realized gain/loss | 36,543,397 | (61,046,171 | ) | |||||
Net unrealized appreciation/depreciation during the period | (186,357,889 | ) | 367,300,062 | |||||
Change in net assets from operations | (138,767,380 | ) | 327,265,912 | |||||
Distributions from net investment income: | ||||||||
Series I shares | (156,262 | ) | (5,735,264 | ) | ||||
Series II shares | (1,556,159 | ) | (46,515,143 | ) | ||||
Total distributions | (1,712,421 | ) | (52,250,407 | ) | ||||
Net change in net assets from investment activities | (140,479,801 | ) | 275,015,505 | |||||
From capital transactions: | ||||||||
Proceeds from shares sold | 100,774,977 | 128,402,609 | ||||||
Net assets value of shares issued through dividend reinvestment | 1,712,421 | 52,250,407 | ||||||
Cost of shares repurchased | (96,382,931 | ) | (169,496,944 | ) | ||||
Net change in net assets from capital transactions | 6,104,467 | 11,156,072 | ||||||
Total increase/decrease in net assets | (134,375,334 | ) | 286,171,577 | |||||
Net assets: | ||||||||
Beginning of the period | 1,668,344,209 | 1,382,172,632 | ||||||
End of the period (including accumulated undistributed net investment income of $10,735,859 and $1,401,168, respectively) | $ | 1,533,968,875 | $ | 1,668,344,209 | ||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Growth and Income Fund
Financial Highlights
(Unaudited)
The following schedule presents financial highlights for one share of the Fund outstanding throughout the periods indicated.
Series I shares | ||||||||||||||||||||||||
Six months ended | ||||||||||||||||||||||||
June 30, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 16.37 | $ | 13.74 | $ | 21.36 | $ | 22.00 | $ | 20.49 | $ | 19.32 | ||||||||||||
Net investment income(a) | 0.13 | 0.24 | 0.36 | 0.39 | 0.38 | 0.28 | ||||||||||||||||||
Net realized and unrealized gain/loss | (1.48 | ) | 2.98 | (6.95 | ) | 0.16 | 2.75 | 1.59 | ||||||||||||||||
Total from investment operations | (1.35 | ) | 3.22 | (6.59 | ) | 0.55 | 3.13 | 1.87 | ||||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | 0.02 | 0.59 | 0.38 | 0.36 | 0.25 | 0.22 | ||||||||||||||||||
Distributions from realized gain | — | — | 0.65 | 0.83 | 1.37 | 0.48 | ||||||||||||||||||
Total distributions | 0.02 | 0.59 | 1.03 | 1.19 | 1.62 | 0.70 | ||||||||||||||||||
Net asset value, end of the period | $ | 15.00 | $ | 16.37 | $ | 13.74 | $ | 21.36 | $ | 22.00 | $ | 20.49 | ||||||||||||
Total return | (8.28 | )%* | 24.37 | % | (32.03 | )% | 2.80 | % | 16.23 | % | 9.99 | % | ||||||||||||
Net assets at end of the period (in millions) | $ | 135.1 | $ | 153.7 | $ | 146.0 | $ | 263.5 | $ | 307.7 | $ | 312.4 | ||||||||||||
Ratio of expenses to average net assets | 0.64 | % | 0.62 | % | 0.61 | % | 0.60 | % | 0.60 | % | 0.61 | % | ||||||||||||
Ratio of net investment income to average net assets | 1.54 | % | 1.72 | % | 2.06 | % | 1.80 | % | 1.85 | % | 1.44 | % | ||||||||||||
Portfolio turnover | 13 | %* | 55 | % | 50 | % | 28 | % | 28 | % | 42 | % | ||||||||||||
Series II shares | ||||||||||||||||||||||||
Six months ended | ||||||||||||||||||||||||
June 30, | Year ended December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 16.39 | $ | 13.71 | $ | 21.31 | $ | 21.96 | $ | 20.46 | $ | 19.29 | ||||||||||||
Net investment income(a) | 0.11 | 0.20 | 0.32 | 0.34 | 0.32 | 0.23 | ||||||||||||||||||
Net realized and unrealized gain/loss | (1.49 | ) | 2.99 | (6.94 | ) | 0.15 | 2.76 | 1.59 | ||||||||||||||||
Total from investment operations | (1.38 | ) | 3.19 | (6.62 | ) | 0.49 | 3.08 | 1.82 | ||||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | 0.02 | 0.51 | 0.33 | 0.31 | 0.21 | 0.17 | ||||||||||||||||||
Distributions from realized gain | — | — | 0.65 | 0.83 | 1.37 | 0.48 | ||||||||||||||||||
Total distributions | 0.02 | 0.51 | 0.98 | 1.14 | 1.58 | 0.65 | ||||||||||||||||||
Net asset value, end of the period | $ | 14.99 | $ | 16.39 | $ | 13.71 | $ | 21.31 | $ | 21.96 | $ | 20.46 | ||||||||||||
Total return(b) | (8.45 | )%* | 24.11 | % | (32.21 | )% | 2.52 | % | 15.97 | % | 9.72 | % | ||||||||||||
Net assets at end of the period (in millions) | $ | 1,398.9 | $ | 1,514.7 | $ | 1,236.2 | $ | 1,843.7 | $ | 1,661.7 | $ | 1,247.5 | ||||||||||||
Ratio of expenses to average net assets | 0.89 | % | 0.87 | % | 0.86 | % | 0.85 | % | 0.85 | % | 0.86 | % | ||||||||||||
Ratio of net investment income to average net assets | 1.29 | % | 1.45 | % | 1.82 | % | 1.54 | % | 1.59 | % | 1.18 | % | ||||||||||||
Portfolio turnover | 13 | %* | 55 | % | 50 | % | 28 | % | 28 | % | 42 | % | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | These returns include combined Rule 12b-1 fees and service fees of up to 0.25%. | |
* | Non-Annualized | |
On June 1, 2010, the Fund’s former Class I and Class II shares were reorganized into Series I and Series II shares, respectively. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Growth and Income Fund
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. Growth and Income Fund (the “Fund”), is organized as a series of the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly AIM Variable Insurance Funds, (the “Trust”), a Delaware statutory trust, and is registered as a diversified, open-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Trust consists of forty-one separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each portfolio or class.
Prior to June 1, 2010, the Fund operated as Van Kampen Life Investment Trust Growth and Income Portfolio (the “Acquired Fund”), an investment portfolio of Van Kampen Life Investment Trust. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class I and Class II Shares received Series I and Series II Shares, respectively of the Fund.
Information for the Acquired Fund’s — Class I and Class II Shares prior to the Reorganization are included with Series I and Series II Shares, respectively, of the Fund throughout this report.
The Fund’s investment objective is to seek long-term growth of capital and income through investments in equity securities, including common and preferred stocks and securities convertible into common and preferred stocks.
The Fund currently offers two classes of shares, Series I and Series II Shares, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies.
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
A. | Security Valuation — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. |
Invesco Van Kampen V.I. Growth and Income Fund
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Fair Value Measurements — GAAP defines fair value as the price that the Fund would receive to sell an investment or pay to transfer a liability in an orderly transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. GAAP establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund’s investments. The inputs are summarized in the three broad levels listed below. | |
Level 1 — Prices are based on quoted prices in active markets for identical investments. | ||
Level 2— Prices are based on other significant observable inputs which may include quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc. | ||
Level 3— Prices are based on significant unobservable inputs including the Fund’s own assumptions in determining the fair value of investments. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer’s financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances. | ||
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. | ||
C. | Security Transactions — Security transactions are recorded on a trade date basis. Realized gains and losses are determined on an identified cost basis. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included on 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 on the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share on 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 on 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 on the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
D. | Income and Expenses — Dividend income is recorded net of applicable withholding taxes on the ex-dividend date and interest income is recorded on an accrual basis. Income and expenses of the Fund are allocated on a pro rata basis to each class of shares, except for distribution and service fees and incremental transfer agency costs which are unique to each class of shares. | |
E. | Federal Income Taxes — It is the Fund’s policy to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income earned or gains realized or repatriated. Taxes are accrued and applied to net investment income, net realized capital gains and net unrealized appreciation, as applicable, as the income is earned or capital gains are recorded. Management has concluded there are no significant uncertain tax positions that would require recognition in the financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in “Interest Expense” and penalties in “Other” expenses on the Statement of Operations. The Fund files tax returns with the U.S. Internal Revenue Service. Generally, each of the tax years in the four year period ended December 31, 2009, remains subject to examination by taxing authorities. | |
The Fund intends to utilize provisions of the federal income tax law which allow it to carry a realized capital loss forward for eight years following the year of the loss and offset such losses against any future realized capital gains. At December 31, 2009, the Fund had an accumulated capital loss carryforward for tax purposes of $196,004,014, which will expire according to the following schedule: |
Amount | Expiration | |||||
$ | 60,998,232 | December 31, 2016 | ||||
135,005,782 | December 31, 2017 | |||||
Invesco Van Kampen V.I. Growth and Income Fund
Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end. |
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 66,688,026 | ||
Aggregate unrealized (depreciation) of investment securities | (153,317,019 | ) | ||
Net unrealized depreciation of investment securities | $ | (86,628,993 | ) | |
Cost of investments for tax purposes is $1,604,603,521. |
F. | Distribution of Income and Gains — The Fund declares and pays dividends at least annually from net investment income and from net realized gains, if any. Distributions from net realized gains for book purposes may include short-term capital gains and a portion of futures gains, which are included as ordinary income for tax purposes. Distributions from the Fund are recorded on the ex-distribution date. | |
The tax character of distributions paid during the year ended December 31, 2009 were as follows: |
Distributions paid from: | ||||
Ordinary income | $ | 52,250,407 | ||
As of December 31, 2009, the components of distributable earnings on a tax basis were as follows: |
Undistributed ordinary income | $ | 1,713,385 | ||
Net realized gains or losses may differ for financial reporting and tax purposes primarily as a result of the deferral of losses relating to wash sale transactions. | ||
G. | Foreign Currency Translation — Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated at the rate of exchange prevailing when such securities were acquired or sold. Income and expenses are translated at rates prevailing when accrued. Realized and unrealized gains and losses on securities resulting from changes in exchange rates are not segregated for financial reporting purposes from amounts arising from changes in the market prices of securities. The unrealized gains and losses on translations of other assets or liabilities denominated in foreign currencies, if any, are included in foreign currency translation on the Statement of Operations. Realized gains and losses on foreign currency transactions, if any, on the Statement of Operations include the net realized amount from the sale of the foreign currency and the amount realized between trade date and settlement date on security transactions. |
NOTE 2—Investment Advisory Agreement and Other Transactions with Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | % Per Annum | |||
First $500 million | 0 | .60% | ||
Over $500 million | 0 | .55% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee to Van Kampen Asset Management (“Van Kampen”) based on the annual rates above of the Acquired Funds’s average daily net assets.
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization Date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit the Fund’s expenses (excluding certain items discussed below) of Series I Shares to 0.62% and Series II Shares to 0.87% of average daily net assets, respectively. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the Fund’s expenses to exceed the limit reflected above: (i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary or non-routine items; and (v) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012. The Adviser did not waive fees and/or reimburse expenses during the period under limitation.
Prior to the Reorganization, Van Kampen had voluntarily agreed to waive fees and/or reimburse the Acquired Fund’s expenses as a percentage of average daily net assets in excess of 0.75% and 1.00% for Class I and Class II Shares, respectively. Van Kampen did not waive fees and/or reimburse expenses under this agreement.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds. For the period ended June 30, 2010, the Adviser did not waive any advisory fees under this agreement.
Invesco Van Kampen V.I. Growth and Income Fund
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the period ended June 30, 2010, Invesco was paid $32,160 for accounting and fund administrative services and reimbursed $329,506 for services provided by insurance companies. Prior to the Reorganization, under separate Accounting Services and Chief Compliance Officer (“CCO”) Employment agreements, Van Kampen Investments Inc. provided accounting services and the CCO provided compliance services to the Acquired Fund. Pursuant to such agreements, the Acquired Fund paid $93,992 to Van Kampen Investments Inc.
Also, the Trust has entered into service agreements whereby State Street Bank & Trust Company (“SSB”) serves as custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. Prior to the Reorganization, the Acquired Fund paid $9,145 to Van Kampen Investor Services Inc., which served as the Acquired Fund’s transfer agent. For the six months ended June 30, 2010, expenses incurred under these agreements are shown on the Statement of Operations as “Transfer agent fees.”
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or Invesco Distributors, Inc. (“IDI”).
“Trustees’ Fees and Related Expenses” 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’ Fees and Related Expenses” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco 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’ Fees and Related Expenses” 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.
For the period ended June 30, 2010, the Fund paid legal fees of approximately $0 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.
Prior to the Reorganization, the Acquired Fund paid brokerage commissions to Morgan Stanley & Co., Inc., an affiliate of the Acquired Fund, totaling $10,658.
NOTE 3—Share Information
For the six months ended June 30, 2010 and year ended December 31, 2009, transactions were as follows:
For the six months | For the year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Value | Shares | Value | |||||||||||||
Sales: | ||||||||||||||||
Series I | 543,688 | $ | 9,119,848 | 1,149,207 | $ | 15,623,017 | ||||||||||
Series II | 5,601,285 | 91,655,129 | 8,282,559 | 112,779,592 | ||||||||||||
Total Sales | 6,144,973 | $ | 100,774,977 | 9,431,766 | $ | 128,402,609 | ||||||||||
Dividend Reinvestment: | ||||||||||||||||
Series I | 9,138 | $ | 156,262 | 424,064 | $ | 5,735,264 | ||||||||||
Series II | 91,003 | 1,556,159 | 3,426,092 | 46,515,143 | ||||||||||||
Total Dividend Reinvestment | 100,141 | $ | 1,712,421 | 3,850,156 | $ | 52,250,407 | ||||||||||
Repurchases: | ||||||||||||||||
Series I | (933,150 | ) | $ | (15,580,359 | ) | (2,812,355 | ) | $ | (38,075,961 | ) | ||||||
Series II | (4,823,764 | ) | (80,802,572 | ) | (9,409,312 | ) | (131,420,983 | ) | ||||||||
Total Repurchases | (5,756,914 | ) | $ | (96,382,931 | ) | (12,221,667 | ) | $ | (169,496,944 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 83% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. In addition, 0.7% of the outstanding shares of the Fund are owned by affiliated mutual funds. Affiliated mutual funds are mutual funds that are advised by Invesco. |
NOTE 4—Investment Transactions
During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments and money market funds, were $208,890,905 and $229,502,473, respectively.
Invesco Van Kampen V.I. Growth and Income Fund
NOTE 5—Distribution and Service Plans
The Trust has entered into a master distribution agreement with IDI to serve as the distributor for the Fund. The Trust has adopted a distribution 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 IDI 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. Prior to the Reorganization, the Acquired Fund paid distribution fees of $1,609,660 to Van Kampen Funds Inc. based on the annual rate of 0.25% of the Acquired Funds’ average daily net assets of Class II Shares. For the six months ended June 30, 2010, expenses incurred under the Plan are detailed on the Statement of Operations as “Distribution (12b-1) and Service Fees.”
NOTE 6—Indemnifications
Under the Trust’s organizational documents, each trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 8—Change in Independent Registered Public Accounting Firm
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
Invesco Van Kampen V.I. Growth and Income Fund
Calculating your ongoing Fund expenses
Expense Example
As a policyholder of the Fund, you incur ongoing costs, including management fees, distribution and service (12b-1) fees; 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 the 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 1/1/10— 6/30/10.
Actual Expense
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, 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 first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below 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 cost 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 only. Therefore, the second line of the table is useful in comparing ongoing costs and will not help you determine the relative total costs of owning different funds that have transactional costs, such as sales charges (loads) and redemption fees, or exchanges.
HYPOTHETICAL | |||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | ||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | |||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | |||||||||||||||||||||
Series | (1/1/10) | (6/30/10) | Period* | (6/30/10) | Period* | ||||||||||||||||||||
I | $ | 1,000.00 | $ | 917.22 | $ | 3.04 | $ | 1,021.62 | $ | 3.21 | |||||||||||||||
II | 1,000.00 | 915.49 | 4.23 | 1,020.38 | 4.46 | ||||||||||||||||||||
* | Expenses are equal to the Fund’s annualized expense ratio of 0.64% and 0.89% for Series I and II Shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
Assumes all dividends and distributions were reinvested.
Invesco Van Kampen V.I. Growth and Income Fund
Approval of Investment Advisory and Sub-Advisory Agreements with Invesco Advisers, Inc. and its Affiliates
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Van Kampen V.I. Growth and Income Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Van Kampen retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-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 the 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. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco
Invesco Van Kampen V.I. Growth and Income Fund
Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are 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 Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco Van Kampen V.I. Growth and Income Fund
Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Van Kampen Life Investment Trust Growth and Income Portfolio was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 80,969,282 | 2,228,258 | 5,510,353 | 0 |
Invesco Van Kampen V.I. Growth and Income Fund
Invesco Van Kampen V.I. High Yield Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VK-VIHYI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 2.75 | % | ||
Series II Shares | 2.55 | |||
Barclays Capital U.S. Corporate High Yield 2% Issuer Cap Index6 (Broad Market/Style-Specific Index) | 4.45 |
6 | Lipper Inc. |
The Barclays Capital U.S. Corporate High Yield 2% Issuer Cap Index is an unmanaged index that covers U.S. corporate, fixed-rate, non-investment grade debt with at least one year to maturity and at least $150 million in par outstanding. Index weights for each issuer are capped at 2%.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
Series I Shares | ||||
Inception (1/2/97) | 4.39 | % | ||
10 Years | 3.62 | |||
5 Years | 5.19 | |||
1 Year | 20.25 | |||
Series II Shares | ||||
10 Years | 3.35 | % | ||
5 Years | 4.91 | |||
1 Year | 19.86 |
Effective June 1, 2010, Class I shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Series I shares of Invesco Van Kampen V.I. High Yield Fund. Returns shown above for Series I shares are blended returns of the predecessor fund and Invesco Van Kampen V.I. High Yield Fund. Share class returns will differ from the predecessor fund because of different expenses.
Series II shares incepted on June 1, 2010. Series II shares performance shown prior to that date is that of the predecessor fund’s Class I shares restated to reflect the higher 12b-1 fees applicable to the predecessor fund’s Series II shares. Class I shares performance reflects any applicable fee waivers or expense reimbursements. The inception date of the predecessor fund’s Class I shares is January 2, 1997.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.81% and 1.06%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.98% and 1.23%, 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.
Invesco Van Kampen V.I. High Yield Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
Invesco Van Kampen V.I. High Yield Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Principal | ||||||||
Amount | Value | |||||||
Bonds & Notes–95.1% | ||||||||
Advertising–1.5% | ||||||||
Affinion Group, Inc., 11.50%, 10/15/15 | $ | 380,000 | $ | 399,950 | ||||
Lamar Media Corp., 7.875%, 04/15/18(b) | 70,000 | 70,700 | ||||||
470,650 | ||||||||
Aerospace & Defense–2.5% | ||||||||
Bombardier, Inc., 7.75%, 03/15/20(b) | 110,000 | 114,400 | ||||||
Hexcel Corp., 6.75%, 02/01/15 | 150,000 | 147,750 | ||||||
L-3 Communications Corp., 5.875%, 01/15/15 | 215,000 | 213,387 | ||||||
Transdigm, Inc., 7.75%, 07/15/14(b) | 170,000 | 170,850 | ||||||
Triumph Group, Inc., 8.00%, 11/15/17 | 135,000 | 129,938 | ||||||
776,325 | ||||||||
Airlines–1.3% | ||||||||
Continental Airlines 2007-1 Class C Pass Through Trust, 7.339%, 04/19/14 | 106,209 | 102,226 | ||||||
Delta Air Lines, 9.50%, 09/15/14(b) | 185,000 | 195,175 | ||||||
United Air Lines, Inc., 9.875%, 08/01/13(b) | 95,000 | 98,325 | ||||||
395,726 | ||||||||
Aluminum–0.7% | ||||||||
Century Aluminum Co., 8.00%, 05/15/14 | 35,000 | 33,075 | ||||||
Novelis, Inc. (Canada), 7.25%, 02/15/15 | 180,000 | 175,500 | ||||||
208,575 | ||||||||
Apparel Retail–0.1% | ||||||||
Collective Brands, Inc., 8.25%, 08/01/13 | 45,000 | 45,563 | ||||||
Apparel, Accessories & Luxury Goods–0.9% | ||||||||
Oxford Industries, Inc., 11.375%, 07/15/15 | 175,000 | 193,813 | ||||||
Quiksilver, Inc., 6.875%, 04/15/15 | 100,000 | 91,250 | ||||||
285,063 | ||||||||
Asset Management & Custody Banks–0.4% | ||||||||
Apria Healthcare Group, Inc., 12.375%, 11/01/14(b) | 105,000 | 113,006 | ||||||
Auto Parts & Equipment–0.3% | ||||||||
Tenneco, Inc., 8.125%, 11/15/15 | 105,000 | 106,313 | ||||||
Automobile Manufacturers–1.0% | ||||||||
Ford Motor Co., 7.45%, 07/16/31 | 250,000 | 226,250 | ||||||
General Motors Corp., 8.375%, 07/15/33(c) | 260,000 | 83,850 | ||||||
310,100 | ||||||||
Broadcasting–0.2% | ||||||||
Clear Channel Worldwide, 9.25%, 12/15/17(b) | 70,000 | 70,613 | ||||||
Building Products–1.4% | ||||||||
Building Materials Corp. of America, 7.50%, 03/15/20(b) | 35,000 | 34,125 | ||||||
Gibraltar Industries, Inc., 8.00%, 12/01/15 | 105,000 | 102,900 | ||||||
Nortek, Inc., 11.00%, 12/01/13 | 110,000 | 115,225 | ||||||
Ply Gem Industries, Inc., 11.75%, 06/15/13 | 195,000 | 204,262 | ||||||
456,512 | ||||||||
Cable & Satellite–6.8% | ||||||||
Charter Communications Operating LLC/Charter Communications Operating Capital, 10.875%, 09/15/14(b) | 345,000 | 382,519 | ||||||
CSC Holdings, Inc., 8.50%, 06/15/15 | 195,000 | 202,800 | ||||||
CSC Holdings, Inc., 8.625%, 02/15/19 | 455,000 | 480,594 | ||||||
DISH DBS Corp., 7.00%, 10/01/13 | 510,000 | 527,850 | ||||||
Hughes Network Systems LLC/HNS Finance Corp., 9.50%, 04/15/14 | 140,000 | 141,400 | ||||||
Virgin Media Finance PLC, 9.125%, 08/15/16 | 230,000 | 239,200 | ||||||
XM Satellite Radio, Inc., 13.00%, 08/01/13(b) | 150,000 | 164,437 | ||||||
2,138,800 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Casinos & Gaming–4.4% | ||||||||
Ameristar Casinos, Inc., 9.25%, 06/01/14 | $ | 185,000 | $ | 194,712 | ||||
Great Canadian Gaming Co., 7.25%, 02/15/15(b) | 55,000 | 54,725 | ||||||
Harrah’s Operating Co., Inc., 5.625%, 06/01/15 | 114,000 | 74,100 | ||||||
Harrah’s Operating Co., Inc., 11.25%, 06/01/17 | 171,000 | 179,977 | ||||||
Las Vegas Sands Corp., 6.375%, 02/15/15 | 115,000 | 110,688 | ||||||
MGM Mirage, 6.75%, 04/01/13 | 295,000 | 259,600 | ||||||
MGM Mirage, 13.00%, 11/15/13 | 175,000 | 201,687 | ||||||
Scientific Games International, Inc., 9.25%, 06/15/19 | 150,000 | 154,500 | ||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., 7.875%, 05/01/20(b) | 145,000 | 146,088 | ||||||
1,376,077 | ||||||||
Coal & Consumable Fuels–0.5% | ||||||||
Consol Energy, Inc., 8.25%, 04/01/20(b) | 35,000 | 36,794 | ||||||
Foundation PA Coal Co. LLC, 7.25%, 08/01/14 | 105,000 | 107,362 | ||||||
144,156 | ||||||||
Commodity Chemicals–0.4% | ||||||||
Westlake Chemical Corp., 6.625%, 01/15/16 | 135,000 | 130,106 | ||||||
Communications Equipment–0.6% | ||||||||
Avaya, Inc., 9.75%, 11/01/15 | 195,000 | 186,713 | ||||||
Construction & Farm Machinery & Heavy Trucks–2.5% | ||||||||
Case New Holland, Inc., 7.75%, 09/01/13 | 150,000 | 154,500 | ||||||
Case New Holland, Inc., 7.875%, 12/01/17(b) | 75,000 | 76,500 | ||||||
Navistar International Corp., 8.25%, 11/01/21 | 475,000 | 483,312 | ||||||
Oshkosh Corp., 8.50%, 03/01/20 | 75,000 | 78,188 | ||||||
792,500 | ||||||||
Construction Materials–0.5% | ||||||||
Hanson Ltd., 7.875%, 09/27/10 | 100,000 | 100,563 | ||||||
Texas Industries, Inc., 7.25%, 07/15/13 | 55,000 | 53,625 | ||||||
154,188 | ||||||||
Consumer Finance–2.6% | ||||||||
Ally Financial, Inc., 6.875%, 09/15/11 | 190,000 | 194,275 | ||||||
Ally Financial, Inc., 8.00%, 03/15/20(b) | 165,000 | 162,937 | ||||||
Ally Financial, Inc., 8.00%, 11/01/31 | 100,000 | 94,000 | ||||||
Dollar Financial Corp., 10.375%, 12/15/16(b) | 65,000 | 66,300 | ||||||
Ford Motor Credit Co. LLC, 8.00%, 12/15/16 | 95,000 | 97,138 | ||||||
Ford Motor Credit Co. LLC, 8.125%, 01/15/20 | 210,000 | 215,250 | ||||||
829,900 | ||||||||
Data Processing & Outsourced Services–1.5% | ||||||||
SunGard Data Systems, Inc., 9.125%, 08/15/13 | 280,000 | 286,650 | ||||||
SunGard Data Systems, Inc., 10.25%, 08/15/15 | 105,000 | 108,412 | ||||||
SunGard Data Systems, Inc., 10.625%, 05/15/15 | 80,000 | 86,000 | ||||||
481,062 | ||||||||
Department Stores–0.7% | ||||||||
Macy’s Retail Holdings, Inc., 5.90%, 12/01/16 | 230,000 | 232,300 | ||||||
Distillers & Vintners–0.6% | ||||||||
Constellation Brands, Inc., 7.25%, 05/15/17 | 185,000 | 188,700 | ||||||
Diversified Chemicals–1.3% | ||||||||
Ashland, Inc., 9.125%, 06/01/17 | 195,000 | 215,475 | ||||||
Innophos, Inc., 8.875%, 08/15/14 | 200,000 | 206,250 | ||||||
421,725 | ||||||||
Diversified Commercial & Professional Services–0.3% | ||||||||
ARAMARK Corp., 8.50%, 02/01/15 | 100,000 | 101,750 | ||||||
Diversified Support Services–0.4% | ||||||||
Travelport LLC, 9.875%, 09/01/14 | 114,000 | 115,710 | ||||||
Electric Utilities–0.3% | ||||||||
Edison Mission Energy, 7.00%, 05/15/17 | 115,000 | 74,750 | ||||||
Midwest Generation LLC, (Series B), 8.56%, 01/02/16 | 13,320 | 13,153 | ||||||
87,903 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Electrical Components & Equipment–0.3% | ||||||||
Baldor Electric Co., 8.625%, 02/15/17 | $ | 105,000 | $ | 109,200 | ||||
Fertilizers & Agricultural Chemicals–0.7% | ||||||||
CF Industries, Inc., 7.125%, 05/01/20 | 210,000 | 216,300 | ||||||
Food Retail–1.0% | ||||||||
SUPERVALU, Inc., 7.50%, 11/15/14 | 175,000 | 175,437 | ||||||
SUPERVALU, Inc., 8.00%, 05/01/16 | 135,000 | 133,988 | ||||||
309,425 | ||||||||
Gas Utilities–0.6% | ||||||||
Ferrellgas LP, 6.75%, 05/01/14 | 110,000 | 108,625 | ||||||
Suburban Propane Patrtners, 7.375%, 03/15/20 | 75,000 | 76,125 | ||||||
184,750 | ||||||||
Health Care Services–1.4% | ||||||||
FMC Finance III SA, 6.875%, 07/15/17 | 275,000 | 283,884 | ||||||
Fresenius US Finance II, Inc., 9.00%, 07/15/15(b) | 85,000 | 92,650 | ||||||
Multiplan, Inc., 10.375%, 04/15/16(b) | 46,000 | 47,495 | ||||||
Universal Hospital Services, Inc., (PIK), 8.50%, 06/01/15 | 25,000 | 24,687 | ||||||
448,716 | ||||||||
Health Care Equipment–1.3% | ||||||||
Biomet, Inc., 10.00%, 10/15/17 | 320,000 | 346,400 | ||||||
Invacare Corp., 9.75%, 02/15/15 | 60,000 | 64,800 | ||||||
411,200 | ||||||||
Health Care Facilities–4.5% | ||||||||
Community Health Systems, 8.875%, 07/15/15 | 175,000 | 182,000 | ||||||
HCA, Inc., 5.75%, 03/15/14 | 225,000 | 210,375 | ||||||
HCA, Inc., 6.25%, 02/15/13 | 125,000 | 123,437 | ||||||
HCA, Inc., 7.875%, 02/15/20 | 213,000 | 220,455 | ||||||
HCA, Inc., 9.875%, 02/15/17 | 130,000 | 140,400 | ||||||
Sun Healthcare Group, Inc., 9.125%, 04/15/15 | 145,000 | 152,069 | ||||||
Tenet Healthcare Corp., 7.375%, 02/01/13 | 190,000 | 191,425 | ||||||
Tenet Healthcare Corp., 10.00%, 05/01/18(b) | 180,000 | 199,800 | ||||||
1,419,961 | ||||||||
Heavy Electrical Equipment–0.0% | ||||||||
Ormat Funding Corp., 8.25%, 12/30/20 | — | 0 | ||||||
Homebuilding–1.1% | ||||||||
K Hovnanian Enterprises, Inc., 10.625%, 10/15/16 | 345,000 | 346,725 | ||||||
Independent Power Producers & Energy Traders–5.0% | ||||||||
AES Corp. (The), 7.75%, 03/01/14 | 240,000 | 245,400 | ||||||
Intergen N.V. (Netherlands), 9.00%, 06/30/17(b) | 340,000 | 341,700 | ||||||
Ipalco Enterprises, Inc., 8.625%, 11/14/11 | 85,000 | 88,187 | ||||||
Mirant Americas Generation LLC, 9.125%, 05/01/31 | 150,000 | 139,125 | ||||||
NRG Energy, Inc., 7.375%, 02/01/16 | 200,000 | 200,500 | ||||||
NSG Holdings LLC/NSG Holdings, Inc., 7.75%, 12/15/25(b) | 400,000 | 355,000 | ||||||
RRI Energy, Inc., 7.875%, 06/15/17 | 230,000 | 217,925 | ||||||
1,587,837 | ||||||||
Industrial Conglomerates–0.9% | ||||||||
RBS Global, Inc./Rexnord LLC, 8.50%, 05/01/18(b) | 295,000 | 286,150 | ||||||
Industrial Gases–0.2% | ||||||||
Airgas, Inc., 7.125%, 10/01/18(b) | 50,000 | 53,813 | ||||||
Integrated Telecommunication Services–7.4% | ||||||||
Frontier Communications Corp., 9.00%, 08/15/31 | 310,000 | 289,462 | ||||||
Intelsat Bermuda Ltd. (PIK) (Bermuda), 11.50%, 02/04/17 | 619,375 | 622,472 | ||||||
Intelsat Jackson Holdings Ltd., 9.50%, 06/15/16 | 120,000 | 126,900 | ||||||
Qwest Communications, 7.125%, 04/01/18(b) | 120,000 | 119,700 | ||||||
West Corp., 9.50%, 10/15/14 | 320,000 | 324,800 | ||||||
Wind Acquisition Finance SA, 11.75%, 07/15/17(b) | 250,000 | 260,625 | ||||||
Wind Acquisition Finance SA (Luxembourg), 12.00%, 12/01/15(b) | 285,000 | 296,400 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Integrated Telecommunication Services–(continued) | ||||||||
Windstream Corp., 7.875%, 11/01/17 | $ | 185,000 | $ | 180,838 | ||||
Windstream Corp., 8.125%, 08/01/13 | 105,000 | 108,806 | ||||||
2,330,003 | ||||||||
Internet Retail–2.0% | ||||||||
Expedia, Inc., 8.50%, 07/01/16 | 300,000 | 324,656 | ||||||
Ticketmaster Entertainment LLC/Ticketmaster Noteco, Inc., 10.75%, 08/01/16 | 285,000 | 307,088 | ||||||
631,744 | ||||||||
Metal & Glass Containers–2.6% | ||||||||
Berry Plastics Corp., 9.50%, 05/15/18(b) | 220,000 | 202,400 | ||||||
Crown Americas LLC/Crown Americas Capital Corp., 7.625%, 11/15/13 | 143,000 | 147,648 | ||||||
Owens-Brockway Glass Container Inc., 6.75%, 12/01/14 | 155,000 | 157,712 | ||||||
Owens-Brockway Glass Container, Inc., 7.375%, 05/15/16 | 130,000 | 135,850 | ||||||
Solo Cup Co., 8.50%, 02/15/14 | 195,000 | 175,987 | ||||||
819,597 | ||||||||
Movies & Entertainment–0.7% | ||||||||
AMC Entertainment, Inc., 8.75%, 06/01/19 | 210,000 | 212,100 | ||||||
Multi-line Insurance–0.5% | ||||||||
Hartford Financial Services Group, Inc., 8.125%, 06/15/38(d) | 160,000 | 146,998 | ||||||
Oil & Gas Drilling–0.2% | ||||||||
Pride International, Inc., 7.375%, 07/15/14 | 75,000 | 74,531 | ||||||
Oil & Gas Equipment & Services–1.2% | ||||||||
Bristow Group, Inc., 7.50%, 09/15/17 | 60,000 | 57,450 | ||||||
Cie Generale de Geophysique-Veritas (France), 7.50%, 05/15/15 | 185,000 | 177,600 | ||||||
Key Energy Services, Inc., 8.375%, 12/01/14 | 145,000 | 144,275 | ||||||
379,325 | ||||||||
Oil & Gas Exploration & Production–10.0% | ||||||||
Atlas Energy Operating Co. LLC/Atlas Energy Finance Corp., 10.75%, 02/01/18 | 265,000 | 282,887 | ||||||
Chaparral Energy, Inc., 8.875%, 02/01/17 | 140,000 | 130,550 | ||||||
Chesapeake Energy Corp., 6.375%, 06/15/15 | 150,000 | 155,010 | ||||||
Chesapeake Energy Corp., 9.50%, 02/15/15 | 300,000 | 332,250 | ||||||
Cimarex Energy Co., 7.125%, 05/01/17 | 105,000 | 106,050 | ||||||
Continental Resources, 7.375%, 10/01/20(b) | 65,000 | 64,675 | ||||||
Continental Resources, 8.25%, 10/01/19 | 50,000 | 52,625 | ||||||
Encore Acquisition Co., 9.50%, 05/01/16 | 90,000 | 95,288 | ||||||
Forest Oil Corp., 7.25%, 06/15/19 | 210,000 | 204,225 | ||||||
Hilcorp Energy I LP/Hilcorp Finance Co., 7.75%, 11/01/15(b) | 315,000 | 308,700 | ||||||
McMoRan Exploration Co, 11.875%, 11/15/14 | 250,000 | 256,562 | ||||||
Newfield Exploration Co., 6.625%, 09/01/14 | 270,000 | 273,375 | ||||||
Newfield Exploration Co., 7.125%, 05/15/18 | 55,000 | 54,725 | ||||||
Petrohawk Energy Corp., 7.875%, 06/01/15 | 175,000 | 176,313 | ||||||
Pioneer Natural Resources Co., 6.65%, 03/15/17 | 250,000 | 254,421 | ||||||
Plains Exploration & Production Co., 7.625%, 06/01/18 | 190,000 | 186,912 | ||||||
Range Resources Corp., 7.50%, 05/15/16 | 110,000 | 111,925 | ||||||
Southwestern Energy Co., 7.50%, 02/01/18 | 120,000 | 128,100 | ||||||
3,174,593 | ||||||||
Oil & Gas Refining & Marketing–0.9% | ||||||||
Tesoro Corp., 6.50%, 06/01/17 | 170,000 | 157,250 | ||||||
United Refining Co., (Series 2), 10.50%, 08/15/12 | 155,000 | 142,213 | ||||||
299,463 | ||||||||
Oil & Gas Storage & Transportation–2.7% | ||||||||
Copano Energy LLC/Copano Energy Finance Corp., 8.125%, 03/01/16 | 150,000 | 149,250 | ||||||
El Paso Corp., 6.875%, 06/15/14 | 115,000 | 117,300 | ||||||
El Paso Corp., 12.00%, 12/12/13 | 30,000 | 34,800 | ||||||
Inergy LP, 8.25%, 03/01/16 | 120,000 | 122,400 | ||||||
MarkWest Energy Partners LP/MarkWest Energy Finance Corp., (Series B), 8.75%, 04/15/18 | 160,000 | 163,600 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Oil & Gas Storage & Transportation–(continued) | ||||||||
Regency Energy Partners, 8.375%, 12/15/13 | $ | 85,000 | $ | 88,187 | ||||
Sonat, Inc., 7.625%, 07/15/11 | 180,000 | 185,850 | ||||||
861,387 | ||||||||
Other Diversified Financial Services–1.7% | ||||||||
Bank of America Corp., 8.00%, 10/30/49(d)(e) | 210,000 | 201,600 | ||||||
International Lease Finance Corp., 8.625%, 09/15/15(b) | 260,000 | 248,300 | ||||||
International Lease Finance Corp., 8.75%, 03/15/17(b) | 95,000 | 90,725 | ||||||
540,625 | ||||||||
Packaged Foods & Meats–0.6% | ||||||||
JBS USA LLC/JBS USA Finance, Inc., 11.625%, 05/01/14 | 175,000 | 196,875 | ||||||
Paper Packaging–2.1% | ||||||||
Cascades, Inc, 7.875%, 01/15/20 | 165,000 | 161,700 | ||||||
Graham Packaging Co. LP/GPC Capital Corp. I, 9.875%, 10/15/14 | 230,000 | 234,600 | ||||||
Graphic Packaging International, Inc., 9.50%, 08/15/13 | 265,000 | 270,300 | ||||||
666,600 | ||||||||
Paper Products–1.5% | ||||||||
Georgia-Pacific LLC, 8.25%, 05/01/16(b) | 175,000 | 188,125 | ||||||
Mercer International, Inc., 9.25%, 02/15/13 | 205,000 | 199,362 | ||||||
PH Glatfelter Co., 7.125%, 05/01/16 | 95,000 | 93,537 | ||||||
481,024 | ||||||||
Pharmaceuticals–0.3% | ||||||||
Axcan Intermediate Holdings, Inc., 12.75%, 03/01/16 | 95,000 | 96,544 | ||||||
Publishing–1.0% | ||||||||
Gannett Co., Inc., 9.375%, 11/15/17(b) | 95,000 | 100,937 | ||||||
Nielsen Finance LLC/Nielsen Finance Co., 10.00%, 08/01/14 | 210,000 | 215,775 | ||||||
316,712 | ||||||||
Railroads–0.3% | ||||||||
Kansas City Southern de Mexico SA de CV (Mexico), 8.00%, 02/01/18(b) | 95,000 | 97,689 | ||||||
Semiconductor Equipment–0.2% | ||||||||
Amkor Technologies, Inc., 7.375%, 05/01/18(b) | 65,000 | 63,700 | ||||||
Semiconductors–0.7% | ||||||||
Freescale Semiconductor, Inc., 9.125%, 12/15/14 | 190,000 | 171,475 | ||||||
Freescale Semiconductor, Inc., 9.25%, 04/15/18(b) | 45,000 | 44,550 | ||||||
216,025 | ||||||||
Specialized Finance–1.7% | ||||||||
CIT Group, Inc., 7.00%, 05/01/17 | 575,000 | 523,250 | ||||||
Specialty Chemicals–0.6% | ||||||||
Huntsman International LLC, 7.375%, 01/01/15 | 190,000 | 176,700 | ||||||
Specialty Stores–0.5% | ||||||||
Michaels Stores, Inc., 0.00%, 11/01/16(f) | 175,000 | 157,063 | ||||||
Systems Software–1.6% | ||||||||
Vangent, Inc., 9.625%, 02/15/15 | 525,000 | 504,656 | ||||||
Tires & Rubber–0.4% | ||||||||
Cooper Tire and Rubber Co., 8.00%, 12/15/19 | 135,000 | 134,631 | ||||||
Trading Companies & Distributors–0.4% | ||||||||
H&E Equipment Services, Inc., 8.375%, 07/15/16 | 150,000 | 141,750 | ||||||
Wireless Telecommunication Services–2.6% | ||||||||
Digicel Ltd. (Bermuda), 8.25%, 09/01/17(b) | 100,000 | 99,625 | ||||||
Nextel Communications, Inc., (Series E), 6.875%, 10/31/13 | 460,000 | 451,950 | ||||||
Sprint Capital Corp., 6.90%, 05/01/19 | 300,000 | 273,750 | ||||||
825,325 | ||||||||
Total Bonds & Notes (Cost $28,440,699) | 30,063,023 | |||||||
Shares | ||||||||
Preferred Stocks–0.6% | ||||||||
Diversified Banks–0.3% | ||||||||
Ally Financial, Inc.(b) | 141 | 109,606 | ||||||
Regional Banks–0.3% | ||||||||
Zions Bancorporation | 3,087 | 79,953 | ||||||
Total Preferred Stocks (Cost $150,818) | 189,559 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. High Yield Fund
Shares | Value | |||||||
Common Stocks & Other Equity Interests–0.0% | ||||||||
Utilities–0.0% | ||||||||
SW Acquisition LP (Cost $0)(g) | 1 | $ | 0 | |||||
Shares | ||||||||
Money Market Funds–0.1% | ||||||||
Liquid Assets Portfolio–Institutional Class(h) | 13,181 | 13,181 | ||||||
Premier Portfolio–Institutional Class(h) | 13,181 | 13,181 | ||||||
Total Money Market Funds (Cost $26,362) | 26,362 | |||||||
TOTAL INVESTMENTS–95.8% (Cost $28,617,879) | 30,278,944 | |||||||
OTHER ASSETS LESS LIABILITIES–4.2% | 1,342,450 | |||||||
NET ASSETS–100.0% | $ | 31,621,394 | ||||||
Investment Abbreviations:
PIK | – Payment-in-kind | |
REIT | – Real Estate Investment Trust. |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | 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, 2010 was $5,629,859 which represented 17.8% of the Fund’s Net Assets. | |
(c) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The aggregate value of these securities at June 30, 2010 was $83,850, which represented 0.3% of the Fund’s Net Assets. | |
(d) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2010. | |
(e) | Perpetual bond with no specified maturity date. | |
(f) | Step coupon bond. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. | |
(g) | Non-income producing security. | |
(h) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By industry, based on Net Assets
as of June 30, 2010
Oil & Gas Exploration & Production | 10.0 | % | ||
Integrated Telecommunication Services | 7.4 | |||
Cable & Satellite | 6.8 | |||
Independent Power Producers & Energy Traders | 5.0 | |||
Health Care Facilities | 4.5 | |||
Casinos & Gaming | 4.4 | |||
Other Industries, Each with Less Than 3% of Total Net Assets | 57.6 | |||
Money Market Funds Plus Assets Less Liabilities | 4.3 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. High Yield Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $28,591,517) | $ | 30,252,582 | ||
Investments in affiliated money market funds, at value and cost | 26,362 | |||
Total investments, at value (Cost $28,617,879) | 30,278,944 | |||
Cash | 50,319 | |||
Receivables for: | ||||
Investments sold | 2,584,413 | |||
Fund shares sold | 28,538 | |||
Dividends and interest | 634,341 | |||
Other assets | 2,837 | |||
Total assets | 33,579,392 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 1,912,007 | |||
Fund shares reacquired | 9,817 | |||
Accrued fees to affiliates | 6,140 | |||
Accrued other operating expenses | 30,034 | |||
Total liabilities | 1,957,998 | |||
Net assets applicable to shares outstanding | $ | 31,621,394 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 59,610,851 | ||
Undistributed net investment income | 1,577,057 | |||
Undistributed net realized gain (loss) | (31,227,579 | ) | ||
Unrealized appreciation | 1,661,065 | |||
$ | 31,621,394 | |||
Net Assets: | ||||
Series I | $ | 31,611,254 | ||
Series II | $ | 10,140 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 2,909,932 | |||
Series II | 934 | |||
Series I: | ||||
Net asset value per share | $ | 10.86 | ||
Series II: | ||||
Net asset value per share | $ | 10.86 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Interest (net of foreign withholding taxes of $130) | $ | 1,721,476 | ||
Dividends from affiliated money market funds | 124 | |||
Total investment income | 1,721,600 | |||
Expenses: | ||||
Advisory fees | 75,503 | |||
Administrative services fees | 48,865 | |||
Custodian fees | 2,568 | |||
Distribution fees — Series II | 2 | |||
Transfer agent fees | 211 | |||
Trustees’ and officers’ fees and benefits | 1,437 | |||
Professional services fees | 16,042 | |||
Other | 6,167 | |||
Total expenses | 150,795 | |||
Less: Fees waived | (7,732 | ) | ||
Net expenses | 143,063 | |||
Net investment income | 1,578,537 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from investment securities | 1,531,484 | |||
Change in net unrealized appreciation (depreciation) of investment securities | (1,933,001 | ) | ||
Net realized and unrealized gain (loss) | (401,517 | ) | ||
Net increase in net assets resulting from operations | $ | 1,177,020 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. High Yield Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,578,537 | $ | 3,249,260 | ||||
Net realized gain (loss) | 1,531,484 | (2,419,053 | ) | |||||
Change in net unrealized appreciation (depreciation) | (1,933,001 | ) | 11,158,139 | |||||
Net increase in net assets resulting from operations | 1,177,020 | 11,988,346 | ||||||
Distributions to shareholders from net investment income — Series I | (3,242,254 | ) | (2,924,346 | ) | ||||
Share transactions–net: | ||||||||
Series I | (5,194,488 | ) | 1,303,400 | |||||
Series II | 10,000 | — | ||||||
Net increase (decrease) in net assets resulting from share transactions | (5,184,488 | ) | 1,303,400 | |||||
Net increase (decrease) in net assets | (7,249,722 | ) | 10,367,400 | |||||
Net assets: | ||||||||
Beginning of period | 38,871,116 | 28,503,716 | ||||||
End of period (includes undistributed net investment income of $1,577,057 and $3,240,774, respectively) | $ | 31,621,394 | $ | 38,871,116 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. High Yield Fund (the “Fund”), is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
Prior to June 1, 2010, the Fund operated as Universal Funds High Yield Portfolio (the “Acquired Fund”), an investment portfolio of The Universal Institutional Funds, Inc. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund Class I shares received Series I shares of the Fund.
Information for the Acquired Fund — Class I shares prior to the Reorganization is included with Series I shares of the Fund throughout this report.
The Fund’s investment objective is above-average total return over a market cycle of three to five years by investing primarily in a diversified portfolio of high yield securities.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by |
Invesco Van Kampen V.I. High Yield Fund
independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to |
Invesco Van Kampen V.I. High Yield Fund
federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | ||
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Lower-Rated Securities — The Fund may invest in lower-quality debt securities, i.e., “junk bonds”. Investments in lower-rated securities or unrated securities of comparable quality tend to be more sensitive to economic conditions than higher rated securities. Junk bonds involve a greater risk of default by the issuer because such securities are generally unsecured and are often subordinated to other creditors’ claims. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $500 million | 0 | .42% | ||
Next $250 million | 0 | .345% | ||
Next $250 million | 0 | .295% | ||
Next $1 billion | 0 | .27% | ||
Next $1 billion | 0 | .245% | ||
Over $3 billion | 0 | .22% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee to Morgan Stanley Investment Management Inc. (“MS Investment Management”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization date, the Adviser has contractually agreed through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 0.80% and Series II shares to 1.05% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Prior to the Reorganization, MS Investment Management had voluntarily agreed to waive fees and/or reimburse expenses of Class I shares to 0.80% of the Acquired Fund’s average daily net assets.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds. Prior to the Reorganization, investment advisory fees paid by the Acquired Fund were reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class shares.
For the period ended June 30, 2010, MS Investment Management and the Adviser waived advisory fees of $2,930 and $4,802 respectively.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’
Invesco Van Kampen V.I. High Yield Fund
accounts. Pursuant to such agreement, for the period ended June 30, 2010, Invesco was paid $4,110 for accounting and fund administrative services and reimbursed $6,481 for services provided by insurance companies. Prior to the Reorganization, the Acquired Fund paid an administration fee of $38,274 to MS Investment Management and JPMorgan Investor Services Co.
Also, the Trust has entered into service agreements whereby State Street Bank & Trust Company (“SSB”) serves as custodian, fund accountant and provide certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. Prior to the Reorganization, the Acquired Fund paid $211 to Morgan Stanley Services Company Inc. which served as the Acquired Fund’s transfer agent. For the six months ended June 30, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 189,559 | $ | — | $ | 0 | $ | 189,559 | ||||||||
Corporate Debt Securities | — | 30,089,385 | — | 30,089,385 | ||||||||||||
$ | 189,559 | $ | 30,089,385 | $ | — | $ | 30,278,944 | |||||||||
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
Invesco Van Kampen V.I. High Yield 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.
The Fund had a capital loss carryforward as of December 31, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2010 | $ | 9,828,000 | ||
December 31, 2011 | 12,175,000 | |||
December 31, 2013 | 178,000 | |||
December 31, 2014 | 552,000 | |||
December 31, 2016 | 2,908,000 | |||
December 31, 2017 | 7,093,000 | |||
Total capital loss carryforward | $ | 32,734,000 | ||
* | 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, 2010 was $16,115,411 and $22,060,911, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 1,820,883 | ||
Aggregate unrealized (depreciation) of investment securities | (179,151 | ) | ||
Net unrealized appreciation of investment securities | $ | 1,641,732 | ||
Cost of investments for tax purposes is $28,637,212. |
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 288,784 | $ | 3,361,044 | 715,513 | $ | 7,305,750 | ||||||||||
Series II(b) | 934 | 10,000 | — | — | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 303,014 | 3,242,254 | 289,253 | 2,924,346 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (983,508 | ) | (11,797,786 | ) | (860,646 | ) | (8,926,696 | ) | ||||||||
Net increase (decrease) in share activity | (390,776 | ) | $ | (5,184,488 | ) | 144,120 | $ | 1,303,400 | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 76% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
(b) | Commencement date of June 1, 2010. |
Invesco Van Kampen V.I. High Yield Fund
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income to | |||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | average net | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | of period | Return(b) | (000s omitted) | absorbed | absorbed | assets | turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 11.77 | $ | 0.51 | $ | (0.19 | ) | $ | 0.32 | $ | (1.23 | ) | $ | 10.86 | 2.83 | % | $ | 31,611 | 0.80 | %(d) | 0.84 | %(d) | 8.78 | %(d) | 47 | % | ||||||||||||||||||||||
Year ended 12/31/09 | 9.03 | 0.99 | 2.68 | 3.67 | (0.93 | ) | 11.77 | 42.08 | 38,871 | 0.79 | (e) | 0.82 | (e) | 9.46 | (e)(h) | 78 | ||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 12.89 | 1.01 | (3.77 | ) | (2.76 | ) | (1.10 | ) | 9.03 | (22.86 | ) | 28,504 | 0.79 | (e) | 0.94 | (e) | 8.93 | (e)(h) | 50 | |||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.55 | 1.01 | (0.46 | ) | 0.55 | (1.21 | ) | 12.89 | 4.01 | 41,546 | 0.80 | (e) | 0.81 | (e) | 7.56 | (e)(h) | 32 | |||||||||||||||||||||||||||||||
Year ended 12/31/06(f) | 13.59 | 0.96 | (0.43 | ) | 0.53 | (0.57 | ) | 13.55 | 8.62 | 52,962 | 0.80 | 0.87 | 7.13 | (h) | 26 | |||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 14.56 | 1.00 | (0.87 | ) | 0.13 | (1.10 | ) | 13.59 | 1.06 | 58,480 | 0.80 | 0.86 | 7.16 | (h) | 65 | |||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10(g) | 10.71 | 0.08 | 0.07 | 0.15 | — | 10.86 | 1.40 | 10 | 1.05 | (d) | 1.24 | (d) | 8.53 | (d) | 47 | % | ||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $36,250 and $2 for Series I and Series II shares, respectively. | |
(e) | The Ratio of Expenses and Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is 0.01%, 0.01% and less than 0.005% for the years ended December 31, 2009, 2008 and 2007, respectively. | |
(f) | On November 13, 2006, the Portfolio effected a reverse stock split as described in the Notes to the Financial Statements. Per share data prior to this date has been restated to give effect to the reverse stock split. | |
(g) | Commencement date of June 1, 2010. | |
(h) | Ratio of net investment income to average net assets without fee waivers and/or expenses absorbed was 9.43%, 8.78%, 7.55%, 7.06% and 7.10% for the years ended December 31, 2009 through December 31, 2005, respectively. |
NOTE 10—Change in Independent Registered Public Accounting Firm
The Fund is a new fund that was formed to acquire the assets and liabilities of a predecessor fund in a shell fund reorganization (the “Reorganization”). In connection with the organization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
Invesco Van Kampen V.I. High Yield Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. With the exception of the actual ending account value and expenses of the Series II shares, 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, 2010 through June 30, 2010. The actual ending account and expenses of the Series II shares in the example below are based on an investment of $1,000 invested as of close of business June 1, 2010 (commencement date) and held through June 30, 2010.
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 (as of close of business June 1, 2009 through June 30, 2010 for the Series II shares). Because the actual ending account value and expense information in the example is not based upon a six month period for the Series II shares, the ending account value and expense information may not provide a meaningful comparison to mutual funds that provide such information for a full six month period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2,3 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,027.50 | $ | 4.02 | $ | 1,020.83 | $ | 4.01 | 0.80 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,014.00 | 0.87 | 1,019.59 | 5.26 | 1.05 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010, through June 30, 2010 (as of close of business June 1, 2010, through June 30, 2010 for the Series II shares), after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. For the Series II shares actual expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 30 (as of close of business June 1, 2010, through June 30, 2010)/365. Because the Series II shares have not been in existence for a full six month period, the actual ending account value and expense information shown may not provide a meaningful comparison to fund expense information of classes that show such data for a full six month period and, because the actual ending account value and expense information in the expense example covers a short time period, return and expense data may not be indicative of return and expense data for longer time periods. |
3 | Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect a one-half year period. The hypothetical ending account value and expenses may be used to compare ongoing costs of investing in Series II shares of the Fund and other funds because such data is based on a full six month period. |
Invesco Van Kampen V.I. High Yield Fund
Approval of Investment Advisory and Sub-Advisory Agreements With Invesco Advisers, Inc. and Its Affiliates |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Van Kampen V.I. High Yield Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Van Kampen retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-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 the 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. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services.
Invesco Van Kampen V.I. High Yield Fund
The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are 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 Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco Van Kampen V.I. High Yield Fund
Proxy Results
A Special Meeting (“Meeting”) of Shareholders of The Universal Institutional Funds, Inc. — High Yield Portfolio was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 2,518,978 | 37,360 | 159,368 | 0 |
Invesco Van Kampen V.I. High Yield Fund
Invesco Van Kampen V.I. International Growth Equity Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VK-VIIGE-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -10.49 | % | ||
Series II Shares | -10.49 | |||
MSCI EAFE Index▼ (Broad Market/Style-Specific Index) | -13.23 |
▼ | Lipper Inc. |
The MSCI EAFE ® Index is an unmanaged index considered representative of stocks of Europe, Australasia and the Far East.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception | -5.77 | % | ||
1 Year | 10.65 | |||
Series II Shares | ||||
Inception (4/28/06) | -5.77 | % | ||
1 Year | 10.65 |
Effective June 1, 2010, Class II shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Series II shares, respectively, of Invesco Van Kampen V.I. International Growth Equity Fund. Returns shown above for Series II shares are blended returns of the predecessor fund and Invesco Van Kampen V.I. International Growth Equity Fund. Share class returns will differ from the predecessor fund because of different expenses.
Series I shares incepted on June 1, 2010. Series I shares performance shown prior to that date is that of the predecessor fund’s Class II shares and includes the 12b-1 fees applicable to the predecessor fund’s Class II shares. Class II shares performance reflects any applicable fee waivers or expense reimbursements. The inception date of the predecessor fund’s Class II shares is April 28, 2006.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.11% and 1.36%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.18% and 1.43%, 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.
Invesco Van Kampen V.I. International Growth Equity Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses in the past, performance would have been lower.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
Invesco Van Kampen V.I. International Growth Equity Fund
Schedule of Investments
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–102.5% | ||||||||
Australia–6.2% | ||||||||
BHP Billiton Ltd. | 17,123 | $ | 532,523 | |||||
Cochlear Ltd. | 7,239 | 450,932 | ||||||
CSL Ltd. | 10,621 | 289,669 | ||||||
QBE Insurance Group Ltd. | 16,149 | 245,761 | ||||||
Woolworths Ltd. | 9,717 | 220,280 | ||||||
1,739,165 | ||||||||
Belgium–2.2% | ||||||||
Anheuser-Busch InBev N.V. | 12,943 | 621,705 | ||||||
Brazil–1.8% | ||||||||
Banco Bradesco SA (ADR) | 16,626 | 263,688 | ||||||
Petroleo Brasileiro SA (ADR) | 8,413 | 250,708 | ||||||
514,396 | ||||||||
Canada–6.1% | ||||||||
Bombardier, Inc. | 41,690 | 189,936 | ||||||
Canadian National Railway Co. | 3,240 | 185,899 | ||||||
Canadian Natural Resources Ltd. | 6,967 | 231,612 | ||||||
Cenovus Energy, Inc. | 8,815 | 227,134 | ||||||
EnCana Corp. | 6,586 | 199,458 | ||||||
Fairfax Financial Holdings Ltd. | 628 | 230,995 | ||||||
Suncor Energy, Inc. | 8,128 | 239,362 | ||||||
Talisman Energy, Inc. | 12,579 | 190,360 | ||||||
1,694,756 | ||||||||
China–1.2% | ||||||||
Industrial & Commercial Bank of China (H Shares) | 474,000 | 344,176 | ||||||
Denmark–1.8% | ||||||||
Novo Nordisk A/S (Class B) | 6,239 | 503,273 | ||||||
France–5.1% | ||||||||
AXA SA | 12,522 | 189,908 | ||||||
BNP Paribas | 6,668 | 356,035 | ||||||
Danone SA | 5,825 | 311,067 | ||||||
Eutelsat Communications | 6,473 | 216,254 | ||||||
Total SA | 7,923 | 352,610 | ||||||
1,425,874 | ||||||||
Germany–8.1% | ||||||||
Adidas AG | 7,670 | 370,216 | ||||||
Bayer AG | 8,156 | 455,066 | ||||||
Bayerische Motoren Werke AG | 10,814 | 523,055 | ||||||
Fresenius Medical Care AG & Co. KGaA | 5,978 | 323,409 | ||||||
Puma AG Rudolf Dassler Sport | 1,365 | 360,265 | ||||||
SAP AG | 5,380 | 238,968 | ||||||
2,270,979 | ||||||||
Hong Kong–2.9% | ||||||||
Esprit Holdings Ltd. | 38,500 | 207,623 | ||||||
Hutchison Whampoa Ltd. | 61,000 | 376,613 | ||||||
Li & Fung Ltd. | 50,310 | 225,214 | ||||||
809,450 | ||||||||
India–1.9% | ||||||||
India Fund, Inc. (The)(a) | 5,300 | 160,325 | ||||||
Infosys Technologies Ltd. (ADR) | 6,171 | 369,705 | ||||||
530,030 | ||||||||
Israel–2.4% | ||||||||
Teva Pharmaceutical Industries Ltd. (ADR) | 12,900 | 670,671 | ||||||
Italy–2.0% | ||||||||
Finmeccanica SpA | 24,907 | 258,464 | ||||||
UniCredit SpA | 128,221 | 284,613 | ||||||
543,077 | ||||||||
Japan–8.2% | ||||||||
Denso Corp. | 9,600 | 265,420 | ||||||
Fanuc Ltd. | 3,300 | 370,227 | ||||||
Hoya Corp. | 13,000 | 276,041 | ||||||
Keyence Corp. | 1,400 | 322,054 | ||||||
Komatsu Ltd. | 11,737 | 212,088 | ||||||
Nidec Corp. | 6,395 | 535,607 | ||||||
Toyota Motor Corp. | 8,800 | 302,627 | ||||||
2,284,064 | ||||||||
Jersey–1.0% | ||||||||
WPP PLC | 29,933 | 281,483 | ||||||
Mexico–3.2% | ||||||||
America Movil SAB de CV (Series L) (ADR) | 10,585 | 502,787 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. International Growth Equity Fund
Shares | Value | |||||||
Mexico–(continued) | ||||||||
Fomento Economico Mexicano S.A.B. de C.V. (ADR) | 3,651 | $ | 157,541 | |||||
Grupo Televisa SA (ADR) | 12,864 | 223,962 | ||||||
884,290 | ||||||||
Netherlands–4.9% | ||||||||
Koninklijke Ahold N.V. | 29,485 | 365,151 | ||||||
Koninklijke KPN N.V. | 24,897 | 317,907 | ||||||
TNT N.V. | 14,265 | 359,539 | ||||||
Unilever N.V. | 11,879 | 323,885 | ||||||
1,366,482 | ||||||||
Norway–0.5% | ||||||||
Petroleum Geo-Services ASA(a) | 15,780 | 131,716 | ||||||
Philippines–1.1% | ||||||||
Philippine Long Distance Telephone Co. | 5,920 | 303,648 | ||||||
Republic of Korea–2.4% | ||||||||
Hyundai Mobis | 2,817 | 471,781 | ||||||
NHN Corp.(a) | 1,305 | 194,213 | ||||||
665,994 | ||||||||
Russia–0.9% | ||||||||
Gazprom OAO | 13,549 | 254,836 | ||||||
Singapore–3.6% | ||||||||
Keppel Corp., Ltd. | 74,238 | 447,322 | ||||||
United Overseas Bank Ltd. | 39,000 | 541,791 | ||||||
989,113 | ||||||||
Singapore–0.3% | ||||||||
K-Green Trust(a) | 126,048 | 94,583 | ||||||
Spain–0.6% | ||||||||
Telefonica SA | 8,539 | 157,686 | ||||||
Switzerland–8.8% | ||||||||
Julius Baer Group Ltd. | 6,910 | 196,733 | ||||||
Nestle SA (Registered Shares) | 14,019 | 676,417 | ||||||
Novartis AG (Registered Shares) | 6,756 | 327,777 | ||||||
Roche Holding AG | 5,478 | 752,259 | ||||||
Syngenta AG (Registered Shares) | 2,180 | 503,404 | ||||||
2,456,590 | ||||||||
Taiwan–2.6% | ||||||||
Hon Hai Precision Industry Co., Ltd.(a) | 62,000 | 217,752 | ||||||
MediaTek, Inc. | 12,000 | 167,364 | ||||||
Taiwan Semiconductor Manufacturing Co., Ltd. | 182,000 | 340,322 | ||||||
725,438 | ||||||||
Turkey–0.8% | ||||||||
Akbank TAS | 48,037 | 229,352 | ||||||
United Kingdom–21.3% | ||||||||
BG Group PLC | 25,097 | 371,513 | ||||||
British American Tobacco PLC | 12,980 | 411,009 | ||||||
Capita Group PLC (The) | 16,186 | 177,586 | ||||||
Centrica PLC | 103,096 | 453,995 | ||||||
Compass Group PLC | 70,410 | 534,200 | ||||||
Imperial Tobacco Group PLC | 23,470 | 654,396 | ||||||
Informa PLC | 54,349 | 286,029 | ||||||
Kingfisher PLC | 50,171 | 155,699 | ||||||
Next PLC | 9,280 | 274,615 | ||||||
Reckitt Benckiser Group PLC | 12,947 | 598,883 | ||||||
Reed Elsevier PLC | 38,245 | 282,336 | ||||||
Shire PLC | 30,160 | 613,037 | ||||||
Smith & Nephew PLC | 16,383 | 154,248 | ||||||
Tesco PLC | 80,207 | 451,603 | ||||||
Vodafone Group PLC | 250,416 | 518,917 | ||||||
5,938,066 | ||||||||
United States–0.6% | ||||||||
VimpelCom Ltd. (ADR)(a) | 9,897 | 160,134 | ||||||
Total Common Stocks & Other Equity Interests (Cost $27,953,614) | 28,591,027 | |||||||
Money Market Funds–811.7% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 113,150,975 | 113,150,975 | ||||||
Premier Portfolio–Institutional Class(b) | 113,150,975 | 113,150,975 | ||||||
Total Money Market Funds (Cost $226,301,950) | 226,301,950 | |||||||
TOTAL INVESTMENTS (Cost $254,255,564)–914.2% | 254,892,977 | |||||||
OTHER ASSETS LESS LIABILITIES–(814.2)% | (227,010,921 | ) | ||||||
NET ASSETS–100.0% | $ | 27,882,056 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt. |
Notes to Schedule of Investments:
(a) | Non-income producing security. | |
(b) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. International Growth Equity Fund
By sector, based on Net Assets
as of June 30, 2010
Consumer Discretionary | 17.9 | % | ||
Consumer Staples | 17.2 | |||
Health Care | 16.3 | |||
Financials | 10.3 | |||
Information Technology | 9.5 | |||
Industrials | 9.3 | |||
Energy | 8.8 | |||
Telecommunication Services | 7.0 | |||
Materials | 3.7 | |||
Utilities | 1.6 | |||
Investment Companies | 0.9 | |||
Money Market Funds Plus Other Assets Less Liabilities | (2.5 | ) | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. International Growth Equity Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $27,953,614) | $ | 28,591,027 | ||
Investments in affiliated money market funds, at value and cost | 226,301,950 | |||
Total investments, at value (Cost $254,255,564) | 254,892,977 | |||
Cash | 349,600 | |||
Foreign currencies, at value (Cost $7,746,499) | 7,748,593 | |||
Receivables for: | ||||
Investments sold | 4,003,999 | |||
Fund shares sold | 255,893 | |||
Dividends | 826,861 | |||
Other assets | 3,737 | |||
Total assets | 268,081,660 | |||
Liabilities: | ||||
Payables for: | ||||
Fund shares reacquired | 240,026,880 | |||
Accrued fees to affiliates | 113,569 | |||
Accrued other operating expenses | 59,155 | |||
Total liabilities | 240,199,604 | |||
Net assets applicable to shares outstanding | $ | 27,882,056 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 72,774,777 | ||
Undistributed net investment income | 1,052,732 | |||
Undistributed net realized gain (loss) | (46,435,437 | ) | ||
Unrealized appreciation | 489,984 | |||
$ | 27,882,056 | |||
Net Assets: | ||||
Series I | $ | 10,011 | ||
Series II | $ | 27,872,045 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 1,381 | |||
Series II | 3,750,816 | |||
Series I: | ||||
Net asset value per share | $ | 7.25 | ||
Series II: | ||||
Net asset value per share | $ | 7.43 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $564,383) | $ | 4,253,577 | ||
Dividends from affiliated money market funds (includes securities lending income of $91,001) | 94,434 | |||
Total investment income | 4,348,011 | |||
Expenses: | ||||
Advisory fees | 999,217 | |||
Administrative services fees | 342,801 | |||
Custodian fees | 78,272 | |||
Distribution fees — Series II | 333,520 | |||
Transfer agent fees | 2,185 | |||
Trustees’ and officers’ fees and benefits | 4,264 | |||
Other | 36,917 | |||
Total expenses | 1,797,176 | |||
Less: Fees waived | (1,044 | ) | ||
Net expenses | 1,796,132 | |||
Net investment income | 2,551,879 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 14,451,396 | |||
Foreign currencies | (933,459 | ) | ||
13,517,937 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (46,379,012 | ) | ||
Foreign currencies | (12,476 | ) | ||
(46,391,488 | ) | |||
Net realized and unrealized gain (loss) | (32,873,551 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (30,321,672 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. International Growth Equity Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 2,551,879 | $ | 2,522,003 | ||||
Net realized gain (loss) | 13,517,937 | (42,773,620 | ) | |||||
Change in net unrealized appreciation (depreciation) | (46,391,488 | ) | 109,386,939 | |||||
Net increase (decrease) in net assets resulting from operations | (30,321,672 | ) | 69,135,322 | |||||
Distributions to shareholders from net investment income — Series II | (4,058,030 | ) | (1,504,257 | ) | ||||
Share transactions–net: | ||||||||
Series I | 10,000 | — | ||||||
Series II | (199,029,732 | ) | 52,070,991 | |||||
Net increase (decrease) in net assets resulting from share transactions | (199,019,732 | ) | 52,070,991 | |||||
Net increase (decrease) in net assets | (233,399,434 | ) | 119,702,056 | |||||
Net assets: | ||||||||
Beginning of period | 261,281,490 | 141,579,434 | ||||||
End of period (includes undistributed net investment income of $1,052,732 and $2,558,883, respectively) | $ | 27,882,056 | $ | 261,281,490 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. International Growth Equity Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolio, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
Prior to June 1, 2010, the Fund operated as Universal Institutional Funds International Growth Equity Portfolio (the “Acquired Fund”), an investment portfolio of The Universal Institutional Funds, Inc. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund Class II shares received Series II shares of the Fund.
Information for the Acquired Fund — Class II shares prior to the Reorganization is included with Series II shares of the Fund throughout this report.
The Fund’s investment objective is long-term capital appreciation, with a secondary objective of income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
Invesco Van Kampen V.I. International Growth Equity Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
Invesco Van Kampen V.I. International Growth Equity Fund
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. | |
J. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) 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. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $1 billion | 0 | .75% | ||
Over $1 billion | 0 | .70% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee to Morgan Stanley Investment Management Inc. (“MS Investment Management”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 1.11% and Series II shares to 1.36% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the
Invesco Van Kampen V.I. International Growth Equity Fund
following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Prior to the Reorganization, MS Investment Management had voluntarily agreed to waive fees and/or reimburse expenses of Class II shares to 1.35% of the Acquired Fund’s average daily net assets.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds. Prior to the Reorganization, investment advisory fees paid by the Acquired Fund were reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class shares.
For the period ended June 30, 2010, MS Investment Management waived advisory fees of $1,044.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the period ended June 30, 2010, Invesco was paid $5,835 for accounting and fund administrative services and reimbursed $54,486 for services provided by insurance companies. Prior to the Reorganization, the Acquired Fund paid an administration fee of $282,480 to MS Investment Management and JPMorgan Investor Services Co.
Also, the Trust has entered into service agreements whereby State Street Bank & Trust Company (“SSB”) serves as custodian, fund accountant and provide certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. Prior to the Reorganization, the Acquired Fund paid $1,597 to Morgan Stanley Services Company Inc., which served as the Acquired Fund’s transfer agent. For the six months ended June 30, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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.
Prior to the Reorganization, the Acquired Fund paid distribution fees of $279,036 to Morgan Stanley Distribution, Inc. (“MSDI”) based on the annual rate of 0.35% of the Acquired Fund’s average daily net assets of Class II shares. MSDI had voluntarily agreed to waive 0.10% distribution fee that it received from the Acquired Fund.
For the six months ended June 30, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities 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. |
Invesco Van Kampen V.I. International Growth Equity Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 233,017,268 | $ | 21,875,709 | $ | — | $ | 254,892,977 | ||||||||
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—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, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward * | |||
December 31, 2016 | $ | 8,264,000 | ||
December 31, 2017 | 40,192,000 | |||
Total capital loss carryforward | $ | 48,456,000 | ||
* | 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, 2010 was $229,780,463 and $433,857,735, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | — | ||
Aggregate unrealized (depreciation) of investment securities | (10,503,099 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (10,503,099 | ) | |
Cost of investments for tax purposes is $265,396,076. |
Invesco Van Kampen V.I. International Growth Equity Fund
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I(b) | 1,381 | $ | 10,000 | — | $ | — | ||||||||||
Series II | 7,014,285 | 56,874,078 | 22,088,682 | 147,987,747 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I(b) | — | — | — | — | ||||||||||||
Series II | 549,124 | 4,058,030 | 223,183 | 1,504,257 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I(b) | — | — | — | — | ||||||||||||
Series II | (34,851,088 | ) | (259,961,840 | ) | (14,026,147 | ) | (97,421,013 | ) | ||||||||
Net increase (decrease) in share activity | (27,286,298 | ) | $ | (199,019,732 | ) | 8,285,718 | $ | 52,070,991 | ||||||||
(a) | There is an entity that is a record owner of more than 5% of the outstanding shares of the Fund that owns 95% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with this entity whereby this entity sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to this entity, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by this entity are also owned beneficially. | |
(b) | Commencement date of June 1, 2010. |
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
to average | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | net assets | to average net | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | with fee | assets without | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | securities | Dividends | Distributions | waivers | fee waivers | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | and/or | and/or | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | expenses | expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10(d) | $ | 7.24 | $ | 0.01 | $ | (0.00 | ) | $ | 0.01 | $ | — | $ | — | $ | — | $ | 7.25 | 0.14 | % | $ | 10 | 1.11 | %(f) | 1.11 | %(f) | 2.16 | %(f) | 101 | % | |||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 8.42 | 0.08 | (0.95 | ) | (0.87 | ) | (0.12 | ) | — | (0.12 | ) | 7.43 | (10.37 | ) | 27,872 | 1.35 | (f) | 1.35 | (f) | 1.92 | (f) | 101 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 6.22 | 0.09 | 2.17 | 2.26 | (0.06 | ) | — | (0.06 | ) | 8.42 | 36.54 | 261,281 | 1.35 | (g) | 1.49 | (g) | 1.29 | (g)(i) | 57 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 12.11 | 0.13 | (6.00 | ) | (5.87 | ) | (0.00 | )(e) | (0.02 | ) | (0.02 | ) | 6.22 | (48.52 | ) | 141,579 | 1.35 | (g) | 1.53 | (g) | 1.51 | (g)(i) | 40 | |||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 10.84 | 0.03 | 1.52 | 1.55 | (0.02 | ) | (0.26 | ) | (0.28 | ) | 12.11 | 14.26 | 57,419 | 1.35 | (g) | 1.84 | (g) | 0.29 | (g)(i) | 52 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/06(d) | 10.00 | 0.03 | 0.82 | 0.85 | (0.01 | ) | — | (0.01 | ) | 10.84 | 8.55 | 9,993 | 1.35 | (h) | 3.95 | (h) | 0.38 | (h)(i) | 10 | |||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Commencement date of June 1, 2010 and April 28, 2006 for Series I and Series II shares, respectively. | |
(e) | Amount is less than $0.005 per share. | |
(f) | Ratios are annualized and based on average daily net assets (000’s omitted) of $2 and $268,664 for Series I and Series II shares, respectively. | |
(g) | Ratios reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios was less that 0.005% for the years ended December 31, 2009, December 31, 2008 and December 31, 2007, respectively. | |
(h) | Annualized. | |
(i) | Ratio of net investment income (loss) to average net assets without fee waivers and/or expenses absorbed was 1.15%, 1.33%, (0.20)% and (2.23)% for the years ended December 31, 2009 through December 31, 2006, respectively. |
Invesco Van Kampen V.I. International Growth Equity Fund
NOTE 10—Change in Independent Registered Public Accounting Firm
The Fund is a new fund that was formed to acquire the assets and liabilities of a predecessor fund in a shell fund reorganization (the “Reorganization”). In connection with the organization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
Invesco Van Kampen V.I. International Growth 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. With the exception of the actual ending account value and expenses of the Series I shares, 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, 2010, through June 30, 2010. The actual ending account value and expenses of the Series I shares in the below example are based on an investment of $1,000 invested as of close of business June 1, 2010 (the date the share class commenced operations) and held through June 30, 2010.
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 (as of close of business June 1, 2010 through June 30, 2010 for the Series I shares). Because the actual ending account value and expense information in the example is not based upon a six month period for the Series I shares, the ending account value and expense information may not provide a meaningful comparison to mutual funds that provide such information for a full six month period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2,3 | (06/30/10) | Period2,4 | Ratio2 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,024.90 | $ | 0.92 | $ | 1,019.29 | $ | 5.56 | 1.11 | % | ||||||||||||||||||
Series II | 1,000.00 | 895.10 | 6.34 | 1,018.10 | 6.76 | 1.35 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010, through June 30, 2010 (as of close of business June 1, 2010, through June 30, 2010 for the Series I shares), after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. For the Series I shares actual expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 30 (as of close of business June 1, 2010, through June 30, 2010)/365. Because the Series I shares have not been in existence for a full six month period, the actual ending account value and expense information shown may not provide a meaningful comparison to fund expense information of classes that show such data for a full six month period and, because the actual ending account value and expense information in the expense example covers a short time period, return and expense data may not be indicative of return and expense data for longer time periods. |
Effective June 1, 2010, the Fund’s adviser has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses of Series I and Series II shares to 1.11% and 1.36% of average daily net assets, respectively. The annualized expense ratios restated as if these agreements had been in effect throughout the entire most recent fiscal half year are 1.11% and 1.36% for Series I and Series II shares, respectively. | |
3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $0.92 and $6.39 for the Series I and Series II shares, respectively. |
4 | Hypothetical expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect a one-half year period. The hypothetical ending account value and expenses may be used to compare ongoing costs of investing in Series I shares of the Fund and other funds because such data is based on a full six month period. |
The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $5.56 and $6.80 for the Series I and Series II shares, respectively. |
Invesco Van Kampen V.I. International Growth Equity Fund
Approval of Investment Advisory and Sub-Advisory Agreements with Invesco Advisers, Inc. and its Affiliates |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Van Kampen V.I. International Growth Equity Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Van Kampen retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-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 the 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. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco
Invesco Van Kampen V.I. International Growth Equity Fund
Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are 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 Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco Van Kampen V.I. International Growth Equity Fund
Proxy Results
A Special Meeting (“Meeting”) of Shareholders of The Universal Institutional Funds, Inc. — International Growth Equity Portfolio was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 29,009,059 | 923,182 | 1,816,939 | 0 |
Invesco Van Kampen V.I. International Growth Equity Fund
Invesco Van Kampen V.I. Mid Cap Growth Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VK-VIMCG-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -1.57 | % | ||
Series II Shares | -1.25 | |||
Russell Midcap Growth Index▼ (Broad Market/Style-Specific Index) | -3.31 |
▼ | Lipper Inc. |
The Russell Midcap® Growth Index is an unmanaged index considered representative of mid-cap growth stocks. The Russell Midcap Growth Index is a trademark/ service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception | -5.84 | % | ||
5 Years | 2.12 | |||
1 Year | 25.60 | |||
Series II Shares | ||||
Inception (9/25/00) | -5.81 | % | ||
5 Years | 2.18 | |||
1 Year | 26.00 |
Effective June 1, 2010, Class II shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Series II shares, respectively, of Invesco Van Kampen V.I. Mid Cap Growth Fund. Returns shown above for Series II shares are blended returns of the predecessor fund and Invesco Van Kampen V.I. Mid Cap Growth Fund. Share class returns will differ from the predecessor fund because of different expenses.
Series I shares incepted on June 1, 2010. Series I shares performance shown prior to that date is that of the predecessor fund’s Class II shares and includes the 12b-1 fees applicable to the predecessor fund’s Class II shares. Class II shares performance reflects any applicable fee waivers or expense reimbursements. The inception date of the predecessor fund’s Class II shares is September 25, 2000.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.01% and 1.26%, respectively. The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.56% and 1.81%, 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.
Invesco Van Kampen V.I. Mid Cap Growth Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Schedule of Investments
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks–87.7% | ||||||||
Aerospace & Defense–1.0% | ||||||||
Goodrich Corp. | 8,974 | $ | 594,527 | |||||
Air Freight & Logistics–2.3% | ||||||||
C.H. Robinson Worldwide, Inc. | 10,649 | 592,724 | ||||||
Expeditors International of Washington, Inc. | 21,322 | 735,822 | ||||||
1,328,546 | ||||||||
Apparel, Accessories & Luxury Goods–1.8% | ||||||||
Coach, Inc. | 14,878 | 543,791 | ||||||
Hanesbrands, Inc.(a) | 22,378 | 538,415 | ||||||
1,082,206 | ||||||||
Apparel Retail–0.5% | ||||||||
American Eagle Outfitters, Inc. | 23,631 | 277,664 | ||||||
Application Software–3.2% | ||||||||
Autodesk, Inc.(a) | 23,494 | 572,314 | ||||||
Salesforce.com, Inc.(a) | 11,669 | 1,001,433 | ||||||
TIBCO Software, Inc.(a) | 27,628 | 333,194 | ||||||
1,906,941 | ||||||||
Asset Management & Custody Banks–1.0% | ||||||||
Affiliated Managers Group, Inc.(a) | 9,385 | 570,326 | ||||||
Auto Parts & Equipment–1.0% | ||||||||
BorgWarner, Inc.(a) | 16,311 | 609,053 | ||||||
Automotive Retail–1.0% | ||||||||
O’Reilly Automotive, Inc.(a) | 11,906 | 566,249 | ||||||
Biotechnology–3.1% | ||||||||
Genzyme Corp.(a) | 18,945 | 961,838 | ||||||
Human Genome Sciences, Inc.(a) | 11,810 | 267,614 | ||||||
United Therapeutics Corp.(a) | 11,783 | 575,128 | ||||||
1,804,580 | ||||||||
Broadcasting & Cable TV–1.3% | ||||||||
Discovery Communications, Inc., Class C(a) | 24,879 | 769,507 | ||||||
Casinos & Gaming–2.6% | ||||||||
International Game Technology | 31,014 | 486,920 | ||||||
Las Vegas Sands Corp.(a) | 25,523 | 565,079 | ||||||
MGM Resorts International(a) | 48,761 | 470,056 | ||||||
1,522,055 | ||||||||
Coal & Consumable Fuels–1.0% | ||||||||
Alpha Natural Resources, Inc.(a) | 17,547 | 594,317 | ||||||
Communications Equipment–0.5% | ||||||||
Finisar Corp.(a) | 21,755 | 324,149 | ||||||
Computer Hardware–1.0% | ||||||||
Teradata Corp.(a) | 19,016 | 579,608 | ||||||
Computer Storage & Peripherals–1.0% | ||||||||
NetApp, Inc.(a) | 15,752 | 587,707 | ||||||
Construction & Engineering–0.9% | ||||||||
Foster Wheeler AG (Switzerland)(a) | 25,704 | 541,326 | ||||||
Construction & Farm Machinery & Heavy Trucks–0.5% | ||||||||
Bucyrus International, Inc. | 5,760 | 273,312 | ||||||
Consumer Finance–1.1% | ||||||||
Discover Financial Services | 46,589 | 651,314 | ||||||
Data Processing & Outsourced Services–0.9% | ||||||||
Alliance Data Systems Corp.(a) | 8,789 | 523,121 | ||||||
Department Stores–2.1% | ||||||||
Macy’s, Inc. | 42,404 | 759,032 | ||||||
Nordstrom, Inc. | 15,289 | 492,153 | ||||||
1,251,185 | ||||||||
Diversified Commercial & Professional Services–2.1% | ||||||||
Corrections Corp. of America(a) | 30,784 | 587,359 | ||||||
IHS, Inc., Class A(a) | 10,845 | 633,565 | ||||||
1,220,924 | ||||||||
Diversified Metals & Mining–0.7% | ||||||||
Intrepid Potash, Inc.(a) | 22,299 | 436,391 | ||||||
Diversified Support Services–1.0% | ||||||||
Copart, Inc.(a) | 17,013 | 609,236 | ||||||
Education Services–3.1% | ||||||||
Capella Education Co.(a) | 7,150 | 581,653 | ||||||
New Oriental Education & Technology Group, Inc.–ADR (Cayman Islands)(a) | 6,112 | 569,577 | ||||||
Strayer Education, Inc. | 3,171 | 659,219 | ||||||
1,810,449 | ||||||||
Electrical Components & Equipment–1.5% | ||||||||
Cooper Industries PLC (Ireland) | 12,959 | 570,196 | ||||||
Regal-Beloit Corp. | 5,151 | 287,323 | ||||||
857,519 | ||||||||
Environmental & Facilities Services–1.0% | ||||||||
Republic Services, Inc. | 20,871 | 620,495 | ||||||
Health Care Distributors–0.9% | ||||||||
CareFusion Corp.(a) | 24,318 | 552,019 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Shares | Value | |||||||
Health Care Equipment–1.7% | ||||||||
Hologic, Inc.(a) | 42,944 | $ | 598,210 | |||||
NuVasive, Inc.(a) | 12,013 | 425,981 | ||||||
1,024,191 | ||||||||
Health Care Facilities–1.0% | ||||||||
VCA Antech, Inc.(a) | 23,294 | 576,759 | ||||||
Health Care Services–2.0% | ||||||||
DaVita, Inc.(a) | 9,498 | 593,055 | ||||||
Pharmaceutical Product Development, Inc. | 22,796 | 579,246 | ||||||
1,172,301 | ||||||||
Healthcare–0.5% | ||||||||
Brookdale Senior Living, Inc.(a) | 19,622 | 294,330 | ||||||
Hotels, Resorts & Cruise Lines–3.0% | ||||||||
Ctrip.com International Ltd.–ADR (Cayman Islands)(a) | 32,705 | 1,228,400 | ||||||
Marriott International, Inc., Class A | 18,163 | 543,800 | ||||||
1,772,200 | ||||||||
Household Products–1.0% | ||||||||
Church & Dwight Co., Inc. | 9,232 | 578,939 | ||||||
Human Resource & Employment Services–1.0% | ||||||||
Robert Half International, Inc. | 24,024 | 565,765 | ||||||
Industrial Machinery–1.5% | ||||||||
Flowserve Corp. | 3,586 | 304,093 | ||||||
Kennametal, Inc. | 21,924 | 557,527 | ||||||
861,620 | ||||||||
Internet Retail–1.0% | ||||||||
Netflix, Inc.(a) | 5,397 | 586,384 | ||||||
Internet Software & Services–4.6% | ||||||||
Akamai Technologies, Inc.(a) | 30,298 | 1,229,190 | ||||||
Baidu, Inc.–ADR (Cayman Islands)(a) | 21,997 | 1,497,556 | ||||||
2,726,746 | ||||||||
IT Consulting & Other Services–1.0% | ||||||||
Cognizant Technology Solutions Corp., Class A(a) | 12,139 | 607,678 | ||||||
Life & Health Insurance–1.1% | ||||||||
Lincoln National Corp. | 27,564 | 669,530 | ||||||
Life Sciences Tools & Services–1.0% | ||||||||
Life Technologies Corp.(a) | 12,142 | 573,709 | ||||||
Managed Health Care–1.5% | ||||||||
Aetna, Inc. | 32,642 | 861,096 | ||||||
Metal & Glass Containers–0.9% | ||||||||
Owens-Illinois, Inc.(a) | 20,748 | 548,785 | ||||||
Multi-Line Insurance–1.4% | ||||||||
Genworth Financial, Inc., Class A(a) | 61,068 | 798,159 | ||||||
Oil & Gas Equipment & Services–2.1% | ||||||||
Baker Hughes, Inc. | 16,682 | 693,471 | ||||||
Key Energy Services, Inc.(a) | 62,620 | 574,851 | ||||||
1,268,322 | ||||||||
Oil & Gas Exploration & Production–4.1% | ||||||||
Cabot Oil & Gas Corp. | 18,171 | 569,116 | ||||||
Concho Resources, Inc.(a) | 11,525 | 637,678 | ||||||
Continental Resources, Inc.(a) | 19,617 | 875,311 | ||||||
Oasis Petroleum, Inc.(a) | 25,009 | 362,630 | ||||||
2,444,735 | ||||||||
Packaged Foods & Meats–1.1% | ||||||||
Hershey Co. | 12,977 | 621,988 | ||||||
Personal Products–1.8% | ||||||||
Estee Lauder Cos., Inc., Class A | 10,420 | 580,707 | ||||||
Ulta Salon Cosmetics & Fragrance, Inc.(a) | 19,502 | 461,417 | ||||||
1,042,124 | ||||||||
Pharmaceuticals–1.0% | ||||||||
Shire PLC–ADR (Jersey) | 9,824 | 602,997 | ||||||
Real Estate Management & Development–1.0% | ||||||||
CB Richard Ellis Group, Inc., Class A(a) | 42,245 | 574,954 | ||||||
Restaurants–1.9% | ||||||||
Darden Restaurants, Inc. | 14,162 | 550,194 | ||||||
Starbucks Corp. | 22,900 | 556,470 | ||||||
1,106,664 | ||||||||
Semiconductors–4.2% | ||||||||
Altera Corp. | 25,287 | 627,370 | ||||||
Avago Technologies Ltd. (Singapore)(a) | 28,969 | 610,087 | ||||||
Broadcom Corp., Class A | 18,544 | 611,396 | ||||||
Cavium Networks, Inc.(a) | 12,021 | 314,830 | ||||||
Xilinx, Inc. | 12,226 | 308,829 | ||||||
2,472,512 | ||||||||
Specialized Finance–1.5% | ||||||||
IntercontinentalExchange, Inc.(a) | 7,667 | 866,601 | ||||||
Specialty Chemicals–2.0% | ||||||||
Albemarle Corp. | 15,263 | 606,094 | ||||||
Nalco Holding Co. | 27,613 | 564,962 | ||||||
1,171,056 | ||||||||
Systems Software–1.0% | ||||||||
Rovi Corp.(a) | 16,271 | 616,834 | ||||||
Trading Companies & Distributors–1.0% | ||||||||
WW Grainger, Inc. | 6,006 | 597,297 | ||||||
Trucking–1.0% | ||||||||
J.B. Hunt Transport Services, Inc. | 18,019 | 588,681 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Shares | Value | |||||||
Wireless Telecommunication Services–1.7% | ||||||||
American Tower Corp., Class A(a) | 14,520 | $ | 646,140 | |||||
Millicom International Cellular SA (Luxembourg) | 4,736 | 383,948 | ||||||
1,030,088 | ||||||||
Total Common Stocks–87.7% | 51,687,771 | |||||||
Investment Companies–7.7% | ||||||||
iShares Russell MidCap Growth Index Fund | 51,756 | 2,261,737 | ||||||
iShares S&P MidCap 400 Growth Index Fund | 29,695 | 2,282,952 | ||||||
Total Investment Companies–7.7% | 4,544,689 | |||||||
Convertible Preferred Stocks–0.3% | ||||||||
Pharmaceuticals–0.3% | ||||||||
Ironwood Pharmaceuticals (Acquired 9/11/08, Cost | ||||||||
$167,988)(a)(b)(c) | 13,999 | 150,181 | ||||||
Total Long-Term Investments–95.7% (Cost $56,237,602) | 56,382,641 | |||||||
Money Market Funds–4.5% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 1,340,806 | 1,340,806 | ||||||
Premier Portfolio–Institutional Class(d) | 1,340,806 | 1,340,806 | ||||||
Total Money Market Funds–4.5% (Cost $2,681,612) | 2,681,612 | |||||||
TOTAL INVESTMENTS–100.2% (Cost $58,919,214) | 59,064,253 | |||||||
LIABILITIES IN EXCESS OF OTHER ASSETS–(0.2%) | (95,799 | ) | ||||||
NET ASSETS–100.0% | $ | 58,968,454 | ||||||
Notes to Schedule of Investments:
Percentages are calculated as a percentage of net assets.
(a) | Non-income producing security. | |
(b) | Security has been deemed illiquid. | |
(c) | Security is restricted and may be resold only in transactions exempt from registration which are normally those transactions with qualified institutional buyers. Restricted securities comprise 0.3% of net assets. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Investment Abbreviations:
ADR — American Depositary Receipt |
By sector, based on Net Assets
Consumer Discretionary | 19.3 | % | ||
Information Technology | 17.5 | |||
Financials | 14.7 | |||
Industrials | 14.7 | |||
Health Care | 12.9 | |||
Energy | 7.3 | |||
Consumer Staples | 3.8 | |||
Materials | 3.7 | |||
Telecommunication Services | 1.8 | |||
Money Market Funds Less Liabilities in Excess of Other Assets | 4.3 | |||
Fair Value Measurements
Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below. (See Note 1(B) in the Notes to Financial Statements for further information regarding fair value measurements.)
Level 1* | Level 2* | Level 3 | ||||||||||||||
Other Significant | Significant | |||||||||||||||
Quoted Prices | Observable Inputs | Unobservable Inputs | Total | |||||||||||||
Equity Securities | $ | 58,914,072 | $ | — | $ | 150,181 | $ | 59,064,253 | ||||||||
* | Transfers occurred between Level 1 and Level 2 due to foreign fair value adjustments. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $56,237,602) | $ | 56,382,641 | ||
Investments in affiliated money market funds, at value and cost | 2,681,612 | |||
Cash | 56,754 | |||
Receivables: | ||||
Investments sold | 560,650 | |||
Fund shares sold | 221,880 | |||
Dividends | 26,655 | |||
Other | 1,012 | |||
Total assets | 59,931,204 | |||
Liabilities: | ||||
Payables: | ||||
Investments purchased | 619,253 | |||
Fund shares repurchased | 250,584 | |||
Distributor and affiliates | 28,967 | |||
Accrued expenses | 63,946 | |||
Total liabilities | 962,750 | |||
Net assets | $ | 58,968,454 | ||
Net assets consist of: | ||||
Capital (par value of $0.001 per share with an unlimited number of shares authorized) | $ | 64,966,915 | ||
Net unrealized appreciation | 145,039 | |||
Accumulated net investment loss | (322,560 | ) | ||
Accumulated net realized loss | (5,820,940 | ) | ||
Net assets | $ | 58,968,454 | ||
Net asset value, offering price and redemption price per share: | ||||
Series I Shares (Based on net assets of $9,528 and 3,030 shares of beneficial interest issued and outstanding) | $ | 3.14 | ||
Series II Shares (Based on net assets of $58,958,926 and 18,719,947 shares of beneficial interest issued and outstanding) | $ | 3.15 | ||
For the six months ended June 30, 2010
(Unaudited)
Investment Income: | ||||
Dividends (net of foreign withholding taxes of $4,464) | $ | 165,732 | ||
Interest | 5,646 | |||
Total income | 171,378 | |||
Expenses: | ||||
Investment advisory fee | 204,262 | |||
Distribution (12b-1) and service fees | 68,015 | |||
Accounting and administrative expenses | 25,701 | |||
Professional fees | 22,648 | |||
Reports to shareholders | 22,644 | |||
Trustees’ fees and related expenses | 11,771 | |||
Custody | 10,229 | |||
Transfer agent fees | 8,305 | |||
Other | 5,299 | |||
Total expenses | 378,874 | |||
Expense reduction | 36,073 | |||
Net expenses | 342,801 | |||
Net investment loss | $ | (171,423 | ) | |
Realized and unrealized gain/loss: | ||||
Realized Gain/Loss: | ||||
Investments | $ | 350,833 | ||
Foreign currency transactions | 3,056 | |||
Net realized gain | 353,889 | |||
Unrealized appreciation/depreciation: | ||||
Beginning of the period | 1,634,826 | |||
End of the period | 145,039 | |||
Net unrealized depreciation during the period | (1,489,787 | ) | ||
Net realized and unrealized loss | $ | (1,135,898 | ) | |
Net decrease in net assets from operations | $ | (1,307,321 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Statements of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
From investment activities: | ||||||||
Operations: | ||||||||
Net investment loss | $ | (171,423 | ) | $ | (115,269 | ) | ||
Net realized gain/loss | 353,889 | (2,218,749 | ) | |||||
Net unrealized appreciation/depreciation during the period | (1,489,787 | ) | 16,601,867 | |||||
Change in net assets from investment activities | (1,307,321 | ) | 14,267,849 | |||||
From capital transactions: | ||||||||
Proceeds from shares sold | 19,435,271 | 15,050,265 | ||||||
Cost of shares repurchased | (4,610,200 | ) | (6,470,867 | ) | ||||
Net change in net assets from capital transactions | 14,825,071 | 8,579,398 | ||||||
Total increase in net assets | 13,517,750 | 22,847,247 | ||||||
Net assets: | ||||||||
Beginning of the period | 45,450,704 | 22,603,457 | ||||||
End of the period (including accumulated net investment loss of $322,560 and $151,137, respectively) | $ | 58,968,454 | $ | 45,450,704 | ||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Financial Highlights
(Unaudited)
The following schedule presents financial highlights for one share of the Fund outstanding throughout the period indicated.
June 1, 2010 | ||||
(Commencement of | ||||
operations) to | ||||
June 30, 2010 | ||||
Series I Shares | ||||
Net asset value, beginning of the period | $ | 3.30 | ||
Net investment loss(a) | 0.00 | (b) | ||
Net realized and unrealized loss | (0.16 | ) | ||
Total from investment operations | (0.16 | ) | ||
Net asset value, end of the period | $ | 3.14 | ||
Total return* | (4.85 | )%** | ||
Net assets at end of the period (in thousands) | $ | 9.5 | ||
Ratio of expenses to average net assets* | 1.01 | % | ||
Ratio of net investment loss to average net assets* | (0.26 | )% | ||
Portfolio turnover | 66 | %**(c) | ||
* If certain expenses had not been voluntarily assumed by the adviser, total return would have been lower and the ratios would have been as follows: | ||||
Ratio of Expenses to Average Net Assets | 1.34 | % | ||
Ratio of Net Investment Loss to Average Net Assets | (0.59 | )% | ||
(a) | Based on average shares outstanding. | |
(b) | Amount is less than $0.01 per share. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. | |
** | Non-Annualized |
Six months ended | Year ended December 31, | |||||||||||||||||||||||
June 30, 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Series II Sharesˆ | ||||||||||||||||||||||||
Net asset value, beginning of the period | $ | 3.19 | $ | 2.04 | $ | 5.72 | $ | 5.24 | $ | 5.40 | $ | 4.86 | ||||||||||||
Net investment loss(a) | (0.01 | ) | (0.01 | ) | (0.02 | ) | (0.02 | ) | (0.03 | ) | (0.03 | ) | ||||||||||||
Net realized and unrealized gain/loss | (0.03 | ) | 1.16 | (2.01 | ) | 0.88 | 0.31 | 0.57 | ||||||||||||||||
Total from investment operations | (0.04 | ) | 1.15 | (2.03 | ) | 0.86 | 0.28 | 0.54 | ||||||||||||||||
Less distributions from capital gains | -0- | -0- | 1.65 | 0.38 | 0.44 | -0- | ||||||||||||||||||
Net asset value, end of the period | $ | 3.15 | $ | 3.19 | $ | 2.04 | $ | 5.72 | $ | 5.24 | $ | 5.40 | ||||||||||||
Total return*(b) | (1.25 | )%** | 56.37 | % | (46.83 | )% | 17.60 | % | 4.92 | % | 11.11 | % | ||||||||||||
Net assets at end of the period (In millions) | $ | 59.0 | $ | 45.5 | $ | 22.6 | $ | 43.3 | $ | 42.5 | $ | 44.1 | ||||||||||||
Ratio of expenses to average net assets* | 1.26 | % | 1.26 | % | 1.26 | % | 1.26 | % | 1.26 | % | 1.26 | % | ||||||||||||
Ratio of net investment loss to average net assets* | (0.63 | )% | (0.36 | )% | (0.66 | )% | (0.37 | )% | (0.61 | )% | (0.59 | )% | ||||||||||||
Portfolio turnover | 66 | %** | 42 | % | 42 | % | 201 | % | 154 | % | 157 | % | ||||||||||||
* If certain expenses had not been voluntarily assumed by the adviser, total returns would have been lower and the ratios would have been as follows: | ||||||||||||||||||||||||
Ratio of Expenses to Average Net Assets | 1.39 | % | 1.52 | % | 1.61 | % | 1.39 | % | 1.45 | % | 1.55 | % | ||||||||||||
Ratio of net investment loss to average net assets | (0.76 | )% | (0.62 | )% | (1.01 | )% | (0.51 | )% | (0.80 | )% | (0.88 | )% | ||||||||||||
(a) | Based on average shares outstanding. | |
(b) | These returns include combined Rule 12b-1 fees and service fees of up to 0.25%. | |
** | Non-Annualized | |
ˆ | On June 1, 2010, the Fund’s former Class II Shares were reorganized into Series II Shares. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. Mid Cap Growth Fund (the “Fund”), is organized as a series of the AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly AIM Variable Insurance Funds, (the “Trust”), a Delaware statutory trust, and is registered as a diversified, open-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Trust consists of forty-one separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each portfolio or class.
Prior to June 1, 2010, the Fund operated as Van Kampen Life Investment Trust Mid Cap Growth Portfolio (the “Acquired Fund”), an investment portfolio of Van Kampen Life Investment Trust. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class II Shares received Series II Shares of the Fund.
Information for the Acquired Fund’s – Class II Shares prior to the Reorganization are included with Series II Shares of the Fund throughout this report.
The Fund’s investment objective is to seek capital growth.
The Fund currently offers two classes of shares, Series I and Series II Shares, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies.
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
A. | Security Valuation — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. |
Invesco Van Kampen V.I. Mid Cap Growth Fund
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Fair Value Measurements — GAAP defines fair value as the price that the Fund would receive to sell an investment or pay to transfer a liability in an orderly transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. GAAP establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund’s investments. The inputs are summarized in the three broad levels listed below. |
Level 1 — | Prices are based on quoted prices in active markets for identical investments. | |
Level 2 — | Prices are based on other significant observable inputs which may include quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc. | |
Level 3 — | Prices are based on significant unobservable inputs including the Fund’s own assumptions in determining the fair value of investments. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer’s financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances. |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. | ||
C. | Security Transactions — Security transactions are recorded on a trade date basis. Realized gains and losses are determined on an identified cost basis. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included on 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 on the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share on 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 on 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 on the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
D. | Income and Expenses — Dividend income is recorded net of applicable withholding taxes on the ex-dividend date and interest income is recorded on an accrual basis. Income and expenses of the Fund are allocated on a pro rata basis to each class of shares, except for distribution and service fees and incremental transfer agency costs which are unique to each class of shares. | |
E. | Federal Income Taxes — It is the Fund’s policy to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income earned or gains realized or repatriated. Taxes are accrued and applied to net investment income, net realized capital gains and net unrealized appreciation, as applicable, as the income is earned or capital gains are recorded. Management has concluded there are no significant uncertain tax provisions that would require recognition in the financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in “Interest Expense” and penalties in “Other” expenses on the Statement of Operations. The Fund files tax returns with the U.S. Internal Revenue Service and various states. Generally, each of the tax years in the four year period ended December 31, 2009, remains subject to examination by taxing authorities. | |
The Fund intends to utilize provisions of the federal income tax laws which allow it to carry a realized capital loss forward for eight years following the year of the loss and offset such losses against any future realized capital gains. At December 31, 2009, the Fund had an accumulated capital loss carryforward for tax purposes of $3,985,966 which will expire according to the following schedule: |
Amount | Expiration | ||||||
$ | 351,609 | December 31, 2010 | |||||
2,251,696 | December 31, 2016 | ||||||
1,382,661 | December 31, 2017 | ||||||
Invesco Van Kampen V.I. Mid Cap Growth Fund
Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end. |
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 4,084,856 | ||
Aggregate unrealized (depreciation) of investment securities | (4,136,557 | ) | ||
Net unrealized (depreciation) of investment securities | $ | (51,701 | ) | |
Cost of investments for tax purposes is $59,115,954. |
F. | Distribution of Income and Gains — The Fund declares and pays dividends at least annually from net investment income and from net realized gains, if any. Distributions from net realized gains for book purposes may include short-term capital gains, which are included in ordinary income for tax purposes. Distributions from the Fund are recorded on the ex-distribution date. As of December 31, 2009, there were no components of distributable earnings on a tax basis. | |
Net realized gains or losses may differ for financial reporting and tax purposes primarily as a result of the deferral of losses relating to wash sale transactions. | ||
G. | Foreign Currency Translation — Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U. S. dollar. Purchases and sales of portfolio securities are translated at the rate of exchange prevailing when such securities were acquired or sold. Income and expenses are translated at rates prevailing when accrued. Realized and unrealized gains and losses on securities resulting from changes in exchange rates are not segregated for financial reporting purposes from amounts arising from changes in the market prices of securities. The unrealized gains and losses on translations of other assets or liabilities denominated in foreign currencies are included in foreign currency translation on the Statement of Operations. Realized gains and losses on foreign currency transactions on the Statement of Operations include the net realized amount from the sale of foreign currency and the amount realized between trade date and settlement date on securities transactions. | |
H. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. |
NOTE 2—Investment Advisory Agreement and Other Transactions with Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | % Per Annum | |||
First $500 million | 0 | .75% | ||
Next $500 million | 0 | .70% | ||
Over $1 billion | 0 | .65% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee to Van Kampen Asset Management (“Van Kampen”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization Date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit the Fund’s 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, respectively. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the Fund’s expenses to exceed the limit reflected above: (i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary or non-routine items; and (v) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless
Invesco Van Kampen V.I. Mid Cap Growth Fund
the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012. During the period, the Adviser waived advisory fees of $9,482 under this limitation.
Prior to the Reorganization, Van Kampen had voluntarily agreed to waive fees and/or reimburse expenses of Class II Shares resulting in a net expense ratio of 1.26%. Van Kampen waived advisory fees of $26,591 under this agreement.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds. For the period ended June 30, 2010, the Adviser did not waive any advisory fees under this agreement.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the period ended June 30, 2010, Invesco was paid $4,110 for accounting and fund administrative services and reimbursed $12,789 for services provided by insurance companies. Prior to the Reorganization, under separate accounting services and Chief Compliance Officer (“CCO”) employment agreements, Van Kampen Investments, Inc. provided accounting services and the CCO provided compliance services to the Acquired Fund. Pursuant to such agreements, the Acquired Fund paid $8,802 to Van Kampen Investments Inc.
Also, the Trust has entered into service agreements whereby State Street Bank & Trust Company (“SSB”) serves as custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. Prior to the Reorganization, the Acquired Fund paid $7,134 to Van Kampen Investor Services Inc., which served as the Acquired Fund’s transfer agent. For the six months ended June 30, 2010, expenses incurred under these agreements are shown on the Statement of Operations as “Transfer agent fees”.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or Invesco Distributors, Inc. (“IDI”).
“Trustees’ Fees and Related Expenses” 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’ Fees and Related Expenses” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco 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’ Fees and Related Expenses” 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.
For the period ended June 30, 2010, the Fund paid legal fees of approximately $-0- 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 3—Share Information
For the six months ended June 30, 2010 and the year ended December 31, 2009, transactions were as follows:
For the | For the | |||||||||||||||
six months ended | year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Value | Shares | Value | |||||||||||||
Sales: | ||||||||||||||||
Series I | 3,030 | $ | 10,000 | — | $ | — | ||||||||||
Series II | 5,853,565 | 19,425,271 | 5,735,245 | 15,050,265 | ||||||||||||
Total Sales | 5,856,595 | $ | 19,435,271 | 5,735,245 | $ | 15,050,265 | ||||||||||
Repurchases: | ||||||||||||||||
Series I | — | $ | — | — | $ | — | ||||||||||
Series II | (1,394,754 | ) | (4,610,200 | ) | (2,544,014 | ) | (6,470,867 | ) | ||||||||
Total Repurchases | (1,394,754 | ) | $ | (4,610,200 | ) | (2,544,014 | ) | $ | (6,470,867 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 93% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco Van Kampen V.I. Mid Cap Growth Fund
NOTE 4—Investment Transactions
During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, and money market funds were $49,326,774 and $29,882,241, respectively.
NOTE 5—Distribution and Service Plans
The Trust has entered into a master distribution agreement with IDI to serve as the distributor for the Fund. The Trust has adopted a distribution 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 IDI 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. Prior to the Reorganization, the Acquired Fund paid distribution fees of $55,227 to Van Kampen Funds Inc. based on the annual rate of 0.25% of the Acquired Fund’s average daily net assets of Class II Shares. For the six months ended June 30, 2010, expenses incurred under the Plan are detailed in the Statement of Operations as “Distribution (12b-1) and service fees”.
NOTE 6—Indemnifications
Under the Trust’s organizational documents, each trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (ii) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 8—Change in Independent Registered Public Accounting Firm
In connection with the Reorganization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Calculating your ongoing Fund expenses
Expense Example
As a policyholder of the Fund, you incur ongoing costs, including management fees, distribution and service (12b-1) fees; 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 the 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 1/1/10— 6/30/10.
Actual Expense
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, 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 first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below 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 cost 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 only. Therefore, the second line of the table is useful in comparing ongoing costs and will not help you determine the relative total costs of owning different funds that have transactional costs, such as sales charges (loads), or exchanges fees.
HYPOTHETICAL | |||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | ||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | |||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | |||||||||||||||||||||
Series | (1/1/10) | (06/30/10) | Period* | (06/30/10) | Period* | ||||||||||||||||||||
I | $ | 1,000.00 | $ | 951.52 | $ | 0.78 | $ | 1,019.79 | $ | 5.06 | |||||||||||||||
II | 1,000.00 | 987.46 | 6.21 | 1,018.55 | 6.31 | ||||||||||||||||||||
* | Expenses are equal to the Fund’s annualized expense ratio of 1.01% and 1.26% for Series I and II Shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period), except for Series I Shares “Actual” information, which reflects the period from Commencement of Operations through June 30, 2010. These expense ratios reflect an expense cap. |
Assumes all dividends and distributions were reinvested.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Approval of Investment Advisory and Sub-Advisory Agreements With Invesco Advisers, Inc. and Its Affiliates
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Van Kampen V.I. Mid Cap Growth Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Van Kampen retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-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 the 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. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these
Invesco Van Kampen V.I. Mid Cap Growth Fund
services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are 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 Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Van Kampen Life Investment Trust Mid Cap Growth Portfolio was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 14,061,332 | 268,445 | 813,304 | 0 |
Invesco Van Kampen V.I. Mid Cap Growth Fund
Invesco Van Kampen V.I. Mid Cap Value Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VK-VIMCV-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -0.12 | % | ||
Series II Shares | -0.20 | |||
Russell Midcap Value Index▼ (Broad Market/Style-Specific Index) | -0.88 |
▼ | Lipper Inc. |
The Russell Midcap® Value Index is an unmanaged index considered representative of mid-cap value stocks. The Russell Midcap Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (1/2/97) | 8.30 | % | ||
10 Years | 3.49 | |||
5 Years | 3.11 | |||
1 Year | 28.66 | |||
Series II Shares | ||||
Inception (5/5/03) | 8.55 | % | ||
5 Years | 2.99 | |||
1 Year | 28.46 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Mid Cap Value Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco Van Kampen V.I. Mid Cap Value Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.06% and 1.16%, respectively. The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.06% and 1.31%, respectively.1 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.
Invesco Van Kampen V.I. Mid Cap Value Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus for more information. |
Invesco Van Kampen V.I. Mid Cap Value Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–97.2% | ||||||||
Aerospace & Defense–3.2% | ||||||||
Goodrich Corp. | 130,036 | $ | 8,614,885 | |||||
Asset Management & Custody Banks–2.7% | ||||||||
Northern Trust Corp. | 154,764 | 7,227,479 | ||||||
Auto Parts & Equipment–1.1% | ||||||||
Lear Corp.(b) | 42,838 | 2,835,876 | ||||||
Building Products–2.6% | ||||||||
Lennox International, Inc. | 171,220 | 7,117,615 | ||||||
Computer Hardware–1.9% | ||||||||
Diebold, Inc. | 192,683 | 5,250,612 | ||||||
Data Processing & Outsourced Services–3.8% | ||||||||
Fidelity National Information Services, Inc. | 384,986 | 10,325,325 | ||||||
Diversified Banks–2.1% | ||||||||
Comerica, Inc. | 156,715 | 5,771,813 | ||||||
Diversified Chemicals–2.2% | ||||||||
PPG Industries, Inc. | 97,073 | 5,864,180 | ||||||
Electric Utilities–4.3% | ||||||||
Edison International | 196,679 | 6,238,658 | ||||||
Great Plains Energy, Inc. | 322,153 | 5,483,044 | ||||||
11,721,702 | ||||||||
Electronic Manufacturing Services–1.9% | ||||||||
Flextronics International Ltd. (Singapore)(b) | 931,411 | 5,215,902 | ||||||
Food Distributors–2.5% | ||||||||
Sysco Corp. | 237,760 | 6,792,803 | ||||||
Health Care Distributors–2.6% | ||||||||
Henry Schein, Inc.(b) | 128,611 | 7,060,744 | ||||||
Health Care Equipment–2.5% | ||||||||
Beckman Coulter, Inc. | 112,764 | 6,798,542 | ||||||
Health Care Facilities–5.1% | ||||||||
Brookdale Senior Living, Inc.(b) | 501,386 | 7,520,790 | ||||||
Healthsouth Corp.(b) | 331,197 | 6,196,696 | ||||||
13,717,486 | ||||||||
Housewares & Specialties–2.8% | ||||||||
Newell Rubbermaid, Inc. | 508,668 | 7,446,900 | ||||||
Industrial Machinery–5.8% | ||||||||
Pentair, Inc. | 234,763 | 7,559,368 | ||||||
Snap-On, Inc. | 200,259 | 8,192,596 | ||||||
15,751,964 | ||||||||
Insurance Brokers–6.0% | ||||||||
Marsh & McLennan Cos., Inc. | 263,931 | 5,951,644 | ||||||
Willis Group Holdings PLC (Ireland) | 343,149 | 10,311,627 | ||||||
16,263,271 | ||||||||
Investment Banking & Brokerage–2.0% | ||||||||
Charles Schwab Corp. (The) | 386,664 | 5,482,896 | ||||||
Motorcycle Manufacturers–1.9% | ||||||||
Harley-Davidson, Inc. | 236,102 | 5,248,547 | ||||||
Multi-Utilities–2.3% | ||||||||
Wisconsin Energy Corp. | 120,095 | 6,093,620 | ||||||
Office Electronics–3.0% | ||||||||
Zebra Technologies Corp. (Class A)(b) | 325,137 | 8,248,726 | ||||||
Office Services & Supplies–3.3% | ||||||||
Avery Dennison Corp. | 281,644 | 9,049,222 | ||||||
Oil & Gas Equipment & Services–0.5% | ||||||||
Halliburton Co. | 58,528 | 1,436,862 | ||||||
Oil & Gas Exploration & Production–2.3% | ||||||||
Pioneer Natural Resources Co. | 104,172 | 6,193,025 | ||||||
Oil & Gas Storage & Transportation–4.7% | ||||||||
El Paso Corp. | 693,673 | 7,706,707 | ||||||
Williams Cos., Inc. (The) | 268,292 | 4,904,378 | ||||||
12,611,085 | ||||||||
Packaged Foods & Meats–2.5% | ||||||||
ConAgra Foods, Inc. | 291,874 | 6,806,502 | ||||||
Paper Packaging–2.4% | ||||||||
Sonoco Products Co. | 215,648 | 6,572,951 | ||||||
Personal Products–1.2% | ||||||||
Avon Products, Inc. | 126,573 | 3,354,184 | ||||||
Property & Casualty Insurance–3.0% | ||||||||
ACE Ltd. (Switzerland) | 158,091 | 8,138,525 | ||||||
Regional Banks–3.5% | ||||||||
BB&T Corp. | 230,356 | 6,060,666 | ||||||
Wintrust Financial Corp. | 102,588 | 3,420,284 | ||||||
9,480,950 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Mid Cap Value Fund
Shares | Value | |||||||
Restaurants–2.0% | ||||||||
Darden Restaurants, Inc. | 137,037 | $ | 5,323,887 | |||||
Retail REIT’s–1.4% | ||||||||
Weingarten Realty Investors | 192,000 | 3,657,600 | ||||||
Soft Drinks–2.2% | ||||||||
Coca-Cola Enterprises, Inc. | 233,500 | 6,038,310 | ||||||
Specialty Chemicals–4.9% | ||||||||
Valspar Corp. | 278,668 | 8,393,480 | ||||||
WR Grace & Co.(b) | 236,036 | 4,966,198 | ||||||
13,359,678 | ||||||||
Thrifts & Mortgage Finance–1.0% | ||||||||
Washington Federal, Inc. | 165,175 | 2,672,531 | ||||||
Total Common Stocks & Other Equity Interests (Cost $278,886,947) | 263,546,200 | |||||||
Money Market Funds–1.9% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 2,617,425 | 2,617,425 | ||||||
Premier Portfolio–Institutional Class(c) | 2,617,425 | 2,617,425 | ||||||
Total Money Market Funds (Cost $5,234,850) | 5,234,850 | |||||||
TOTAL INVESTMENTS (Cost $284,121,797)–99.1% | 268,781,050 | |||||||
OTHER ASSETS LESS LIABILITIES–0.9% | 2,479,731 | |||||||
NET ASSETS–100.0% | $ | 271,260,781 | ||||||
Investment Abbreviations
REIT | – Real Estate Investment Trust. |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
as of June 30, 2010
Financials | 21.6 | % | ||
Industrials | 14.9 | |||
Information Technology | 10.7 | |||
Health Care | 10.2 | |||
Materials | 9.5 | |||
Consumer Staples | 8.5 | |||
Consumer Discretionary | 7.7 | |||
Energy | 7.5 | |||
Utilities | 6.6 | |||
Money Market Funds Plus Other Assets Less Liabilities | 2.8 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Mid Cap Value Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $278,886,947) | $ | 263,546,200 | ||
Investments in affiliated money market funds, at value and cost | 5,234,850 | |||
Total investments, at value (Cost $284,121,797) | 268,781,050 | |||
Receivables for: | ||||
Investments sold | 1,612,773 | |||
Fund shares sold | 2,017,597 | |||
Dividends | 377,386 | |||
Fund expenses absorbed | 16,678 | |||
Other assets | 6,625 | |||
Total assets | 272,812,109 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 1,372,214 | |||
Fund shares reacquired | 39,384 | |||
Accrued fees to affiliates | 85,315 | |||
Accrued other operating expenses | 54,415 | |||
Total liabilities | 1,551,328 | |||
Net assets applicable to shares outstanding | $ | 271,260,781 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 344,078,723 | ||
Undistributed net investment income | 1,012,661 | |||
Undistributed net realized gain (loss) | (58,489,856 | ) | ||
Unrealized appreciation (depreciation) | (15,340,747 | ) | ||
$ | 271,260,781 | |||
Net Assets: | ||||
Series I | $ | 146,501,446 | ||
Series II | $ | 124,759,335 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 14,025,737 | |||
Series II | 12,005,741 | |||
Series I: | ||||
Net asset value per share | $ | 10.45 | ||
Series II: | ||||
Net asset value per share | $ | 10.39 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends | $ | 2,512,232 | ||
Dividends from affiliated money market funds | 1,202 | |||
Total investment income | 2,513,434 | |||
Expenses: | ||||
Advisory fees | 1,038,199 | |||
Administrative services fees | 366,909 | |||
Custodian fees | 6,839 | |||
Distribution fees — Series II | 159,947 | |||
Transfer agent fees | 1,425 | |||
Trustees’ and officers’ fees and benefits | 2,425 | |||
Other | 44,411 | |||
Total expenses | 1,620,155 | |||
Less: Fees waived | (101,380 | ) | ||
Net expenses | 1,518,775 | |||
Net investment income | 994,659 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from investment securities (includes net gains from securities sold to affiliates of $72,390) | 11,287,081 | |||
Change in net unrealized appreciation (depreciation) of investment securities | (12,145,003 | ) | ||
Net realized and unrealized gain (loss) | (857,922 | ) | ||
Net increase in net assets resulting from operations | $ | 136,737 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Mid Cap Value Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 994,659 | $ | 2,610,346 | ||||
Net realized gain (loss) | 11,287,081 | (12,760,447 | ) | |||||
Change in net unrealized appreciation (depreciation) | (12,145,003 | ) | 93,463,377 | |||||
Net increase in net assets resulting from operations | 136,737 | 83,313,276 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (1,468,515 | ) | (1,846,024 | ) | ||||
Series II | (1,117,364 | ) | (1,144,481 | ) | ||||
Total distributions from net investment income | (2,585,879 | ) | (2,990,505 | ) | ||||
Share transactions–net: | ||||||||
Series I | (11,261,151 | ) | (27,209,501 | ) | ||||
Series II | 5,072,528 | 2,613,501 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (6,188,623 | ) | (24,596,000 | ) | ||||
Net increase (decrease) in net assets | (8,637,765 | ) | 55,726,771 | |||||
Net assets: | ||||||||
Beginning of period | 279,898,546 | 224,171,775 | ||||||
End of period (includes undistributed net investment income of $1,012,661 and $2,603,881, respectively) | $ | 271,260,781 | $ | 279,898,546 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. Mid Cap Value Fund (the “Fund”), is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, each authorized to issue an unlimited shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
Prior to June 1, 2010, the Fund operated as Universal Institutional Funds Mid Cap Value Portfolio (the “Acquired Fund”), an investment portfolio of The Universal Institutional Funds, Inc. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund Class I and Class II shares received Series I and II shares, respectively, of the Fund.
Information for the Acquired Fund — Class I and Class II shares prior to the Reorganization are included with Series I and Series II shares, respectively, of the Fund throughout this report.
The Fund’s investment objective is to provide above-average total return over a market cycle of three to five years by investing in common stocks and other equity securities.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity |
Invesco Van Kampen V.I. Mid Cap Value Fund
are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
Invesco Van Kampen V.I. Mid Cap Value Fund
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $1 billion | 0 | .72% | ||
Over $1 billion | 0 | .65% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee to Morgan Stanley Investment Management Inc. (“MS Investment Management”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”), the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization date, the Adviser has contractually agreed, through at least June 30, 2012 to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 1.18% and Series II shares to 1.28% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver [and/or expense reimbursement] to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco Advisers, Inc. mutually agree to amend or continue the fee waiver, it will terminate on June 30, 2012. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. The Adviser did not waive fees and/or reimbursed expenses during the period under this limitation.
��Prior to the Reorganization, MS Investment Management had voluntarily agreed to waive fees and/or reimburse expenses of Class I and Class II shares to 1.05% and 1.15%, respectively of the Acquired Fund’s average daily net assets.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds. Prior to the Reorganization, investment advisory fees paid by the Acquired Fund were reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class shares.
For the period ended June 30, 2010, MS Investment Management waived advisory fees of $5,431.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the period ended June 30, 2010, Invesco was paid $6,185 for accounting and fund administrative services and
Invesco Van Kampen V.I. Mid Cap Value Fund
reimbursed $58,292 for services provided by insurance companies. Prior to the Reorganization, the Acquired Fund paid an administration fee of $302,432 to MS Investment Management and JPMorgan Investor Services Co.
Also, the Trust has entered into service agreements whereby State Street Bank & Trust Company (“SSB”) serves as custodian, fund accountant and provide certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. Prior to the Reorganization, the Acquired Fund paid $1,425 to Morgan Stanley Services Company Inc., which served as the Acquired Fund’s transfer agent. For the six months ended June 30, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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. IDI has contractually agreed to waive 0.15% of Rule 12b-1 plan fees on Class II shares through at least June 30, 2012.
Prior to the Reorganization, the Acquired Fund paid distribution fees to Morgan Stanley Distribution Inc. (MSDI) based on the annual rate of 0.35% of the Acquired Fund’s average daily net assets of Class II shares. MSDI had voluntarily agreed to waive 0.25% distribution fee that it received. MSDI was paid distribution fees of $53,411, after fee waivers of $80,066.
For the six months ended June 30, 2010, expenses incurred under the Plans are shown as Distribution fees in the Statement of Operations.
Certain officers and trustees of the Trust are officers and directors of Invesco, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 268,781,050 | $ | — | $ | — | $ | 268,781,050 | ||||||||
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2010, the Fund engaged in securities sales of $404,584, which resulted in net realized gains of $72,390.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco 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
Invesco Van Kampen V.I. Mid Cap Value Fund
and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
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 is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Tax Information
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, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 35,250,000 | ||
December 31, 2017 | 34,551,000 | |||
Total capital loss carryforward | $ | 69,801,000 | ||
* | 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, 2010 was $58,849,272 and $65,778,956, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 17,421,330 | ||
Aggregate unrealized (depreciation) of investment securities | (32,811,439 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (15,390,109 | ) | |
Cost of investments for tax purposes is $284,171,159. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Year ended | ||||||||||||||||
Six months ended June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 366,046 | $ | 4,184,316 | 1,020,000 | $ | 8,047,125 | ||||||||||
Series II | 1,640,107 | 18,046,937 | 2,174,000 | 18,541,180 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 130,767 | 1,468,515 | 231,000 | 1,846,024 | ||||||||||||
Series II | 100,033 | 1,117,364 | 144,000 | 1,144,481 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,516,090 | ) | (16,913,982 | ) | (4,278,000 | ) | (37,102,650 | ) | ||||||||
Series II | (1,260,097 | ) | (14,091,773 | ) | (1,945,000 | ) | (17,072,160 | ) | ||||||||
Net increase (decrease) in share activity | (539,234 | ) | $ | (6,188,623 | ) | (2,654,000 | ) | $ | (24,596,000 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 78% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco Van Kampen V.I. Mid Cap Value Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | on securities | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 10.56 | $ | 0.05 | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.10 | ) | $ | — | $ | (0.10 | ) | $ | 10.45 | (0.12 | )% | $ | 146,501 | 1.01 | %(d) | 1.01 | %(d) | 0.73 | %(d) | 21 | % | ||||||||||||||||||||||||
Year ended 12/31/09 | 7.69 | 0.10 | 2.88 | 2.98 | (0.11 | ) | — | (0.11 | ) | 10.56 | 39.21 | 158,853 | 1.02 | 1.02 | 1.12 | 64 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 19.11 | 0.13 | (6.43 | ) | (6.30 | ) | (0.14 | ) | (4.98 | ) | (5.12 | ) | 7.69 | (41.29 | ) | 138,914 | 1.01 | 1.01 | 0.95 | 53 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 19.74 | 0.13 | 1.53 | 1.66 | (0.14 | ) | (2.15 | ) | (2.29 | ) | 19.11 | 7.84 | 302,575 | 1.01 | 1.01 | 0.62 | 68 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 18.75 | 0.13 | 3.35 | 3.48 | (0.06 | ) | (2.43 | ) | (2.49 | ) | 19.74 | 20.70 | 381,064 | 1.01 | 1.01 | 0.67 | 65 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | 10.50 | 0.04 | (0.05 | ) | (0.01 | ) | (0.10 | ) | — | (0.10 | ) | 10.39 | (0.20 | ) | 124,759 | 1.11 | (d) | 1.26 | (d) | 0.63 | (d) | 21 | % | |||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 7.64 | 0.09 | 2.87 | 2.96 | (0.10 | ) | — | (0.10 | ) | 10.50 | 39.16 | 121,046 | 1.12 | 1.37 | 1.01 | 64 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 19.04 | 0.11 | (6.41 | ) | (6.30 | ) | (0.12 | ) | (4.98 | ) | (5.10 | ) | 7.64 | (41.42 | ) | 85,258 | 1.11 | 1.36 | 0.89 | 53 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 19.68 | 0.11 | 1.52 | 1.63 | (0.12 | ) | (2.15 | ) | (2.27 | ) | 19.04 | 7.74 | 134,886 | 1.11 | 1.36 | 0.54 | 68 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 18.70 | 0.11 | 3.34 | 3.45 | (0.04 | ) | (2.43 | ) | (2.47 | ) | 19.68 | 20.62 | 108,859 | 1.11 | 1.36 | 0.59 | 65 | |||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $161,761 and $129,018 for Series I and Series II shares, respectively. |
NOTE 11—Change in Independent Registered Public Accounting Firm
The Fund is a new fund that was formed to acquire the assets and liabilities of a predecessor fund in a shell fund reorganization (the “Reorganization”). In connection with the organization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
Invesco Van Kampen V.I. Mid Cap 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, 2010 through June 30, 2010.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2 | (06/30/10) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 998.80 | $ | 5.01 | $ | 1,019.79 | $ | 5.06 | 1.01 | % | ||||||||||||||||||
Series II | 1,000.00 | 998.00 | 5.50 | 1,019.29 | 5.56 | 1.11 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010 through June 30, 2010, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco Van Kampen V.I. Mid Cap Value Fund
Approval of Investment Advisory and Sub-Advisory Agreements With Invesco Advisers, Inc. and Its Affiliates
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Van Kampen V.I. Mid Cap Value Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Van Kampen retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-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 the 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. The Board noted that the Fund’s contractual advisory fee schedule provides for breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services.
Invesco Van Kampen V.I. Mid Cap Value Fund
The Board also considered that these services will be provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are 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 Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco Van Kampen V.I. Mid Cap Value Fund
Proxy Results
A Special Meeting (“Meeting”) of Shareholders of The Universal Institutional Funds, Inc. — U.S. Mid Cap Value Portfolio was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 22,579,651 | 863,825 | 1,774,094 | 0 |
Invesco Van Kampen V.I. Mid Cap Value Fund
Invesco Van Kampen V.I. Value Fund Semiannual Report to Shareholders § June 30, 2010 |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 410 4246 or on the Invesco website, invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the period between June 1, 2010, and June 30, 2010, is or will be available at invesco.com/proxysearch. In addition, this information is or will be available on the SEC website, sec.gov. Proxy voting information for the predecessor fund prior to its reorganization with the Fund on June 1, 2010, is not available on the Invesco website but is or will be available on the SEC website under the predecessor fund.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the U.S. distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VK-VIVAL-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/09 to 6/30/10, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -6.01 | % | ||
Series II Shares | -6.11 | |||
S&P 500 Index▼ (Broad Market Index) | -6.64 | |||
Russell 1000 Value Index▼ (Style-Specific Index) | -5.12 |
▼ | Lipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/10
As of 6/30/10
Series I Shares | ||||
Inception (1/2/97) | 4.05 | % | ||
10 Years | 4.31 | |||
5 Years | -1.16 | |||
1 Year | 17.50 | |||
Series II Shares | ||||
10 Years | 4.05 | % | ||
5 Years | -1.40 | |||
1 Year | 17.24 |
Effective June 1, 2010, Class I shares of the predecessor fund advised by Van Kampen Asset Management were reorganized into Series I shares of Invesco Van Kampen V.I. Value Fund. Returns shown above for Series I shares are blended returns of the predecessor fund and Invesco Van Kampen V.I. Value Fund. Share class returns will differ from the predecessor fund because of different expenses.
Series II shares incepted on June 1, 2010. Series II shares performance shown prior to that date is that of the predecessor fund’s Class I shares restated to reflect the higher 12b-1 fees applicable to the fund’s Series II shares. Class I shares performance reflects any applicable fee waivers or expense reimbursements. The inception date of the predecessor fund’s Class I shares is January 2, 1997.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.86% and 1.11%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.22% and 1.47%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco Van Kampen V.I. Value Fund, a series portfolio of AIM Variable Insurance Funds (Invesco 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 at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
1 | Total annual operating expenses less any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2012. See current prospectus. |
Invesco Van Kampen V.I. Value Fund
Schedule of Investments(a)
June 30, 2010
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–97.9% | ||||||||
Aerospace & Defense–1.0% | ||||||||
Honeywell International, Inc. | 5,200 | $ | 202,956 | |||||
Aluminum–0.7% | ||||||||
Alcoa, Inc. | 14,667 | 147,550 | ||||||
Asset Management & Custody Banks–2.3% | ||||||||
Bank of New York Mellon Corp. (The) | 16,060 | 396,521 | ||||||
State Street Corp. | 2,400 | 81,168 | ||||||
477,689 | ||||||||
Cable & Satellite–6.9% | ||||||||
Comcast Corp. (Class A) | 54,322 | 943,573 | ||||||
DirecTV (Class A)(b) | 5,632 | 191,037 | ||||||
Time Warner Cable, Inc. | 6,106 | 318,001 | ||||||
1,452,611 | ||||||||
Communications Equipment–1.1% | ||||||||
Cisco Systems, Inc.(b) | 10,600 | 225,886 | ||||||
Computer Hardware–1.8% | ||||||||
Dell, Inc.(b) | 11,785 | 142,127 | ||||||
Hewlett-Packard Co. | 5,237 | 226,657 | ||||||
368,784 | ||||||||
Data Processing & Outsourced Services–0.3% | ||||||||
Western Union Co. (The) | 3,800 | 56,658 | ||||||
Department Stores–0.8% | ||||||||
JC Penney Co., Inc. | 5,200 | 111,696 | ||||||
Macy’s, Inc. | 2,738 | 49,010 | ||||||
160,706 | ||||||||
Diversified Banks–1.8% | ||||||||
US Bancorp | 6,600 | 147,510 | ||||||
Wells Fargo & Co. | 9,300 | 238,080 | ||||||
385,590 | ||||||||
Diversified Chemicals–0.6% | ||||||||
EI Du Pont de Nemours & Co. | 3,721 | 128,709 | ||||||
Drug Retail–1.1% | ||||||||
CVS Caremark Corp. | 8,100 | 237,492 | ||||||
Electric Utilities–0.5% | ||||||||
American Electric Power Co., Inc. | 3,100 | 100,130 | ||||||
Electrical Components & Equipment–0.7% | ||||||||
Emerson Electric Co. | 3,600 | 157,284 | ||||||
Electronic Equipment & Instruments–0.2% | ||||||||
Cognex Corp. | 2,601 | 45,726 | ||||||
General Merchandise Stores–0.4% | ||||||||
Target Corp. | 1,800 | 88,506 | ||||||
Health Care Distributors–1.6% | ||||||||
Cardinal Health, Inc. | 10,325 | 347,023 | ||||||
Health Care Equipment–0.3% | ||||||||
Boston Scientific Corp.(b) | 12,500 | 72,500 | ||||||
Home Improvement Retail–1.8% | ||||||||
Home Depot, Inc. | 6,400 | 179,648 | ||||||
Lowe’s Cos., Inc. | 9,300 | 189,906 | ||||||
369,554 | ||||||||
Household Products–0.5% | ||||||||
Procter & Gamble Co. (The) | 1,600 | 95,968 | ||||||
Hypermarkets & Super Centers–2.1% | ||||||||
Wal-Mart Stores, Inc. | 9,089 | 436,908 | ||||||
Industrial Conglomerates–2.8% | ||||||||
General Electric Co. | 18,500 | 266,770 | ||||||
Textron, Inc. | 1,265 | 21,467 | ||||||
Tyco International Ltd. | 8,500 | 299,455 | ||||||
587,692 | ||||||||
Industrial Machinery–1.0% | ||||||||
Ingersoll-Rand PLC (Ireland) | 6,400 | 220,736 | ||||||
Integrated Oil & Gas–5.7% | ||||||||
BP PLC (ADR) (United Kingdom) | 3,200 | 92,416 | ||||||
Chevron Corp. | 5,900 | 400,374 | ||||||
ConocoPhillips | 5,900 | 289,631 | ||||||
Royal Dutch Shell PLC (ADR) (United Kingdom) | 6,043 | 303,480 | ||||||
Total SA (ADR) (France) | 2,800 | 124,992 | ||||||
1,210,893 | ||||||||
Integrated Telecommunication Services–3.6% | ||||||||
AT&T, Inc. | 13,100 | 316,889 | ||||||
Verizon Communications, Inc. | 16,100 | 451,122 | ||||||
768,011 | ||||||||
Internet Software & Services–3.9% | ||||||||
eBay, Inc.(b) | 27,800 | 545,158 | ||||||
Yahoo!, Inc.(b) | 20,613 | 285,078 | ||||||
830,236 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Value Fund
Shares | Value | |||||||
Investment Banking & Brokerage–0.9% | ||||||||
Goldman Sachs Group, Inc. (The) | 1,500 | $ | 196,905 | |||||
IT Consulting & Other Services–0.6% | ||||||||
Accenture Ltd. (Class A) (Ireland) | 3,100 | 119,815 | ||||||
Life & Health Insurance–2.9% | ||||||||
Aflac, Inc. | 2,200 | 93,874 | ||||||
MetLife, Inc. | 7,800 | 294,528 | ||||||
Torchmark Corp. | 4,500 | 222,795 | ||||||
611,197 | ||||||||
Managed Health Care–1.9% | ||||||||
UnitedHealth Group, Inc. | 8,764 | 248,898 | ||||||
WellPoint, Inc.(b) | 2,900 | 141,897 | ||||||
390,795 | ||||||||
Movies & Entertainment–6.6% | ||||||||
News Corp. (Class B) | 19,400 | 268,690 | ||||||
Time Warner, Inc. | 11,533 | 333,419 | ||||||
Viacom, Inc. (Class B) | 24,882 | 780,548 | ||||||
1,382,657 | ||||||||
Multi-Utilities–0.3% | ||||||||
Sempra Energy | 1,400 | 65,506 | ||||||
Oil & Gas Drilling–0.4% | ||||||||
Noble Corp.(b) | 2,480 | 76,657 | ||||||
Oil & Gas Equipment & Services–1.5% | ||||||||
Halliburton Co. | 13,103 | 321,679 | ||||||
Oil & Gas Exploration & Production–0.3% | ||||||||
Anadarko Petroleum Corp. | 1,739 | 62,761 | ||||||
Other Diversified Financial Services–6.2% | ||||||||
Bank of America Corp. | 35,008 | 503,065 | ||||||
Citigroup, Inc.(b) | 55,600 | 209,056 | ||||||
JPMorgan Chase & Co. | 16,500 | 604,065 | ||||||
1,316,186 | ||||||||
Packaged Foods & Meats–3.9% | ||||||||
Kraft Foods, Inc. (Class A) | 17,316 | 484,848 | ||||||
Unilever N.V. (NY Registered Shares) (Netherlands) | 12,162 | 332,266 | ||||||
817,114 | ||||||||
Paper Products–2.8% | ||||||||
International Paper Co. | 25,601 | 579,351 | ||||||
Personal Products–0.5% | ||||||||
Avon Products, Inc. | 4,159 | 110,214 | ||||||
Pharmaceuticals–9.5% | ||||||||
Abbott Laboratories | 3,664 | 171,402 | ||||||
Bristol-Myers Squibb Co. | 21,780 | 543,193 | ||||||
Eli Lilly & Co. | 2,624 | 87,904 | ||||||
GlaxoSmithKline PLC (ADR) (United Kingdom) | 3,000 | 102,030 | ||||||
Merck & Co., Inc. | 12,272 | 429,152 | ||||||
Pfizer, Inc. | 36,029 | 513,773 | ||||||
Roche Holding AG (ADR) (Switzerland) | 4,300 | 148,637 | ||||||
1,996,091 | ||||||||
Property & Casualty Insurance–8.6% | ||||||||
Berkshire Hathaway, Inc. (Class B)(b) | 3,600 | 286,884 | ||||||
Chubb Corp. | 20,041 | 1,002,250 | ||||||
Travelers Cos., Inc. (The) | 10,720 | 527,960 | ||||||
1,817,094 | ||||||||
Regional Banks–1.4% | ||||||||
PNC Financial Services Group, Inc. | 5,100 | 288,150 | ||||||
Semiconductor Equipment–0.4% | ||||||||
KLA-Tencor Corp. | 3,202 | 89,272 | ||||||
Semiconductors–1.4% | ||||||||
Intel Corp. | 15,600 | 303,420 | ||||||
Soft Drinks–1.6% | ||||||||
Coca-Cola Co. (The) | 5,100 | 255,612 | ||||||
PepsiCo, Inc. | 1,200 | 73,140 | ||||||
328,752 | ||||||||
Systems Software–0.3% | ||||||||
Microsoft Corp. | 2,900 | 66,729 | ||||||
Tobacco–1.6% | ||||||||
Altria Group, Inc. | 7,121 | 142,705 | ||||||
Philip Morris International, Inc. | 4,404 | 201,879 | ||||||
344,584 | ||||||||
Wireless Telecommunication Services–0.8% | ||||||||
Vodafone Group PLC (ADR) (United Kingdom) | 8,600 | 177,762 | ||||||
Total Common Stocks & Other Equity Interests (Cost $22,126,179) | 20,638,489 | |||||||
Money Market Funds–1.2% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 121,203 | 121,203 | ||||||
Premier Portfolio–Institutional Class(c) | 121,203 | 121,203 | ||||||
Total Money Market Funds (Cost $242,406) | 242,406 | |||||||
TOTAL INVESTMENTS (Cost $22,368,585)–99.1% | 20,880,895 | |||||||
OTHER ASSETS LESS LIABILITIES–0.9% | 192,267 | |||||||
NET ASSETS–100.0% | $ | 21,073,162 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Value Fund
Investment Abbreviations:
ADR | – American Depositary Receipt. |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
as of June 30, 2010
Financials | 24.2 | % | ||
Consumer Discretionary | 16.4 | |||
Health Care | 13.3 | |||
Consumer Staples | 11.3 | |||
Information Technology | 10.0 | |||
Energy | 7.9 | |||
Industrials | 5.5 | |||
Telecommunication Services | 4.5 | |||
Materials | 4.1 | |||
Utilities | 0.8 | |||
Money Market Funds Plus Other Assets Less Liabilities | 2.0 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Value Fund
Statement of Assets and Liabilities
June 30, 2010
(Unaudited)
Assets: | ||||
Investments, at value (Cost $22,126,179) | $ | 20,638,489 | ||
Investments in affiliated money market funds, at value and cost | 242,406 | |||
Total investments, at value (Cost $22,368,585) | 20,880,895 | |||
Receivables for: | ||||
Investments sold | 280,496 | |||
Fund shares sold | 18,281 | |||
Dividends | 51,572 | |||
Fund expenses absorbed | 19,346 | |||
Other assets | 3,981 | |||
Total assets | 21,254,571 | |||
Liabilities: | ||||
Payables for: | ||||
Investments purchased | 136,001 | |||
Fund shares reacquired | 467 | |||
Accrued fees to affiliates | 4,596 | |||
Accrued other operating expenses | 40,345 | |||
Total liabilities | 181,409 | |||
Net assets applicable to shares outstanding | $ | 21,073,162 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 29,576,971 | ||
Undistributed net investment income | 162,422 | |||
Undistributed net realized gain (loss) | (7,178,541 | ) | ||
Unrealized appreciation (depreciation) | (1,487,690 | ) | ||
$ | 21,073,162 | |||
Net Assets: | ||||
Series I | $ | 21,063,468 | ||
Series II | $ | 9,694 | ||
Shares outstanding, $0.001 par value per share, unlimited number of shares authorized: | ||||
Series I | 2,693,151 | |||
Series II | 1,239 | |||
Series I: | ||||
Net asset value per share | $ | 7.82 | ||
Series II: | ||||
Net asset value per share | $ | 7.82 | ||
Statement of Operations
For the six months ended June 30, 2010
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $2,199) | $ | 265,316 | ||
Dividends from affiliated money market funds | 35 | |||
Total investment income | 265,351 | |||
Expenses: | ||||
Advisory fees | 64,233 | |||
Administrative services fees | 33,120 | |||
Custodian fees | 3,001 | |||
Distribution fees — Series II | 2 | |||
Transfer agent fees | 111 | |||
Trustees’ and officers’ fees and benefits | 20 | |||
Professional services fees | 25,996 | |||
Other | 8,834 | |||
Total expenses | 135,317 | |||
Less: Fees waived | (36,157 | ) | ||
Net expenses | 99,160 | |||
Net investment income | 166,191 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from investment securities | 47,696 | |||
Change in net unrealized appreciation (depreciation) of investment securities | (1,528,091 | ) | ||
Net realized and unrealized gain (loss) | (1,480,395 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (1,314,204 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Value Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2010 and the year ended December 31, 2009
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Operations: | ||||||||
Net investment income | $ | 166,191 | $ | 348,940 | ||||
Net realized gain (loss) | 47,696 | (2,293,566 | ) | |||||
Change in net unrealized appreciation (depreciation) | (1,528,091 | ) | 7,640,320 | |||||
Net increase (decrease) in net assets resulting from operations | (1,314,204 | ) | 5,695,694 | |||||
Distributions to shareholders from net investment income — Series I | (348,598 | ) | (716,371 | ) | ||||
Share transactions–net: | ||||||||
Series I | (1,026,797 | ) | (2,730,935 | ) | ||||
Series II | 10,000 | — | ||||||
Net increase (decrease) in net assets resulting from share transactions | (1,016,797 | ) | (2,730,935 | ) | ||||
Net increase (decrease) in net assets | (2,679,599 | ) | 2,248,388 | |||||
Net assets: | ||||||||
Beginning of period | 23,752,761 | 21,504,373 | ||||||
End of period (includes undistributed net investment income of $162,422 and $344,829, respectively) | $ | 21,073,162 | $ | 23,752,761 | ||||
Notes to Financial Statements
June 30, 2010
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. Value Fund (the “Fund”), is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), formerly 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 forty-one separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
Prior to June 1, 2010, the Fund operated as Universal Institutional Funds Value Portfolio (the “Acquired Fund”), an investment portfolio of The Universal Institutional Funds, Inc.. The Acquired Fund was reorganized on June 1, 2010 (the “Reorganization Date”) through the transfer of all of its assets and liabilities to the Fund (the “Reorganization”).
Upon closing of the Reorganization, holders of the Acquired Fund’s Class I shares received Series I shares of the Fund.
Information for the Acquired Fund’s — Class I shares prior to the Reorganization is included with Series I shares of the Fund throughout this report.
The Fund’s investment objective is above-average total return over a market cycle of three to five years by investing primarily in a portfolio of common stocks and other equity securities.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
Invesco Van Kampen V.I. Value Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. | ||
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including Corporate Loans. | ||
Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally paid to separate accounts of participating insurance companies annually and recorded on ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
Invesco Van Kampen V.I. Value Fund
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $500 million | 0 | .55% | ||
Next $500 million | 0 | .50% | ||
Over $1 billion | 0 | .45% | ||
Prior to the Reorganization, the Acquired Fund paid an advisory fee to Morgan Stanley Investment Management Inc. (“MS Investment Management”) based on the annual rates above of the Acquired Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective on the Reorganization date, the Adviser has contractually agreed, through at least June 30, 2012, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver (excluding certain items discussed below) of Series I shares to 0.86% and Series II shares to 1.11% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Board of Trustees or Invesco may terminate the fee waiver arrangement at any time. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Prior to the Reorganization, MS Investment Management had voluntarily agreed to waive fees and/or reimburse expenses of Class I shares to 0.85% of the Acquired Fund’s average daily net assets.
Further, the Adviser has contractually agreed, through at least June 30, 2011, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
Prior to the Reorganization, investment advisory fees paid by the Acquired Fund were reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class shares.
For the period ended June 30, 2010, MS Investment Management and the Adviser waived advisory fees of $10,876 and $25,281, respectively.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the period ended June 30, 2010, Invesco was paid $4,710 for accounting and fund administrative services and
Invesco Van Kampen V.I. Value Fund
reimbursed $4,557 for services provided by insurance companies. Prior to the Reorganization, the Acquired Fund paid an administration fee of $23,853 to MS Investment Management and JPMorgan Investor Services Co.
Also, the Trust has entered into service agreements whereby State Street Bank & Trust Company (“SSB”) serves as custodian, fund accountant and provide certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. Prior to the Reorganization, the Acquired Fund paid $111 to Morgan Stanley Services Company Inc., which served as the Acquired Fund’s transfer agent. For the six months ended June 30, 2010, expenses incurred under these agreements are shown in the Statement of Operations as transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) 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 IDI 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, 2010, 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, IIS and/or IDI.
NOTE 3—Additional Valuation Information
Generally Accepted Accounting Principles (“GAAP”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2010. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2010, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 20,732,258 | $ | 148,637 | $ | — | $ | 20,880,895 | ||||||||
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2010, the Fund engaged in securities purchases of $302.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
Invesco Van Kampen V.I. Value Fund
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with SSB, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—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, 2009 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 2,422,185 | ||
December 31, 2017 | 4,505,087 | |||
Total capital loss carryforward | $ | 6,927,272 | ||
* | 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, 2010 was $1,844,743 and $2,823,225, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 1,295,253 | ||
Aggregate unrealized (depreciation) of investment securities | (3,074,218 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (1,778,965 | ) | |
Cost of investments for tax purposes is $22,659,860. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2010(a) | December 31, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 45,868 | $ | 396,351 | 165,564 | $ | 1,168,035 | ||||||||||
Series II | 1,239 | 10,000 | — | — | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 41,849 | 348,598 | 108,871 | 716,371 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (205,746 | ) | (1,771,746 | ) | (678,120 | ) | (4,615,341 | ) | ||||||||
Net increase (decrease) in share activity | (116,790 | ) | $ | (1,016,797 | ) | (403,685 | ) | $ | (2,730,935 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 97% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco Van Kampen V.I. Value Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
to average | to average | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | net assets | net assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | with | without | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | securities | Dividends | Distributions | fee waivers | fee waivers | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | and/or | and/or | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | expenses | expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10 | $ | 8.45 | $ | 0.06 | $ | (0.56 | ) | $ | (0.50 | ) | $ | (0.13 | ) | $ | — | $ | (0.13 | ) | $ | 7.82 | (6.01 | )% | $ | 21,063 | 0.85 | %(d) | 1.16 | %(d) | 1.42 | %(d) | 8 | % | ||||||||||||||||||||||||
Year ended 12/31/09 | 6.69 | 0.12 | 1.88 | 2.00 | (0.24 | ) | — | (0.24 | ) | 8.45 | 31.00 | (e) | 23,753 | 0.85 | (f) | 0.97 | (f)) | 1.66 | (f)(h) | 21 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 13.17 | 0.21 | (4.43 | ) | (4.22 | ) | (0.37 | ) | (1.89 | ) | (2.26 | ) | 6.69 | (35.85 | ) | 21,504 | 0.87 | (f) | 1.04 | (f) | 2.15 | (f)(h) | 19 | |||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 14.87 | 0.25 | (0.57 | ) | (0.32 | ) | (0.29 | ) | (1.09 | ) | (1.38 | ) | 13.17 | (3.07 | ) | 46,863 | 0.85 | (f) | 0.91 | (f) | 1.69 | (f)(h) | 17 | |||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 14.49 | 0.26 | 1.96 | 2.22 | (0.27 | ) | (1.57 | ) | (1.84 | ) | 14.87 | 16.89 | 70,091 | 0.85 | 0.93 | 1.83 | (h) | 23 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/05 | 14.88 | 0.25 | 0.38 | 0.63 | (0.20 | ) | (0.82 | ) | (1.02 | ) | 14.49 | 4.56 | 75,105 | 0.85 | 0.92 | 1.72 | (h) | 32 | ||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/10(g) | 8.07 | 0.01 | (0.26 | ) | (0.25 | ) | — | — | — | 7.82 | (3.10 | ) | 10 | 1.11 | (d) | 1.44 | (d) | 1.16 | (d) | 8 | ||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $23,550 and $10 for Series I and Series II shares, respectively. | |
(e) | Performance was positively impacted by approximately 1.40% due to the receipt of proceeds from the settlements of class action suits involving primarily two of the Fund’s past holdings. This was a one-time settlement, and as a result, the impact on the NAV and consequently the performance will not likely be repeated in the future. Had these settlements not occurred, the total return would have been approximately 29.60%. | |
(f) | The Ratios of Expenses and Net Investment Income reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is less than 0.005% for each of the years ended December 31, 2009, 2008 and 2007, respectively. | |
(g) | Commencement date of June 1, 2010. | |
(h) | Ratio of net investment income to average net assets without fee waivers and/or expenses absorbed was 1.54%, 1.98%, 1.63%, 1.75% and 1.65% for the years ended December 31, 2009 through December 31, 2005 respectively. |
NOTE 11—Change in Independent Registered Public Accounting Firm
The Fund is a new fund that was formed to acquire the assets and liabilities of a predecessor fund in a shell fund reorganization (the “Reorganization”). In connection with the organization of the Fund, the Audit Committee of the Board of Trustees of the Trust appointed, and the Board of Trustees ratified and approved, PricewaterhouseCoopers LLP (“PWC”) as the independent registered public accounting firm of the Fund for the fiscal year following May 31, 2010. The predecessor fund’s financial statements were audited by a different independent registered public accounting firm (the “Prior Auditor”). Concurrent with the closing of the Reorganization, the Prior Auditor resigned as the independent registered public accounting firm of the predecessor fund. The Prior Auditor’s report on the financial statements of the Fund for the past two years did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the period the Prior Auditor was engaged, there were no disagreements with the Prior Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the Prior Auditor’s satisfaction, would have caused it to make reference to that matter in connection with its report.
Invesco Van Kampen V.I. 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. With the exception of the actual ending account value and expenses of the Series II shares, 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, 2010 through June 30, 2010. The actual ending account value and expenses of the Series II shares in the below example are based on an investment of $1,000 invested as of close of business June 1, 2010 (the date the share class commenced operations) and held through June 30, 2010.
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 (as of close of business June 1, 2010 through June 30, 2010 for the Series II shares). Because the actual ending account value and expense information in the example is not based upon a six month period for the Series II shares, the ending account value and expense information may not provide a meaningful comparison to mutual funds that provide such information for a full six month period..
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/10) | (06/30/10)1 | Period2,3 | (06/30/10) | Period2,4 | Ratio2 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 939.90 | $ | 4.09 | $ | 1,020.58 | $ | 4.26 | 0.85 | % | ||||||||||||||||||
Series II | 1,000.00 | 969.00 | 0.91 | 1,019.29 | 5.56 | 1.11 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2010, through June 30, 2010 (as of close of business June 1, 2010, through June 30, 2010 for the Series II shares), after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. For the Series II shares actual expenses are equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 30 (as of close of business June 1, 2010, through June 30, 2010)/365. Because the Series II shares have not been in existence for a full six month period, the actual ending account value and expense information shown may not provide a meaningful comparison to fund expense information of classes that show such data for a full six month period and, because the actual ending account value and expense information in the expense example covers a short time period, return and expense data may not be indicative of return and expense data for longer time periods. |
Effective June 1, 2010, the Fund’s adviser has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses of Series I and Series II shares to 0.85% and 1.11%, respectively. The annualized expense ratios restated as if these agreements had been in effect throughout the entire most recent fiscal half year is 0.86% for Series I shares. Restated annualized expense ratio for Series II shares remained the same. |
3 | The actual expenses paid restated as if the change discussed above had been in effect through the entire most recent fiscal half year is $4.14 for Series I shares. Restated actual expense ratio for Series II shares remained the same. |
4 | The hypothetical expenses paid restated as if the change discussed above had been in effect through the entire most recent fiscal half year is $4.31 for Series I shares. Restated hypothetical expense ratio for Series II shares remained the same. |
Invesco Van Kampen V.I. Value Fund
Approval of Investment Advisory and Sub-Advisory Agreements With Invesco Advisers, Inc. and Its Affiliates |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Company) is required under the Investment Company Act of 1940 to approve the Invesco Van Kampen V.I. Value Fund (the Fund) investment advisory agreements. During meetings held on December 1-2, 2009, the Board as a whole and the disinterested or “independent” Trustees, voting separately approved (i) an amendment to the Company’s investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) to add the Fund and (ii) an amendment to the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the Affiliated Sub-Advisers) to add the Fund. In doing so, the Board determined that the investment advisory agreements are in the best interests of the Fund and its shareholders and that the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the Fund’s investment advisory agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Fund was formed to acquire the assets and liabilities of a Van Kampen retail fund (the Acquired Fund) with substantially similar investment objectives, strategies and risks. At the time of approval of the investment advisory agreements, the Fund had no assets and no performance history and the portfolio managers were not employed by Invesco Advisers or one of the Affiliated Sub-Advisers.
In determining to approve the Fund’s investment advisory agreements, the Board considered among other things, the factors discussed below in evaluating the fairness and reasonableness of the Fund’s investment advisory agreements. The discussion below serves as a summary of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreements. The Board considered the information provided to them and did not identify any information that was controlling. One Trustee may have weighed a particular piece of information differently than another.
Factors and Conclusions and Summary of Evaluation of Investment Advisory Agreements
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services to be provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement. The Board’s review of the qualifications of Invesco Advisers to provide these services included the Board’s consideration of Invesco Advisers’ portfolio and product review process, various back office support functions provided by Invesco Advisers and its affiliates, and Invesco Adviser’s global trading operations. In determining whether to approve the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the series portfolios of funds advised by Invesco Advisers (the Invesco Funds), as well as the Board’s knowledge of Invesco Advisers’ operations. The Board concluded that the nature, extent and quality of the advisory services to be provided to the Fund support the Board’s approval of the investment advisory agreements.
The Board reviewed the services to be provided by the Affiliated Sub-Advisers under the sub-advisory contracts. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are located in financial centers around the world, can provide research and investment analysis on the markets and economies of various countries in which the Fund invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts will benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers are appropriate.
B. | Fund Performance |
The Fund will retain the performance track record of the Acquired Fund. The Board considered the performance of the Acquired Fund and the fact that the Fund is to be managed by substantially the same portfolio management team as managed the Acquired Fund. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts, as no Affiliated Sub-Adviser currently manages assets of the Fund.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board considered that the contractual advisory fee rate of the Fund is the same as that of the Acquired Fund, that the board of the Acquired Fund had approved such fee, and that Invesco Advisers has contractually agreed to limit expenses of the Fund through June 30, 2012. The Board was provided with a comparison of the contractual advisory fee of the Fund to the uniform fee schedule applicable to other Invesco Funds and with materials prepared by Lipper, Inc. for the board of the Acquired Fund.
The Board also considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts and the services to be provided by Invesco Advisers pursuant to the Fund’s investment advisory agreement, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers, and that Invesco Advisers and the Affiliated Sub-Advisers are affiliates.
After taking account of the Fund’s contractual advisory fee rate, the contractual sub-advisory fee rate, the expense limits and other relevant factors, the Board concluded that the Fund’s advisory and sub-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 the 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. The Board noted that the Fund’s contractual advisory fee schedule provides for
breakpoints. 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 Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board considered information from the 2009 contract renewal process provided by Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Invesco Funds and the profitability of Invesco Advisers and its affiliates in providing these services. The Board noted that Invesco Advisers continues to operate at a net profit. The Board concluded that the Fund’s fees were fair and reasonable, and that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund are not anticipated to be excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Advisers is financially sound and has the resources necessary to perform its obligations under the Fund’s investment advisory agreement, and concluded that Invesco Advisers has the financial resources necessary to fulfill these obligations. The Board also considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory contract, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits to be received by Invesco Advisers and its affiliates resulting from Invesco Advisers’ relationship with the Fund, including the fees to be received by Invesco Advisers and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services to other Invesco Funds and the organizational structure employed by Invesco Advisers and its affiliates to provide these services. The Board also considered that these services will be
Invesco Van Kampen V.I. Value Fund
provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Advisers and its affiliates were providing these services to Invesco Funds in accordance with the terms of their contracts, and were qualified to provide these services to the Fund.
The Board considered the benefits realized by Invesco Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research and execution services from Invesco Advisers and the Affiliated Sub-Advisers to the funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board concluded that Invesco Advisers’ and the Affiliated Sub-Advisers’ soft dollar arrangements are appropriate. The Board also concluded that, based on its review and representations made by the Chief Compliance Officer of Invesco Advisers, these arrangements are 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 Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through at least June 30, 2011, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. 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.
Invesco Van Kampen V.I. Value Fund
Proxy Results
A Special Meeting (“Meeting”) of Shareholders of The Universal Institutional Funds, Inc. — Value Portfolio was held on Tuesday, May 11, 2010. The Meeting was held for the following purpose:
(1) | Approve an Agreement and Plan of Reorganization. |
The results of the voting on the above matter were as follows:
Votes | Votes | Broker | ||||||||||||||||
Matter | Votes For | Against | Abstain | Non-Votes | ||||||||||||||
(1) | Approve an Agreement and Plan of Reorganization | 2,451,914 | 139,353 | 170,511 | 0 |
Invesco Van Kampen V.I. Value Fund
TABLE OF CONTENTS
ITEM 2. | CODE OF ETHICS. |
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, 2010, for Invesco V.I. Basic Balanced Fund, Invesco V.I. Basic Value Fund, Invesco V.I. Capital Appreciation Fund, Invesco V.I. Capital Development Fund, Invesco V.I. Core Equity Fund, Invesco V.I. Diversified Income Fund, Invesco V.I. Dynamics Fund, Invesco V.I. Financial Services Fund, Invesco V.I. Global Health Care Fund, Invesco V.I. Global Multi-Asset Fund, Invesco V.I. Global Real Estate Fund, Invesco V.I. Government Securities Fund, Invesco V.I. High Yield Fund, Invesco V.I. International Growth Fund, |
Invesco V.I. Large Cap Growth Fund, Invesco V.I. Leisure Fund, Invesco V.I. Mid Cap Core Equity Fund, Invesco V.I. Money Market Fund, Invesco V.I. Small Cap Equity Fund, Invesco V.I. Technology Fund, and Invesco V.I. Utilities Fund, and as of June 25, 2010, for Invesco V.I. Dividend Growth Fund, Invesco V.I. Global Dividend Growth Fund, Invesco V.I. High Yield Securities Fund, Invesco V.I. Income Builders Fund, Invesco V.I. S&P 500 Index Fund, Invesco V.I. Select Dimensions Balanced Fund, Invesco V.I. Select Dimensions Dividend Growth Fund, Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund, Invesco Van Kampen V.I. Capital Growth Fund, Invesco Van Kampen V.I. Comstock Fund, Invesco Van Kampen V.I. Equity and Income Fund, Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund, Invesco Van Kampen V.I. Global Value Equity Fund, Invesco Van Kampen V.I. Government Fund, Invesco Van Kampen V.I. Growth and Income Fund, Invesco Van Kampen V.I. High Yield Fund, Invesco Van Kampen V.I. International Growth Equity Fund, Invesco Van Kampen V.I. Mid Cap Growth Fund, Invesco Van Kampen V.I. Mid Cap Value Fund and Invesco Van Kampen V.I. Value Fund 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, 2010, for Invesco V.I. Basic Balanced Fund, Invesco V.I. Basic Value Fund, Invesco V.I. Capital Appreciation Fund, Invesco V.I. Capital Development Fund, Invesco V.I. Core Equity Fund, Invesco V.I. Diversified Income Fund, Invesco V.I. Dynamics Fund, Invesco V.I. Financial Services Fund, Invesco V.I. Global Health Care Fund, Invesco V.I. Global Multi-Asset Fund, Invesco V.I. Global Real Estate Fund, Invesco V.I. Government Securities Fund, Invesco V.I. High Yield Fund, Invesco V.I. International Growth Fund, Invesco V.I. Large Cap Growth Fund, Invesco V.I. Leisure Fund, Invesco V.I. Mid Cap Core Equity Fund, Invesco V.I. Money Market Fund, Invesco V.I. Small Cap Equity Fund, Invesco V.I. Technology Fund, and Invesco V.I. Utilities Fund, and as of June 25, 2010, for Invesco V.I. Dividend Growth Fund, Invesco V.I. Global Dividend Growth Fund, Invesco V.I. High Yield Securities Fund, Invesco V.I. Income Builders Fund, Invesco V.I. S&P 500 Index Fund, Invesco V.I. Select Dimensions Balanced Fund, Invesco V.I. Select Dimensions Dividend Growth Fund, Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund, Invesco Van Kampen V.I. Capital Growth Fund, Invesco Van Kampen V.I. Comstock Fund, Invesco Van Kampen V.I. Equity and Income Fund, Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund, Invesco Van Kampen V.I. Global Value Equity Fund, Invesco Van Kampen V.I. Government Fund, Invesco Van Kampen V.I. Growth and Income Fund, Invesco Van Kampen V.I. High Yield Fund, Invesco Van Kampen V.I. International Growth Equity Fund, Invesco Van Kampen V.I. Mid Cap Growth Fund, Invesco Van Kampen V.I. Mid Cap Value Fund and Invesco Van Kampen V.I. Value Fund 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 (Invesco Variable Insurance Funds)
By: | /s/ Philip A. Taylor | |||
Principal Executive Officer | ||||
Date: August 27, 2010 |
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: | /s/ Philip A. Taylor | |||
Principal Executive Officer | ||||
Date: August 27, 2010 | ||||
By: | /s/ Sheri Morris | |||
Sheri Morris | ||||
Principal Financial Officer | ||||
Date: August 27, 2010 |
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. |