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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
number 811-07452
AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
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
Registrant’s telephone number, including area code: (713) 626-1919
Date of fiscal year end: 12/31
Date of reporting period: 6/30/11
Item 1. Reports to Stockholders.
Invesco V.I. Balanced-Risk Allocation Fund | ||||
Semiannual Report to Shareholders ■ June 30, 2011 |
![(INVESCO LOGO)](https://capedge.com/proxy/N-CSRS/0000950123-11-079973/h83397h8339701.gif)
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at 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, 2011, is available at 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.
VIIBRA-SAR-1
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 2.65 | % | ||
Series II Shares | 2.43 | |||
MSCI World Index▼ (Broad Market Index) | 5.29 | |||
Van Kampen Global Tactical Asset Allocation Blended Benchmark■ | ||||
(Style-Specific Index) | 5.18 | |||
▼Lipper Inc.; ■Invesco, IDC via FactSet Research |
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries.
The Van Kampen Global Tactical Asset Allocation Blended Benchmark, created by Invesco to serve as a benchmark for Invesco Van Kampen V.I. Balanced-Risk Allocation Fund, is composed of the following indexes: 65% MSCI World Index, 30% JP Morgan GBI Global Index and 5% Citigroup 3-Month Treasury Bill Index.
The JP Morgan GBI Global Index is a total return, market capitalization-weighted index, rebalanced monthly, consisting of the following countries: Australia, Germany, Spain, Belgium, Italy, Sweden, Canada, Japan, the United Kingdom, Denmark, the Netherlands and the United States.
The Citigroup 3-Month Treasury Bill Index is an unmanaged index representative of three-month Treasury bills.
The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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.
Effective May 2, 2011, Series I and Series II shares of Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund were reorganized into Series I and Series II shares, respectively, of Invesco V.I. Balanced-Risk Allocation Fund. Prior to this, on June 1, 2010, Class I and Class II shares of Van Kampen Life Investment Trust Global Tactical Asset Allocation Portfolio, 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 funds and Invesco V.I. Balanced-Risk Allocation Fund. Share class returns will differ from the predecessor funds 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 0.74% and 0.99%, respectively. 1,2 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.38% and 1.63%, 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.
Average Annual Total Returns | ||||
As of 6/30/11 | ||||
Series I Shares | ||||
Inception (1/23/09) | 16.23 | % | ||
1 Year | 20.06 | |||
Series II Shares | ||||
Inception (1/23/09) | 15.90 | % | ||
1 Year | 19.67 |
Invesco V.I. Balanced-Risk 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.
1 | The expense ratio includes acquired fund fees and expenses of the underlying funds in which the Fund invests of 0.04%. | |
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, 2013. See current prospectus for more information. |
Invesco V.I. Balanced-Risk Allocation Fund
Consolidated Schedule of Investments
June 30, 2011
(Unaudited)
Principal | ||||||||
Amount | Value | |||||||
U.S. Treasury Bills–8.89% | ||||||||
0.04%, 08/11/11(a)(b) (Cost $10,999,474) | $ | 11,000,000 | $ | 10,999,474 | ||||
Shares | ||||||||
Exchange Traded Fund–1.86% | ||||||||
Investment Companies–Exchange Traded Funds–1.86% | ||||||||
PowerShares DB Gold Fund (Cost $2,366,804)(c) | 43,700 | 2,295,998 | ||||||
Money Market Funds–81.63% | ||||||||
Invesco V.I. Money Market Fund(d) | 82,095,824 | 82,095,824 | ||||||
Liquid Assets Portfolio–Institutional Class(d) | 1,777,877 | 1,777,877 | ||||||
Premier Portfolio–Institutional Class(d) | 1,777,878 | 1,777,878 | ||||||
STIC (Global Series) PLC–U.S. Dollar Liquidity Portfolio–Institutional Class(d) | 15,325,594 | 15,325,594 | ||||||
Total Money Market Funds (Cost $100,977,173) | 100,977,173 | |||||||
TOTAL INVESTMENTS–92.38% (Cost $114,343,451) | 114,272,645 | |||||||
OTHER ASSETS LESS LIABILITIES–7.62% | 9,431,342 | |||||||
NET ASSETS–100.00% | $ | 123,703,987 | ||||||
Notes to Schedule of Investments:
(a) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. | |
(b) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures and swap contracts. See Note 1L and Note 4. | |
(c) | Not an affiliate of the Fund or its investment adviser. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Open Futures Contracts and Swap Agreements at Period-End | ||||||||||||||||||
Unrealized | ||||||||||||||||||
Number of | Month/ | Notional | Appreciation | |||||||||||||||
Futures Contracts | Contracts | Commitment | Value | (Depreciation) | ||||||||||||||
Dow Jones Eurostoxx 50 | 127 | September-2011/Long | $ | 5,246,762 | $ | 153,170 | ||||||||||||
E-Mini S&P 500 Index | 127 | September-2011/Long | 8,353,425 | 312,801 | ||||||||||||||
Euro Bond Future | 69 | September-2011/Long | 12,559,469 | 48,832 | ||||||||||||||
FTSE 100 Index | 89 | September-2011/Long | 8,431,951 | 211,635 | ||||||||||||||
Hang Seng Index | 58 | July-2011/Long | 8,358,225 | 219,699 | ||||||||||||||
100 Ounce Gold | 68 | August-2011/Long | 10,219,040 | (169,555 | ) | |||||||||||||
Japan 10 Year Bonds | 22 | September-2011/Long | 38,549,882 | 79,485 | ||||||||||||||
LME Copper | 34 | December-2011/Long | 8,021,450 | 112,152 | ||||||||||||||
Long Gilt | 106 | September-2011/Long | 20,442,393 | 68,462 | ||||||||||||||
Russell 2000 Index Mini | 53 | September-2011/Long | 4,374,620 | 272,847 | ||||||||||||||
Topix Tokyo Price Index | 37 | September-2011/Long | 3,905,019 | 203,624 | ||||||||||||||
U.S. Treasury 20 Year Bonds | 100 | September-2011/Long | 12,303,125 | (96,304 | ) | |||||||||||||
WTI Crude | 64 | December-2011/Long | 6,241,920 | (244,362 | ) | |||||||||||||
Sub-total Futures Contracts | $ | 147,007,281 | $ | 1,172,486 | ||||||||||||||
Notional | ||||||||||||||||||
Swap Agreements | Counterparty | Amount | ||||||||||||||||
Australian 10 Year Bonds | Merrill Lynch | 199 | September-2011/Long | $ | 22,406,680 | $ | 12,575 | |||||||||||
Canada 10 Year Bonds | Goldman Sachs | 190 | September-2011/Long | 24,060,195 | 31,186 | |||||||||||||
Euro Bund | Merrill Lynch | 72 | September-2011/Long | 13,165,332 | 49,809 | |||||||||||||
Japan 10 Year Bonds | Merrill Lynch | 8 | September-2011/Long | 14,052,408 | 20,889 | |||||||||||||
Soybean Meal* | Barclays Capital | 8,840 | May-2012/Long | 5,322,824 | (402,929 | ) | ||||||||||||
U.S. Treasury 30 Year Bonds | Goldman Sachs | 7 | September-2011/Long | 867,945 | (7,421 | ) | ||||||||||||
Sub-total Swap Agreements | $ | 79,875,384 | $ | (295,891 | ) | |||||||||||||
Total | $ | 876,595 | ||||||||||||||||
* | Receive a return equal to Barclays Capital Soybean Meal S2 Nearby Excess Return Index and pay the product of (i) 0.30% of the Notional Amount multiplied by (ii) days in the period divided by 365. |
See accompanying Notes to Consolidated Financial Statements which are an integral part of the financial statements.
Invesco V.I. Balanced-Risk Allocation Fund
Portfolio Composition |
By asset class, based on Net Assets
as of June 30, 2011
Asset Class
% of Total | ||||||||
Net Assets | ||||||||
Asset Class | Risk Allocation | as of 06/30/11** | ||||||
Equity | 21.5 | % | 31.4 | % | ||||
Fixed Income | 49.8 | 124.3 | ||||||
Commodities | 28.7 | 25.4 | ||||||
** | Due to the use of leverage, the percentages may not equal 100% |
See accompanying Notes to Consolidated Financial Statements which are an integral part of the financial statements.
Invesco V.I. Balanced-Risk Allocation Fund
Consolidated Statement of Assets
and Liabilities
and Liabilities
June 30, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $13,366,278) | $ | 13,295,472 | ||
Investments in affiliated money market funds, at value and cost | 100,977,173 | |||
Total investments, at value (Cost $114,343,451) | 114,272,645 | |||
Cash | 2,000,009 | |||
Foreign currencies, at value (Cost $101,631) | 102,113 | |||
Receivable for: | ||||
Deposits with brokers for open futures contracts | 7,690,000 | |||
Variation margin | 368,237 | |||
Fund shares sold | 41,553 | |||
Dividends | 17,058 | |||
Fund expenses absorbed | 8,426 | |||
Investment for trustee deferred compensation and retirement plans | 8,428 | |||
Other assets | 126 | |||
Total assets | 124,508,595 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 104,201 | |||
Accrued fees to affiliates | 184,962 | |||
Accrued other operating expenses | 112,702 | |||
Trustee deferred compensation and retirement plans | 10,065 | |||
Unrealized depreciation on swap agreements | 392,678 | |||
Total liabilities | 804,608 | |||
Net assets applicable to shares outstanding | $ | 123,703,987 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 125,129,587 | ||
Undistributed net investment income | (342,520 | ) | ||
Undistributed net realized gain (loss) | (1,889,737 | ) | ||
Unrealized appreciation | 806,657 | |||
$ | 123,703,987 | |||
Net Assets: | ||||
Series I | $ | 2,445,611 | ||
Series II | $ | 121,258,376 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 229,194 | |||
Series II | 11,391,562 | |||
Series I: | ||||
Net asset value per share | $ | 10.67 | ||
Series II: | ||||
Net asset value per share | $ | 10.64 | ||
Consolidated Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $39,488) | $ | 450,270 | ||
Dividends from affiliated money market funds | 11,556 | |||
Interest | 3,519 | |||
Total investment income | 465,345 | |||
Expenses: | ||||
Advisory fees | 388,102 | |||
Administrative services fees | 139,723 | |||
Distribution fees — Series II | 114,032 | |||
Trustees’ and officers’ fees and benefits | 7,346 | |||
Other | (42,538 | ) | ||
Total expenses | 606,665 | |||
Less: Fees waived | (167,424 | ) | ||
Net expenses | 439,241 | |||
Net investment income | 26,104 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 9,306,057 | |||
Foreign currencies | (21,018 | ) | ||
Futures contracts | (2,981,491 | ) | ||
Swap agreements | 1,196,241 | |||
7,499,789 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (6,909,246 | ) | ||
Foreign currencies | (498 | ) | ||
Foreign currency contracts | 31,427 | |||
Futures contracts | 1,038,245 | |||
Swap agreements | (442,453 | ) | ||
(6,282,525 | ) | |||
Net realized and unrealized gain | 1,217,264 | |||
Net increase in net assets resulting from operations | $ | 1,243,368 | ||
See accompanying Notes to Consolidated Financial Statements which are an integral part of the financial statements.
Invesco V.I. Balanced-Risk Allocation Fund
Consolidated Statement of Changes in Net Assets
For the six months ended June 30, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 26,104 | $ | 468,578 | ||||
Net realized gain | 7,499,789 | 5,198,426 | ||||||
Change in net unrealized appreciation (depreciation) | (6,282,525 | ) | 127,094 | |||||
Net increase in net assets resulting from operations | 1,243,368 | 5,794,098 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (136 | ) | (196 | ) | ||||
Series II | (301,687 | ) | (185,515 | ) | ||||
Total distributions from net investment income | (301,823 | ) | (185,711 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | (3,582 | ) | (1,436 | ) | ||||
Series II | (14,743,368 | ) | (1,359,183 | ) | ||||
Total distributions from net realized gains | (14,746,950 | ) | (1,360,619 | ) | ||||
Share transactions–net: | ||||||||
Series I | 2,449,569 | (107,942 | ) | |||||
Series II | 60,367,160 | (39,141,623 | ) | |||||
Net increase (decrease) in net assets resulting from share transactions | 62,816,729 | (39,249,565 | ) | |||||
Net increase (decrease) in net assets | 49,011,324 | (35,001,797 | ) | |||||
Net assets: | ||||||||
Beginning of period | 74,692,663 | 109,694,460 | ||||||
End of period (includes undistributed net investment income of $(342,520) and $(66,801), respectively) | $ | 123,703,987 | $ | 74,692,663 | ||||
Notes to Consolidated Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Balanced-Risk Allocation Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these consolidated financial statements pertains 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 will seek to gain exposure to the commodity markets primarily through investments in the Invesco Cayman Commodity Fund IV Ltd. (the “Subsidiary”), a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands. The Subsidiary was organized by the Fund to invest in commodity-linked derivatives. The Fund may invest up to 25% of its total assets in the Subsidiary.
The Fund’s investment objective is to provide total return with a low to moderate correlation to traditional financial market indices.
Prior to May 2, 2011, the Fund operated as Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund (the “Acquired Fund”), an investment portfolio of the Trust. The Acquired Fund was reorganized May 2, 2011 (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 Series I and Series II Shares received Series I and Series II Shares, respectively of the Fund. Information for the Acquired Fund’s–Series I and Series II Shares prior to the Reorganization are included with Series I and Series II Shares, respectively, of the Fund throughout this report.
Invesco V.I. Balanced-Risk Allocation 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 consolidated 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 trade 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 consolidated 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 (net of withholding tax, if any) 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 Consolidated 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 net realized and unrealized gain (loss) from investment securities reported in the Consolidated Statement of Operations and the Consolidated Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Consolidated 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 Consolidated Statement of Operations and Consolidated Statement of Changes in Net Assets, or the net |
Invesco V.I. Balanced-Risk Allocation Fund
investment income per share and ratios of expenses and net investment income reported in the Consolidated 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 Consolidated 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 consolidated financial statements. | |
The Subsidiary is classified as a controlled foreign corporation under Subchapter N of the Internal Revenue Code. Therefore, the Fund is required to increase its taxable income by its share of the Subsidiary’s income. Net investment losses of the Subsidiary cannot be deducted by the Fund in the current period nor carried forward to offset taxable income in future periods. | ||
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 financial statements are prepared on a consolidated basis in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which 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. The accompanying financial statements reflect the financial position of the Fund and its Subsidiary and the results of operations on a consolidated basis. All inter-company accounts and transactions have been eliminated in consolidation. | |
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 consolidated financial statements are released to print. | ||
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust, and under the Subsidiary’s organizational documents, the directors and officers of the Subsidiary, are indemnified against certain liabilities that may arise out of performance of their duties to the Fund and/or the Subsidiary, respectively. 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 or Subsidiary 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 Consolidated 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 Consolidated 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 Consolidated Statement of Assets and Liabilities. | |
J. | Swap Agreements — The Fund or Subsidiary 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. |
Invesco V.I. Balanced-Risk Allocation Fund
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. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Fund may obtain only limited recovery or may obtain no recovery in such circumstances. | ||
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 Consolidated 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 Consolidated 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 Consolidated Statement of Operations. A liquidation payment received or made at the termination of a swap agreement is recorded as realized gain (loss) on the Consolidated 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 Consolidated 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. | ||
K. | Other Risks — The Fund will seek to gain exposure to commodity markets primarily through an investment in the Subsidiary and through investments in exchange traded funds. The Subsidiary, unlike the Fund, may invest without limitation in commodities, commodity-linked derivatives and other securities, such as exchange traded notes, that may provide leverage and non-leveraged exposure to commodity markets. The Fund is indirectly exposed to the risks associated with the Subsidiary’s investments. | |
The Fund is non-diversified and may invest in securities of fewer issuers than if it were diversified. Thus, the value of the Fund’s shares may vary more widely and the Fund may be subject to greater market and credit risk than if the Fund invested more broadly. | ||
L. | Collateral — To the extent the Fund or the Subsidiary 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
Effective May 2, 2011, 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 | .950% | ||
Next $250 million | 0 | .925% | ||
Next $500 million | 0 | .90% | ||
Next $1.5 billion | 0 | .875% | ||
Next $2.5 billion | 0 | .85% | ||
Next $2.5 billion | 0 | .825% | ||
Next $2.5 billion | 0 | .80% | ||
Over $10 billion | 0 | .775% | ||
Invesco V.I. Balanced-Risk Allocation 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 Canada Ltd. (formerly 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 Subsidiary has entered into a separate contract with the Adviser whereby the Adviser provides investment advisory and other services to the Subsidiary. In consideration of these services, the Subsidiary pays an advisory fee to the Adviser based on the annual rate of the Subsidiary’s average daily net assets as set forth in the table above.
Effective May 2, 2011, the Adviser contractually agreed, through at least June 30, 2013, 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 0.95% of average daily net assets. Prior to May 2, 2011, the Adviser waived advisory fees and/or reimbursed expenses of all shares to the extent necessary to limit total annual fund operating expenses to 0.90% and 1.15% for Series I and Series II shares, 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 total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary items or non-routine items; (5) expenses of the underlying funds that are paid indirectly as a result of share ownership of the underlying funds; (6) expenses related to a merger or reorganization, as approved by the Fund’s Board of Trustees; and (7) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2013.
Further, the Adviser has contractually agreed, through at least June 30, 2012, 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, 2011, the Adviser waived advisory fees of $167,424.
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, 2011, Invesco was paid $24,794 for accounting and fund administrative services and reimbursed $114,929 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, 2011, expenses incurred under the agreement are shown in the Consolidated 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, 2011, expenses incurred under the Plan are detailed in the Consolidated Statement of Operations as distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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. Balanced-Risk Allocation Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Exchange-Traded Funds | $ | 2,295,998 | $ | — | $ | — | $ | 2,295,998 | ||||||||
Money Market Funds | 100,977,173 | — | — | 100,977,173 | ||||||||||||
Foreign Government Debt Securities | — | 10,999,474 | — | 10,999,474 | ||||||||||||
$ | 103,273,171 | $ | 10,999,474 | $ | — | $ | 114,272,645 | |||||||||
Futures Contracts* | 1,172,486 | — | — | 1,172,486 | ||||||||||||
Swap Agreements* | — | (295,891 | ) | — | (295,891 | ) | ||||||||||
Total Investments | $ | 104,445,657 | $ | 10,703,583 | $ | — | $ | 115,149,240 | ||||||||
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
The Fund has implemented new 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 consolidated 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, 2011:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Commodity risk | ||||||||
Futures contracts(a) | $ | 112,152 | $ | (413,917 | ) | |||
Swap agreements(b) | — | (402,929 | ) | |||||
Interest rate risk | ||||||||
Futures contracts(a) | 196,779 | (96,304 | ) | |||||
Swap agreements(b) | 114,459 | (7,421 | ) | |||||
Market risk | ||||||||
Futures contracts(a) | 1,373,776 | — | ||||||
$ | 1,797,166 | $ | (920,571 | ) | ||||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s net variation margin (payable) is reported within the Consolidated Statement of Assets & Liabilities. | |
(b) | Values are disclosed on the Consolidated Statement of Assets and Liabilities under Unrealized appreciation (depreciation) on swap agreements. |
Invesco V.I. Balanced-Risk Allocation Fund
Effect of Derivative Instruments for the six months ended June 30, 2011
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) | ||||||||
Commodity risk | $ | (1,186,826 | ) | $ | 285,558 | |||
Interest rate risk | 1,005,186 | 910,683 | ||||||
Market risk | (2,799,851 | ) | — | |||||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Commodity risk | $ | (301,765 | ) | $ | (402,929 | ) | ||
Interest rate risk | 115,781 | 107,038 | ||||||
Market risk | 1,224,229 | (146,562 | ) | |||||
Total | $ | (1,943,246 | ) | $ | 753,788 | |||
* | The average value of futures and swap agreements outstanding during the period was $181,618,441 and $2,163,782, respectively. |
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, 2011, the Fund paid legal fees of $683 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner of that firm is a Trustee of the Trust.
NOTE 6—Cash Balances
The Fund and the Subsidiary are 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.
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, 2011 was $16,002,351 and $67,191,974, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as wash sales, that have occurred since the prior fiscal year-end. In a fund’s initial year of operations, the cost of investments for tax purposes will not reflect any tax adjustments until its fiscal year end reporting period.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | — | ||
Aggregate unrealized (depreciation) of investment securities | (70,806 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (70,806 | ) | |
Cost of investments is the same for tax and financial reporting purposes. |
Invesco V.I. Balanced-Risk Allocation Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 71,146 | $ | 759,017 | — | $ | 58 | ||||||||||
Series II | 570,294 | 6,816,983 | 2,727,339 | 33,427,450 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | — | — | ||||||||||||
Series II | 1,398,239 | 15,045,055 | 101,831 | 1,546,330 | ||||||||||||
Issued in connection with acquisitions:(b) | ||||||||||||||||
Series I | 174,025 | 1,876,288 | — | — | ||||||||||||
Series II | 6,178,799 | 66,483,294 | — | — | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (17,302 | ) | (185,736 | ) | (8,675 | ) | (108,000 | ) | ||||||||
Series II | (2,479,512 | ) | (27,978,172 | ) | (6,161,080 | ) | (74,115,403 | ) | ||||||||
Net increase (decrease) in share activity | 5,895,689 | $ | 62,816,729 | (3,340,585 | ) | $ | (39,249,565 | ) | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 91% 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) | As of the opening of business on May 2, 2011, the Fund acquired all the net assets of Invesco V.I. Global Multi-Asset Fund pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of Invesco V.I. Global Multi-Asset Fund on April 1, 2011. The acquisition was accomplished by a taxable exchange of 6,352,824 shares of the Fund for 5,245,904 shares outstanding of Invesco V.I. Global Multi-Asset Fund as of the close of business on April 29, 2011. Each class of Invesco V.I. Global Multi-Asset Fund was exchanged for the like class of shares of the Fund, based on the relative net asset value of Invesco V.I. Global Mulit-Asset Fund to the net asset value of the Fund on the close of business, April 29, 2011. Invesco V.I. Global Multi-Asset Fund’s net assets at that date of $68,359,582 was combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $73,364,971. |
Invesco V.I. Balanced-Risk Allocation Fund
NOTE 10—Consolidated Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | on securities | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I* | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | $ | 13.09 | $ | 0.02 | $ | 0.37 | $ | 0.39 | $ | (0.10 | ) | $ | (2.70 | ) | $ | (2.81 | ) | $ | 10.67 | 2.65 | % | $ | 2,446 | 0.71 | %(d)(e) | 1.07 | %(e) | 0.30 | %(e) | 37 | % | |||||||||||||||||||||||||
Year ended 12/31/10(f) | 12.00 | 0.10 | 1.15 | 1.25 | (0.02 | ) | (0.14 | ) | (0.16 | ) | 13.09 | 10.57 | 17 | 0.89 | 1.29 | 0.88 | (g) | 444 | ||||||||||||||||||||||||||||||||||||||
Eleven months ended 12/31/09(h) | 10.00 | 0.04 | 2.67 | 2.71 | (0.25 | ) | (0.46 | ) | (0.71 | ) | 12.00 | 28.21 | 120 | 0.90 | (i)(j) | 1.46 | (i)(j) | 0.41 | (g)(i)(j) | 87 | ||||||||||||||||||||||||||||||||||||
Series II* | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 13.05 | 0.00 | 0.35 | 0.35 | (0.06 | ) | (2.70 | ) | (2.76 | ) | 10.64 | 2.43 | 121,258 | 0.96 | (d)(e) | 1.32 | (e) | 0.05 | (e) | 37 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/10(f) | 12.10 | 0.07 | 1.04 | 1.11 | (0.02 | ) | (0.14 | ) | (0.16 | ) | 13.05 | 9.32 | 75 | 1.14 | 1.54 | 0.59 | (g) | 444 | ||||||||||||||||||||||||||||||||||||||
Eleven months ended 12/31/09(h) | 10.00 | 0.05 | 2.74 | 2.79 | (0.23 | ) | (0.46 | ) | (0.69 | ) | 12.10 | 27.86 | (k) | 110 | 1.15 | (i)(j) | 1.71 | (i)(j) | 0.44 | (g)(i)(j) | 87 | |||||||||||||||||||||||||||||||||||
* | Prior to May 2, 2011, the Fund operated as Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund. On such date, holders of the Acquired Fund’s Series I and Series II shares received Series I and Series II shares, respectively of the Fund. | |
(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) | In addition to the fees and expenses which the Fund bears directly; the Fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the Fund invests. Because the underlying funds have varied expenses and fee levels and the Fund may own different proportions at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. Estimated underlying fund expenses are not expenses that are incurred directly by your Fund. They are expenses that are incurred directly by the underlying funds and are deducted from the value of the funds your Fund invests in. The effect of the estimated underlying fund expenses that you bear indirectly is included in your Fund’s total return. Estimated acquired fund fees from underlying funds was 0.04%. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $724 and $91,981 for Series I and Series II shares, respectively. | |
(f) | On June 1, 2010, Class I and Class II shares of the predecessor fund were reorganized into Series I and Series II shares, respectively of the Fund. | |
(g) | Ratio of net investment income to average net assets without fee waivers and/or expenses absorbed for the year ended December 31, 2010 and the period ended December 31, 2009 was 0.48% and (0.15)% for Series I shares and 0.19% and (0.12)% for Series II shares, respectively. | |
(h) | Commencement date of January 23, 2009. | |
(i) | 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 0.08% at December 31, 2009. | |
(j) | Annualized. | |
(k) | These returns include combined 12b-1 fees and service fees of up to 0.25%. |
Invesco V.I. Balanced-Risk Allocation Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2011 through June 30, 2011.
In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which your Fund invests. The amount of fees and expenses incurred indirectly by your Fund will vary because the underlying funds have varied expenses and fee levels and the Fund may own different proportions of the underlying funds at different times. Estimated underlying fund expenses are not expenses that are incurred directly by your Fund. They are expenses that are incurred directly by the underlying funds and are deducted from the value of the underlying funds your Fund invests in. The effect of the estimated underlying fund expenses that you bear indirectly are included in your Fund’s total return.
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 | (01/01/11) | (06/30/11)1 | Period2,4 | (06/30/11) | Period2,5 | Ratio3 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,026.50 | $ | 3.57 | $ | 1,021.27 | $ | 3.56 | 0.71 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,024.30 | 4.82 | 1,020.03 | 4.81 | 0.96 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2011 through June 30, 2011, 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. |
3 | Effective May 2, 2011, 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 0.70% and 0.95% 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 0.68% and 0.93% for Series I and Series II shares, respectively. |
4 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $3.42 and $4.67 for Series I and Series II shares, respectively. |
5 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $3.41 and $4.66 for Series I and Series II shares, respectively. |
Invesco V.I. Balanced-Risk Allocation 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. Balanced-Risk Allocation 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the
Invesco V.I. Balanced-Risk Allocation Fund
nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board noted that no Lipper material was available for the Fund because the Fund has less than one year of operations at December 31,2010. The Board did note that performance of the Fund was below the MSCI World Index for the period ending December 31, 2010.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board noted that no Lipper material was available for the Fund because the Fund has less than one year of operations at December 31,2010. The Board 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. The Board noted that the Fund’s effective rate was below the fee rate for one mutual fund and above the sub-advisory fee rate of one offshore fund with comparable investment strategies.
Other than the funds 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 June 30, 2013 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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. Balanced-Risk Allocation Fund
Invesco V.I. Basic Value Fund | ||||
Semiannual Report to Shareholders ■ June 30, 2011 |
![(INVESCO LOGO)](https://capedge.com/proxy/N-CSRS/0000950123-11-079973/h83397h8338501.gif)
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at 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, 2011, is available at 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
Performance summary
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | ||||
Series I Shares | 3.29 | % | ||
Series II Shares | 3.15 | |||
S&P500 Index▼ (Broad Market Index) | 6.01 | |||
Russell 1000 Value Index▼ (Style-Specific Index) | 5.92 | |||
Lipper VUF Large-Cap Value Funds Index▼ (Peer Group Index) | 5.49 | |||
▼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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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.
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.
Average Annual Total Returns
As of 6/30/11
As of 6/30/11
Series I Shares | ||||
Inception (9/10/01) | 1.35 | % | ||
5 Years | -2.06 | |||
1 Year | 24.41 | |||
Series II Shares | ||||
Inception (9/10/01) | 1.10 | % | ||
5 Years | -2.32 | |||
1 Year | 24.08 |
Invesco V.I. Basic Value Fund
Schedule of Investments
June 30, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.29%(a) | ||||||||
Advertising–5.77% | ||||||||
Omnicom Group, Inc. | 334,112 | $ | 16,090,834 | |||||
Aerospace & Defense–1.84% | ||||||||
Honeywell International, Inc. | 86,169 | 5,134,811 | ||||||
Asset Management & Custody Banks–1.96% | ||||||||
Bank of New York Mellon Corp. | 213,449 | 5,468,563 | ||||||
Automobile Manufacturers–2.17% | ||||||||
Renault S.A. (France) | 102,117 | 6,056,333 | ||||||
Brewers–3.59% | ||||||||
Molson Coors Brewing Co.–Class B | 223,892 | 10,016,928 | ||||||
Cable & Satellite–6.91% | ||||||||
Comcast Corp.–Class A | 234,976 | 5,954,292 | ||||||
Time Warner Cable, Inc. | 170,588 | 13,312,687 | ||||||
19,266,979 | ||||||||
Computer Hardware–6.29% | ||||||||
Apple, Inc.(b) | 14,954 | 5,019,609 | ||||||
Dell, Inc.(b) | 224,172 | 3,736,948 | ||||||
Hewlett-Packard Co. | 240,828 | 8,766,139 | ||||||
17,522,696 | ||||||||
Data Processing & Outsourced Services–1.73% | ||||||||
Western Union Co. | 241,082 | 4,828,873 | ||||||
Department Stores–3.21% | ||||||||
Macy’s, Inc. | 305,695 | 8,938,522 | ||||||
Diversified Banks–5.81% | ||||||||
Comerica, Inc. | 100,948 | 3,489,772 | ||||||
U.S. Bancorp | 187,939 | 4,794,324 | ||||||
Wells Fargo & Co.(b) | 281,666 | 7,903,548 | ||||||
16,187,644 | ||||||||
General Merchandise Stores–1.80% | ||||||||
Target Corp. | 106,901 | 5,014,726 | ||||||
Household Products–2.72% | ||||||||
Procter & Gamble Co. (The) | 119,318 | 7,585,045 | ||||||
Hypermarkets & Super Centers–3.40% | ||||||||
Wal-Mart Stores, Inc. | 178,231 | 9,471,195 | ||||||
Industrial Conglomerates–1.70% | ||||||||
General Electric Co. | 250,848 | 4,730,993 | ||||||
Integrated Oil & Gas–12.60% | ||||||||
Chevron Corp. | 106,813 | 10,984,649 | ||||||
Exxon Mobil Corp. | 75,081 | 6,110,092 | ||||||
Petroleo Brasileiro S.A.–ADR (Brazil) | 170,924 | 5,787,486 | ||||||
Royal Dutch Shell PLC–ADR (United Kingdom) | 171,847 | 12,223,477 | ||||||
35,105,704 | ||||||||
Investment Banking & Brokerage–3.17% | ||||||||
Goldman Sachs Group, Inc. (The) | 28,025 | 3,729,847 | ||||||
Morgan Stanley | 221,842 | 5,104,585 | ||||||
8,834,432 | ||||||||
Life & Health Insurance–1.95% | ||||||||
MetLife, Inc. | 123,759 | 5,429,307 | ||||||
Managed Health Care–2.07% | ||||||||
UnitedHealth Group, Inc. | 112,009 | 5,777,424 | ||||||
Oil & Gas Drilling–1.25% | ||||||||
Noble Corp.(b) | 88,572 | 3,490,623 | ||||||
Other Diversified Financial Services–8.17% | ||||||||
Bank of America Corp. | 604,439 | 6,624,652 | ||||||
Citigroup, Inc. | 90,805 | 3,781,120 | ||||||
JPMorgan Chase & Co. | 302,148 | 12,369,939 | ||||||
22,775,711 | ||||||||
Pharmaceuticals–4.39% | ||||||||
Bristol-Myers Squibb Co. | 169,395 | 4,905,679 | ||||||
Pfizer, Inc. | 355,780 | 7,329,068 | ||||||
12,234,747 | ||||||||
Property & Casualty Insurance–13.27% | ||||||||
Allied World Assurance Co. Holdings Ltd. (Switzerland)(b) | 79,212 | 4,561,027 | ||||||
Allstate Corp. (The) | 192,530 | 5,877,941 | ||||||
Aspen Insurance Holdings Ltd. | 264,646 | 6,809,342 | ||||||
Chubb Corp. (The) | 238,017 | 14,902,244 | ||||||
Travelers Cos., Inc. (The) | 82,796 | 4,833,630 | ||||||
36,984,184 | ||||||||
Steel–1.52% | ||||||||
POSCO–ADR (South Korea)(b) | 39,033 | 4,239,764 | ||||||
Wireless Telecommunication Services–2.00% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 208,266 | 5,564,868 | ||||||
Total Common Stocks & Other Equity Interests (Cost $231,899,925) | $ | 276,750,906 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Basic Value Fund
Shares | Value | |||||||
Money Market Funds–1.80% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 2,502,457 | $ | 2,502,457 | |||||
Premier Portfolio–Institutional Class(c) | 2,502,457 | 2,502,457 | ||||||
Total Money Market Funds (Cost $5,004,914) | 5,004,914 | |||||||
TOTAL INVESTMENTS–101.09% (Cost $236,904,839) | 281,755,820 | |||||||
OTHER ASSETS LESS LIABILITIES–(1.09)% | (3,035,794 | ) | ||||||
NET ASSETS–100.00% | $ | 278,720,026 | ||||||
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, 2011
Financials | 34.3 | % | ||
Consumer Discretionary | 19.9 | |||
Energy | 13.9 | |||
Consumer Staples | 9.7 | |||
Information Technology | 8.0 | |||
Health Care | 6.5 | |||
Industrials | 3.5 | |||
Telecommunication Services | 2.0 | |||
Materials | 1.5 | |||
Money Market Funds Plus Other Assets Less Liabilities | 0.7 | |||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $231,899,925) | $ | 276,750,906 | ||
Investments in affiliated money market funds, at value and cost | 5,004,914 | |||
Total investments, at value (Cost $236,904,839) | 281,755,820 | |||
Foreign currencies, at value (Cost $3) | 3 | |||
Receivable for: | ||||
Fund shares sold | 245,562 | |||
Dividends | 626,449 | |||
Investment for trustee deferred compensation and retirement plans | 27,658 | |||
Total assets | 282,655,492 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 3,391,589 | |||
Accrued fees to affiliates | 439,160 | |||
Accrued other operating expenses | 17,394 | |||
Trustee deferred compensation and retirement plans | 87,323 | |||
Total liabilities | 3,935,466 | |||
Net assets applicable to shares outstanding | $ | 278,720,026 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 300,961,806 | ||
Undistributed net investment income | 3,499,646 | |||
Undistributed net realized gain (loss) | (70,592,407 | ) | ||
Unrealized appreciation | 44,850,981 | |||
$ | 278,720,026 | |||
Net Assets: | ||||
Series I | $ | 162,815,780 | ||
Series II | $ | 115,904,246 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 24,717,643 | |||
Series II | 17,724,673 | |||
Series I: | ||||
Net asset value per share | $ | 6.59 | ||
Series II: | ||||
Net asset value per share | $ | 6.54 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $77,946) | $ | 3,214,290 | ||
Dividends from affiliated money market funds | 5,935 | |||
Total investment income | 3,220,225 | |||
Expenses: | ||||
Advisory fees | 1,047,150 | |||
Administrative services fees | 402,682 | |||
Custodian fees | 143 | |||
Distribution fees — Series II | 158,316 | |||
Transfer agent fees | 10,501 | |||
Trustees’ and officers’ fees and benefits | 12,324 | |||
Other | 16,901 | |||
Total expenses | 1,648,017 | |||
Less: Fees waived | (7,766 | ) | ||
Net expenses | 1,640,251 | |||
Net investment income | 1,579,974 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $520,464) | 13,021,974 | |||
Foreign currencies | (9,043 | ) | ||
13,012,931 | ||||
Change in net unrealized appreciation (depreciation) of investment securities | (4,372,834 | ) | ||
Net realized and unrealized gain | 8,640,097 | |||
Net increase in net assets resulting from operations | $ | 10,220,071 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,579,974 | $ | 1,797,336 | ||||
Net realized gain | 13,012,931 | 1,972,585 | ||||||
Change in net unrealized appreciation (depreciation) | (4,372,834 | ) | 17,975,887 | |||||
Net increase in net assets resulting from operations | 10,220,071 | 21,745,808 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (1,104,262 | ) | |||||
Series II | — | (467,104 | ) | |||||
Total distributions from net investment income | — | (1,571,366 | ) | |||||
Share transactions–net: | ||||||||
Series I | (24,621,262 | ) | (56,488,740 | ) | ||||
Series II | (20,691,879 | ) | (10,025,853 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (45,313,141 | ) | (66,514,593 | ) | ||||
Net increase (decrease) in net assets | (35,093,070 | ) | (46,340,151 | ) | ||||
Net assets: | ||||||||
Beginning of period | 313,813,096 | 360,153,247 | ||||||
End of period (includes undistributed net investment income of $3,499,646 and $1,919,672, respectively) | $ | 278,720,026 | $ | 313,813,096 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Basic Value Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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 (“GAAP”) 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 Daily 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 Canada Ltd. (formerly 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, 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 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 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 the Trustees and Invesco mutually agree to amend or
Invesco V.I. Basic Value Fund
continue the fee waiver agreement, it will terminate on April 30, 2012. 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, 2012, 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, 2011, the Adviser waived advisory fees of $7,766.
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, 2011, 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, 2011, Invesco was paid $39,842 for accounting and fund administrative services and reimbursed $362,840 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 281,755,820 | $ | — | $ | — | $ | 281,755,820 | ||||||||
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, 2011, the Fund engaged in securities purchases of $0 and securities sales of $1,845,703, which resulted in net realized gains of $520,464.
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, 2011, the Fund paid legal fees of $856 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 40,544,207 | ||
December 31, 2017 | 32,409,899 | |||
December 31, 2018 | 7,875,284 | |||
Total capital loss carryforward | $ | 80,829,390 | ||
* | 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, 2011 was $33,493,339 and $69,604,596, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 47,906,547 | ||
Aggregate unrealized (depreciation) of investment securities | (5,831,515 | ) | ||
Net unrealized appreciation of investment securities | $ | 42,075,032 | ||
Cost of investments for tax purposes is $239,680,788. |
Invesco V.I. Basic Value Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 680,499 | $ | 4,541,544 | 1,839,415 | $ | 11,111,452 | ||||||||||
Series II | 604,420 | 3,959,429 | 4,402,680 | 25,876,503 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 188,763 | 1,104,262 | ||||||||||||
Series II | — | — | 80,258 | 467,104 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (4,411,766 | ) | (29,162,806 | ) | (11,391,121 | ) | (68,704,454 | ) | ||||||||
Series II | (3,741,213 | ) | (24,651,308 | ) | (6,127,464 | ) | (36,369,460 | ) | ||||||||
Net increase (decrease) in share activity | (6,868,060 | ) | $ | (45,313,141 | ) | (11,007,469 | ) | $ | (66,514,593 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 75% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||||||||
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 06/30/11 | $ | 6.38 | $ | 0.04 | $ | 0.17 | $ | 0.21 | $ | — | $ | — | $ | — | $ | 6.59 | 3.29 | % | $ | 162,816 | 0.97 | %(d) | 0.98 | %(d) | 1.15 | %(d) | 11 | % | ||||||||||||||||||||||||||||
Year ended 12/31/10 | 5.98 | 0.04 | 0.40 | 0.44 | (0.04 | ) | — | (0.04 | ) | 6.38 | 7.35 | 181,515 | 1.00 | 1.00 | 0.65 | 86 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 4.10 | 0.03 | 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 | (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 | 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 | 1.54 | 1.61 | (0.05 | ) | (0.58 | ) | (0.63 | ) | 13.35 | 13.12 | 489,352 | 0.97 | 1.02 | 0.54 | 15 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 6.34 | 0.03 | 0.17 | 0.20 | — | — | — | 6.54 | 3.15 | 115,904 | 1.22 | (d) | 1.23 | (d) | 0.90 | (d) | 11 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 5.95 | 0.02 | 0.39 | 0.41 | (0.02 | ) | — | (0.02 | ) | 6.34 | 6.94 | 132,298 | 1.25 | 1.25 | 0.40 | 86 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 4.07 | 0.02 | 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 | (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 | 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 | 1.54 | 1.58 | (0.02 | ) | (0.58 | ) | (0.60 | ) | 13.24 | 12.94 | 339,457 | 1.22 | 1.27 | 0.29 | 15 | |||||||||||||||||||||||||||||||||||||||
(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 $178,142 and $127,703 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,032.90 | $ | 4.89 | $ | 1,019.98 | $ | 4.86 | 0.97 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,031.50 | 6.15 | 1,018.74 | 6.11 | 1.22 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2011 through June 30, 2011, 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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 funds in the Lipper performance universe and against the Lipper VA Underlying Funds Multi-Cap Value Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile of the performance universe for the one, three and five year periods (the first quintile being the best performing funds and the
Invesco V.I. Basic Value Fund
fifth quintile being the worst performing funds). The Board noted that 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 the lead manager for the Fund was replaced in June 2010. Invesco Advisers advised the Board that the Fund was managed consistently with its mandate. 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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. The Board noted that the Fund’s effective fee rate was above the effective fee rate of one mutual fund with comparable investment strategies.
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 solely for investment management services. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts. These additional services include 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 for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. 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 often more comparable. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from services provided to institutional clients, and 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, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waivers is 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, 2011
Semiannual Report to Shareholders ■ June 30, 2011
![(INVESCO LOGO)](https://capedge.com/proxy/N-CSRS/0000950123-11-079973/h83397h8338601.gif)
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at 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, 2011, is available at 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
VICAP-SAR-1
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 4.76 | % | ||
Series II Shares | 4.62 | |||
S&P 500 Index▼ (Broad Market Index) | 6.01 | |||
Russell 1000 Growth Index▼ (Style-Specific Index) | 6.83 | |||
Lipper VUF Multi-Cap Growth Funds Category Average▼ (Peer Group) | 6.56 | |||
▼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 indexconsidered representative of large-cap growth stocks. The Russell 1000 GrowthIndex is a trademark/ servicemark 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 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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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 6/30/11
As of 6/30/11
Series I Shares | ||||
Inception (5/5/93) | 6.21 | % | ||
10 Years | 0.38 | |||
5 Years | 0.13 | |||
1 Year | 32.39 | |||
Series II Shares | ||||
10 Years | 0.13 | % | ||
5 Years | -0.12 | |||
1 Year | 32.02 |
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 0.91% and 1.16%, respectively. The expense ratios presented
above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
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, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.85% | ||||||||
Aerospace & Defense–3.19% | ||||||||
Honeywell International, Inc. | 115,007 | $ | 6,853,267 | |||||
Precision Castparts Corp. | 85,274 | 14,040,364 | ||||||
20,893,631 | ||||||||
Apparel Retail–1.81% | ||||||||
Limited Brands, Inc. | 171,837 | 6,607,133 | ||||||
Prada S.p.A. (Italy)(b)(c) | 416,600 | 2,513,509 | ||||||
Prada S.p.A. (Italy)(c) | 455,500 | 2,748,207 | ||||||
11,868,849 | ||||||||
Apparel, Accessories & Luxury Goods–1.70% | ||||||||
Coach, Inc. | 174,280 | 11,141,720 | ||||||
Application Software–2.88% | ||||||||
Citrix Systems, Inc.(c) | 163,812 | 13,104,960 | ||||||
Salesforce.com, Inc.(c) | 38,578 | 5,747,350 | ||||||
18,852,310 | ||||||||
Asset Management & Custody Banks–1.19% | ||||||||
Ameriprise Financial, Inc. | 134,982 | 7,785,762 | ||||||
Biotechnology–1.42% | ||||||||
Gilead Sciences, Inc.(c) | 223,764 | 9,266,067 | ||||||
Cable & Satellite–4.07% | ||||||||
Comcast Corp.–Class A | 395,577 | 10,023,921 | ||||||
DIRECTV–Class A(c) | 326,938 | 16,614,989 | ||||||
26,638,910 | ||||||||
Casinos & Gaming–0.10% | ||||||||
Las Vegas Sands Corp.(c) | 15,704 | 662,866 | ||||||
Communications Equipment–2.69% | ||||||||
F5 Networks, Inc.(c) | 32,462 | 3,578,936 | ||||||
Juniper Networks, Inc.(c) | 143,423 | 4,517,824 | ||||||
QUALCOMM, Inc. | 167,777 | 9,528,056 | ||||||
17,624,816 | ||||||||
Computer Hardware–4.96% | ||||||||
Apple, Inc.(c) | 96,655 | 32,444,184 | ||||||
Computer Storage & Peripherals–2.45% | ||||||||
EMC Corp.(c) | 480,437 | 13,236,039 | ||||||
SanDisk Corp.(c) | 66,452 | 2,757,758 | ||||||
15,993,797 | ||||||||
Construction & Engineering–1.62% | ||||||||
Foster Wheeler AG (Switzerland)(c) | 349,158 | 10,607,420 | ||||||
Construction & Farm Machinery & Heavy Trucks–1.75% | ||||||||
Cummins Inc. | 65,743 | 6,803,743 | ||||||
Navistar International Corp.(c) | 81,893 | 4,623,679 | ||||||
11,427,422 | ||||||||
Consumer Finance–0.57% | ||||||||
American Express Co. | 71,775 | 3,710,767 | ||||||
Data Processing & Outsourced Services–1.86% | ||||||||
MasterCard, Inc.–Class A | 40,333 | 12,153,946 | ||||||
Department Stores–0.96% | ||||||||
Kohl’s Corp. | 125,026 | 6,252,550 | ||||||
Drug Retail–1.09% | ||||||||
CVS Caremark Corp. | 189,630 | 7,126,295 | ||||||
Fertilizers & Agricultural Chemicals–3.16% | ||||||||
Monsanto Co. | 153,112 | 11,106,744 | ||||||
Mosaic Co. (The) | 39,778 | 2,694,164 | ||||||
Potash Corp. of Saskatchewan Inc. (Canada) | 120,913 | 6,890,832 | ||||||
20,691,740 | ||||||||
Gold–0.48% | ||||||||
Barrick Gold Corp. (Canada) | 69,970 | 3,168,941 | ||||||
Health Care Distributors–1.01% | ||||||||
Cardinal Health, Inc. | 145,278 | 6,598,527 | ||||||
Health Care Equipment–1.16% | ||||||||
Baxter International Inc. | 74,014 | 4,417,896 | ||||||
Stryker Corp. | 53,967 | 3,167,323 | ||||||
7,585,219 | ||||||||
Health Care Services–2.20% | ||||||||
Express Scripts, Inc.(c) | 159,479 | 8,608,677 | ||||||
Medco Health Solutions, Inc.(c) | 102,008 | 5,765,492 | ||||||
14,374,169 | ||||||||
Health Care Technology–0.69% | ||||||||
Allscripts Healthcare Solutions, Inc.(c) | 231,341 | 4,492,642 | ||||||
Heavy Electrical Equipment–1.47% | ||||||||
ABB Ltd. (Switzerland)(c) | 142,750 | 3,702,058 | ||||||
ABB Ltd.–ADR (Switzerland)(c) | 228,490 | 5,929,316 | ||||||
9,631,374 | ||||||||
Home Improvement Retail–1.06% | ||||||||
Home Depot, Inc. (The) | 191,941 | 6,952,103 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Capital Appreciation Fund
Shares | Value | |||||||
Hotels, Resorts & Cruise Lines–0.10% | ||||||||
Starwood Hotels & Resorts Worldwide, Inc. | 11,771 | $ | 659,647 | |||||
Hypermarkets & Super Centers–1.02% | ||||||||
Costco Wholesale Corp. | 82,488 | 6,701,325 | ||||||
Industrial Machinery–2.58% | ||||||||
Danaher Corp. | 119,946 | 6,355,939 | ||||||
Ingersoll-Rand PLC (Ireland) | 231,371 | 10,506,557 | ||||||
16,862,496 | ||||||||
Integrated Oil & Gas–1.62% | ||||||||
Occidental Petroleum Corp. | 101,778 | 10,588,983 | ||||||
Internet Retail–3.63% | ||||||||
Amazon.com, Inc.(c) | 58,375 | 11,937,104 | ||||||
Netflix Inc.(c) | 24,724 | 6,494,748 | ||||||
Priceline.com Inc.(c) | 10,439 | 5,344,037 | ||||||
23,775,889 | ||||||||
Internet Software & Services–5.55% | ||||||||
Baidu, Inc.–ADR (China)(c) | 145,582 | 20,400,406 | ||||||
Google, Inc.–Class A(c) | 31,471 | 15,936,285 | ||||||
36,336,691 | ||||||||
Investment Banking & Brokerage–0.49% | ||||||||
Jefferies Group, Inc. | 156,235 | 3,187,194 | ||||||
IT Consulting & Other Services–4.39% | ||||||||
Accenture PLC–Class A (Ireland) | 319,860 | 19,325,941 | ||||||
Cognizant Technology Solutions Corp.–Class A(c) | 127,641 | 9,361,191 | ||||||
28,687,132 | ||||||||
Life Sciences Tools & Services–0.94% | ||||||||
Illumina, Inc.(c) | 81,987 | 6,161,323 | ||||||
Managed Health Care–2.25% | ||||||||
UnitedHealth Group, Inc. | 285,426 | 14,722,273 | ||||||
Movies & Entertainment–1.02% | ||||||||
Walt Disney Co. (The) | 170,485 | 6,655,734 | ||||||
Oil & Gas Equipment & Services–8.58% | ||||||||
Baker Hughes Inc. | 92,828 | 6,735,600 | ||||||
Cameron International Corp.(c) | 201,839 | 10,150,483 | ||||||
Halliburton Co. | 241,024 | 12,292,224 | ||||||
National Oilwell Varco Inc. | 213,370 | 16,687,668 | ||||||
Weatherford International Ltd.(c) | 546,219 | 10,241,606 | ||||||
56,107,581 | ||||||||
Oil & Gas Exploration & Production–1.90% | ||||||||
Anadarko Petroleum Corp. | 78,211 | 6,003,477 | ||||||
EOG Resources, Inc. | 61,155 | 6,393,755 | ||||||
12,397,232 | ||||||||
Other Diversified Financial Services–1.22% | ||||||||
JPMorgan Chase & Co. | 194,982 | 7,982,563 | ||||||
Packaged Foods & Meats–0.91% | ||||||||
Mead Johnson Nutrition Co. | 87,716 | 5,925,216 | ||||||
Pharmaceuticals–1.79% | ||||||||
Allergan, Inc. | 88,608 | 7,376,616 | ||||||
Pfizer Inc. | 94,891 | 1,954,755 | ||||||
Shire PLC (United Kingdom) | 76,163 | 2,377,747 | ||||||
11,709,118 | ||||||||
Railroads–1.39% | ||||||||
Union Pacific Corp. | 87,388 | 9,123,307 | ||||||
Restaurants–1.09% | ||||||||
Chipotle Mexican Grill, Inc.(c) | 11,383 | 3,508,127 | ||||||
Krispy Kreme Doughnuts Inc.–Wts., expiring 03/02/12(d) | 1,194 | 955 | ||||||
Starbucks Corp. | 92,208 | 3,641,294 | ||||||
7,150,376 | ||||||||
Semiconductors–2.55% | ||||||||
Atmel Corp.(c) | 557,944 | 7,850,272 | ||||||
Broadcom Corp.–Class A(c) | 160,293 | 5,392,256 | ||||||
Xilinx, Inc. | 93,453 | 3,408,231 | ||||||
16,650,759 | ||||||||
Soft Drinks–0.68% | ||||||||
Hansen Natural Corp.(c) | 54,809 | 4,436,789 | ||||||
Systems Software–5.20% | ||||||||
Oracle Corp. | 311,087 | 10,237,873 | ||||||
Rovi Corp.(c) | 414,148 | 23,755,529 | ||||||
33,993,402 | ||||||||
Technology Distributors–0.89% | ||||||||
Avnet, Inc.(c) | 182,861 | 5,829,610 | ||||||
Trucking–1.74% | ||||||||
J.B. Hunt Transport Services, Inc. | 241,928 | 11,392,390 | ||||||
Wireless Telecommunication Services–1.78% | ||||||||
America Movil SAB de C.V., Series L–ADR (Mexico) | 86,379 | 4,654,101 | ||||||
American Tower Corp.–Class A(c) | 133,595 | 6,991,026 | ||||||
11,645,127 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $540,262,539) | 646,628,184 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Capital Appreciation Fund
Shares | Value | |||||||
Money Market Funds–2.96% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 9,688,893 | $ | 9,688,893 | |||||
Premier Portfolio–Institutional Class(e) | 9,688,893 | 9,688,893 | ||||||
Total Money Market Funds (Cost $19,377,786) | 19,377,786 | |||||||
TOTAL INVESTMENTS–101.81% (Cost $559,640,325) | 666,005,970 | |||||||
OTHER ASSETS LESS LIABILITIES–(1.81)% | (11,859,673 | ) | ||||||
NET ASSETS–100.00% | $ | 654,146,297 | ||||||
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) | 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, 2011 represented 0.38% of the Fund’s Net Assets. | |
(c) | Non-income producing security. | |
(d) | Non-income producing security acquired through a corporate action. | |
(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, 2011
Information Technology | 33.4 | % | ||
Consumer Discretionary | 15.6 | |||
Industrials | 13.7 | |||
Energy | 12.1 | |||
Health Care | 11.5 | |||
Consumer Staples | 3.7 | |||
Materials | 3.6 | |||
Financials | 3.5 | |||
Telecommunication Services | 1.8 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.1 | |||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $540,262,539) | $ | 646,628,184 | ||
Investments in affiliated money market funds, at value and cost | 19,377,786 | |||
Total investments, at value (Cost $559,640,325) | 666,005,970 | |||
Receivable for: | ||||
Investments sold | 9,066,102 | |||
Fund shares sold | 21,977 | |||
Dividends | 367,205 | |||
Investment for trustee deferred compensation and retirement plans | 150,811 | |||
Other assets | 452 | |||
Total assets | 675,612,517 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 13,919,283 | |||
Investments purchased from affiliates | 5,838,727 | |||
Fund shares reacquired | 490,454 | |||
Accrued fees to affiliates | 891,260 | |||
Accrued other operating expenses | 24,425 | |||
Trustee deferred compensation and retirement plans | 302,071 | |||
Total liabilities | 21,466,220 | |||
Net assets applicable to shares outstanding | $ | 654,146,297 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 750,779,483 | ||
Undistributed net investment income | 1,031,927 | |||
Undistributed net realized gain (loss) | (204,030,758 | ) | ||
Unrealized appreciation | 106,365,645 | |||
$ | 654,146,297 | |||
Net Assets: | ||||
Series I | $ | 473,381,884 | ||
Series II | $ | 180,764,413 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 19,395,770 | |||
Series II | 7,537,175 | |||
Series I: | ||||
Net asset value per share | $ | 24.41 | ||
Series II: | ||||
Net asset value per share | $ | 23.98 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $29,042) | $ | 3,828,088 | ||
Dividends from affiliated money market funds (includes securities lending income of $4,187) | 14,009 | |||
Interest | 36,031 | |||
Total investment income | 3,878,128 | |||
Expenses: | ||||
Advisory fees | 2,073,488 | |||
Administrative services fees | 862,184 | |||
Custodian fees | 7,377 | |||
Distribution fees — Series II | 229,135 | |||
Transfer agent fees | 21,597 | |||
Trustees’ and officers’ fees and benefits | 19,003 | |||
Other | 26,300 | |||
Total expenses | 3,239,084 | |||
Less: Fees waived | (13,265 | ) | ||
Net expenses | 3,225,819 | |||
Net investment income | 652,309 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $529,732) | 84,537,916 | |||
Foreign currencies | 45,902 | |||
84,583,818 | ||||
Change in net unrealized appreciation (depreciation) of investment securities | (53,811,056 | ) | ||
Net realized and unrealized gain | 30,772,762 | |||
Net increase in net assets resulting from operations | $ | 31,425,071 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 652,309 | $ | 735,384 | ||||
Net realized gain | 84,583,818 | 45,392,890 | ||||||
Change in net unrealized appreciation (depreciation) | (53,811,056 | ) | 47,561,475 | |||||
Net increase in net assets resulting from operations | 31,425,071 | 93,689,749 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (3,537,619 | ) | |||||
Series II | — | (915,129 | ) | |||||
Total distributions from net investment income | — | (4,452,748 | ) | |||||
Share transactions–net: | ||||||||
Series I | (48,153,486 | ) | (78,894,363 | ) | ||||
Series II | (12,822,318 | ) | (32,232,888 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (60,975,804 | ) | (111,127,251 | ) | ||||
Net increase (decrease) in net assets | (29,550,733 | ) | (21,890,250 | ) | ||||
Net assets: | ||||||||
Beginning of period | 683,697,030 | 705,587,280 | ||||||
End of period (includes undistributed net investment income of $1,031,927 and $379,618, respectively) | $ | 654,146,297 | $ | 683,697,030 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Capital Appreciation Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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 (“GAAP”) 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 Daily 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 Canada Ltd. (formerly 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. Capital Appreciation Fund
The Adviser has contractually agreed, through at least April 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 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 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 the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2012. 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, 2012, 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, 2011, the Adviser waived advisory fees of $13,265.
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, 2011, 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, 2011, Invesco was paid $82,067 for accounting and fund administrative services and reimbursed $780,117 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 666,005,970 | $ | — | $ | — | $ | 666,005,970 | ||||||||
Invesco V.I. Capital Appreciation 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, 2011, the Fund engaged in securities purchases of $12,754,416 and securities sales of $6,320,326, which resulted in net realized gains of $529,732.
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, 2011, the Fund paid legal fees of $1,118 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2011 | $ | 56,312,952 | ||
December 31, 2017 | 228,377,814 | |||
Total capital loss carryforward | $ | 284,690,766 | ||
* | 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, 2011 was $490,409,765 and $538,735,280, 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 | $ | 109,916,978 | ||
Aggregate unrealized (depreciation) of investment securities | (7,475,143 | ) | ||
Net unrealized appreciation of investment securities | $ | 102,441,835 | ||
Cost of investments for tax purposes is $563,564,135. |
Invesco V.I. Capital Appreciation Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 211,162 | $ | 5,075,399 | 587,627 | $ | 12,238,362 | ||||||||||
Series II | 195,452 | 4,620,349 | 512,761 | 10,258,765 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 170,899 | 3,537,619 | ||||||||||||
Series II | — | — | 44,903 | 915,129 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,212,610 | ) | (53,228,885 | ) | (4,572,413 | ) | (94,670,344 | ) | ||||||||
Series II | (738,245 | ) | (17,442,667 | ) | (2,127,908 | ) | (43,406,782 | ) | ||||||||
Net increase (decrease) in share activity | (2,544,241 | ) | $ | (60,975,804 | ) | (5,384,131 | ) | $ | (111,127,251 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 41% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
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 06/30/11 | $ | 23.30 | $ | 0.03 | (c) | $ | 1.08 | $ | 1.11 | $ | — | $ | 24.41 | 4.76 | % | $ | 473,382 | 0.90 | %(d) | 0.90 | %(d) | 0.26 | %(d) | 73 | % | |||||||||||||||||||||||
Year ended 12/31/10 | 20.33 | 0.04 | (c) | 3.09 | 3.13 | (0.16 | ) | 23.30 | 15.49 | 498,493 | 0.90 | 0.91 | 0.19 | 56 | ||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 22.92 | 0.00 | (c) | 1.06 | 1.06 | — | 23.98 | 4.62 | 180,764 | 1.15 | (d) | 1.15 | (d) | 0.01 | (d) | 73 | ||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 20.00 | (0.01 | )(c) | 3.04 | 3.03 | (0.11 | ) | 22.92 | 15.21 | 185,204 | 1.15 | 1.16 | (0.06 | ) | 56 | |||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||
(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 $491,230 and $184,827 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,047.60 | $ | 4.57 | $ | 1,020.33 | $ | 4.51 | 0.90 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,046.20 | 5.83 | 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, 2011 through June 30, 2011, 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s considerations of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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 funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Large-Cap Growth Funds Index and the Lipper VA Underlying Funds – Multi-Cap Growth Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile of the performance universe for the one
Invesco V.I. Capital Appreciation Fund
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 performance of Series I shares of the Fund was above the performance of the Lipper VA Underlying Funds – Large-Cap Growth Funds 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 performance of Series I shares of the Fund was below the performance of the Lipper VA Underlying Funds – Multi-Cap Growth Funds Index for the one, three and five year periods. The Board noted that Invesco Advisers changed the Fund’s lead portfolio manager in March 2011, and that the investment team has a conservative, quality bias consistent with its quality oriented investment process 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. The Board noted that comparative data is 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. The Board noted that the Fund’s effective fee rate was below the effective fee rate of one mutual fund and the same as the effective fee rate of the other mutual fund. The Board also noted that Invesco Advisers sub-advises one mutual fund with investment strategies comparable to those of the Fund and that the sub-advisory fee rate is below the Fund’s effective fee rate.
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, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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, 2011 |
![(INVESCO LOGO)](https://capedge.com/proxy/N-CSRS/0000950123-11-079973/h83397h8338701.gif)
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 800 959 4246 or at 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, 2011, is available at 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
Performance summary
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 8.43 | % | ||
Series II Shares | 8.30 | |||
S&P 500 Index▼ (Broad Market Index) | 6.01 | |||
Russell Midcap Growth Index▼ (Style-Specific Index) | 9.59 | |||
Lipper VUF Mid-Cap Growth Funds Index▼ (Peer Group Index) | 8.38 | |||
▼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/servicemark 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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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 6/30/11
As of 6/30/11
Series I Shares | ||||
Inception (5/1/98) | 5.51 | % | ||
10 Years | 4.63 | |||
5 Years | 2.93 | |||
1 Year | 37.56 | |||
Series II Shares | ||||
10 Years | 4.37 | % | ||
5 Years | 2.68 | |||
1 Year | 37.29 |
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 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. 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.
Invesco V.I. Capital Development Fund
Schedule of Investments(a)
June 30, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–97.67% | ||||||||
Aerospace & Defense–1.49% | ||||||||
BE Aerospace, Inc.(b) | 94,067 | $ | 3,838,874 | |||||
Air Freight & Logistics–1.01% | ||||||||
UTI Worldwide, Inc. | 132,381 | 2,606,582 | ||||||
Apparel Retail–1.36% | ||||||||
Abercrombie & Fitch Co.–Class A | 52,373 | 3,504,801 | ||||||
Apparel, Accessories & Luxury Goods–2.92% | ||||||||
Coach, Inc. | 117,356 | 7,502,569 | ||||||
Application Software–2.87% | ||||||||
Citrix Systems, Inc.(b) | 23,550 | 1,884,000 | ||||||
Salesforce.com, Inc.(b) | 17,454 | 2,600,297 | ||||||
TIBCO Software, Inc.(b) | 100,320 | 2,911,286 | ||||||
7,395,583 | ||||||||
Asset Management & Custody Banks–1.71% | ||||||||
Affiliated Managers Group, Inc.(b) | 43,394 | 4,402,321 | ||||||
Auto Parts & Equipment–3.42% | ||||||||
BorgWarner, Inc.(b) | 55,749 | 4,503,962 | ||||||
Gentex Corp. | 141,849 | 4,288,095 | ||||||
8,792,057 | ||||||||
Biotechnology–1.04% | ||||||||
United Therapeutics Corp.(b) | 48,460 | 2,670,146 | ||||||
Broadcasting–1.54% | ||||||||
Discovery Communications, Inc.–Class A(b) | 97,034 | 3,974,513 | ||||||
Communications Equipment–4.30% | ||||||||
Acme Packet, Inc.(b) | 44,405 | 3,114,123 | ||||||
F5 Networks, Inc.(b) | 37,881 | 4,176,380 | ||||||
Riverbed Technology, Inc.(b) | 71,358 | 2,825,063 | ||||||
Sycamore Networks, Inc. | 42,986 | 956,009 | ||||||
11,071,575 | ||||||||
Computer Storage & Peripherals–2.00% | ||||||||
NetApp, Inc.(b) | 97,318 | 5,136,444 | ||||||
Construction & Engineering–1.30% | ||||||||
Foster Wheeler AG (Switzerland)(b) | 109,809 | 3,335,997 | ||||||
Construction & Farm Machinery & Heavy Trucks–4.43% | ||||||||
AGCO Corp.(b) | 73,506 | 3,628,256 | ||||||
Navistar International Corp.(b) | 86,932 | 4,908,181 | ||||||
Terex Corp.(b) | 100,271 | 2,852,710 | ||||||
11,389,147 | ||||||||
Consumer Finance–1.40% | ||||||||
Discover Financial Services | 134,514 | 3,598,249 | ||||||
Department Stores–1.95% | ||||||||
Nordstrom, Inc. | 106,681 | 5,007,606 | ||||||
Electrical Components & Equipment–1.36% | ||||||||
Cooper Industries PLC (Ireland) | 58,827 | 3,510,207 | ||||||
Electronic Components–1.48% | ||||||||
Amphenol Corp.–Class A | 70,529 | 3,807,861 | ||||||
Fertilizers & Agricultural Chemicals–0.63% | ||||||||
Intrepid Potash, Inc.(b) | 50,212 | 1,631,890 | ||||||
Footwear–1.36% | ||||||||
Crocs, Inc.(b) | 135,493 | 3,488,945 | ||||||
Health Care Equipment–1.14% | ||||||||
CareFusion Corp.(b) | 107,931 | 2,932,485 | ||||||
Health Care Facilities–2.80% | ||||||||
Brookdale Senior Living Inc.(b) | 100,007 | 2,425,170 | ||||||
Universal Health Services, Inc.–Class B | 92,814 | 4,782,705 | ||||||
7,207,875 | ||||||||
Health Care Services–3.56% | ||||||||
DaVita, Inc.(b) | 47,622 | 4,124,542 | ||||||
Quest Diagnostics Inc. | 85,094 | 5,029,055 | ||||||
9,153,597 | ||||||||
Health Care Technology–1.17% | ||||||||
Allscripts Healthcare Solutions, Inc.(b) | 155,020 | 3,010,488 | ||||||
Hotels, Resorts & Cruise Lines–2.49% | ||||||||
Starwood Hotels & Resorts Worldwide, Inc. | 114,563 | 6,420,110 | ||||||
Human Resource & Employment Services–1.19% | ||||||||
Robert Half International, Inc. | 113,569 | 3,069,770 | ||||||
Industrial Gases–1.68% | ||||||||
Airgas, Inc. | 61,645 | 4,317,616 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Capital Development Fund
Shares | Value | |||||||
Industrial Machinery–2.80% | ||||||||
Flowserve Corp. | 31,186 | $ | 3,427,029 | |||||
Gardner Denver Inc. | 44,931 | 3,776,451 | ||||||
7,203,480 | ||||||||
Internet Retail–1.06% | ||||||||
Netflix Inc.(b) | 5,427 | 1,425,619 | ||||||
Priceline.com Inc.(b) | 2,553 | 1,306,957 | ||||||
2,732,576 | ||||||||
IT Consulting & Other Services–3.34% | ||||||||
Cognizant Technology Solutions Corp.–Class A(b) | 53,214 | 3,902,715 | ||||||
Teradata Corp.(b) | 77,971 | 4,693,854 | ||||||
8,596,569 | ||||||||
Managed Health Care–2.32% | ||||||||
Aetna Inc. | 86,740 | 3,824,367 | ||||||
Aveta, Inc. (Acquired 12/21/05–05/22/06; $3,327,813)(b)(c) | 237,251 | 2,135,259 | ||||||
5,959,626 | ||||||||
Movies & Entertainment–1.13% | ||||||||
Cinemark Holdings, Inc. | 140,508 | 2,909,921 | ||||||
Oil & Gas Drilling–0.38% | ||||||||
Patterson-UTI Energy, Inc. | 30,990 | 979,594 | ||||||
Oil & Gas Equipment & Services–3.92% | ||||||||
Cameron International Corp.(b) | 69,239 | 3,482,029 | ||||||
Oil States International, Inc.(b) | 44,336 | 3,542,890 | ||||||
Superior Energy Services, Inc.(b) | 82,563 | 3,066,390 | ||||||
10,091,309 | ||||||||
Oil & Gas Exploration & Production–4.17% | ||||||||
Petrohawk Energy Corp.(b) | 114,708 | 2,829,847 | ||||||
Pioneer Natural Resources Co. | 48,851 | 4,375,584 | ||||||
Plains Exploration & Production Co.(b) | 92,302 | 3,518,552 | ||||||
10,723,983 | ||||||||
Pharmaceuticals–2.07% | ||||||||
Hospira, Inc.(b) | 94,242 | 5,339,752 | ||||||
Precious Metals & Minerals–1.04% | ||||||||
Stillwater Mining Co.(b) | 121,503 | 2,674,281 | ||||||
Railroads–0.37% | ||||||||
Kansas City Southern(b) | 15,928 | 945,008 | ||||||
Real Estate Services–1.25% | ||||||||
Jones Lang LaSalle Inc. | 34,166 | 3,221,854 | ||||||
Semiconductors–5.18% | ||||||||
Altera Corp. | 123,483 | 5,723,437 | ||||||
Avago Technologies Ltd. (Singapore) | 96,600 | 3,670,800 | ||||||
Cavium Inc.(b) | 90,528 | 3,946,116 | ||||||
13,340,353 | ||||||||
Specialized Finance–1.74% | ||||||||
Moody’s Corp. | 116,599 | 4,471,572 | ||||||
Specialty Chemicals–3.77% | ||||||||
Albemarle Corp. | 56,360 | 3,900,112 | ||||||
LyondellBasell Industries N.V.–Class A (Netherlands) | 65,030 | 2,504,956 | ||||||
Nalco Holding Co. | 118,445 | 3,293,955 | ||||||
9,699,023 | ||||||||
Specialty Stores–3.11% | ||||||||
Dick’s Sporting Goods, Inc.(b) | 97,791 | 3,760,064 | ||||||
Ulta Salon, Cosmetics & Fragrance, Inc.(b) | 65,622 | 4,237,869 | ||||||
7,997,933 | ||||||||
Systems Software–1.74% | ||||||||
Check Point Software Technologies Ltd. (Israel)(b) | 78,716 | 4,475,005 | ||||||
Trucking–2.80% | ||||||||
Hertz Global Holdings, Inc.(b) | 231,340 | 3,673,679 | ||||||
J.B. Hunt Transport Services, Inc. | 75,194 | 3,540,886 | ||||||
7,214,565 | ||||||||
Wireless Telecommunication Services–3.88% | ||||||||
NII Holdings Inc.(b) | 144,525 | 6,124,969 | ||||||
SBA Communications Corp.–Class A(b) | 100,893 | 3,853,104 | ||||||
9,978,073 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $212,905,551) | 251,331,785 | |||||||
Money Market Funds–0.92% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 1,190,019 | 1,190,019 | ||||||
Premier Portfolio–Institutional Class(d) | 1,190,019 | 1,190,019 | ||||||
Total Money Market Funds (Cost $2,380,038) | 2,380,038 | |||||||
TOTAL INVESTMENTS–98.59% (Cost $215,285,589) | 253,711,823 | |||||||
OTHER ASSETS LESS LIABILITIES–1.41% | 3,623,716 | |||||||
NET ASSETS–100.00% | $ | 257,335,539 | ||||||
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) | 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, 2011 represented 0.83% of the Fund’s Net Assets. | |
(d) | 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. Capital Development Fund
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2011
Information Technology | 20.9 | % | ||
Consumer Discretionary | 20.3 | |||
Industrials | 16.8 | |||
Health Care | 14.1 | |||
Energy | 8.5 | |||
Materials | 7.1 | |||
Financials | 6.1 | |||
Telecommunication Services | 3.9 | |||
Money Market Funds Plus Other Assets Less Liabilities | 2.3 | |||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $212,905,551) | $ | 251,331,785 | ||
Investments in affiliated money market funds, at value and cost | 2,380,038 | |||
Total investments, at value (Cost $215,285,589) | 253,711,823 | |||
Foreign currencies, at value (Cost $99) | 128 | |||
Receivable for: | ||||
Investments sold | 6,385,796 | |||
Investments sold to affiliates | 224,224 | |||
Fund shares sold | 695,785 | |||
Dividends | 91,100 | |||
Investment for trustee deferred compensation and retirement plans | 52,598 | |||
Total assets | 261,161,454 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 3,088,199 | |||
Fund shares reacquired | 212,797 | |||
Accrued fees to affiliates | 342,344 | |||
Accrued other operating expenses | 96,242 | |||
Trustee deferred compensation and retirement plans | 86,333 | |||
Total liabilities | 3,825,915 | |||
Net assets applicable to shares outstanding | $ | 257,335,539 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 239,367,733 | ||
Undistributed net investment income (loss) | (569,158 | ) | ||
Undistributed net realized gain (loss) | (19,889,366 | ) | ||
Unrealized appreciation | 38,426,330 | |||
$ | 257,335,539 | |||
Net Assets: | ||||
Series I | $ | 151,924,705 | ||
Series II | $ | 105,410,834 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 10,450,792 | |||
Series II | 7,475,559 | |||
Series I: | ||||
Net asset value per share | $ | 14.54 | ||
Series II: | ||||
Net asset value per share | $ | 14.10 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $1,374) | $ | 812,620 | ||
Dividends from affiliated money market funds (includes securities lending income of $8,146) | 12,547 | |||
Total investment income | 825,167 | |||
Expenses: | ||||
Advisory fees | 838,627 | |||
Administrative services fees | 306,290 | |||
Custodian fees | 9,608 | |||
Distribution fees — Series II | 129,613 | |||
Transfer agent fees | 9,842 | |||
Trustees’ and officers’ fees and benefits | 11,333 | |||
Other | 46,349 | |||
Total expenses | 1,351,662 | |||
Less: Fees waived | (9,198 | ) | ||
Net expenses | 1,342,464 | |||
Net investment income (loss) | (517,297 | ) | ||
Realized and unrealized gain from: | ||||
Net realized gain from investment securities (includes net gains from securities sold to affiliates of $1,339,367) | 33,544,144 | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (20,285,589 | ) | ||
Foreign currencies | (11 | ) | ||
(20,285,600 | ) | |||
Net realized and unrealized gain | 13,258,544 | |||
Net increase in net assets resulting from operations | $ | 12,741,247 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (517,297 | ) | $ | (470,655 | ) | ||
Net realized gain | 33,544,144 | 23,142,942 | ||||||
Change in net unrealized appreciation (depreciation) | (20,285,600 | ) | 5,835,983 | |||||
Net increase in net assets resulting from operations | 12,741,247 | 28,508,270 | ||||||
Share transactions–net: | ||||||||
Series I | 64,486,878 | (12,617,550 | ) | |||||
Series II | 4,360,360 | (16,250,389 | ) | |||||
Net increase (decrease) in net assets resulting from share transactions | 68,847,238 | (28,867,939 | ) | |||||
Net increase (decrease) in net assets | 81,588,485 | (359,669 | ) | |||||
Net assets: | ||||||||
Beginning of period | 175,747,054 | 176,106,723 | ||||||
End of period (includes undistributed net investment income (loss) of $(569,158) and $(51,861), respectively) | $ | 257,335,539 | $ | 175,747,054 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Capital Development Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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 (“GAAP”) 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 |
Invesco V.I. Capital Development Fund
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 effective May 2, 2011, 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 | Rate | |||
First $250 million | 0 | .745% | ||
Next $100 million | 0 | .73% | ||
Over $350 million | 0 | .625% | ||
Prior to May 2, 2011, the Fund paid 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 | Rate | |||
First $350 million | 0 | .75% | ||
Over $350 million | 0 | .625% | ||
Invesco V.I. Capital Development 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 Canada Ltd. (formerly 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 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 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 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 the 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 this expense limitation.
The Adviser has contractually agreed, through at least June 30, 2012, 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 (excluding investments of cash collateral from securities lending) cash in such affiliated money market funds.
For the six months ended June 30, 2011, the Adviser waived advisory fees of $9,198.
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, 2011, 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, 2011, Invesco was paid $30,753 for accounting and fund administrative services and reimbursed $275,537 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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, 2011. 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 Development Fund
During the six months ended June 30, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 251,576,564 | $ | 2,135,259 | $ | — | $ | 253,711,823 | ||||||||
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, 2011, the Fund engaged in securities purchases of $5,854,700 and securities sales of $7,156,437, which resulted in net realized gains of $1,339,367.
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, 2011, the Fund paid legal fees of $760 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 26,776,236 | ||
December 31, 2017 | 26,458,756 | |||
Total capital loss carryforward | $ | 53,234,992 | ||
* | 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 Development 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, 2011 was $213,153,615 and $187,029,327, 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 | $ | 42,295,119 | ||
Aggregate unrealized (depreciation) of investment securities | (4,067,403 | ) | ||
Net unrealized appreciation of investment securities | $ | 38,227,716 | ||
Cost of investments for tax purposes is $215,484,107. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 3,792,020 | $ | 54,181,166 | 985,705 | $ | 11,570,756 | ||||||||||
Series II | 1,505,669 | 20,730,262 | 838,860 | 9,669,323 | ||||||||||||
Issued in connection with acquisitions:(b) | ||||||||||||||||
Series I | 4,084,698 | 61,763,293 | — | — | ||||||||||||
Series II | 675 | 9,893 | — | — | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (3,590,149 | ) | (51,457,581 | ) | (2,070,684 | ) | (24,188,306 | ) | ||||||||
Series II | (1,180,911 | ) | (16,379,795 | ) | (2,263,580 | ) | (25,919,712 | ) | ||||||||
Net increase (decrease) in share activity | 4,612,002 | $ | 68,847,238 | (2,509,699 | ) | $ | (28,867,939 | ) | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 63% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
(b) | As of the opening of business on May 2, 2011, the Fund acquired all the net assets of Invesco V.I. Dynamics Fund pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of Invesco V.I. Dynamics Fund on April 1, 2011. The acquisition was accomplished by a tax-free exchange of 4,085,373 shares of the Fund for 3,130,800 shares outstanding of Invesco V.I. Dynamics Fund as of the close of business on April 29, 2011. Each class of Invesco V.I. Dynamics Fund was exchanged for the like class of shares of the Fund based on the relative net asset value of Invesco V.I. Dynamics Fund to the net asset value of the Fund on the close of business, April 29, 2011. Invesco V.I. Dynamics Fund’s net assets at that date of $61,773,186 including $13,383,842 of unrealized appreciation, was combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $228,323,159. The net assets of the Fund immediately following the acquisition were $290,096,345. |
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 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | securities | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||
value, | investment | (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | |||||||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | realized | value, end | Total | end of period | and/or expenses | and/or expenses | 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 06/30/11 | $ | 13.41 | $ | (0.02 | )(c) | $ | 1.15 | $ | 1.13 | $ | — | $ | 14.54 | 8.43 | % | $ | 151,925 | 1.08 | %(d) | 1.09 | %(d) | (0.35 | )%(d) | 90 | % | |||||||||||||||||||||||||||
Year ended 12/31/10 | 11.29 | (0.02 | )(c) | 2.14 | 2.12 | — | 13.41 | 18.78 | 82,665 | 1.08 | 1.09 | (0.14 | ) | 79 | ||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 13.02 | (0.04 | )(c) | 1.12 | 1.08 | — | 14.10 | 8.30 | 105,411 | 1.33 | (d) | 1.34 | (d) | (0.60 | )(d) | 90 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 10.99 | (0.04 | )(c) | 2.07 | 2.03 | — | 13.02 | 18.47 | 93,082 | 1.33 | 1.34 | (0.39 | ) | 79 | ||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||
(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. For the period ending June 30, 2011, the portfolio turnover calculation excludes the value of securities purchased of $47,957,386 and sold of $21,768,039 in effect to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Dynamics Fund into the Fund. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $121,611 and $104,549 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,084.30 | $ | 5.58 | $ | 1,019.44 | $ | 5.41 | 1.08 | % | ||||||||||||||||||
Series II | 1,000.00 | $ | 1,083.00 | $ | 6.87 | $ | 1,018.20 | $ | 6.66 | 1.33 | ||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2011 through June 30, 2011, 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s considerations of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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 funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Mid-Cap Growth Funds Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile of the performance universe for the one, three and five year periods (the first quintile being the best performing
Invesco V.I. Capital Development Fund
funds and the fifth quintile being the worst performing funds). The Board noted that 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 and in 2010, in each case as a result of stock selection. The Board was advised that a new lead manager for the Fund was hired in March 2011. 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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. The Board noted that the Fund’s effective fee rate was at or above the effective fee rate of 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 similar to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients solely for investment management services. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts. These additional services include 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 for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. 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 often more comparable. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients, and 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 June 30, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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, 2011 |
![(INVESCO LOGO)](https://capedge.com/proxy/N-CSRS/0000950123-11-079973/h83397h8338801.gif)
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 800 959 4246 or at 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, 2011, is available at 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
Fund Performance
Performance summary
Fund vs. Indexes | ||||
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. | ||||
Series I Shares | 7.44 | % | ||
Series II Shares | 7.35 | |||
S&P 500 Index▼ (Broad Market Index) | 6.01 | |||
Russell 1000 Index▼ (Style-Specific Index) | 6.37 | |||
Lipper VUF Large-Cap Core Funds Index▼ (Peer Group Index) | 4.70 | |||
▼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/servicemark 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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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.
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 0.89% and 1.14%, respectively. The expense ratios presented
Invesco V.I. Core Equity Fund
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 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.
Average Annual Total Returns
As of 6/30/11
As of 6/30/11
Series I Shares | ||||
Inception (5/2/94) | 7.85 | % | ||
10 Years | 3.71 | |||
5 Years | 5.05 | |||
1 Year | 26.81 | |||
Series II Shares | ||||
10 Years | 3.46 | % | ||
5 Years | 4.79 | |||
1 Year | 26.53 |
Schedule of Investments
June 30, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–88.63%(a) | ||||||||
Aerospace & Defense–2.87% | ||||||||
ITT Corp. | 323,651 | $ | 19,072,754 | |||||
Lockheed Martin Corp. | 76,316 | 6,179,307 | ||||||
Northrop Grumman Corp. | 108,144 | 7,499,786 | ||||||
Rockwell Collins, Inc. | 101,222 | 6,244,385 | ||||||
38,996,232 | ||||||||
Air Freight & Logistics–0.61% | ||||||||
United Parcel Service, Inc.–Class B | 113,293 | 8,262,459 | ||||||
Apparel Retail–0.45% | ||||||||
Prada S.p.A. (Italy)(b) | 1,007,300 | 6,077,430 | ||||||
Application Software–0.65% | ||||||||
Adobe Systems Inc.(b) | 280,101 | 8,809,176 | ||||||
Asset Management & Custody Banks–3.06% | ||||||||
Legg Mason, Inc. | 759,980 | 24,896,945 | ||||||
Northern Trust Corp. | 362,789 | 16,673,782 | ||||||
41,570,727 | ||||||||
Automobile Manufacturers–0.56% | ||||||||
General Motors Co.(b) | 249,385 | 7,571,329 | ||||||
Biotechnology–1.42% | ||||||||
Gilead Sciences, Inc.(b) | 464,808 | 19,247,699 | ||||||
Communications Equipment–4.46% | ||||||||
Cisco Systems, Inc. | 1,352,443 | 21,111,635 | ||||||
Motorola Mobility Holdings Inc.(b) | 360,852 | 7,953,178 | ||||||
Qualcomm, Inc. | 553,029 | 31,406,517 | ||||||
60,471,330 | ||||||||
Computer & Electronics Retail–0.81% | ||||||||
Best Buy Co., Inc. | 349,750 | 10,985,648 | ||||||
Construction Materials–0.82% | ||||||||
CRH PLC (Ireland) | 499,857 | 11,072,163 | ||||||
Consumer Finance–2.90% | ||||||||
American Express Co. | 760,143 | 39,299,393 | ||||||
Data Processing & Outsourced Services–0.47% | ||||||||
Automatic Data Processing, Inc. | 121,628 | 6,407,363 | ||||||
Department Stores–1.88% | ||||||||
Macy’s, Inc. | 874,591 | 25,573,041 | ||||||
Diversified Banks–0.66% | ||||||||
U.S. Bancorp | 349,421 | 8,913,730 | ||||||
Drug Retail–3.08% | ||||||||
CVS Caremark Corp. | 1,111,803 | 41,781,557 | ||||||
Electric Utilities–1.77% | ||||||||
Edison International | 207,747 | 8,050,196 | ||||||
Exelon Corp. | 373,174 | 15,986,774 | ||||||
24,036,970 | ||||||||
Electrical Components & Equipment–0.48% | ||||||||
Emerson Electric Co. | 116,790 | 6,569,438 | ||||||
Electronic Manufacturing Services–1.43% | ||||||||
TE Connectivity Ltd. (Switzerland) | 527,911 | 19,406,008 | ||||||
Environmental & Facilities Services–1.25% | ||||||||
Waste Management, Inc. | 455,011 | 16,958,260 | ||||||
Food Retail–3.19% | ||||||||
Kroger Co. (The) | 1,742,635 | 43,217,348 | ||||||
Gold–0.54% | ||||||||
Agnico-Eagle Mines Ltd. (Canada) | 60,991 | 3,850,362 | ||||||
Newcrest Mining Ltd. (Australia) | 87,059 | 3,533,607 | ||||||
7,383,969 | ||||||||
Health Care Equipment–4.68% | ||||||||
Baxter International Inc. | 224,286 | 13,387,631 | ||||||
Boston Scientific Corp.(b) | 3,576,722 | 24,715,149 | ||||||
Covidien PLC (Ireland) | 361,716 | 19,254,143 | ||||||
Medtronic, Inc. | 161,023 | 6,204,216 | ||||||
63,561,139 | ||||||||
Heavy Electrical Equipment–0.91% | ||||||||
ABB Ltd.–ADR (Switzerland)(b) | 306,024 | 7,941,323 | ||||||
Alstom S.A. (France) | 70,463 | 4,346,123 | ||||||
12,287,446 | ||||||||
Home Improvement Retail–1.75% | ||||||||
Lowe’s Cos., Inc. | 1,019,442 | 23,763,193 | ||||||
Hypermarkets & Super Centers–0.74% | ||||||||
Wal-Mart Stores, Inc. | 188,953 | 10,040,962 | ||||||
Industrial Conglomerates–3.19% | ||||||||
General Electric Co. | 622,343 | 11,737,389 | ||||||
Koninklijke Philips Electronics N.V. (Netherlands) | 582,470 | 14,963,728 | ||||||
Tyco International Ltd. | 336,136 | 16,615,202 | ||||||
43,316,319 | ||||||||
Industrial Gases–1.46% | ||||||||
Air Products & Chemicals, Inc. | 206,853 | 19,771,010 | ||||||
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–0.84% | ||||||||
Illinois Tool Works Inc. | 201,549 | $ | 11,385,503 | |||||
Insurance Brokers–1.13% | ||||||||
Marsh & McLennan Cos., Inc. | 493,879 | 15,404,086 | ||||||
Integrated Oil & Gas–1.14% | ||||||||
ConocoPhillips | 107,078 | 8,051,195 | ||||||
Petroleo Brasileiro S.A.–ADR (Brazil) | 218,382 | 7,394,414 | ||||||
15,445,609 | ||||||||
Investment Banking & Brokerage–0.44% | ||||||||
Charles Schwab Corp. (The) | 361,353 | 5,944,257 | ||||||
Life Sciences Tools & Services–2.96% | ||||||||
Agilent Technologies, Inc.(b) | 376,091 | 19,222,011 | ||||||
Thermo Fisher Scientific, Inc.(b) | 324,662 | 20,904,986 | ||||||
40,126,997 | ||||||||
Managed Health Care–1.64% | ||||||||
WellPoint, Inc. | 282,106 | 22,221,490 | ||||||
Oil & Gas Equipment & Services–6.45% | ||||||||
Baker Hughes Inc. | 468,978 | 34,029,044 | ||||||
Cameron International Corp.(b) | 130,784 | 6,577,127 | ||||||
Schlumberger Ltd. | 180,686 | 15,611,270 | ||||||
Tenaris S.A.–ADR (Argentina) | 193,087 | 8,829,869 | ||||||
Weatherford International Ltd.(b) | 1,194,683 | 22,400,306 | ||||||
87,447,616 | ||||||||
Oil & Gas Exploration & Production–3.99% | ||||||||
Apache Corp. | 245,575 | 30,301,499 | ||||||
Devon Energy Corp. | 131,607 | 10,371,948 | ||||||
Southwestern Energy Co.(b) | 315,444 | 13,526,239 | ||||||
54,199,686 | ||||||||
Oil & Gas Refining & Marketing–1.11% | ||||||||
Valero Energy Corp. | 589,545 | 15,074,666 | ||||||
Pharmaceuticals–5.96% | ||||||||
Merck & Co., Inc. | 127,184 | 4,488,323 | ||||||
Pfizer Inc. | 936,470 | 19,291,282 | ||||||
Roche Holding AG (Switzerland) | 183,484 | 30,711,633 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 545,900 | 26,323,298 | ||||||
80,814,536 | ||||||||
Property & Casualty Insurance–5.21% | ||||||||
Berkshire Hathaway, Inc.–Class A(b) | 254 | 29,490,670 | ||||||
Progressive Corp. (The) | 1,924,873 | 41,153,785 | ||||||
70,644,455 | ||||||||
Railroads–1.45% | ||||||||
Union Pacific Corp. | 188,977 | 19,729,199 | ||||||
Semiconductors–1.57% | ||||||||
Intel Corp. | 268,283 | 5,945,151 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan) | 6,047,823 | 15,307,232 | ||||||
21,252,383 | ||||||||
Specialty Stores–0.72% | ||||||||
Staples, Inc. | 616,594 | 9,742,185 | ||||||
Systems Software–5.97% | ||||||||
CA, Inc. | 330,324 | 7,544,600 | ||||||
Microsoft Corp. | 1,283,715 | 33,376,590 | ||||||
Symantec Corp.(b) | 2,033,847 | 40,107,463 | ||||||
81,028,653 | ||||||||
Wireless Telecommunication Services–1.96% | ||||||||
Vodafone Group PLC (United Kingdom) | 9,983,449 | 26,534,797 | ||||||
Total Common Stocks & Other Equity Interests (Cost $997,733,236) | 1,202,347,457 | |||||||
Money Market Funds–10.47% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 71,010,917 | 71,010,917 | ||||||
Premier Portfolio–Institutional Class(c) | 71,010,918 | 71,010,918 | ||||||
Total Money Market Funds (Cost $142,021,835) | 142,021,835 | |||||||
TOTAL INVESTMENTS–99.10% (Cost $1,139,755,071) | 1,344,369,292 | |||||||
OTHER ASSETS LESS LIABILITIES–0.90% | 12,205,199 | |||||||
NET ASSETS–100.00% | $ | 1,356,574,491 | ||||||
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
By sector, based on Net Assets
as of June 30, 2011
Health Care | 16.7 | % | ||
Information Technology | 14.5 | |||
Financials | 13.4 | |||
Energy | 12.7 | |||
Industrials | 11.6 | |||
Consumer Staples | 7.0 | |||
Consumer Discretionary | 6.2 | |||
Materials | 2.8 | |||
Telecommunication Services | 1.9 | |||
Utilities | 1.8 | |||
Money Market Funds Plus Other Assets Less Liabilities | 11.4 | |||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $997,733,236) | $ | 1,202,347,457 | ||
Investments in affiliated money market funds, at value and cost | 142,021,835 | |||
Total investments, at value (Cost $1,139,755,071) | 1,344,369,292 | |||
Receivable for: | ||||
Investments sold | 22,710,581 | |||
Fund shares sold | 142,190 | |||
Dividends | 3,606,445 | |||
Foreign currency contracts outstanding | 17,063 | |||
Investment for trustee deferred compensation and retirement plans | 152,256 | |||
Other assets | 191 | |||
Total assets | 1,370,998,018 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 9,370,302 | |||
Fund shares reacquired | 2,819,703 | |||
Amount due custodian — foreign (Cost $48,990) | 126,446 | |||
Accrued fees to affiliates | 1,656,455 | |||
Accrued other operating expenses | 14,909 | |||
Trustee deferred compensation and retirement plans | 435,712 | |||
Total liabilities | 14,423,527 | |||
Net assets applicable to shares outstanding | $ | 1,356,574,491 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,299,855,603 | ||
Undistributed net investment income | 18,303,842 | |||
Undistributed net realized gain (loss) | (166,232,722 | ) | ||
Unrealized appreciation | 204,647,768 | |||
$ | 1,356,574,491 | |||
Net Assets: | ||||
Series I | $ | 1,318,423,416 | ||
Series II | $ | 38,151,075 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 45,397,238 | |||
Series II | 1,325,319 | |||
Series I: | ||||
Net asset value per share | $ | 29.04 | ||
Series II: | ||||
Net asset value per share | $ | 28.79 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $406,164) | $ | 12,789,488 | ||
Dividends from affiliated money market funds (includes securities lending income of $3,394) | 84,998 | |||
Interest | 190,736 | |||
Total investment income | 13,065,222 | |||
Expenses: | ||||
Advisory fees | 4,193,446 | |||
Administrative services fees | 1,800,162 | |||
Custodian fees | 7,937 | |||
Distribution fees — Series II | 43,481 | |||
Transfer agent fees | 6,113 | |||
Trustees’ and officers’ fees and benefits | 30,313 | |||
Other | 8,975 | |||
Total expenses | 6,090,427 | |||
Less: fees waived | (110,290 | ) | ||
Net expenses | 5,980,137 | |||
Net investment income | 7,085,085 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $37,338) | 52,319,208 | |||
Foreign currencies | (3,617 | ) | ||
Foreign currency contracts | (876,150 | ) | ||
Option contracts written | 51,915 | |||
51,491,356 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 41,424,349 | |||
Foreign currencies | (24,993 | ) | ||
Foreign currency contracts | 50,646 | |||
41,450,002 | ||||
Net realized and unrealized gain | 92,941,358 | |||
Net increase in net assets resulting from operations | $ | 100,026,443 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 7,085,085 | $ | 12,009,590 | ||||
Net realized gain | 51,491,356 | 45,174,795 | ||||||
Change in net unrealized appreciation | 41,450,002 | 65,458,831 | ||||||
Net increase in net assets resulting from operations | 100,026,443 | 122,643,216 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (12,902,647 | ) | |||||
Series II | — | (280,002 | ) | |||||
Total distributions from net investment income | — | (13,182,649 | ) | |||||
Share transactions–net: | ||||||||
Series I | (124,738,973 | ) | (217,887,519 | ) | ||||
Series II | 604,237 | (1,987,933 | ) | |||||
Net increase (decrease) in net assets resulting from share transactions | (124,134,736 | ) | (219,875,452 | ) | ||||
Net increase (decrease) in net assets | (24,108,293 | ) | (110,414,885 | ) | ||||
Net assets: | ||||||||
Beginning of period | 1,380,682,784 | 1,491,097,669 | ||||||
End of period (includes undistributed net investment income of $18,303,842 and $11,218,757, respectively) | $ | 1,356,574,491 | $ | 1,380,682,784 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Core Equity Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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 (“GAAP”) 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. | |
L. | Call Options Written and Purchased — The Fund may write and/or buy call options. A call option gives the purchaser of such option the right to buy, and the writer the obligation to sell, the underlying security at the stated exercise price during the option period. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. | |
When the Fund writes a call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent 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 and unrealized gains and losses on these contracts are included in the Statement of Operation. 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. | ||
When the Fund buys a call option, an amount equal to the premium paid by the Fund is recorded as an investment on the Statement of Assets and Liabilities. The amount of the investment is subsequently “marked-to-market” to reflect the current value of the option purchased. Realized and unrealized |
Invesco V.I. Core Equity Fund
gains and losses on these contracts are included in the Statement of Operations. A risk in buying an option is that the Fund pays a premium whether or not the option is exercised. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased. | ||
M. | Put Options Purchased — The Fund may purchase put options including options on securities indexes and/or futures contracts. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the option’s underlying instrument at a fixed strike price. In return for this right, the Fund pays an option premium. The option’s underlying instrument may be a security, securities index, or a futures contract. Put options may be used by the Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund’s resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. A risk in buying an option is that the Fund pays a premium whether or not the option is exercised. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco 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 | 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 Canada Ltd. (formerly 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, 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 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 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 the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2012.
Further, the Adviser has contractually agreed, through at least June 30, 2012, 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, 2011, the Adviser waived advisory fees of $110,290.
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, 2011, 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, 2011, Invesco was paid $163,332 for accounting and fund administrative services and reimbursed $1,636,830 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
Invesco V.I. Core Equity Fund
NOTE 3—Additional Valuation Information
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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 1,298,993,656 | $ | 45,375,636 | $ | — | $ | 1,344,369,292 | ||||||||
Foreign Currency Contracts* | — | 17,063 | — | 17,063 | ||||||||||||
Total Investments | $ | 1,298,993,656 | $ | 45,392,699 | $ | — | $ | 1,344,386,355 | ||||||||
* | 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, 2011:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign currency contracts(a) | $ | 17,231 | $ | (168 | ) | |||
(a) | Values are disclosed on the Statement of Assets and Liabilities under the foreign currency contracts outstanding. |
Effect of Derivative Instruments for the six months ended June 30, 2011
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* | Options* | |||||||
Realized Gain (Loss) | ||||||||
Currency risk | $ | (876,150 | ) | $ | — | |||
Equity risk | — | 51,915 | ||||||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Currency risk | $ | 50,646 | $ | — | ||||
Equity risk | — | — | ||||||
Total | $ | (825,504 | ) | $ | 51,915 | |||
* | The average value of foreign currency contracts and options outstanding during the period was $14,667,108 and $12,279, respectively. |
Invesco V.I. Core Equity Fund
Open Foreign Currency Contracts | ||||||||||||||||||||||||
Settlement | Contract to | Unrealized | ||||||||||||||||||||||
Date | Counterparty | Deliver | Receive | Value | Appreciation | |||||||||||||||||||
7/1/2011 | UBSX NA | USD | 531,308 | EUR | 370,146 | $ | 536,934 | $ | 5,626 | |||||||||||||||
7/1/2011 | State Street CA | USD | 1,992,392 | EUR | 1,381,495 | 2,003,997 | 11,605 | |||||||||||||||||
$ | 17,231 | |||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||
Settlement | Contract to | Appreciation | ||||||||||||||||||||||
Date | Counterparty | Deliver | Receive | Value | (Depreciation) | |||||||||||||||||||
7/5/2011 | Citi Bank Capital | USD | 243,241 | EUR | 167,568 | $ | 243,074 | $ | (168 | ) | ||||||||||||||
Total open foreign currency contracts | $ | 17,063 | ||||||||||||||||||||||
Currency Abbreviations: | ||
EUR | – Euro | |
USD | – U.S. Dollar |
Transactions During the Period | ||||||||
Call Option Contracts | ||||||||
Number of | Premiums | |||||||
Contracts | Received | |||||||
Beginning of period | — | $ | — | |||||
Written | 1,889 | 51,915 | ||||||
Closed | — | — | ||||||
Expired | (1,889 | ) | (51,915 | ) | ||||
End of period | — | $ | — | |||||
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, 2011, the Fund engaged in securities purchases of $0 and securities sales of $2,272,993, which resulted in net realized gains of $37,338.
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, 2011, the Fund paid legal fees of $1,623 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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.
Invesco V.I. Core Equity Fund
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 $210,287,573 of capital loss carryforward in the fiscal year ending December 31, 2011.
The Fund had a capital loss carryforward as of December 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2011 | $ | 21,217,854 | ||
December 31, 2017 | 189,069,719 | |||
Total capital loss carryforward | $ | 210,287,573 | ||
* | 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, 2011 was $184,393,197 and $350,251,391, 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 | $ | 238,421,566 | ||
Aggregate unrealized (depreciation) of investment securities | (41,294,496 | ) | ||
Net unrealized appreciation of investment securities | $ | 197,127,070 | ||
Cost of investments for tax purposes is $1,147,242,222. |
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | ||||||||||||||||
June 30, 2011(a) | Year ended December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 397,101 | $ | 11,310,665 | 1,698,343 | $ | 42,098,514 | ||||||||||
Series II | 255,210 | 7,221,167 | 351,173 | 8,756,793 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | -0- | -0- | 519,430 | 12,902,647 | ||||||||||||
Series II | -0- | -0- | 11,350 | 280,003 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (4,784,149 | ) | (136,049,638 | ) | (10,899,313 | ) | (272,888,680 | ) | ||||||||
Series II | (235,582 | ) | (6,616,930 | ) | (441,967 | ) | (11,024,729 | ) | ||||||||
Net increase (decrease) in share activity | (4,367,420 | ) | $ | (124,134,736 | ) | (8,760,984 | ) | $ | (219,875,452 | ) | ||||||
(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. |
Invesco V.I. 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) | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | on 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 | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | ||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | Distributions | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | ||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | $ | 27.03 | $ | 0.15 | $ | 1.86 | (e) | $ | 2.01 | $ | — | $ | — | $ | 29.04 | 7.44 | %(e) | $ | 1,318,423 | 0.86 | %(d) | 0.88 | %(d) | 1.04 | %(d) | 15 | % | |||||||||||||||||||||||||
Year ended 12/31/10 | 24.92 | 0.22 | 2.14 | 2.36 | (0.25 | ) | (0.25 | ) | 27.03 | 9.56 | 1,345,658 | 0.87 | 0.89 | 0.87 | 47 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 19.75 | 0.19 | 5.39 | 5.58 | (0.41 | ) | (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 | ) | (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 | ) | (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 | ) | (0.15 | ) | 27.22 | 16.70 | 2,699,252 | 0.89 | 0.89 | 1.35 | 45 | |||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 26.82 | 0.11 | 1.86 | (e) | 1.97 | — | — | 28.79 | 7.35 | (e) | 38,151 | 1.11 | (d) | 1.13 | (d) | 0.79 | (d) | 15 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 24.75 | 0.15 | 2.12 | 2.27 | (0.20 | ) | (0.20 | ) | 26.82 | 9.25 | 35,025 | 1.12 | 1.14 | 0.62 | 47 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 19.62 | 0.14 | 5.34 | 5.48 | (0.35 | ) | (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 | ) | (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 | ) | (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 | ) | (0.14 | ) | 27.02 | 16.42 | 39,729 | 1.14 | 1.14 | 1.10 | 45 | |||||||||||||||||||||||||||||||||||||
(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) of $1,353,493 and $35,073 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 on securities (both realized and unrealized) per share for the six months ended June 30, 2011 would have been $0.07 lower for Series I and Series II and total returns would have been lower. |
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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,074.40 | $ | 4.42 | $ | 1,020.53 | $ | 4.31 | 0.86 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,073.50 | 5.71 | 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, 2011 through June 30, 2011, 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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 funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Large-Cap Core Funds Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile of the 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 performance of Series I shares of the Fund was below the
Invesco V.I. Core Equity Fund
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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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. The Board noted that the Fund’s rate was the same the as the effective fee rate of the other mutual fund managed by Invesco Advisers with comparable investment strategies.
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 solely for investment management services. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts. These additional services include 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 for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. 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 often more comparable. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients, and 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, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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, 2011 |
![(INVESCO LOGO)](https://capedge.com/proxy/N-CSRS/0000950123-11-079973/h83397h8338901.gif)
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 800 959 4246 or at 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, 2011, is available at 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
Performance summary
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 3.44 | % | ||
Series II Shares | 3.30 | |||
Barclays Capital U.S. Aggregate Index▼ (Broad Market Index) | 2.72 | |||
Barclays Capital U.S. Credit Index▼ (Style-Specific Index) | 3.41 | |||
Lipper VUF Corporate Debt BBB-Rated Funds Index▼ (Peer Group Index) | 3.35 | |||
▼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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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 6/30/11
As of 6/30/11
Series I Shares | ||||
Inception (5/5/93) | 4.15 | % | ||
10 Years | 3.41 | |||
5 Years | 2.67 | |||
1 Year | 7.96 | |||
Series II Shares | ||||
10 Years | 3.15 | % | ||
5 Years | 2.41 | |||
1 Year | 7.62 |
for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the advisor 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, 2012. See current prospectus for more information. |
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 1.36% and 1.61%, 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,
Invesco V.I. Diversified Income Fund
Schedule of Investments(a)
June 30, 2011
(Unaudited)
Principal | ||||||||
Amount | Value | |||||||
U.S. Dollar Denominated Bonds & Notes–80.56% | ||||||||
Aerospace & Defense–0.43% | ||||||||
Alliant Techsystems Inc., Sr. Unsec. Gtd. Sub. Notes, 6.88%, 09/15/20 | $ | 5,000 | $ | 5,213 | ||||
BE Aerospace, Inc., Sr. Unsec. Notes, 8.50%, 07/01/18 | 25,000 | 27,219 | ||||||
Bombardier Inc. (Canada), Sr. Notes, 7.50%, 03/15/18(b) | 10,000 | 11,237 | ||||||
7.75%, 03/15/20(b) | 15,000 | 16,950 | ||||||
Hexcel Corp., Sr. Unsec. Sub. Global Notes, 6.75%, 02/01/15 | 2,000 | 2,050 | ||||||
Huntington Ingalls Industries Inc., Sr. Unsec. Gtd. Notes, 6.88%, 03/15/18(b) | 5,000 | 5,138 | ||||||
7.13%, 03/15/21(b) | 10,000 | 10,287 | ||||||
Spirit Aerosystems Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 12/15/20 | 10,000 | 10,225 | ||||||
Triumph Group, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 8.00%, 11/15/17 | 10,000 | 10,600 | ||||||
98,919 | ||||||||
Agricultural Products–0.14% | ||||||||
Corn Products International, Inc., Sr. Unsec. Notes, 6.63%, 04/15/37 | 30,000 | 32,675 | ||||||
Airlines–2.64% | ||||||||
American Airlines Inc., Sr. Sec. Gtd. Notes, 7.50%, 03/15/16(b) | 5,000 | 4,913 | ||||||
American Airlines Pass Through Trust, | ||||||||
Series 2009-1A, Sec. Pass Through Ctfs., 10.38%, 07/02/19 | 44,079 | 51,076 | ||||||
Series 2011-1, Class B, Sec. Gtd. Pass Through Ctfs., 7.00%, 01/31/18(b) | 85,000 | 80,325 | ||||||
Continental Airlines Inc., | ||||||||
Series 2007-1, Class C, Sec. Sub. Global Pass Through Ctfs., 7.34%, 04/19/14 | 5,928 | 5,943 | ||||||
Series 2009-1, Sec. Pass Through Ctfs., 9.00%, 07/08/16 | 197,268 | 226,365 | ||||||
Series 2009-2, Class B, Sec. Global Pass Through Ctfs., 9.25%, 05/10/17 | 13,416 | 14,087 | ||||||
Delta Airlines, Inc., | ||||||||
Sec. Notes, 12.25%, 03/15/15(b) | 5,000 | 5,587 | ||||||
Sr. Sec. Notes, 9.50%, 09/15/14(b) | 9,000 | 9,630 | ||||||
Series 2002-1, Class C, Sec. Pass Through Ctfs., 7.78%, 01/02/12 | 460 | 457 | ||||||
Series 2009-1, Class A, Sr. Sec. Pass Through Ctfs., 7.75%, 12/17/19 | 42,067 | 46,011 | ||||||
Series 2010-1, Class B, Sec. Pass Through Ctfs., 6.38%, 01/02/16(b) | 5,000 | 4,850 | ||||||
Series 2010-2, Class A, Sec. Pass Through Ctfs., 4.95%, 05/23/19 | 59,141 | 59,215 | ||||||
Series 2010-2, Class B, Sec. Pass Through Ctfs., 6.75%, 11/23/15 | 5,000 | 4,750 | ||||||
Series 2011-1, Class A, Sec. Pass Through Ctfs., 5.30%, 04/15/19 | 15,000 | 15,056 | ||||||
UAL Corp., | ||||||||
Series 2009-1, Sr. Sec. Gtd. Global Pass Through Ctfs., 10.40%, 11/01/16 | 45,456 | 51,820 | ||||||
Series 2009-2A, Sec. Gtd. Global Pass Through Ctfs., 9.75%, 01/15/17 | 27,686 | 31,700 | ||||||
611,785 | ||||||||
Alternative Carriers–0.16% | ||||||||
Cogent Communications Group, Inc., Sr. Sec. Gtd. Notes, 8.38%, 02/15/18(b) | 10,000 | 10,325 | ||||||
Level 3 Communications Inc., Sr. Unsec. Notes, 11.88%, 02/01/19(b) | 10,000 | 10,950 | ||||||
Level 3 Financing Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 9.25%, 11/01/14 | 6,000 | 6,180 | ||||||
Sr. Unsec. Gtd. Notes, 9.38%, 04/01/19(b) | 10,000 | 10,475 | ||||||
37,930 | ||||||||
Aluminum–0.11% | ||||||||
Century Aluminum Co., Sr. Sec. Gtd. Sub. Notes, 8.00%, 05/15/14 | 25,000 | 25,828 | ||||||
Apparel Retail–0.43% | ||||||||
Express LLC/Express Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.75%, 03/01/18 | 7,000 | 7,613 | ||||||
Gap, Inc. (The), Sr. Unsec. Notes, 5.95%, 04/12/21 | 35,000 | 33,906 | ||||||
Limited Brands Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 06/15/19 | 50,000 | 57,125 | ||||||
98,644 | ||||||||
Apparel, Accessories & Luxury Goods–0.15% | ||||||||
Hanesbrands Inc., Sr. Unsec. Gtd. Global Notes, 6.38%, 12/15/20 | 10,000 | 9,725 | ||||||
Jones Group Inc. (The), Sr. Unsec. Notes, 6.88%, 03/15/19 | 15,000 | 14,531 | ||||||
Phillips-Van Heusen Corp., Sr. Unsec. Notes, 7.38%, 05/15/20 | 10,000 | 10,725 | ||||||
34,981 | ||||||||
Asset Management & Custody Banks–0.03% | ||||||||
First Data Corp., Sr. Sec. Gtd. Notes, 7.38%, 06/15/19(b) | 7,000 | 7,088 | ||||||
Auto Parts & Equipment–0.11% | ||||||||
Dana Holding Corp., Sr. Unsec. Notes, 6.50%, 02/15/19 | 5,000 | 4,988 | ||||||
6.75%, 02/15/21 | 5,000 | 4,975 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Auto Parts & Equipment–(continued) | ||||||||
Tenneco Inc., Sr. Gtd. Global Notes, 6.88%, 12/15/20 | $ | 15,000 | $ | 15,300 | ||||
25,263 | ||||||||
Automotive Retail–1.64% | ||||||||
Advance Auto Parts, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 05/01/20 | 100,000 | 106,420 | ||||||
AutoZone Inc., Sr. Unsec. Notes, 5.75%, 01/15/15 | 210,000 | 234,057 | ||||||
O’Reilly Automotive, Inc., Sr. Unsec. Gtd. Notes, 4.88%, 01/14/21 | 40,000 | 40,261 | ||||||
380,738 | ||||||||
Biotechnology–0.02% | ||||||||
STHI Holding Corp., Sec. Gtd. Notes, 8.00%, 03/15/18(b) | 5,000 | 5,100 | ||||||
Brewers–0.97% | ||||||||
Anheuser-Busch InBev Worldwide Inc., Sr. Unsec. Gtd. Global Notes, 4.13%, 01/15/15 | 90,000 | 96,719 | ||||||
2.88%, 02/15/16 | 125,000 | 127,772 | ||||||
224,491 | ||||||||
Broadcasting–1.77% | ||||||||
Allbritton Communications Co., Sr. Unsec. Global Notes, 8.00%, 05/15/18 | 20,000 | 20,400 | ||||||
COX Communications Inc., Sr. Unsec. Bonds, 8.38%, 03/01/39(b) | 75,000 | 98,400 | ||||||
Sr. Unsec. Global Notes, 5.45%, 12/15/14 | 95,000 | 106,014 | ||||||
Sr. Unsec. Notes, 9.38%, 01/15/19(b) | 140,000 | 185,633 | ||||||
410,447 | ||||||||
Building Products–0.44% | ||||||||
Associated Materials LLC, Sr. Sec. Gtd. Notes, 9.13%, 11/01/17(b) | 15,000 | 15,000 | ||||||
Building Materials Corp. of America, Sr. Sec. Gtd. Notes, 7.50%, 03/15/20(b) | 25,000 | 26,281 | ||||||
Gibraltar Industries Inc.–Series B, Sr. Unsec. Gtd. Sub. Global Notes, 8.00%, 12/01/15 | 15,000 | 15,206 | ||||||
Ply Gem Industries Inc., Sr. Sec. Gtd. Notes, 8.25%, 02/15/18(b) | 15,000 | 14,513 | ||||||
Roofing Supply Group LLC/Roofing Supply Finance Inc., Sr. Sec. Notes, 8.63%, 12/01/17(b) | 15,000 | 15,112 | ||||||
USG Corp., Sr. Unsec. Gtd. Notes, 9.75%, 08/01/14(b) | 15,000 | 15,825 | ||||||
101,937 | ||||||||
Cable & Satellite–1.80% | ||||||||
Cablevision Systems Corp., Sr. Unsec. Global Notes, 8.63%, 09/15/17 | 25,000 | 27,156 | ||||||
DIRECTV Holdings LLC/DIRECTV Financing Co., Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 05/15/16 | 350,000 | 380,844 | ||||||
Intelsat Jackson Holdings S.A. (Luxembourg), Sr. Unsec. Gtd. Notes, 7.50%, 04/01/21(b) | 10,000 | 9,975 | ||||||
417,975 | ||||||||
Casinos & Gaming–0.67% | ||||||||
Ameristar Casinos Inc., Sr. Unsec. Gtd. Notes, 7.50%, 04/15/21(b) | 7,000 | 7,245 | ||||||
Caesars Entertainment Operating Co. Inc., Sec. Global Notes, 12.75%, 04/15/18 | 10,000 | 10,025 | ||||||
Sec. Gtd. Global Notes, 10.00%, 12/15/18 | 5,000 | 4,538 | ||||||
CityCenter Holdings LLC/CityCenter Finance Corp., Sec. Gtd. PIK Notes, 10.75%, 01/15/17(b) | 5,000 | 5,431 | ||||||
Great Canadian Gaming Corp. (Canada), Sr. Unsec. Gtd. Sub. Notes, 7.25%, 02/15/15(b) | 25,000 | 25,500 | ||||||
MGM Resorts International, Sr. Unsec. Gtd. Global Notes, 6.63%, 07/15/15 | 25,000 | 23,750 | ||||||
Sr. Unsec. Gtd. Notes, 10.00%, 11/01/16(b) | 5,000 | 5,337 | ||||||
Pinnacle Entertainment Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 08/01/17 | 30,000 | 32,250 | ||||||
Snoqualmie Entertainment Authority, Sr. Sec. Notes, 9.13%, 02/01/15(b) | 15,000 | 14,925 | ||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., Sr. Sec. Gtd. First Mortgage Global Notes, 7.88%, 11/01/17 | 25,000 | 27,430 | ||||||
156,431 | ||||||||
Coal & Consumable Fuels–0.14% | ||||||||
CONSOL Energy Inc., Sr. Unsec. Gtd. Global Notes, 8.00%, 04/01/17 | 15,000 | 16,387 | ||||||
8.25%, 04/01/20 | 15,000 | 16,350 | ||||||
32,737 | ||||||||
Communications Equipment–0.02% | ||||||||
Avaya Inc., Sr. Sec. Gtd. Notes, 7.00%, 04/01/19(b) | 5,000 | 4,750 | ||||||
Computer & Electronics Retail–0.04% | ||||||||
Rent-A-Center Inc., Sr. Unsec. Gtd Global Notes, 6.63%, 11/15/20 | 10,000 | 10,000 | ||||||
Computer Storage & Peripherals–0.05% | ||||||||
Seagate HDD Cayman (Cayman Islands), Sr. Unsec. Gtd. Notes, 7.75%, 12/15/18(b) | 10,000 | 10,475 | ||||||
Construction & Engineering–0.19% | ||||||||
Dycom Investments Inc., Sr. Sub. Notes, 7.13%, 01/15/21(b) | 5,000 | 5,125 | ||||||
Great Lakes Dredge & Dock Corp., Sr. Unsec. Gtd. Notes, 7.38%, 02/01/19(b) | 5,000 | 4,963 | ||||||
MasTec, Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 02/01/17 | 10,000 | 10,250 | ||||||
Tutor Perini Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 11/01/18 | 25,000 | 24,062 | ||||||
44,400 | ||||||||
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–0.30% | ||||||||
CNH America LLC, Sr. Unsec. Gtd. Notes, 7.25%, 01/15/16 | $ | 25,000 | $ | 27,000 | ||||
Manitowoc Co. Inc. (The), Sr. Unsec. Gtd. Notes, 8.50%, 11/01/20 | 5,000 | 5,375 | ||||||
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | 10,000 | 10,900 | ||||||
Titan International Inc., Sr. Sec. Gtd. Notes, 7.88%, 10/01/17(b) | 25,000 | 26,312 | ||||||
69,587 | ||||||||
Construction Materials–0.43% | ||||||||
CRH America Inc., Sr. Unsec. Gtd. Notes, 4.13%, 01/15/16 | 80,000 | 81,498 | ||||||
Texas Industries Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 08/15/20 | 20,000 | 19,400 | ||||||
100,898 | ||||||||
Consumer Finance–0.95% | ||||||||
Ally Financial, Inc., Sr. Unsec. Gtd. Global Notes, 8.00%, 11/01/31 | 50,000 | 54,375 | ||||||
Ford Motor Credit Co. LLC, Sr. Unsec. Notes, 8.00%, 12/15/16 | 20,000 | 22,650 | ||||||
National Money Mart Co. (Canada), Sr. Unsec. Gtd. Global Notes, 10.38%, 12/15/16 | 25,000 | 27,562 | ||||||
SLM Corp., | ||||||||
Sr. Medium-Term Global Notes, 6.25%, 01/25/16 | 75,000 | 78,535 | ||||||
Series A, Sr. Unsec. Medium-Term Notes, 5.00%, 10/01/13 | 35,000 | 36,437 | ||||||
219,559 | ||||||||
Department Stores–0.10% | ||||||||
Sears Holdings Corp., Sec. Gtd. Notes, 6.63%, 10/15/18(b) | 25,000 | 23,063 | ||||||
Distillers & Vintners–0.05% | ||||||||
Constellation Brands Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 05/15/17 | 10,000 | 10,900 | ||||||
Diversified Banks–6.41% | ||||||||
Abbey National Treasury Services PLC (United Kingdom), Sr. Gtd. Global Notes, 2.88%, 04/25/14 | 25,000 | 25,086 | ||||||
ABN Amro Bank N.V. (Netherlands), Sr. Unsec. Notes, 3.00%, 01/31/14(b) | 200,000 | 201,664 | ||||||
Bank of Nova Scotia (Canada), Sr. Unsec. Global Notes, 2.38%, 12/17/13 | 70,000 | 71,906 | ||||||
Credit Suisse AG (Switzerland), Sub. Global Notes, 5.40%, 01/14/20 | 115,000 | 116,153 | ||||||
HSBC Bank PLC (United Kingdom), Sr. Notes, 4.13%, 08/12/20(b) | 235,000 | 228,360 | ||||||
ING Bank N.V. (Netherlands), Unsec. Sub. Notes, 5.13%, 05/01/15(b) | 100,000 | 105,427 | ||||||
Lloyds TSB Bank PLC (United Kingdom), | ||||||||
Sr. Unsec. Gtd. Global Notes, 4.88%, 01/21/16 | 85,000 | 86,921 | ||||||
Sr. Unsec. Gtd. Medium-Term Notes, 4.38%, 01/12/15(b) | 145,000 | 147,950 | ||||||
Royal Bank of Scotland PLC (The) (United Kingdom), Sr. Unsec. Gtd. Global Notes, 4.88%, 03/16/15 | 130,000 | 134,995 | ||||||
Series 2, Sr. Unsec. Gtd. Global Notes, 3.40%, 08/23/13 | 75,000 | 76,810 | ||||||
Societe Generale (France), Sr. Unsec. Notes, 2.50%, 01/15/14(b) | 130,000 | 130,184 | ||||||
Standard Chartered PLC (United Kingdom), Sr. Unsec. Notes, 5.50%, 11/18/14(b) | 55,000 | 60,570 | ||||||
VTB Bank OJSC Via VTB Capital S.A. (Luxembourg), Sr. Unsec. Gtd. Notes, 6.55%, 10/13/20(b) | 100,000 | 101,625 | ||||||
1,487,651 | ||||||||
Diversified Capital Markets–0.47% | ||||||||
UBS AG (Switzerland), Sr. Unsec. Medium-Term Global Notes, 5.75%, 04/25/18 | 100,000 | 108,759 | ||||||
Diversified Chemicals–0.32% | ||||||||
Dow Chemical Co. (The), Sr. Unsec. Global Notes, 4.25%, 11/15/20 | 75,000 | 73,813 | ||||||
Diversified Metals & Mining–0.19% | ||||||||
Freeport-McMoRan Copper & Gold Inc., Sr. Unsec. Notes, 8.38%, 04/01/17 | 35,000 | 38,259 | ||||||
Midwest Vanadium Pty Ltd. (Australia), Sr. Sec. Gtd. Notes, 11.50%, 02/15/18(b) | 3,000 | 2,998 | ||||||
Mirabela Nickel Ltd. (Australia), Sr. Unsec. Gtd. Notes, 8.75%, 04/15/18(b) | 2,000 | 1,979 | ||||||
43,236 | ||||||||
Diversified REIT’s–0.79% | ||||||||
Dexus Diversified /Dexus Office Trust (Australia), Sr. Unsec. Gtd. Notes, 5.60%, 03/15/21(b) | 180,000 | 183,782 | ||||||
Diversified Support Services–0.72% | ||||||||
Cintas Corp. No. 2, Sr. Unsec. Gtd. Notes, 4.30%, 06/01/21 | 140,000 | 140,427 | ||||||
International Lease Finance Corp., Sr. Unsec. Global Notes, 8.63%, 09/15/15 | 10,000 | 10,894 | ||||||
8.75%, 03/15/17 | 15,000 | 16,453 | ||||||
167,774 | ||||||||
Drug Retail–0.78% | ||||||||
CVS Pass Through Trust, Sr. Sec. Gtd. Notes, 5.77%, 01/10/33(b) | 173,333 | 180,025 | ||||||
Electric Utilities–2.66% | ||||||||
DCP Midstream LLC, Sr. Unsec. Notes, 9.70%, 12/01/13(b) | 100,000 | 117,059 | ||||||
9.75%, 03/15/19(b) | 55,000 | 71,979 | ||||||
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) | ||||||||
Enel Finance International N.V. (Luxembourg), Sr. Unsec. Gtd. Notes, 3.88%, 10/07/14(b) | $ | 100,000 | $ | 103,395 | ||||
LSP Energy L.P./LSP Batesville Funding Corp.–Series D, Sr. Sec. Bonds, 8.16%, 07/15/25 | 25,000 | 18,250 | ||||||
Ohio Power Co.–Series M, Sr. Unsec. Notes, 5.38%, 10/01/21 | 180,000 | 194,569 | ||||||
PPL Electric Utilities Corp., Sec. First Mortgage Bonds, 6.25%, 05/15/39 | 45,000 | 50,843 | ||||||
Virginia Electric & Power Co., Sr. Unsec. Notes, 5.00%, 06/30/19 | 55,000 | 59,766 | ||||||
615,861 | ||||||||
Electrical Components & Equipment–0.14% | ||||||||
Belden Inc., Sr. Gtd. Sub. Global Notes, 9.25%, 06/15/19 | 25,000 | 28,000 | ||||||
Polypore International Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 11/15/17 | 5,000 | 5,312 | ||||||
33,312 | ||||||||
Environmental & Facilities Services–0.66% | ||||||||
Clean Harbors Inc., Sr. Sec. Gtd. Notes, 7.63%, 08/15/16(b) | 10,000 | 10,700 | ||||||
Waste Management, Inc., Sr. Unsec. Gtd. Notes, 5.00%, 03/15/14 | 65,000 | 70,767 | ||||||
4.60%, 03/01/21 | 70,000 | 71,581 | ||||||
153,048 | ||||||||
Forest Products–0.04% | ||||||||
Millar Western Forest Products Ltd. (Canada), Sr. Notes, 8.50%, 04/01/21(b) | 10,000 | 9,063 | ||||||
Gas Utilities–0.13% | ||||||||
Ferrellgas L.P./Ferrellgas Finance Corp., Sr. Unsec. Notes, 6.50%, 05/01/21(b) | 10,000 | 9,450 | ||||||
Suburban Propane Partners, L.P./Suburban Energy Finance Corp., Sr. Unsec. Notes, 7.38%, 03/15/20 | 20,000 | 20,900 | ||||||
30,350 | ||||||||
Gold–1.11% | ||||||||
Barrick Gold Corp. (Canada), Sr. Unsec. Notes, 2.90%, 05/30/16(b) | 65,000 | 65,338 | ||||||
Gold Fields Orogen Holding BVI Ltd. (Mali), Sr. Unsec. Gtd. Notes, 4.88%, 10/07/20(b) | 200,000 | 191,001 | ||||||
256,339 | ||||||||
Health Care Equipment–0.05% | ||||||||
DJO Finance LLC/Corp., | ||||||||
Sr. Unsec. Gtd. Notes, 7.75%, 04/15/18(b) | 2,000 | 2,025 | ||||||
Sr. Unsec. Gtd. Sub. Notes, 9.75%, 10/15/17(b) | 10,000 | 10,125 | ||||||
12,150 | ||||||||
Health Care Facilities–0.32% | ||||||||
HCA, Inc., Sr. Sec. Gtd. Global Notes, 7.88%, 02/15/20 | 13,000 | 14,203 | ||||||
Healthsouth Corp., Sr. Unsec. Gtd. Notes, | ||||||||
7.25%, 10/01/18 | 15,000 | 15,712 | ||||||
7.75%, 09/15/22 | 15,000 | 15,787 | ||||||
Tenet Healthcare Corp., Sr. Unsec. Global Notes, 9.25%, 02/01/15 | 25,000 | 27,469 | ||||||
73,171 | ||||||||
Health Care Services–1.68% | ||||||||
Express Scripts Inc., Sr. Unsec. Gtd. Global Notes, 6.25%, 06/15/14 | 125,000 | 140,399 | ||||||
Highmark, Inc., Sr. Unsec. Notes, | ||||||||
4.75%, 05/15/21(b) | 40,000 | 40,278 | ||||||
6.13%, 05/15/41(b) | 35,000 | 34,724 | ||||||
Medco Health Solutions Inc., Sr. Unsec. Notes, 2.75%, 09/15/15 | 35,000 | 35,249 | ||||||
Orlando Lutheran Towers Inc., Putable Bonds, | ||||||||
7.75%, 07/01/11 | 15,000 | 15,000 | ||||||
8.00%, 07/01/17 | 125,000 | 125,103 | ||||||
390,753 | ||||||||
Health Care Technology–0.07% | ||||||||
MedAssets Inc., Sr. Unsec. Gtd. Notes, 8.00%, 11/15/18(b) | 15,000 | 15,150 | ||||||
Home Furnishings–0.06% | ||||||||
American Standard Americas, Sr. Sec. Notes, 10.75%, 01/15/16(b) | 15,000 | 14,625 | ||||||
Home Improvement Retail–0.28% | ||||||||
Lowe’s Cos. Inc., Sr. Unsec. Notes, 3.75%, 04/15/21 | 65,000 | 63,998 | ||||||
Homebuilding–0.08% | ||||||||
Beazer Homes USA Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 07/15/15 | 5,000 | 4,375 | ||||||
8.13%, 06/15/16 | 15,000 | 13,144 | ||||||
17,519 | ||||||||
Hotels, Resorts & Cruise Lines–1.63% | ||||||||
Hyatt Hotels Corp., Sr. Unsec. Notes, 5.75%, 08/15/15(b) | 165,000 | 174,308 | ||||||
Royal Caribbean Cruises Ltd., Sr. Unsec. Global Notes, 7.50%, 10/15/27 | 25,000 | 25,438 | ||||||
Starwood Hotels & Resorts Worldwide, Inc., Sr. Unsec. Notes, 7.15%, 12/01/19 | 15,000 | 16,800 | ||||||
Wyndham Worldwide Corp., Sr. Unsec. Notes, | ||||||||
7.38%, 03/01/20 | 55,000 | 61,084 | ||||||
5.63%, 03/01/21 | 100,000 | 100,625 | ||||||
378,255 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Household Products–0.11% | ||||||||
Central Garden & Pet Co., Sr. Gtd. Sub. Notes, 8.25%, 03/01/18 | $ | 25,000 | $ | 25,937 | ||||
Housewares & Specialties–0.23% | ||||||||
Tupperware Brands Corp., Sr. Unsec. Gtd. Notes, 4.75%, 06/01/21(b) | 55,000 | 54,106 | ||||||
Independent Power Producers & Energy Traders–0.12% | ||||||||
AES Corp. (The), Sr. Unsec. Global Notes, 8.00%, 10/15/17 | 25,000 | 26,750 | ||||||
Industrial Conglomerates–2.03% | ||||||||
Hutchison Whampoa International Ltd. (Cayman Islands), | ||||||||
Sr. Unsec. Gtd. Notes, 7.63%, 04/09/19(b) | 130,000 | 154,718 | ||||||
Unsec. Gtd. Notes, 5.75%, 09/11/19(b) | 100,000 | 106,962 | ||||||
Unsec. Gtd. Sub. Notes, 6.00%(b)(c) | 135,000 | 138,900 | ||||||
NBC Universal Media LLC, Sr. Unsec. Notes, | ||||||||
2.10%, 04/01/14(b) | 35,000 | 35,517 | ||||||
5.95%, 04/01/41(b) | 35,000 | 35,319 | ||||||
471,416 | ||||||||
Industrial Machinery–0.67% | ||||||||
Cleaver-Brooks Inc., Sr. Sec. Notes, 12.25%, 05/01/16(b) | 10,000 | 10,487 | ||||||
Pentair, Inc., Sr. Unsec. Gtd. Notes, 5.00%, 05/15/21 | 145,000 | 145,442 | ||||||
155,929 | ||||||||
Industrial REIT’s–0.07% | ||||||||
DuPont Fabros Technology L.P., Sr. Unsec. Gtd. Global Notes, 8.50%, 12/15/17 | 15,000 | 16,388 | ||||||
Insurance Brokers–0.55% | ||||||||
Marsh & McLennan Cos. Inc., Sr. Unsec. Notes, 9.25%, 04/15/19 | 100,000 | 127,649 | ||||||
Integrated Oil & Gas–0.42% | ||||||||
Marathon Petroleum Corp., Sr. Unsec. Gtd. Notes, 6.50%, 03/01/41(b) | 55,000 | 57,342 | ||||||
Petrobras International Finance Co. (Cayman Islands), Sr. Unsec. Gtd. Global Notes, 5.38%, 01/27/21 | 40,000 | 41,200 | ||||||
98,542 | ||||||||
Integrated Telecommunication Services–1.62% | ||||||||
AT&T Inc., Sr. Unsec. Global Notes, | ||||||||
2.50%, 08/15/15 | 60,000 | 60,870 | ||||||
2.95%, 05/15/16 | 35,000 | 35,594 | ||||||
4.45%, 05/15/21 | 15,000 | 15,225 | ||||||
Integra Telecom Holdings, Inc., Sr. Sec. Notes, 10.75%, 04/15/16(b) | 5,000 | 5,087 | ||||||
Intelsat Jackson Holdings S.A. (Luxembourg), Sr. Unsec. Gtd. Notes, 7.25%, 04/01/19(b) | 10,000 | 9,975 | ||||||
Telefonica Emisiones SAU (Spain), Sr. Unsec. Gtd. Global Notes, 5.46%, 02/16/21 | 90,000 | 91,703 | ||||||
Telemar Norte Leste S.A. (Brazil), Sr. Unsec. Notes, 5.50%, 10/23/20(b) | 161,000 | 158,212 | ||||||
376,666 | ||||||||
Internet Retail–0.73% | ||||||||
Expedia Inc., Sr. Unsec. Gtd. Global Notes, 5.95%, 08/15/20 | 165,000 | 160,893 | ||||||
Travelport LLC, Sr. Unsec. Gtd. Global Notes, 9.88%, 09/01/14 | 10,000 | 9,300 | ||||||
170,193 | ||||||||
Internet Software & Services–0.07% | ||||||||
Equinix Inc., Sr. Unsec. Notes, 8.13%, 03/01/18 | 15,000 | 16,425 | ||||||
Investment Banking & Brokerage–6.56% | ||||||||
Cantor Fitzgerald L.P., Bonds, 7.88%, 10/15/19(b) | 160,000 | 175,262 | ||||||
Goldman Sachs Group Inc. (The), Sr. Global Notes, 3.70%, 08/01/15 | 45,000 | 45,924 | ||||||
Sr. Unsec. Global Notes, | ||||||||
5.13%, 01/15/15 | 50,000 | 53,575 | ||||||
3.63%, 02/07/16 | 30,000 | 30,319 | ||||||
Unsec. Sub. Global Notes, 6.75%, 10/01/37 | 140,000 | 140,175 | ||||||
Jefferies Group Inc., Sr. Unsec. Notes, 6.45%, 06/08/27 | 375,000 | 371,734 | ||||||
Macquarie Group Ltd. (Australia), Sr. Unsec. Notes, | ||||||||
7.30%, 08/01/14(b) | 110,000 | 123,032 | ||||||
6.00%, 01/14/20(b) | 105,000 | 108,370 | ||||||
Morgan Stanley, | ||||||||
Sr. Unsec. Medium-Term Global Notes, 6.00%, 05/13/14 | 230,000 | 251,362 | ||||||
Series F, Sr. Unsec. Medium-Term Global Notes, 5.63%, 09/23/19 | 130,000 | 133,805 | ||||||
Raymond James Financial, Inc., Sr. Unsec. Notes, 4.25%, 04/15/16 | 35,000 | 36,106 | ||||||
Schwab Capital Trust I, Jr. Unsec. Gtd. Sub. Notes, 7.50%, 11/15/37 | 50,000 | 51,436 | ||||||
1,521,100 | ||||||||
Leisure Facilities–0.02% | ||||||||
Speedway Motorsports Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 02/01/19 | 5,000 | 5,013 | ||||||
Life & Health Insurance–2.11% | ||||||||
MetLife Inc., Sr. Unsec. Notes, 6.75%, 06/01/16 | 55,000 | 63,986 | ||||||
Nationwide Financial Services, Sr. Unsec. Notes, 5.38%, 03/25/21(b) | 165,000 | 166,434 | ||||||
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. Global Notes, 8.88%, 06/15/38 | $ | 130,000 | $ | 152,749 | ||||
Series D, Sr. Unsec. Medium-Term Notes, 7.38%, 06/15/19 | 90,000 | 106,627 | ||||||
489,796 | ||||||||
Life Sciences Tools & Services–0.67% | ||||||||
Life Technologies Corp., Sr. Notes, 6.00%, 03/01/20 | 120,000 | 130,747 | ||||||
Patheon Inc. (Canada), Sr. Sec. Gtd. Notes, 8.63%, 04/15/17(b) | 25,000 | 25,375 | ||||||
156,122 | ||||||||
Managed Health Care–0.86% | ||||||||
CIGNA Corp., Sr. Unsec. Notes, | ||||||||
4.50%, 03/15/21 | 45,000 | 45,068 | ||||||
5.88%, 03/15/41 | 35,000 | 34,713 | ||||||
UnitedHealth Group Inc., Sr. Unsec. Notes, | ||||||||
3.88%, 10/15/20 | 60,000 | 58,971 | ||||||
5.95%, 02/15/41 | 60,000 | 61,565 | ||||||
200,317 | ||||||||
Metal & Glass Containers–0.02% | ||||||||
Ball Corp., Sr. Unsec. Gtd. Notes, 5.75%, 05/15/21 | 5,000 | 5,038 | ||||||
Mortgage Backed Securities–0.43% | ||||||||
U.S. Bank N.A., Sr. Unsec. Medium-Term Notes, 5.92%, 05/25/12 | 95,080 | 99,230 | ||||||
Movies & Entertainment–0.58% | ||||||||
AMC Entertainment Inc., Sr. Unsec. Gtd. Global Notes, 8.75%, 06/01/19 | 25,000 | 26,469 | ||||||
Cinemark USA Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 06/15/19 | 25,000 | 27,500 | ||||||
NAI Entertainment Holdings LLC, Sr. Sec. Notes, 8.25%, 12/15/17(b) | 15,000 | 16,162 | ||||||
Time Warner Cable, Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 07/01/18 | 55,000 | 63,884 | ||||||
134,015 | ||||||||
Multi-Line Insurance–1.98% | ||||||||
American Financial Group, Inc., Sr. Unsec. Notes, 9.88%, 06/15/19 | 180,000 | 223,889 | ||||||
Hartford Financial Services Group Inc. (The), Jr. Unsec. Sub. Deb., 8.13%, 06/15/38 | 10,000 | 10,734 | ||||||
Health Care Service Corp., Sr. Unsec. Notes, 4.70%, 01/15/21(b) | 55,000 | 56,443 | ||||||
Liberty Mutual Group Inc., Jr. Unsec. Gtd. Sub. Bonds, 7.80%, 03/15/37(b) | 15,000 | 14,925 | ||||||
Sr. Unsec. Gtd. Notes, 5.00%, 06/01/21(b) | 50,000 | 47,897 | ||||||
Sr. Unsec. Notes, 5.75%, 03/15/14(b) | 100,000 | 105,923 | ||||||
459,811 | ||||||||
Multi-Utilities–0.27% | ||||||||
Pacific Gas & Electric Co., Sr. Unsec. Notes, 5.40%, 01/15/40 | 65,000 | 63,396 | ||||||
Office Services & Supplies–0.11% | ||||||||
IKON Office Solutions, Inc., Sr. Unsec. Notes, 6.75%, 12/01/25 | 25,000 | 24,625 | ||||||
Oil & Gas Drilling–0.49% | ||||||||
Precision Drilling Corp. (Canada), Sr. Unsec. Gtd. Global Notes, 6.63%, 11/15/20 | 5,000 | 5,112 | ||||||
Transocean Inc. (Cayman Islands), Sr. Unsec. Gtd. Global Notes, 4.95%, 11/15/15 | 100,000 | 108,152 | ||||||
113,264 | ||||||||
Oil & Gas Equipment & Services–0.11% | ||||||||
Bristow Group, Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/17 | 10,000 | 10,487 | ||||||
Calfrac Holdings L.P., Sr. Unsec. Notes, 7.50%, 12/01/20(b) | 5,000 | 5,088 | ||||||
Key Energy Services, Inc., Sr. Unsec. Gtd. Notes, 6.75%, 03/01/21 | 10,000 | 9,919 | ||||||
25,494 | ||||||||
Oil & Gas Exploration & Production–2.15% | ||||||||
Anadarko Petroleum Corp., | ||||||||
Sr. Unsec. Global Notes, 5.75%, 06/15/14 | 95,000 | 104,551 | ||||||
Sr. Unsec. Notes, 7.63%, 03/15/14 | 15,000 | 17,128 | ||||||
Chaparral Energy Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 09/01/21 | 10,000 | 10,175 | ||||||
Chesapeake Energy Corp., Sr. Unsec. Gtd. Notes, 6.63%, 08/15/20 | 8,000 | 8,430 | ||||||
6.13%, 02/15/21 | 5,000 | 5,081 | ||||||
Cimarex Energy Co., Sr. Unsec. Gtd. Notes, 7.13%, 05/01/17 | 10,000 | 10,537 | ||||||
Concho Resources Inc., Sr. Unsec. Gtd. Notes, 7.00%, 01/15/21 | 5,000 | 5,125 | ||||||
Continental Resources, Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 10/01/19 | 15,000 | 16,406 | ||||||
Delta Petroleum Corp., Sr. Unsec. Gtd. Sub. Global Notes, 7.00%, 04/01/15 | 10,000 | 7,700 | ||||||
EOG Resources Inc., Sr. Unsec. Notes, 4.10%, 02/01/21 | 45,000 | 44,683 | ||||||
Forest Oil Corp., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/15/19 | 10,000 | 10,238 | ||||||
McMoRan Exploration Co., Sr. Unsec. Gtd. Notes, 11.88%, 11/15/14 | 35,000 | 37,975 | ||||||
Pemex Project Funding Master Trust, Sr. Unsec. Gtd. Global Bonds, 6.63%, 06/15/35 | 65,000 | 67,909 | ||||||
Petrobras International Finance Co. (Cayman Islands), Sr. Unsec. Gtd. Global Notes, 6.88%, 01/20/40 | 45,000 | 48,169 | ||||||
Petrohawk Energy Corp., Sr. Unsec. Gtd. Global Notes, 7.25%, 08/15/18 | 10,000 | 10,275 | ||||||
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) | ||||||||
Petroleos Mexicanos (Mexico), Sr. Unsec. Gtd. Global Notes, 5.50%, 01/21/21 | $ | 65,000 | $ | 68,317 | ||||
Plains Exploration & Production Co., Sr. Unsec. Gtd. Notes, 8.63%, 10/15/19 | 15,000 | 16,275 | ||||||
SM Energy Co., Sr. Unsec. Notes, 6.63%, 02/15/19(b) | 10,000 | 10,050 | ||||||
499,024 | ||||||||
Oil & Gas Refining & Marketing–0.55% | ||||||||
Petronas Capital Ltd. (Malaysia), Unsec. Gtd. Unsub. Notes, 5.25%, 08/12/19(b) | 100,000 | 107,752 | ||||||
United Refining Co., Sr. Sec. Gtd. Global Notes, 10.50%, 02/28/18 | 20,000 | 20,050 | ||||||
127,802 | ||||||||
Oil & Gas Storage & Transportation–2.46% | ||||||||
Copano Energy LLC/Copano Energy Finance Corp., Sr. Unsec. Gtd. Notes, 7.13%, 04/01/21 | 15,000 | 14,925 | ||||||
Energy Transfer Partners LP, Sr. Unsec. Global Notes, 6.05%, 06/01/41 | 115,000 | 112,316 | ||||||
Enterprise Products Operating LLC, Sr. Unsec. Gtd. Notes, 6.45%, 09/01/40 | 70,000 | 74,660 | ||||||
MarkWest Energy Partners L.P./MarkWest Energy Finance Corp., Sr. Unsec. Gtd. Notes, 6.50%, 08/15/21 | 15,000 | 14,981 | ||||||
Overseas Shipholding Group, Inc., Sr. Unsec. Notes, 8.13%, 03/30/18 | 25,000 | 24,625 | ||||||
Regency Energy Partners L.P./Regency Energy Finance Corp., Sr. Unsec. Gtd. Notes, 6.88%, 12/01/18 | 15,000 | 15,544 | ||||||
Spectra Energy Capital LLC, Sr. Unsec. Gtd. Notes, 5.65%, 03/01/20 | 155,000 | 168,850 | ||||||
Targa Resources Partners L.P./Targa Resources Partners Finance Corp., Sr. Unsec. Gtd. Notes, 6.88%, 02/01/21(b) | 15,000 | 14,325 | ||||||
Williams Partners L.P., Sr. Unsec. Global Notes, | ||||||||
3.80%, 02/15/15 | 75,000 | 78,702 | ||||||
6.30%, 04/15/40 | 50,000 | 52,011 | ||||||
570,939 | ||||||||
Other Diversified Financial Services–7.68% | ||||||||
Bank of America Corp., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
4.50%, 04/01/15 | 240,000 | 250,853 | ||||||
3.70%, 09/01/15 | 25,000 | 25,183 | ||||||
6.50%, 08/01/16 | 130,000 | 145,229 | ||||||
Sr. Unsec. Notes, 5.88%, 01/05/21 | 35,000 | 36,916 | ||||||
Citigroup Inc., Sr. Unsec. Global Notes, 6.01%, 01/15/15 | 150,000 | 164,733 | ||||||
Sr. Unsec. Notes, 6.38%, 08/12/14 | 255,000 | 281,123 | ||||||
Countrywide Financial Corp., Sr. Sec. Gtd. Medium-Term Global Notes, 5.80%, 06/07/12 | 10,000 | 10,432 | ||||||
ERAC USA Finance LLC, Unsec. Gtd. Notes, 5.80%, 10/15/12(b) | 105,000 | 111,125 | ||||||
Football Trust V, Sec. Pass Through Ctfs., 5.35%, 10/05/20(b) | 100,000 | 105,490 | ||||||
General Electric Capital Corp.–Series A, Sr. Unsec. Medium-Term Global Notes, 6.88%, 01/10/39 | 60,000 | 67,595 | ||||||
International Lease Finance Corp., | ||||||||
Sr. Sec. Notes, 6.50%, 09/01/14(b) | 115,000 | 121,785 | ||||||
Sr. Unsec. Notes, 8.25%, 12/15/20 | 10,000 | 10,888 | ||||||
JPMorgan Chase & Co., Sr. Unsec. Global Notes, | ||||||||
4.75%, 05/01/13 | 15,000 | 15,956 | ||||||
3.45%, 03/01/16 | 25,000 | 25,481 | ||||||
3.15%, 07/05/16 | 35,000 | 35,151 | ||||||
JPMorgan Chase Capital XXVII–Series AA, Jr. Unsec. Gtd. Sub. Notes, 7.00%, 11/01/39 | 160,000 | 160,394 | ||||||
Merrill Lynch & Co. Inc.–Series C, Sr. Unsec. Medium-Term Global Notes, 5.45%, 02/05/13 | 200,000 | 212,117 | ||||||
Twin Reefs Pass-Through Trust, Sec. Floating Rate Pass Through Ctfs., 1.39%, (Acquired: 12/07/04-04/03/06; Cost: $130,332)(b)(c)(d)(e) | 130,000 | — | ||||||
1,780,451 | ||||||||
Packaged Foods & Meats–0.68% | ||||||||
Del Monte Foods Co., Sr. Unsec. Gtd. Notes, 7.63%, 02/15/19(b) | 5,000 | 5,075 | ||||||
Dole Food Co. Inc., Sr. Sec. Gtd. Notes, 8.00%, 10/01/16(b) | 25,000 | 26,313 | ||||||
Kraft Foods Inc., Sr. Unsec. Global Notes, | ||||||||
2.63%, 05/08/13 | 70,000 | 71,965 | ||||||
6.50%, 02/09/40 | 50,000 | 55,256 | ||||||
158,609 | ||||||||
Paper Packaging–0.05% | ||||||||
Cascades Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 7.88%, 01/15/20 | 10,000 | 10,450 | ||||||
Paper Products–0.14% | ||||||||
Clearwater Paper Corp., Sr. Unsec. Gtd. Global Notes, 7.13%, 11/01/18 | 5,000 | 5,138 | ||||||
Mercer International Inc., Sr. Unsec. Gtd. Global Notes, 9.50%, 12/01/17 | 10,000 | 10,800 | ||||||
P.H. Glatfelter Co., Sr. Unsec. Gtd. Global Notes, 7.13%, 05/01/16 | 15,000 | 15,506 | ||||||
31,444 | ||||||||
Pharmaceuticals–0.13% | ||||||||
Mylan Inc., Sr. Unsec. Gtd. Notes, 6.00%, 11/15/18(b) | 5,000 | 5,100 | ||||||
Valeant Pharmaceuticals International, Sr. Unsec. Gtd. Notes, | ||||||||
6.75%, 10/01/17(b) | 10,000 | 9,788 | ||||||
7.00%, 10/01/20(b) | 15,000 | 14,437 | ||||||
29,325 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Property & Casualty Insurance–0.98% | ||||||||
CNA Financial Corp., Sr. Unsec. Notes, 7.35%, 11/15/19 | $ | 160,000 | $ | 182,889 | ||||
W.R. Berkley Corp., Sr. Unsec. Notes, 7.38%, 09/15/19 | 40,000 | 45,272 | ||||||
228,161 | ||||||||
Publishing–0.04% | ||||||||
Reed Elsevier Capital Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 08/01/11 | 9,000 | 9,040 | ||||||
Railroads–0.93% | ||||||||
Canadian Pacific Railway Co. (Canada), Sr. Unsec. Yankee Notes, 4.45%, 03/15/23 | 20,000 | 19,892 | ||||||
CSX Corp., Sr. Unsec. Notes, 5.50%, 04/15/41 | 55,000 | 53,936 | ||||||
Kansas City Southern de Mexico S.A. de C.V. (Mexico), Sr. Unsec. Global Notes, 8.00%, 02/01/18 | 5,000 | 5,469 | ||||||
Union Pacific Corp., Sr. Unsec. Notes, 4.00%, 02/01/21 | 135,000 | 135,736 | ||||||
215,033 | ||||||||
Regional Banks–1.70% | ||||||||
BB&T Capital Trust II, Jr. Unsec. Gtd. Sub. Global Notes, 6.75%, 06/07/36 | 5,000 | 5,013 | ||||||
CIT Group Inc., Sec. Gtd. Notes, 6.63%, 04/01/18(b) | 15,000 | 15,703 | ||||||
PNC Funding Corp., Sr. Unsec. Gtd. Global Notes, 3.63%, 02/08/15 | 110,000 | 115,480 | ||||||
PNC Preferred Funding Trust III, Jr. Sub. Notes, 8.70%(b)(c) | 200,000 | 211,000 | ||||||
Regions Financial Corp., Unsec. Sub. Notes, 7.38%, 12/10/37 | 30,000 | 28,350 | ||||||
Synovus Financial Corp., Unsec. Sub. Global Notes, 5.13%, 06/15/17 | 20,000 | 17,800 | ||||||
393,346 | ||||||||
Restaurants–0.93% | ||||||||
Yum! Brands, Inc., Sr. Unsec. Notes, 5.30%, 09/15/19 | 200,000 | 215,468 | ||||||
Semiconductor Equipment–0.11% | ||||||||
Amkor Technology Inc., Sr. Unsec. Global Notes, 7.38%, 05/01/18 | 25,000 | 25,687 | ||||||
Semiconductors–0.12% | ||||||||
Freescale Semiconductor Inc., Sr. Sec. Gtd. Notes, 9.25%, 04/15/18(b) | 25,000 | 27,125 | ||||||
Sovereign Debt–0.72% | ||||||||
Mexico Government International Bond (Mexico)–Series A, Sr. Unsec. Medium-Term Global Notes, 6.05%, 01/11/40 | 60,000 | 63,960 | ||||||
Russian Foreign Bond (Russia), Sr. Unsec. Euro Bonds, 3.63%, 04/29/15(b) | 100,000 | 102,650 | ||||||
166,610 | ||||||||
Specialized Finance–1.06% | ||||||||
Moody’s Corp., Sr. Unsec. Notes, 5.50%, 09/01/20 | 110,000 | 112,799 | ||||||
National Rural Utilities Cooperative Finance Corp., Sr. Sec. Collateral Trust Bonds, 3.05%, 03/01/16 | 70,000 | 72,194 | ||||||
Sr. Sec. Collateral Trust Notes, 2.63%, 09/16/12 | 60,000 | 61,414 | ||||||
246,407 | ||||||||
Specialized REIT’s–2.18% | ||||||||
Entertainment Properties Trust, Sr. Unsec. Gtd. Global Notes, 7.75%, 07/15/20 | 245,000 | 273,506 | ||||||
HCP, Inc., Sr. Unsec. Notes, 3.75%, 02/01/16 | 25,000 | 25,481 | ||||||
Health Care REIT Inc., Sr. Unsec. Notes, 6.50%, 03/15/41 | 40,000 | 39,322 | ||||||
Omega Healthcare Investors Inc., Sr. Unsec. Gtd. Notes, 6.75%, 10/15/22(b) | 5,000 | 4,950 | ||||||
Senior Housing Properties Trust, Sr. Unsec. Notes, 4.30%, 01/15/16 | 75,000 | 75,141 | ||||||
Ventas Realty LP/Ventas Capital Corp., Sr. Unsec. Gtd. Notes, 4.75%, 06/01/21 | 90,000 | 88,054 | ||||||
506,454 | ||||||||
Specialty Chemicals–0.09% | ||||||||
Nalco Co., Sr. Unsec. Gtd. Notes, 6.63%, 01/15/19(b) | 5,000 | 5,112 | ||||||
PolyOne Corp., Sr. Unsec. Notes, 7.38%, 09/15/20 | 15,000 | 15,844 | ||||||
20,956 | ||||||||
Specialty Stores–0.15% | ||||||||
Michaels Stores Inc., Sr. Unsec. Gtd. Notes, 7.75%, 11/01/18(b) | 5,000 | 4,987 | ||||||
Staples Inc., Sr. Unsec. Gtd. Global Notes, 9.75%, 01/15/14 | 25,000 | 29,844 | ||||||
34,831 | ||||||||
Steel–1.82% | ||||||||
AK Steel Corp., Sr. Unsec. Gtd. Notes, 7.63%, 05/15/20 | 5,000 | 5,150 | ||||||
ArcelorMittal (Luxembourg), Sr. Unsec. Global Notes, | ||||||||
6.13%, 06/01/18 | 55,000 | 58,717 | ||||||
5.50%, 03/01/21 | 10,000 | 10,031 | ||||||
7.00%, 10/15/39 | 195,000 | 197,880 | ||||||
6.75%, 03/01/41 | 10,000 | 9,961 | ||||||
FMG Resources Ltd. (Australia), Sr. Unsec. Gtd. Notes, 6.38%, 02/01/16(b) | 5,000 | 5,012 | ||||||
United States Steel Corp., Sr. Unsec. Notes, 7.00%, 02/01/18 | 10,000 | 10,175 | ||||||
Vale Overseas Ltd., Sr. Unsec. Gtd. Global Notes, | ||||||||
4.63%, 09/15/20 | 55,000 | 54,412 | ||||||
6.88%, 11/10/39 | 65,000 | 70,735 | ||||||
422,073 | ||||||||
Systems Software–0.09% | ||||||||
Allen Systems Group Inc., Sec. Gtd. Notes, 10.50%, 11/15/16(b) | 20,000 | 20,200 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Technology Distributors–0.30% | ||||||||
Avnet Inc., Sr. Unsec. Notes, 5.88%, 06/15/20 | $ | 65,000 | $ | 68,743 | ||||
Tobacco–0.41% | ||||||||
Altria Group, Inc., Sr. Unsec. Gtd. Global Notes, 4.75%, 05/05/21 | 95,000 | 95,217 | ||||||
Trading Companies & Distributors–0.15% | ||||||||
H&E Equipment Services Inc., Sr. Unsec. Gtd. Global Notes, 8.38%, 07/15/16 | 25,000 | 25,625 | ||||||
Interline Brands, Inc., Sr. Unsec. Gtd. Global Notes, 7.00%, 11/15/18 | 5,000 | 5,075 | ||||||
RSC Equipment Rental Inc./RSC Holdings III LLC, Sr. Unsec. Gtd. Global Notes, 8.25%, 02/01/21 | 5,000 | 5,019 | ||||||
35,719 | ||||||||
Trucking–0.11% | ||||||||
Avis Budget Car Rental LLC/Avis Budget Finance Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 01/15/19 | 5,000 | 5,075 | ||||||
Hertz Corp. (The), Sr. Unsec. Gtd. Notes, | ||||||||
6.75%, 04/15/19(b) | 10,000 | 9,850 | ||||||
7.38%, 01/15/21(b) | 10,000 | 10,175 | ||||||
25,100 | ||||||||
Wireless Telecommunication Services–1.63% | ||||||||
American Tower Corp., Sr. Unsec. Global Notes, 4.63%, 04/01/15 | 90,000 | 94,592 | ||||||
Clearwire Communications LLC/Clearwire Finance, Inc., Sr. Sec. Gtd. Notes, 12.00%, 12/01/15(b) | 25,000 | 27,000 | ||||||
Cricket Communications, Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 10/15/20 | 20,000 | 19,650 | ||||||
Crown Castle Towers LLC, Sr. Sec. Gtd. Notes, 4.88%, 08/15/20(b) | 120,000 | 121,800 | ||||||
MetroPCS Wireless Inc., Sr. Unsec. Gtd. Notes, | ||||||||
7.88%, 09/01/18 | 5,000 | 5,291 | ||||||
6.63%, 11/15/20 | 10,000 | 9,850 | ||||||
SBA Telecommunications Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 08/15/19 | 20,000 | 21,375 | ||||||
Sprint Capital Corp., Sr. Unsec. Gtd. Global Notes, 6.90%, 05/01/19 | 10,000 | 10,362 | ||||||
Sprint Nextel Corp., Sr. Unsec. Notes, 8.38%, 08/15/17 | 10,000 | 10,975 | ||||||
Wind Acquisition Finance S.A. (Luxembourg), Sr. Sec. Gtd. Notes, 11.75%, 07/15/17(b) | 50,000 | 56,970 | ||||||
377,865 | ||||||||
Total U.S. Dollar Denominated Bonds & Notes (Cost $17,842,057) | 18,684,536 | |||||||
U.S. Treasury Securities–9.59% | ||||||||
U.S. Treasury Bills–0.22% | ||||||||
0.08%, 11/17/11(f)(g) | 50,000 | 49,991 | ||||||
U.S. Treasury Bonds–3.67% | ||||||||
4.25%, 05/15/39 | 100,000 | 98,109 | ||||||
4.50%, 08/15/39 | 300,000 | 306,797 | ||||||
4.75%, 02/15/41 | 420,000 | 446,447 | ||||||
851,353 | ||||||||
U.S. Treasury Notes–5.70% | ||||||||
2.00%, 04/30/16 | 160,000 | 162,450 | ||||||
1.75%, 05/31/16 | 230,000 | 230,395 | ||||||
3.63%, 02/15/21 | 800,000 | 834,250 | ||||||
3.13%, 05/15/21 | 95,000 | 94,748 | ||||||
1,321,843 | ||||||||
Total U.S. Treasury Securities (Cost $2,237,415) | 2,223,187 | |||||||
Asset-Backed Securities–2.39% | ||||||||
Countrywide Asset-Backed Ctfs.–Series 2007-4, Class A1B, Pass Through Ctfs., 5.81%, 09/25/37 | 49,059 | 48,452 | ||||||
Credit Suisse Mortgage Capital Ctfs.–Series 2009-2R, Class 1A11, Floating Rate Pass Through Ctfs., 2.83%, 09/26/34(b)(d) | 104,259 | 98,555 | ||||||
Santander Drive Auto Receivables Trust, Series 2011-1, Class D, Pass Through Ctfs., 4.07%, 02/15/17 | 80,000 | 79,534 | ||||||
TIAA Seasoned Commercial Mortgage Trust, Series 2007-C4, Class A2, Variable Rate Pass Through Ctfs., 5.70%, 08/15/39(d) | 45,000 | 46,484 | ||||||
Wachovia Bank Commercial Mortgage Trust–Series 2005-C21, Class AJ, Variable Rate Pass Through Ctfs., 5.21%, 10/15/44(d) | 110,000 | 111,208 | ||||||
Wells Fargo Mortgage Backed Securities Trust, Series 2004-Z, Class 2A1, Floating Rate Pass Through Ctfs., 2.74%, 12/25/34(d) | 176,342 | 169,782 | ||||||
Total Asset-Backed Securities (Cost $524,809) | 554,015 | |||||||
Municipal Obligations–1.57% | ||||||||
Alameda (County of), California Joint Powers Authority (Multiple Capital); Series 2010 A, Taxable Lease RB, 7.05%, 12/01/44 | 55,000 | 56,995 | ||||||
Florida Development Finance Corp. (Palm Bay Academy Inc.); Series 2006 B, Taxable RB, 7.50%, 05/15/17 | 65,000 | 55,909 | ||||||
Georgia (State of) Municipal Electric Authority (Plant Vogtle Units 3 & 4 Project J) (Build America Bonds); Series 2010 A, Taxable RB, 6.64%, 04/01/57 | 90,000 | 88,565 | ||||||
New Jersey (State of) Transportation Trust Fund Authority (Build America Bonds); Series 2010 C, Taxable RB, 5.75%, 12/15/28 | 105,000 | 105,966 | ||||||
New York City (City of) Transitional Finance Authority (Build America Bonds); Sub-series 2011 B-1, Future Tax Secured RB, 5.57%, 11/01/38 | 55,000 | 55,944 | ||||||
Total Municipal Obligations (Cost $369,523) | 363,379 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
U.S. Government Sponsored Mortgage-Backed Securities–1.21% | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.38% | ||||||||
Pass Through Ctfs., | ||||||||
6.50%, 05/01/16 to 08/01/32 | $ | 9,020 | $ | 10,143 | ||||
6.00%, 05/01/17 to 12/01/31 | 43,602 | 48,158 | ||||||
5.50%, 09/01/17 | 28,343 | 30,709 | ||||||
89,010 | ||||||||
Federal National Mortgage Association (FNMA)–0.69% | ||||||||
Pass Through Ctfs., | ||||||||
7.00%, 02/01/16 to 09/01/32 | 22,077 | 25,323 | ||||||
6.50%, 05/01/16 to 09/01/31 | 7,806 | 8,705 | ||||||
5.00%, 11/01/18 | 30,793 | 33,291 | ||||||
7.50%, 04/01/29 to 10/01/29 | 72,499 | 84,993 | ||||||
8.00%, 04/01/32 | 5,918 | 6,981 | ||||||
159,293 | ||||||||
Government National Mortgage Association (GNMA)–0.14% | ||||||||
Pass Through Ctfs., | ||||||||
7.50%, 06/15/23 | 10,442 | 12,220 | ||||||
8.50%, 11/15/24 | 5,937 | 6,586 | ||||||
7.00%, 07/15/31 to 08/15/31 | 2,232 | 2,616 | ||||||
6.50%, 11/15/31 to 03/15/32 | 5,086 | 5,804 | ||||||
6.00%, 11/15/32 | 3,890 | 4,356 | ||||||
31,582 | ||||||||
Total U.S. Government Sponsored Mortgage-Backed Securities (Cost $252,058) | 279,885 | |||||||
Shares | ||||||||
Preferred Stocks–0.20% | ||||||||
Consumer Finance–0.06% | ||||||||
Ally Financial, Inc., Series A, 8.50% Pfd. | 250 | 6,257 | ||||||
GMAC Capital Trust I, Series 2, 8.13% Jr. Sub. Gtd. Pfd. | 270 | 6,912 | ||||||
13,169 | ||||||||
Industrial REIT’s–0.01% | ||||||||
DuPont Fabros Technology Inc., Series B, 7.63% Pfd. | 95 | 2,365 | ||||||
Regional Banks–0.11% | ||||||||
Zions Bancorp., Series C, 9.50% Pfd. | 1,000 | 26,140 | ||||||
Tires & Rubber–0.02% | ||||||||
Goodyear Tire & Rubber Co. (The), $2.94 Conv. Pfd. | 75 | 4,172 | ||||||
Total Preferred Stocks (Cost $46,056) | 45,846 | |||||||
Principal | ||||||||
Amount | ||||||||
Non-U.S. Dollar Denominated Bonds & Notes–0.03% | ||||||||
Canada–0.03% | ||||||||
Gateway Casinos & Entertainment Ltd., Sec. Gtd. Notes, 8.88%, 11/15/17 (Cost $7,544)(b)(h) | CAD | 7,000 | 7,703 | |||||
Shares | ||||||||
Common Stocks & Other Equity Interests–0.00% | ||||||||
Broadcasting–0.00% | ||||||||
Adelphia Recovery Trust, Series ACC-1(i) | 87,412 | 9 | ||||||
Cable & Satellite–0.00% | ||||||||
Adelphia Communications Corp(i) | 900 | 1,113 | ||||||
Total Common Stocks & Other Equity Interests (Cost $22,181) | 1,122 | |||||||
Money Market Funds–1.79% | ||||||||
Liquid Assets Portfolio–Institutional Class(j) | 208,024 | 208,024 | ||||||
Premier Portfolio–Institutional Class(j) | 208,024 | 208,024 | ||||||
Total Money Market Funds (Cost $416,048) | 416,048 | |||||||
TOTAL INVESTMENTS–97.34% (Cost $21,717,691) | 22,575,721 | |||||||
OTHER ASSETS LESS LIABILITIES–2.66% | 617,641 | |||||||
NET ASSETS–100.00% | $ | 23,193,362 | ||||||
Investment Abbreviations:
CAD | – Canadian Dollar | |
Ctfs. | – Certificates | |
Conv. | – Convertible | |
Deb. | – Debentures | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
Pfd. | – Preferred | |
PIK | – Payment in Kind | |
RB | – Revenue Bonds | |
REIT | – Real Estate Investment Trust | |
Sec. | – Secured | |
Sr. | – Senior | |
Sub. | – Subordinated | |
Unsec. | – Unsecured | |
Unsub. | – Unsubordinated |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | 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, 2011 was $5,792,072, which represented 24.97% of the Trust’s Net Assets. | |
(c) | Perpetual bond with no specified maturity date. | |
(d) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2011. | |
(e) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The value of this security at June 30, 2011 represented less than 1% of the Fund’s Net Assets. | |
(f) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1M and Note 4. | |
(g) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. | |
(h) | Foreign denominated security. Principal amount is denominated in currency indicated. | |
(i) | Non-income producing security acquired as part of the Adelphia Communications bankruptcy reorganization. | |
(j) | 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, 2011
Other Diversified Financial Services | 7.7 | % | ||
Investment Banking & Brokerage | 6.6 | |||
Diversified Banks | 6.4 | |||
U.S. Treasury Notes | 5.7 | |||
U.S. Treasury Bonds | 3.7 | |||
Other Industries, Each with Less Than 3.0% of Total Net Assets | 65.4 | |||
Money Market Funds Plus Other Assets Less Liabilities | 4.5 | |||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $21,301,643) | $ | 22,159,673 | ||
Investments in affiliated money market funds, at value and cost | 416,048 | |||
Total investments, at value (Cost $21,717,691) | 22,575,721 | |||
Cash | 26,144 | |||
Foreign currencies, at value (Cost $2,856) | 3,037 | |||
Receivable for: | ||||
Investments sold | 482,018 | |||
Variation margin | 5,414 | |||
Fund shares sold | 70 | |||
Dividends and interest | 313,916 | |||
Investment for trustee deferred compensation and retirement plans | 45,097 | |||
Other assets | 368 | |||
Total assets | 23,451,785 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 99,722 | |||
Fund shares reacquired | 45,229 | |||
Accrued fees to affiliates | 16,472 | |||
Accrued other operating expenses | 44,200 | |||
Trustee deferred compensation and retirement plans | 52,800 | |||
Total liabilities | 258,423 | |||
Net assets applicable to shares outstanding | $ | 23,193,362 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 30,320,177 | ||
Undistributed net investment income | 1,737,044 | |||
Undistributed net realized gain (loss) | (9,729,194 | ) | ||
Unrealized appreciation | 865,335 | |||
$ | 23,193,362 | |||
Net Assets: | ||||
Series I | $ | 22,992,316 | ||
Series II | $ | 201,046 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 3,644,031 | |||
Series II | 32,076 | |||
Series I: | ||||
Net asset value per share | $ | 6.31 | ||
Series II: | ||||
Net asset value per share | $ | 6.27 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Interest | $ | 655,096 | ||
Dividends from affiliated money market funds | 229 | |||
Total investment income | 655,325 | |||
Expenses: | ||||
Advisory fees | 69,863 | |||
Administrative services fees | 44,902 | |||
Custodian fees | 6,786 | |||
Distribution fees — Series II | 261 | |||
Transfer agent fees | 4,151 | |||
Trustees’ and officers’ fees and benefits | 8,331 | |||
Professional services fees | 20,265 | |||
Other | 12,186 | |||
Total expenses | 166,745 | |||
Less: Fees waived and expenses reimbursed | (79,498 | ) | ||
Net expenses | 87,247 | |||
Net investment income | 568,078 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 420,471 | |||
Foreign currencies | (114 | ) | ||
Futures contracts | (23,046 | ) | ||
397,311 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (188,320 | ) | ||
Foreign currencies | 182 | |||
Futures contracts | 933 | |||
(187,205 | ) | |||
Net realized and unrealized gain | 210,106 | |||
Net increase in net assets resulting from operations | $ | 778,184 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 568,078 | $ | 1,225,023 | ||||
Net realized gain | 397,311 | 814,813 | ||||||
Change in net unrealized appreciation (depreciation) | (187,205 | ) | 296,160 | |||||
Net increase in net assets resulting from operations | 778,184 | 2,335,996 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (1,390,866 | ) | |||||
Series II | — | (12,740 | ) | |||||
Total distributions from net investment income | — | (1,403,606 | ) | |||||
Share transactions–net: | ||||||||
Series I | (1,008,205 | ) | (1,990,553 | ) | ||||
Series II | (37,298 | ) | (71,022 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (1,045,503 | ) | (2,061,575 | ) | ||||
Net increase (decrease) in net assets | (267,319 | ) | (1,129,185 | ) | ||||
Net assets: | ||||||||
Beginning of period | 23,460,681 | 24,589,866 | ||||||
End of period (includes undistributed net investment income of $1,737,044 and $1,168,966, respectively) | $ | 23,193,362 | $ | 23,460,681 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Diversified Income Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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 (“GAAP”) 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. | 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. | |
L. | 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. |
Invesco V.I. Diversified Income Fund
Dollar roll transactions involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities that the Fund has sold but is obligated to purchase under the agreement. In the event that the buyer of securities in a dollar roll transaction files for bankruptcy or becomes insolvent, the Fund’s use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund’s obligation to purchase the securities. The return earned by the Fund with the proceeds of the dollar roll transaction may not exceed the return on the securities sold. | ||
Forward commitment transactions involve the risk that a counter-party to the transaction may fail to complete the transaction. If this occurs, the Fund may lose the opportunity to purchase or sell the security at the agreed upon price. Settlement dates of forward commitment transactions may be a month or more after entering into these transactions and as a result the market values of the securities may vary from the purchase or sale prices. Therefore, forward commitment transactions may increase the Fund’s overall interest rate exposure. | ||
M. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. | |
N. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily 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 Canada Ltd. (formerly 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, 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 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 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 the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 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.
Further, the Adviser has contractually agreed, through at least June 30, 2012, 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, 2011, the Adviser waived advisory fees of $69,863 and reimbursed Fund expenses of $9,635.
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, 2011, 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
Invesco V.I. Diversified Income Fund
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, 2011, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $20,107 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 461,903 | $ | 1,113 | $ | — | $ | 463,016 | ||||||||
U.S. Treasury Securities | — | 2,223,187 | — | 2,223,187 | ||||||||||||
U.S. Government Sponsored Securities | — | 279,885 | — | 279,885 | ||||||||||||
Corporate Debt Securities | — | 18,692,239 | 0 | 18,692,239 | ||||||||||||
Asset Backed Securities | — | 554,015 | — | 554,015 | ||||||||||||
Municipal Obligations | — | 363,379 | — | 363,379 | ||||||||||||
$ | 461,903 | $ | 22,113,818 | $ | 0 | $ | 22,575,721 | |||||||||
Futures* | 7,123 | — | — | 7,123 | ||||||||||||
Total Investments | $ | 469,026 | $ | 22,113,818 | $ | 0 | $ | 22,582,844 | ||||||||
* | 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.
Invesco V.I. Diversified Income 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, 2011:
Notional Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Interest rate risk | ||||||||
Futures contracts(a) | $ | 24,093 | $ | (16,970 | ) | |||
(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, 2011
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) | ||||
Interest rate risk | $ | (23,046 | ) | |
Change in Unrealized Appreciation | ||||
Interest rate risk | 933 | |||
Total | $ | (22,113 | ) | |
* | The average notional value of futures outstanding during the period was $8,332,328. |
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Notional | Appreciation | ||||||||||||||
Contract | Contracts | Month | Value | (Depreciation) | ||||||||||||
Long Contracts | ||||||||||||||||
U.S. Treasury Ultra Bond | 8 | September-2011 | $ | 1,010,000 | $ | (14,329 | ) | |||||||||
U.S. Treasury 5 Year Notes | 29 | September-2011 | 3,456,664 | 22,369 | ||||||||||||
Subtotal | $ | 4,466,664 | $ | 8,040 | ||||||||||||
Short Contracts | ||||||||||||||||
U.S. Treasury 10 Year Notes | 30 | September-2011 | $ | (3,669,844 | ) | $ | (2,641 | ) | ||||||||
U.S. Treasury 30 Year Notes | 1 | September-2011 | (123,031 | ) | 1,724 | |||||||||||
Subtotal | $ | (3,792,875 | ) | $ | (917 | ) | ||||||||||
Total | $ | 673,789 | $ | 7,123 | ||||||||||||
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, 2011, the Fund paid legal fees of $646 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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.
Invesco V.I. Diversified Income Fund
NOTE 7—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2014 | $ | 341,883 | ||
December 31, 2015 | 221,396 | |||
December 31, 2016 | 2,197,944 | |||
December 31, 2017 | 7,359,092 | |||
Total capital loss carryforward | $ | 10,120,315 | ||
* | 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, 2011 was $7,566,240 and $10,281,227, 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 | $ | 1,118,520 | ||
Aggregate unrealized (depreciation) of investment securities | (260,490 | ) | ||
Net unrealized appreciation of investment securities | $ | 858,030 | ||
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, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 204,425 | $ | 1,268,131 | 297,335 | $ | 1,831,971 | ||||||||||
Series II | 1,145 | 7,177 | 68 | 406 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 227,266 | 1,390,866 | ||||||||||||
Series II | — | — | 2,092 | 12,740 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (365,940 | ) | (2,276,336 | ) | (848,553 | ) | (5,213,390 | ) | ||||||||
Series II | (7,232 | ) | (44,475 | ) | (13,673 | ) | (84,168 | ) | ||||||||
Net increase (decrease) in share activity | (167,602 | ) | $ | (1,045,503 | ) | (335,465 | ) | $ | (2,061,575 | ) | ||||||
(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. |
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 06/30/11 | $ | 6.10 | $ | 0.15 | $ | 0.06 | $ | 0.21 | $ | — | $ | 6.31 | 3.44 | % | $ | 22,992 | 0.75 | %(d) | 1.43 | %(d) | 4.88 | %(d) | 41 | % | ||||||||||||||||||||||||
Year ended 12/31/10 | 5.88 | 0.31 | 0.28 | 0.59 | (0.37 | ) | 6.10 | 10.05 | 23,229 | 0.75 | 1.36 | 5.03 | 87 | |||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 6.07 | 0.14 | 0.06 | 0.20 | — | 6.27 | 3.30 | 201 | 1.00 | (d) | 1.68 | (d) | 4.63 | (d) | 41 | |||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 5.85 | 0.29 | 0.28 | 0.57 | (0.35 | ) | 6.07 | 9.70 | 232 | 1.00 | 1.61 | 4.78 | 87 | |||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||
(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 $23,270 and $211 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,034.40 | $ | 3.78 | $ | 1,021.08 | $ | 3.76 | 0.75 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,033.00 | 5.04 | 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, 2011 through June 30, 2011, 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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 funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Corporate Debt Funds BBB-Rated Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of the 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 performance of Series I shares of the Fund was above the performance of the Index for the one year period and below for the 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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. The Board noted that the Fund’s rate was above the rates of two mutual funds with comparable investment strategies.
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, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
Invesco V.I. Dividend Growth Fund | ||||
Semiannual Report to Shareholders ■ June 30, 2011 |
![(INVESCO LOGO)](https://capedge.com/proxy/N-CSRS/0000950123-11-079973/h83397h8339001.gif)
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at 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, 2011, is available at 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.
MS-VIDGR-SAR-1
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 6.56 | % | ||||||||||||
Series II Shares | 6.43 | |||||||||||||
S&P 500 Index▼ (Broad Market Index) | 6.01 | |||||||||||||
Russell 1000 Index▼ (Style-Specific Index) | 6.37 | |||||||||||||
Lipper VUF Large-Cap Core Funds Index▼ (Peer Group Index) | 4.70 | |||||||||||||
▼Lipper Inc.
The Fund recently adopted a three-tier benchmark structure to compare
its performance to broad market, style-specific and peer group market
measures.
The Fund recently adopted a three-tier benchmark structure to compare
its performance to broad market, style-specific and peer group market
measures.
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/servicemark 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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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 6/30/11
Series I Shares | ||||||||||||||
Inception (3/1/90) | 7.09 | % | ||||||||||||
10 Years | 1.94 | |||||||||||||
5 Years | 1.59 | |||||||||||||
1 Year | 26.76 | |||||||||||||
Series II Shares | ||||||||||||||
Inception (6/5/00) | 2.31 | % | ||||||||||||
10 Years | 1.69 | |||||||||||||
5 Years | 1.34 | |||||||||||||
1 Year | 26.36 |
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, 2012. See current prospectus for more information. |
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund, Morgan Stanley Variable Investment Dividend Growth Portfolio, 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 0.82% and 1.07%, 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
Invesco V.I. Dividend Growth Fund
Schedule of Investments
June 30, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–96.43%(a) | ||||||||
Aerospace & Defense–3.96% | ||||||||
General Dynamics Corp. | 105,181 | $ | 7,838,088 | |||||
Raytheon Co. | 135,850 | 6,772,123 | ||||||
14,610,211 | ||||||||
Apparel Retail–0.41% | ||||||||
TJX Cos., Inc. (The) | 28,834 | 1,514,650 | ||||||
Asset Management & Custody Banks–2.74% | ||||||||
Federated Investors, Inc.–Class B | 254,540 | 6,068,233 | ||||||
State Street Corp. | 89,531 | 4,036,953 | ||||||
10,105,186 | ||||||||
Auto Parts & Equipment–1.64% | ||||||||
Johnson Controls, Inc. | 144,876 | 6,035,534 | ||||||
Brewers–3.50% | ||||||||
Foster’s Group Ltd. (Australia) | 796,031 | 4,396,778 | ||||||
Heineken N.V. (Netherlands) | 141,611 | 8,518,805 | ||||||
12,915,583 | ||||||||
Building Products–1.60% | ||||||||
Masco Corp. | 491,988 | 5,918,616 | ||||||
Casinos & Gaming–1.30% | ||||||||
International Game Technology | 273,706 | 4,811,752 | ||||||
Consumer Finance–2.55% | ||||||||
Capital One Financial Corp. | 182,508 | 9,430,188 | ||||||
Data Processing & Outsourced Services–2.74% | ||||||||
Automatic Data Processing, Inc. | 191,834 | 10,105,815 | ||||||
Department Stores–0.31% | ||||||||
Nordstrom, Inc. | 24,723 | 1,160,498 | ||||||
Distillers & Vintners–0.22% | ||||||||
Treasury Wine Estates Ltd. (Australia)(b) | 227,095 | 828,101 | ||||||
Distributors–0.34% | ||||||||
Genuine Parts Co. | 23,040 | 1,253,376 | ||||||
Diversified Banks–2.68% | ||||||||
Societe Generale (France) | 115,223 | 6,839,470 | ||||||
U.S. Bancorp | 119,360 | 3,044,874 | ||||||
9,884,344 | ||||||||
Diversified Chemicals–0.76% | ||||||||
E. I. du Pont de Nemours and Co. | 51,666 | 2,792,547 | ||||||
Drug Retail–1.17% | ||||||||
Walgreen Co. | 101,705 | 4,318,394 | ||||||
Electric Utilities–5.06% | ||||||||
American Electric Power Co., Inc. | 177,002 | 6,669,435 | ||||||
Entergy Corp. | 56,823 | 3,879,875 | ||||||
Exelon Corp. | 147,380 | 6,313,759 | ||||||
PPL Corp. | 64,792 | 1,803,161 | ||||||
18,666,230 | ||||||||
Electrical Components & Equipment–1.07% | ||||||||
Emerson Electric Co. | 70,152 | 3,946,050 | ||||||
Food Distributors–1.77% | ||||||||
Sysco Corp. | 209,039 | 6,517,836 | ||||||
Gas Utilities–0.97% | ||||||||
AGL Resources Inc. | 88,391 | 3,598,398 | ||||||
General Merchandise Stores–1.53% | ||||||||
Target Corp. | 120,412 | 5,648,527 | ||||||
Health Care Equipment–2.59% | ||||||||
Medtronic, Inc. | 96,863 | 3,732,131 | ||||||
Stryker Corp. | 99,521 | 5,840,888 | ||||||
9,573,019 | ||||||||
Hotels, Resorts & Cruise Lines–1.49% | ||||||||
Accor S.A. (France) | 66,842 | 2,989,793 | ||||||
Marriott International Inc.–Class A | 71,096 | 2,523,197 | ||||||
5,512,990 | ||||||||
Household Products–4.55% | ||||||||
Kimberly-Clark Corp. | 151,280 | 10,069,197 | ||||||
Procter & Gamble Co. (The) | 106,045 | 6,741,280 | ||||||
16,810,477 | ||||||||
Industrial Machinery–4.55% | ||||||||
Illinois Tool Works Inc. | 48,030 | 2,713,214 | ||||||
Pentair, Inc. | 182,330 | 7,358,839 | ||||||
Snap-On, Inc. | 107,731 | 6,731,033 | ||||||
16,803,086 | ||||||||
Insurance Brokers–0.21% | ||||||||
Marsh & McLennan Cos., Inc. | 24,242 | 756,108 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Dividend Growth Fund
Shares | Value | |||||||
Integrated Oil & Gas–2.83% | ||||||||
Eni S.p.A. (Italy) | 203,686 | $ | 4,830,178 | |||||
Exxon Mobil Corp. | 34,320 | 2,792,962 | ||||||
Total S.A. (France) | 48,776 | 2,821,688 | ||||||
10,444,828 | ||||||||
Integrated Telecommunication Services–0.67% | ||||||||
AT&T Inc. | 78,550 | 2,467,256 | ||||||
Investment Banking & Brokerage–1.59% | ||||||||
Charles Schwab Corp. (The) | 357,660 | 5,883,507 | ||||||
Life & Health Insurance–2.35% | ||||||||
Lincoln National Corp. | 167,726 | 4,778,514 | ||||||
Prudential Financial, Inc. | 6,486 | 412,445 | ||||||
StanCorp Financial Group, Inc. | 82,681 | 3,488,311 | ||||||
8,679,270 | ||||||||
Motorcycle Manufacturers–0.87% | ||||||||
Harley-Davidson, Inc. | 78,432 | 3,213,359 | ||||||
Movies & Entertainment–1.23% | ||||||||
Time Warner Inc. | 124,874 | 4,541,667 | ||||||
Multi-Utilities–1.27% | ||||||||
Dominion Resources, Inc. | 97,465 | 4,704,636 | ||||||
Oil & Gas Equipment & Services–0.65% | ||||||||
Baker Hughes Inc. | 32,868 | 2,384,902 | ||||||
Oil & Gas Storage & Transportation–0.69% | ||||||||
Southern Union Co. | 63,410 | 2,545,912 | ||||||
Packaged Foods & Meats–6.52% | ||||||||
Campbell Soup Co. | 155,979 | 5,389,075 | ||||||
General Mills, Inc. | 211,852 | 7,885,131 | ||||||
Kraft Foods Inc.–Class A | 182,697 | 6,436,415 | ||||||
Mead Johnson Nutrition Co. | 64,756 | 4,374,268 | ||||||
24,084,889 | ||||||||
Paper Products–1.80% | ||||||||
International Paper Co. | 222,432 | 6,632,922 | ||||||
Pharmaceuticals–5.22% | ||||||||
Bristol-Myers Squibb Co. | 117,595 | 3,405,551 | ||||||
Eli Lilly and Co. | 145,078 | 5,444,777 | ||||||
Johnson & Johnson | 118,211 | 7,863,396 | ||||||
Novartis AG (Switzerland) | 32,873 | 2,013,990 | ||||||
Pfizer Inc. | 26,775 | 551,565 | ||||||
19,279,279 | ||||||||
Property & Casualty Insurance–0.92% | ||||||||
Allstate Corp. (The) | 5,407 | 165,076 | ||||||
Travelers Cos., Inc. (The) | 55,591 | 3,245,402 | ||||||
3,410,478 | ||||||||
Regional Banks–8.03% | ||||||||
Fifth Third Bancorp | 542,645 | 6,918,724 | ||||||
M&T Bank Corp. | 31,171 | 2,741,489 | ||||||
SunTrust Banks, Inc. | 413,481 | 10,667,810 | ||||||
Zions Bancorp. | 388,715 | 9,333,047 | ||||||
29,661,070 | ||||||||
Reinsurance–0.32% | ||||||||
Transatlantic Holdings, Inc. | 24,014 | 1,176,926 | ||||||
Restaurants–0.89% | ||||||||
Brinker International, Inc. | 133,625 | 3,268,468 | ||||||
Semiconductors–1.64% | ||||||||
Linear Technology Corp. | 47,626 | 1,572,610 | ||||||
Texas Instruments Inc. | 136,791 | 4,490,849 | ||||||
6,063,459 | ||||||||
Soft Drinks–1.25% | ||||||||
Coca-Cola Co. (The) | 68,312 | 4,596,714 | ||||||
Specialized Consumer Services–1.09% | ||||||||
H&R Block, Inc. | 251,610 | 4,035,824 | ||||||
Specialized REIT’s–1.30% | ||||||||
Weyerhaeuser Co. | 219,900 | 4,807,014 | ||||||
Specialty Chemicals–0.52% | ||||||||
Ecolab Inc. | 33,840 | 1,907,899 | ||||||
Systems Software–1.50% | ||||||||
Microsoft Corp. | 213,484 | 5,550,584 | ||||||
Thrifts & Mortgage Finance–1.66% | ||||||||
Capitol Federal Financial Inc. | 11,148 | 131,100 | ||||||
Hudson City Bancorp, Inc. | 730,268 | 5,980,895 | ||||||
6,111,995 | ||||||||
Tobacco–1.91% | ||||||||
Altria Group, Inc. | 132,370 | 3,495,892 | ||||||
Philip Morris International Inc. | 53,213 | 3,553,032 | ||||||
7,048,924 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $322,581,640) | 356,019,298 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Dividend Growth Fund
Shares | Value | |||||||
Money Market Funds–4.61% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 8,515,331 | $ | 8,515,331 | |||||
Premier Portfolio–Institutional Class(c) | 8,515,330 | 8,515,330 | ||||||
Total Money Market Funds (Cost $17,030,661) | 17,030,661 | |||||||
TOTAL INVESTMENTS–101.04% (Cost $339,612,301) | 373,049,959 | |||||||
OTHER ASSETS LESS LIABILITIES–(1.04)% | (3,832,239 | ) | ||||||
NET ASSETS–100.00% | $ | 369,217,720 | ||||||
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, 2011
Financials | 23.0 | % | ||
Consumer Staples | 20.9 | |||
Industrials | 11.2 | |||
Consumer Discretionary | 11.1 | |||
Utilities | 8.0 | |||
Health Care | 7.8 | |||
Information Technology | 5.9 | |||
Materials | 4.4 | |||
Energy | 3.5 | |||
Telecommunication Services | 0.6 | |||
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. Dividend Growth Fund
Statement of Assets and Liabilities
June 30, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $322,581,640) | $ | 356,019,298 | ||
Investments in affiliated money market funds, at value and cost | 17,030,661 | |||
Total investments, at value (Cost $339,612,301) | 373,049,959 | |||
Cash | 42,983 | |||
Receivable for: | ||||
Investments sold | 1,651,606 | |||
Fund shares sold | 15,840 | |||
Dividends | 751,582 | |||
Investment for trustee deferred compensation and retirement plans | 22,097 | |||
Total assets | 375,534,067 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 4,795,064 | |||
Fund shares reacquired | 273,123 | |||
Accrued fees to affiliates | 731,376 | |||
Accrued other operating expenses | 469,356 | |||
Trustee deferred compensation and retirement plans | 47,428 | |||
Total liabilities | 6,316,347 | |||
Net assets applicable to shares outstanding | $ | 369,217,720 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 418,235,141 | ||
Undistributed net investment income | 3,016,011 | |||
Undistributed net realized gain (loss) | (85,467,841 | ) | ||
Unrealized appreciation | 33,434,409 | |||
$ | 369,217,720 | |||
Net Assets: | ||||
Series I | $ | 290,881,331 | ||
Series II | $ | 78,336,389 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 19,476,823 | |||
Series II | 5,253,609 | |||
Series I: | ||||
Net asset value per share | $ | 14.93 | ||
Series II: | ||||
Net asset value per share | $ | 14.91 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $99,041) | $ | 3,991,880 | ||
Dividends from affiliated money market funds | 7,031 | |||
Interest | 41,308 | |||
Total investment income | 4,040,219 | |||
Expenses: | ||||
Advisory fees | 738,564 | |||
Administrative services fees | 386,710 | |||
Custodian fees | 15,554 | |||
Distribution fees – Series II | 75,480 | |||
Transfer agent fees | 5,531 | |||
Trustees’ and officers’ fees and benefits | 10,497 | |||
Other | 26,865 | |||
Total expenses | 1,259,201 | |||
Less: Fees waived | (261,812 | ) | ||
Net expenses | 997,389 | |||
Net investment income | 3,042,830 | |||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities (includes net gains (losses) from securities sold to affiliates of $(189,325)) | 19,115,722 | |||
Foreign currencies | 2,731 | |||
19,118,453 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (10,247,500 | ) | ||
Foreign currencies | (2,351 | ) | ||
Foreign currency contracts | 235 | |||
(10,249,616 | ) | |||
Net realized and unrealized gain | 8,868,837 | |||
Net increase in net assets resulting from operations | $ | 11,911,667 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 3,042,830 | $ | 3,571,412 | ||||
Net realized gain | 19,118,453 | 3,469,462 | ||||||
Change in net unrealized appreciation (depreciation) | (10,249,616 | ) | 15,628,383 | |||||
Net increase in net assets resulting from operations | 11,911,667 | 22,669,257 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (2,886,405 | ) | (3,255,974 | ) | ||||
Series II | (680,347 | ) | (803,719 | ) | ||||
Total distributions from net investment income | (3,566,752 | ) | (4,059,693 | ) | ||||
Share transactions–net: | ||||||||
Series I | 104,928,390 | (27,025,327 | ) | |||||
Series II | 25,032,802 | (17,414,065 | ) | |||||
Net increase (decrease) in net assets resulting from share transactions | 129,961,192 | (44,439,392 | ) | |||||
Net increase (decrease) in net assets | 138,306,107 | (25,829,828 | ) | |||||
Net assets: | ||||||||
Beginning of period | 230,911,613 | 256,741,441 | ||||||
End of period (includes undistributed net investment income of $3,016,011 and $3,539,933, respectively) | $ | 369,217,720 | $ | 230,911,613 | ||||
Notes to Financial Statements
June 30, 2011
(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) (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-eight 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 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”). | ||
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. Dividend 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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. Dividend Growth Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 valued 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 Daily Net Assets | Rate | |||
First $250 million | 0 | .545% | ||
Next $750 million | 0 | .42% | ||
Next $1 billion | 0 | .395% | ||
Over $2 billion | 0 | .37% | ||
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 Canada Ltd. (formerly 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. Dividend Growth Fund
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 and/or expense reimbursement (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 and/or expense reimbursement 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. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012.
Further, the Adviser has contractually agreed, through at least June 30, 2012, 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, 2011, the Adviser waived advisory fees of $261,812.
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, 2011, Invesco was paid $36,918 for accounting and fund administrative services and reimbursed $349,792 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 368,219,781 | $ | 4,830,178 | $ | — | $ | 373,049,959 | ||||||||
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.
Invesco V.I. Dividend Growth Fund
Pursuant to these procedures, for the six months ended June 30, 2011, the Fund engaged in securities sales of $531,322, which resulted in net realized gains (losses) of $(189,325).
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, 2011, the Fund paid legal fees of $796 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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 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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2011 | $ | 48,222,156 | ||
December 31, 2016 | 19,116,895 | |||
December 31, 2017 | 37,247,410 | |||
Total capital loss carryforward | $ | 104,586,461 | ||
* | 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 2, 2011, the date of reorganization of Invesco V.I. Financial Services Fund and Invesco V.I. Select Dimensions Dividend Growth Fund into the Fund and realized on securities held in each fund at such date of reorganization, the capital loss carryforward may be further limited for up to five years from the date of the reorganization. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2011 was $59,865,326 and $51,301,758, 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 | $ | 40,270,154 | ||
Aggregate unrealized (depreciation) of investment securities | (6,832,496 | ) | ||
Net unrealized appreciation of investment securities | $ | 33,437,658 | ||
Cost of investments for tax purposes is $339,612,301. |
Invesco V.I. Dividend Growth Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 144,318 | $ | 2,121,186 | 42,162 | $ | 556,286 | ||||||||||
Series II | 35,613 | 560,560 | 41,409 | 523,697 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 195,688 | 2,886,405 | 254,971 | 3,255,974 | ||||||||||||
Series II | 46,157 | 680,347 | 63,037 | 803,719 | ||||||||||||
Issued in connection with acquisitions:(b) | ||||||||||||||||
Series I | 8,156,451 | 124,094,426 | — | — | ||||||||||||
Series II | 2,222,881 | 33,755,005 | — | — | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,628,645 | ) | (24,173,627 | ) | (2,334,157 | ) | (30,837,587 | ) | ||||||||
Series II | (670,873 | ) | (9,963,110 | ) | (1,409,722 | ) | (18,741,481 | ) | ||||||||
Net increase (decrease) in share activity | 8,501,590 | $ | 129,961,192 | (3,342,300 | ) | $ | (44,439,392 | ) | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 77% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or advisor, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco 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 portion of the shares owned of record by these entities are also owned beneficially. | |
(b) | As of the opening of business on May 2, 2011, the Fund acquired all of the net assets of Invesco V.I. Financial Services Fund and Invesco V.I. Select Dimensions Dividend Growth Fund pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of Invesco V.I. Financial Services Fund and Invesco V.I. Select Dimensions Dividend Growth Fund on April 1, 2011. The acquisition was accomplished by a tax-free exchange of 10,379,332 shares of the Fund for 11,415,021 shares outstanding of Invesco V.I. Financial Services Fund and 5,444,017 shares outstanding of Invesco V.I. Select Dimensions Dividend Growth Fund as of the close of business on April 29, 2011. Series I and Series II shares of Invesco V.I. Financial Services Fund and Series I and Series II shares of Invesco V.I. Select Dimensions Dividend Growth Fund were exchanged for Series I and Series II shares of the Fund, respectively, based on the relative net asset vale of Invesco V.I. Financial Services Fund and Invesco V.I. Select Dimensions Dividend Growth Fund to the net asset value of the Fund on the close of business, April 29, 2011. Invesco V.I. Financial Services Fund’s net assets at that date of $67,820,291, including $7,630,530 of unrealized appreciation and Invesco V.I. Select Dimensions Dividend Growth Fund’s net assets at that date of $90,029,140, including $12,545,232 of unrealized appreciation were combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $235,469,889. The net assets of the Fund immediately following the acquisition were $393,319,320. |
Invesco V.I. Dividend 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 | 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 06/30/11 | $ | 14.24 | $ | 0.16 | $ | 0.77 | $ | 0.93 | $ | (0.24 | ) | $ | 14.93 | 6.56 | % | $ | 290,881 | 0.66 | %(d) | 0.85 | %(d) | 2.24 | %(d) | 22 | % | |||||||||||||||||||||||
Year ended 12/31/10 | 13.13 | 0.21 | 1.14 | 1.35 | (0.24 | ) | 14.24 | 10.48 | 179,518 | 0.68 | 0.79 | 1.59 | 78 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 10.78 | 0.20 | 2.37 | 2.57 | (0.22 | ) | 13.13 | 24.30 | 192,279 | 0.67 | 0.67 | 1.80 | 44 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 17.01 | 0.25 | (6.41 | ) | (6.16 | ) | (0.07 | ) | 10.78 | (36.35 | ) | 184,579 | 0.63 | 0.63 | 1.72 | 61 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 16.53 | 0.22 | 0.48 | 0.70 | (0.22 | ) | 17.01 | 4.22 | 368,737 | 0.58 | 0.58 | 1.27 | 48 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 15.09 | 0.21 | 1.45 | 1.66 | (0.22 | ) | 16.53 | 11.09 | 471,931 | 0.59 | 0.59 | 1.37 | 114 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 14.20 | 0.14 | 0.77 | 0.91 | (0.20 | ) | 14.91 | 6.43 | 78,336 | 0.91 | (d) | 1.10 | (d) | 1.99 | (d) | 22 | ||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 13.09 | 0.19 | 1.12 | 1.31 | (0.20 | ) | 14.20 | 10.20 | 51,394 | 0.93 | 1.04 | 1.34 | 78 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 10.75 | 0.17 | 2.36 | 2.53 | (0.19 | ) | 13.09 | 23.94 | 64,463 | 0.92 | 0.92 | 1.55 | 44 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 16.98 | 0.21 | (6.38 | ) | (6.17 | ) | (0.06 | ) | 10.75 | (36.46 | ) | 59,030 | 0.88 | 0.88 | 1.47 | 61 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 16.51 | 0.17 | 0.48 | 0.65 | (0.18 | ) | 16.98 | 3.90 | 116,271 | 0.83 | 0.83 | 1.02 | 48 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 15.07 | 0.17 | 1.45 | 1.62 | (0.18 | ) | 16.51 | 10.83 | 136,660 | 0.84 | 0.84 | 1.12 | 114 | |||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, 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. For the period ended June 30, 2011, the portfolio turnover calculation excludes the value of securities purchased of $140,377,034 and sold of $37,599,743 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Financial Services Fund and Invesco V.I. Select Dimensions Dividend Growth Fund into the Fund. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $219,322 and $60,884 for Series I and Series II shares, respectively. |
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 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,065.60 | $ | 3.38 | $ | 1,021.52 | $ | 3.31 | 0.66 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,064.30 | 4.66 | 1,020.28 | 4.56 | 0.91 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2011 through June 30, 2011, 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. Dividend 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. Dividend 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
Invesco V.I. Dividend Growth 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 funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Large Cap Core Funds Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile of the 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 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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. The Board noted that the Fund’s rate was above the rate of the one mutual fund and below the rate one mutual fund comparable with investment strategies.
Other than the mutual funds 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 June 30, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Invesco V.I. Global Health Care Fund
Semiannual Report to Shareholders § June 30, 2011
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at 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, 2011, is available at 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 |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 14.54 | % | ||
Series II Shares | 14.41 | |||
MSCI World Index▼ (Broad Market Index) | 5.29 | |||
MSCI World Health Care Index▼ (Style-Specific Index) | 12.97 | |||
Lipper VUF Health/Biotechnology Funds Category Average▼ (Peer Group) | 14.71 | |||
▼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 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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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.
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 1.12% 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. 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.
Average Annual Total Returns
As of 6/30/11
Series I Shares | ||||||||
Inception (5/21/97) | 7.41 | % | ||||||
10 | Years | 3.76 | ||||||
5 | Years | 5.66 | ||||||
1 | Year | 30.47 | ||||||
Series II Shares | ||||||||
10 | Years | 3.49 | % | |||||
5 | Years | 5.39 | ||||||
1 | Year | 30.14 |
Invesco V.I. Global Health Care Fund
Schedule of Investments(a)
June 30, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–97.55% | ||||||||
Biotechnology–20.18% | ||||||||
Amarin Corp. PLC–ADR (United Kingdom)(b) | 135,307 | $ | 1,957,892 | |||||
Amgen Inc.(b) | 43,292 | 2,526,088 | ||||||
Biogen Idec Inc.(b) | 32,338 | 3,457,579 | ||||||
BioMarin Pharmaceutical, Inc.(b) | 124,174 | 3,378,775 | ||||||
Celgene Corp.(b) | 71,116 | 4,289,717 | ||||||
Dendreon Corp.(b) | 37,759 | 1,489,215 | ||||||
Gilead Sciences, Inc.(b) | 146,240 | 6,055,798 | ||||||
Human Genome Sciences, Inc.(b) | 57,275 | 1,405,529 | ||||||
Incyte Corp.(b) | 139,437 | 2,640,937 | ||||||
InterMune, Inc.(b) | 34,249 | 1,227,827 | ||||||
Onyx Pharmaceuticals, Inc.(b) | 39,877 | 1,407,658 | ||||||
Pharmasset, Inc.(b) | 14,187 | 1,591,781 | ||||||
United Therapeutics Corp.(b) | 38,808 | 2,138,321 | ||||||
33,567,117 | ||||||||
Drug Retail–4.59% | ||||||||
CVS Caremark Corp. | 175,257 | 6,586,158 | ||||||
Drogasil S.A. (Brazil) | 148,860 | 1,042,306 | ||||||
7,628,464 | ||||||||
Health Care Distributors–2.11% | ||||||||
McKesson Corp. | 41,892 | 3,504,266 | ||||||
Health Care Equipment–10.05% | ||||||||
Baxter International Inc. | 70,826 | 4,227,604 | ||||||
CareFusion Corp.(b) | 83,118 | 2,258,316 | ||||||
Covidien PLC (Ireland) | 73,204 | 3,896,649 | ||||||
Hologic, Inc.(b) | 104,356 | 2,104,860 | ||||||
Kinetic Concepts, Inc.(b) | 28,774 | 1,658,246 | ||||||
Wright Medical Group, Inc.(b) | 67,893 | 1,018,395 | ||||||
Zimmer Holdings, Inc.(b) | 24,699 | 1,560,977 | ||||||
16,725,047 | ||||||||
Health Care Facilities–3.79% | ||||||||
Assisted Living Concepts Inc.–Class A | 62,920 | 1,055,798 | ||||||
Rhoen-Klinikum AG (Germany) | 133,140 | 3,213,731 | ||||||
Universal Health Services, Inc.–Class B | 39,598 | 2,040,485 | ||||||
6,310,014 | ||||||||
Health Care Services–6.08% | ||||||||
DaVita, Inc.(b) | 45,574 | 3,947,164 | ||||||
Express Scripts, Inc.(b) | 40,201 | 2,170,050 | ||||||
Medco Health Solutions, Inc.(b) | 24,770 | 1,400,000 | ||||||
Quest Diagnostics Inc. | 43,855 | 2,591,831 | ||||||
10,109,045 | ||||||||
Health Care Supplies–0.64% | ||||||||
Meridian Bioscience, Inc. | 44,039 | 1,061,780 | ||||||
Health Care Technology–2.12% | ||||||||
Allscripts Healthcare Solutions, Inc.(b) | 62,810 | 1,219,770 | ||||||
Cerner Corp.(b) | 37,696 | 2,303,603 | ||||||
3,523,373 | ||||||||
Industrial Conglomerates–1.44% | ||||||||
Koninklijke Philips Electronics N.V. (Netherlands) | 93,446 | 2,400,639 | ||||||
Life Sciences Tools & Services–7.24% | ||||||||
Gerresheimer AG (Germany) | 34,262 | 1,635,890 | ||||||
Life Technologies Corp.(b) | 71,024 | 3,698,220 | ||||||
Thermo Fisher Scientific, Inc.(b) | 104,215 | 6,710,404 | ||||||
12,044,514 | ||||||||
Managed Health Care–15.81% | ||||||||
Aetna Inc. | 96,269 | 4,244,500 | ||||||
AMERIGROUP Corp.(b) | 24,512 | 1,727,361 | ||||||
Amil Participacoes S.A. (Brazil)(c) | 133,900 | 1,554,304 | ||||||
Aveta, Inc. (Acquired 12/21/05; Cost$1,655,802)(b)(c) | 122,652 | 1,103,868 | ||||||
CIGNA Corp. | 70,220 | 3,611,415 | ||||||
Coventry Health Care, Inc.(b) | 75,039 | 2,736,672 | ||||||
Health Net, Inc.(b) | 73,072 | 2,344,880 | ||||||
Humana Inc. | 24,237 | 1,952,048 | ||||||
UnitedHealth Group, Inc. | 53,006 | 2,734,050 | ||||||
WellPoint Inc. | 54,481 | 4,291,468 | ||||||
26,300,566 | ||||||||
Pharmaceuticals–22.88% | ||||||||
Abbott Laboratories | 105,877 | 5,571,248 | ||||||
Allergan, Inc. | 20,401 | 1,698,383 | ||||||
Bayer AG (Germany) | 30,503 | 2,453,090 | ||||||
Cadence Pharmaceuticals, Inc.(b)(d) | 131,049 | 1,205,651 | ||||||
EastPharma Ltd.–GDR (Turkey)(c) | 114,132 | 148,372 | ||||||
Hikma Pharmaceuticals PLC (United Kingdom) | 119,052 | 1,452,287 | ||||||
Hospira, Inc.(b) | 70,212 | 3,978,212 | ||||||
Ipsen S.A. (France) | 32,981 | 1,170,221 | ||||||
MAP Pharmaceuticals Inc.(b) | 54,176 | 865,191 | ||||||
Nippon Shinyaku Co., Ltd. (Japan) | 134,000 | 1,713,101 | ||||||
Novartis AG–ADR (Switzerland) | 40,008 | 2,444,889 | ||||||
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) | ||||||||
Pharmstandard–GDR (Russia)(b)(c) | 23,450 | $ | 534,660 | |||||
Roche Holding AG (Switzerland) | 39,243 | 6,568,511 | ||||||
Shire PLC–ADR (United Kingdom) | 18,293 | 1,723,383 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 135,525 | 6,535,015 | ||||||
38,062,214 | ||||||||
Research & Consulting Services–0.62% | ||||||||
Qualicorp S.A. (Brazil)(b)(c) | 109,000 | 1,039,026 | ||||||
Total Common Stocks & Other Equity Interests (Cost $136,562,265) | 162,276,065 | |||||||
Money Market Funds–3.37% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 2,796,844 | 2,796,844 | ||||||
Premier Portfolio–Institutional Class(e) | 2,796,844 | 2,796,844 | ||||||
Total Money Market Funds (Cost $5,593,688) | 5,593,688 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.92% (Cost $142,155,953) | 167,869,753 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–0.17% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $288,580)(e)(f) | 288,580 | 288,580 | ||||||
TOTAL INVESTMENTS–101.09% (Cost $142,444,533) | 168,158,333 | |||||||
OTHER ASSETS LESS LIABILITIES–(1.09)% | (1,810,039 | ) | ||||||
NET ASSETS–100.00% | $ | 166,348,294 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt | |
GDR | – Global Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2011 was $4,380,230, which represented 2.63% of the Fund’s Net Assets. | |
(d) | All or a portion of this security was out on loan at June 30, 2011. | |
(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, 2011
United States | 72.6 | % | ||
Switzerland | 5.4 | |||
Germany | 4.4 | |||
Israel | 3.9 | |||
United Kingdom | 3.1 | |||
Ireland | 2.3 | |||
Brazil | 2.2 | |||
Countries each less than 2.0% of portfolio | 3.6 | |||
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 V.I. Global Health Care Fund
Statement of Assets and Liabilities
June 30, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $136,562,265)* | $ | 162,276,065 | ||
Investments in affiliated money market funds, at value and cost | 5,882,268 | |||
Total investments, at value (Cost $142,444,533) | 168,158,333 | |||
Foreign currencies, at value (Cost $13,231) | 17,423 | |||
Receivable for: | ||||
Fund shares sold | 154,964 | |||
Dividends | 178,312 | |||
Foreign currency contracts outstanding | 46,947 | |||
Investment for trustee deferred compensation and retirement plans | 20,609 | |||
Total assets | 168,576,588 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 907,751 | |||
Fund shares reacquired | 746,207 | |||
Collateral upon return of securities loaned | 288,580 | |||
Accrued fees to affiliates | 213,970 | |||
Accrued other operating expenses | 23,494 | |||
Trustee deferred compensation and retirement plans | 48,292 | |||
Total liabilities | 2,228,294 | |||
Net assets applicable to shares outstanding | $ | 166,348,294 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 154,404,147 | ||
Undistributed net investment income | 354,575 | |||
Undistributed net realized gain (loss) | (14,174,545 | ) | ||
Unrealized appreciation | 25,764,117 | |||
$ | 166,348,294 | |||
Net Assets: | ||||
Series I | $ | 137,489,254 | ||
Series II | $ | 28,859,040 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 7,184,865 | |||
Series II | 1,540,339 | |||
Series I: | ||||
Net asset value per share | $ | 19.14 | ||
Series II: | ||||
Net asset value per share | $ | 18.74 | ||
* | At June 30, 2011, securities with an aggregate value of $282,440 were on loan to brokers. |
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $109,437) | $ | 1,271,970 | ||
Dividends from affiliated money market funds (includes securities lending income of $23,083) | 25,576 | |||
Total investment income | 1,297,546 | |||
Expenses: | ||||
Advisory fees | 590,532 | |||
Administrative services fees | 219,141 | |||
Custodian fees | 9,828 | |||
Distribution fees — Series II | 34,029 | |||
Transfer agent fees | 16,094 | |||
Trustees’ and officers’ fees and benefits | 10,359 | |||
Other | 24,709 | |||
Total expenses | 904,692 | |||
Less: Fees waived | (3,493 | ) | ||
Net expenses | 901,199 | |||
Net investment income | 396,347 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 8,283,124 | |||
Foreign currencies | 1,394 | |||
Foreign currency contracts | (614,189 | ) | ||
7,670,329 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 13,011,966 | |||
Foreign currencies | (3,429 | ) | ||
Foreign currency contracts | 24,267 | |||
13,032,804 | ||||
Net realized and unrealized gain | 20,703,133 | |||
Net increase in net assets resulting from operations | $ | 21,099,480 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | 396,347 | $ | (352,936 | ) | |||
Net realized gain | 7,670,329 | 6,635,670 | ||||||
Change in net unrealized appreciation | 13,032,804 | 672,232 | ||||||
Net increase in net assets resulting from operations | 21,099,480 | 6,954,966 | ||||||
Share transactions–net: | ||||||||
Series I | (4,405,848 | ) | (24,973,014 | ) | ||||
Series II | (849,792 | ) | (1,847,042 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (5,255,640 | ) | (26,820,056 | ) | ||||
Net increase (decrease) in net assets | 15,843,840 | (19,865,090 | ) | |||||
Net assets: | ||||||||
Beginning of period | 150,504,454 | 170,369,544 | ||||||
End of period (includes undistributed net investment income (loss) of $354,575 and $(41,772), respectively) | $ | 166,348,294 | $ | 150,504,454 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Global Health Care Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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. Global Health Care 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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 (“GAAP”) 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 |
Invesco V.I. Global Health Care Fund
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 Daily 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 Canada Ltd. (formerly 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, 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 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 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 the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2012. 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, 2012, 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, 2011, the Adviser waived advisory fees of $3,493.
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, 2011, 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, 2011, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $194,346 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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
Invesco V.I. Global Health Care Fund
(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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 165,341,364 | $ | 2,816,969 | $ | — | $ | 168,158,333 | ||||||||
Foreign Currency Contracts* | — | 46,947 | — | 46,947 | ||||||||||||
Total Investments | $ | 165,341,364 | $ | 2,863,916 | $ | — | $ | 168,205,280 | ||||||||
* | 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, 2011:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign currency contracts(a) | $ | 100,366 | $ | (53,419 | ) | |||
(a) | Values are disclosed on the Statement of Assets and Liabilities under the Foreign currency contracts outstanding. |
Effect of Derivative Instruments for the six months ended June 30, 2011
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Foreign Currency Contracts* | ||||
Realized Gain (Loss) | ||||
Currency risk | $ | (614,189 | ) | |
Change in Unrealized Appreciation | ||||
Currency risk | 24,267 | |||
Total | $ | (589,922 | ) | |
* | The average value of foreign currency contracts outstanding during the period was $6,465,505. |
Invesco V.I. Global Health Care Fund
Open Foreign Currency Contracts at Period End | ||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||
Settlement | Contract to | Appreciation | ||||||||||||||||||||
Date | Counterparty | Deliver | Receive | Value | (Depreciation) | |||||||||||||||||
08/08/11 | CitiBank Capital | CHF | 2,450,000 | USD | 2,861,848 | $ | 2,915,267 | $ | (53,419 | ) | ||||||||||||
08/08/11 | CitiBank Capital | EUR | 2,600,000 | USD | 3,867,552 | 3,767,186 | 100,366 | |||||||||||||||
Total foreign currency contracts | $ | 46,947 | ||||||||||||||||||||
Currency Abbreviations: | ||
CHF | – Swiss Franc | |
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, 2011, the Fund paid legal fees of $739 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 5,840,082 | ||
December 31, 2017 | 15,956,934 | |||
Total capital loss carryforward | $ | 21,797,016 | ||
* | 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, 2011 was $33,936,294 and $38,066,170, 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 | $ | 31,134,020 | ||
Aggregate unrealized (depreciation) of investment securities | (5,445,398 | ) | ||
Net unrealized appreciation of investment securities | $ | 25,688,622 | ||
Cost of investments for tax purposes is $142,469,711. |
Invesco V.I. Global Health Care Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 638,859 | $ | 11,828,715 | 1,324,865 | $ | 21,365,905 | ||||||||||
Series II | 93,707 | 1,699,572 | 218,080 | 3,429,179 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (901,909 | ) | (16,234,563 | ) | (2,928,835 | ) | (46,338,919 | ) | ||||||||
Series II | (144,630 | ) | (2,549,364 | ) | (340,143 | ) | (5,276,221 | ) | ||||||||
Net increase (decrease) in share activity | (313,973 | ) | $ | (5,255,640 | ) | (1,726,033 | ) | $ | (26,820,056 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 59% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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)(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | $ | 16.71 | $ | 0.05 | $ | 2.38 | $ | 2.43 | $ | — | $ | — | $ | — | $ | 19.14 | 14.54 | % | $ | 137,489 | 1.11 | %(d) | 1.11 | %(d) | 0.54 | %(d) | 22 | % | ||||||||||||||||||||||||||||
Year ended 12/31/10 | 15.87 | (0.03 | ) | 0.87 | 0.84 | — | — | — | 16.71 | 5.29 | 124,441 | 1.11 | 1.12 | (0.18 | ) | 16 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 12.47 | (0.01 | ) | 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 | (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 | ) | 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 | ) | 1.11 | 1.07 | — | — | — | 21.51 | 5.24 | 235,509 | 1.10 | 1.10 | (0.19 | ) | 79 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 16.38 | 0.03 | 2.33 | 2.36 | — | — | — | 18.74 | 14.41 | 28,859 | 1.36 | (d) | 1.36 | (d) | 0.29 | (d) | 22 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 15.60 | (0.07 | ) | 0.85 | 0.78 | — | — | — | 16.38 | 5.00 | 26,063 | 1.36 | 1.37 | (0.43 | ) | 16 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 12.26 | (0.04 | ) | 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 | (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 | ) | 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 | ) | 1.11 | 1.02 | — | — | — | 21.36 | 5.01 | 97,646 | 1.35 | 1.35 | (0.44 | ) | 79 | ||||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, 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 $131,331 and $27,449 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,145.40 | $ | 5.90 | $ | 1,019.29 | $ | 5.56 | 1.11 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,144.10 | 7.23 | 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, 2011 through June 30, 2011, 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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 funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Health/Biotechnology Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile of the 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 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 at a common asset level. The Board noted that the contractual advisory fee for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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. The Board noted that the Fund’s effective fee rate was above the effective fee rate of one mutual fund with comparable investment strategies.
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 contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Invesco V.I. Global Real Estate Fund
Semiannual Report to Shareholders § June 30, 2011
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at 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, 2011, is available at 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, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 5.67 | % | ||
Series II Shares | 5.56 | |||
MSCI World Index▼ (Broad Market Index) | 5.29 | |||
FTSE EPRA/NAREIT Developed Real Estate Index▼ (Style-Specific Index) | 6.07 | |||
Lipper VUF Real Estate Funds Category Average▼ (Peer Group) | 8.60 | |||
▼Lipper Inc. |
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 real estate investment trusts (REITs).
The Lipper VUF Real Estate Funds Category Average represents an average of all 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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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 6/30/11
As of 6/30/11
Series I Shares | ||||||||
Inception (3/31/98) | 8.71 | % | ||||||
10 | Years | 10.75 | ||||||
5 | Years | 1.34 | ||||||
1 | Year | 32.12 | ||||||
Series II Shares | ||||||||
10 | Years | 10.49 | % | |||||
5 | Years | 1.10 | ||||||
1 | Year | 31.82 |
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. 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.
Invesco V.I. Global Real Estate Fund
Schedule of Investments
June 30, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.14% | ||||||||
Australia–8.81% | ||||||||
CFS Retail Property Trust | 995,044 | $ | 1,941,471 | |||||
Dexus Property Group | 1,567,882 | 1,483,528 | ||||||
Goodman Group | 2,768,995 | 2,093,672 | ||||||
GPT Group | 376,837 | 1,280,178 | ||||||
Investa Office Fund | 1,694,616 | 1,174,574 | ||||||
Stockland | 1,015,361 | 3,721,514 | ||||||
Westfield Group | 463,175 | 4,316,014 | ||||||
Westfield Retail Trust | 802,938 | 2,337,283 | ||||||
18,348,234 | ||||||||
Austria–0.52% | ||||||||
Conwert Immobilien Invest S.E. | 64,260 | 1,087,826 | ||||||
Canada–3.10% | ||||||||
Boardwalk REIT | 19,592 | 981,022 | ||||||
Canadian REIT | 19,600 | 674,741 | ||||||
Chartwell Seniors Housing REIT | 118,300 | 1,030,402 | ||||||
H&R REIT | 42,700 | 958,138 | ||||||
Primaris Retail REIT | 62,000 | 1,353,277 | ||||||
RioCan REIT | 54,500 | 1,465,916 | ||||||
6,463,496 | ||||||||
China–1.28% | ||||||||
Agile Property Holdings Ltd. | 616,000 | 963,791 | ||||||
Country Garden Holdings Co. | 503,000 | 222,671 | ||||||
Evergrande Real Estate Group Ltd. | 1,435,000 | 940,567 | ||||||
Shimao Property Holdings Ltd. | 424,500 | 529,131 | ||||||
2,656,160 | ||||||||
Finland–0.67% | ||||||||
Citycon Oyj | 38,837 | 174,645 | ||||||
Sponda Oyj | 208,630 | 1,213,581 | ||||||
1,388,226 | ||||||||
France–4.63% | ||||||||
Fonciere des Regions | 9,097 | 963,975 | ||||||
Klepierre | 32,732 | 1,351,548 | ||||||
Mercialys | 30,321 | 1,285,862 | ||||||
Societe Immobiliere de Location pour I’Industrie et le Commerce | 6,409 | 919,928 | ||||||
Unibail-Rodamco S.E. | 22,152 | 5,123,717 | ||||||
9,645,030 | ||||||||
Germany–0.62% | ||||||||
Deutsche Wohnen AG | 24,426 | 425,188 | ||||||
GSW Immobilien AG(a) | 25,523 | 875,610 | ||||||
1,300,798 | ||||||||
Hong Kong–12.37% | ||||||||
China Overseas Land & Investment Ltd. | 1,252,301 | 2,709,554 | ||||||
China Resources Land Ltd. | 288,000 | 522,221 | ||||||
Hang Lung Properties Ltd. | 806,000 | 3,338,434 | ||||||
Henderson Land Development Co. Ltd. | 60,000 | 388,206 | ||||||
Hongkong Land Holdings Ltd. | 508,000 | 3,616,960 | ||||||
Hysan Development Co. Ltd. | 209,000 | 1,034,686 | ||||||
Kerry Properties Ltd. | 256,900 | 1,243,234 | ||||||
Link REIT (The) | 435,500 | 1,485,861 | ||||||
Sino Land Co. Ltd. | 494,000 | 798,713 | ||||||
Sun Hung Kai Properties Ltd. | 499,000 | 7,282,429 | ||||||
Wharf Holdings Ltd. (The) | 478,000 | 3,339,025 | ||||||
25,759,323 | ||||||||
Italy–0.37% | ||||||||
Beni Stabili S.p.A. | 756,705 | 764,531 | ||||||
Japan–8.93% | ||||||||
AEON Mall Co., Ltd. | 14,100 | 342,293 | ||||||
Frontier Real Estate Investment Corp. | 51 | 450,282 | ||||||
Japan Prime Realty Investment Corp. | 250 | 663,795 | ||||||
Japan Real Estate Investment Corp. | 158 | 1,552,715 | ||||||
Japan Retail Fund Investment Corp. | 131 | 202,253 | ||||||
Kenedix Realty Investment Corp. | 93 | 358,181 | ||||||
Mitsubishi Estate Co. Ltd. | 251,000 | 4,407,085 | ||||||
Mitsui Fudosan Co., Ltd. | 246,000 | 4,241,953 | ||||||
Nippon Building Fund Inc. | 143 | 1,396,422 | ||||||
ORIX JREIT Inc. | 144 | 797,325 | ||||||
Sumitomo Realty & Development Co., Ltd. | 129,000 | 2,884,602 | ||||||
Tokyu Land Corp. | 165,000 | 700,352 | ||||||
United Urban Investment Corp. | 526 | 607,709 | ||||||
18,604,967 | ||||||||
Malta–0.00% | ||||||||
BGP Holdings PLC(a) | 3,053,090 | 0 | ||||||
Netherlands–0.95% | ||||||||
Corio N.V. | 29,923 | 1,983,668 | ||||||
Singapore–4.08% | ||||||||
Ascendas REIT | 123,000 | 204,282 | ||||||
CapitaCommercial Trust | 699,000 | 827,241 | ||||||
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–(continued) | ||||||||
Capitaland Ltd. | 946,000 | $ | 2,249,781 | |||||
CapitaMall Trust | 821,550 | 1,253,016 | ||||||
City Developments Ltd. | 43,000 | 365,558 | ||||||
Global Logistic Properties Ltd.(a) | 628,000 | 1,054,872 | ||||||
Keppel Land Ltd. | 468,000 | 1,385,262 | ||||||
Suntec REIT | 950,000 | 1,160,140 | ||||||
8,500,152 | ||||||||
Sweden–0.66% | ||||||||
Castellum A.B. | 91,279 | 1,368,449 | ||||||
Switzerland–1.23% | ||||||||
Swiss Prime Site AG(a) | 29,766 | 2,554,862 | ||||||
United Kingdom–5.97% | ||||||||
Big Yellow Group PLC | 131,649 | 650,200 | ||||||
British Land Co. PLC | 207,842 | 2,031,668 | ||||||
Derwent London PLC | 52,467 | 1,537,762 | ||||||
Great Portland Estates PLC | 106,649 | 746,355 | ||||||
Hammerson PLC | 216,210 | 1,670,644 | ||||||
Hansteen Holdings PLC | 168,511 | 236,532 | ||||||
Land Securities Group PLC | 197,793 | 2,706,496 | ||||||
Segro PLC | 215,506 | 1,080,273 | ||||||
Shaftesbury PLC | 136,893 | 1,160,159 | ||||||
Unite Group PLC(a) | 174,562 | 609,692 | ||||||
12,429,781 | ||||||||
United States–43.95% | ||||||||
Acadia Realty Trust | 44,641 | 907,552 | ||||||
Alexandria Real Estate Equities, Inc. | 26,526 | 2,053,643 | ||||||
American Campus Communities, Inc. | 9,800 | 348,096 | ||||||
AvalonBay Communities, Inc. | 34,853 | 4,475,125 | ||||||
Boston Properties, Inc. | 36,979 | 3,925,691 | ||||||
BRE Properties, Inc. | 30,921 | 1,542,339 | ||||||
Brookfield Office Properties, Inc. | 177,205 | 3,423,195 | ||||||
Camden Property Trust | 44,682 | 2,842,669 | ||||||
DiamondRock Hospitality Co. | 105,429 | 1,131,253 | ||||||
Digital Realty Trust, Inc. | 36,619 | 2,262,322 | ||||||
Douglas Emmett, Inc. | 65,138 | 1,295,595 | ||||||
Duke Realty Corp. | 75,999 | 1,064,746 | ||||||
Equity Residential | 61,775 | 3,706,500 | ||||||
Essex Property Trust, Inc. | 23,888 | 3,231,807 | ||||||
Extra Space Storage Inc. | 40,900 | 872,397 | ||||||
Federal Realty Investment Trust | 12,100 | 1,030,678 | ||||||
General Growth Properties, Inc. | 87,187 | 1,455,151 | ||||||
HCP, Inc. | 85,911 | 3,152,075 | ||||||
Health Care REIT, Inc. | 72,097 | 3,780,046 | ||||||
Hersha Hospitality Trust | 91,236 | 508,185 | ||||||
Highwoods Properties, Inc. | 32,900 | 1,089,977 | ||||||
Host Hotels & Resorts Inc. | 239,224 | 4,054,847 | ||||||
Kilroy Realty Corp. | 29,817 | 1,177,473 | ||||||
Kimco Realty Corp. | 136,700 | 2,548,088 | ||||||
Macerich Co. (The) | 64,640 | 3,458,240 | ||||||
Mid-America Apartment Communities, Inc. | 12,000 | 809,640 | ||||||
Nationwide Health Properties, Inc. | 46,371 | 1,920,223 | ||||||
Piedmont Office Realty Trust Inc.–Class A | 5,000 | 101,950 | ||||||
Prologis, Inc. | 152,720 | 5,473,485 | ||||||
Public Storage | 25,645 | 2,923,786 | ||||||
Regency Centers Corp. | 41,500 | 1,824,755 | ||||||
Retail Opportunity Investments Corp. | 40,279 | 433,402 | ||||||
Senior Housing Properties Trust | 30,500 | 714,005 | ||||||
Simon Property Group, Inc. | 79,484 | 9,238,425 | ||||||
SL Green Realty Corp. | 35,686 | 2,957,299 | ||||||
Sovran Self Storage, Inc. | 18,600 | 762,600 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 10,862 | 608,706 | ||||||
Ventas, Inc. | 50,231 | 2,647,676 | ||||||
Vornado Realty Trust | 61,775 | 5,756,194 | ||||||
91,509,836 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $166,534,296) | 204,365,339 | |||||||
Money Market Funds–1.93% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 2,012,301 | 2,012,301 | ||||||
Premier Portfolio–Institutional Class(b) | 2,012,302 | 2,012,302 | ||||||
Total Money Market Funds (Cost $4,024,603) | 4,024,603 | |||||||
TOTAL INVESTMENTS–100.07% (Cost $170,558,899) | 208,389,942 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.07)% | (157,349 | ) | ||||||
NET ASSETS–100.00% | $ | 208,232,593 | ||||||
Investment Abbreviations:
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) Non-income producing security. | ||
(b) The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
By country, based on Net Assets
as of June 30, 2011
United States | 43.9 | % | ||
Hong Kong | 12.4 | |||
Japan | 8.9 | |||
Australia | 8.8 | |||
United Kingdom | 6.0 | |||
France | 4.6 | |||
Singapore | 4.1 | |||
Canada | 3.1 | |||
Countries each less than 2.0% of portfolio | 6.3 | |||
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. Global Real Estate Fund
Statement of Assets and Liabilities
June 30, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $166,534,296) | $ | 204,365,339 | ||
Investments in affiliated money market funds, at value and cost | 4,024,603 | |||
Total investments, at value (Cost $170,558,899) | 208,389,942 | |||
Foreign currencies, at value (Cost $1,729,128) | 1,714,743 | |||
Receivable for: | ||||
Investments sold | 419,552 | |||
Fund shares sold | 560,561 | |||
Dividends | 679,099 | |||
Investment for trustee deferred compensation and retirement plans | 15,304 | |||
Other assets | 815 | |||
Total assets | 211,780,016 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 2,494,888 | |||
Fund shares reacquired | 743,592 | |||
Accrued fees to affiliates | 250,840 | |||
Accrued other operating expenses | 30,721 | |||
Trustee deferred compensation and retirement plans | 27,382 | |||
Total liabilities | 3,547,423 | |||
Net assets applicable to shares outstanding | $ | 208,232,593 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 206,866,460 | ||
Undistributed net investment income | 4,077,733 | |||
Undistributed net realized gain (loss) | (40,526,149 | ) | ||
Unrealized appreciation | 37,814,549 | |||
$ | 208,232,593 | |||
Net Assets: | ||||
Series I | $ | 151,693,970 | ||
Series II | $ | 56,538,623 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 10,573,575 | |||
Series II | 4,024,412 | |||
Series I: | ||||
Net asset value per share | $ | 14.35 | ||
Series II: | ||||
Net asset value per share | $ | 14.05 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $180,024) | $ | 3,302,307 | ||
Dividends from affiliated money market funds | 1,246 | |||
Total investment income | 3,303,553 | |||
Expenses: | ||||
Advisory fees | 676,219 | |||
Administrative services fees | 242,735 | |||
Custodian fees | 47,481 | |||
Distribution fees — Series II | 56,005 | |||
Transfer agent fees | 11,690 | |||
Trustees’ and officers’ fees and benefits | 10,902 | |||
Other | 25,756 | |||
Total expenses | 1,070,788 | |||
Less: Fees waived | (1,405 | ) | ||
Net expenses | 1,069,383 | |||
Net investment income | 2,234,170 | |||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities | 3,964,222 | |||
Foreign currencies | 56,648 | |||
4,020,870 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 3,596,940 | |||
Foreign currencies | (12,073 | ) | ||
3,584,867 | ||||
Net realized and unrealized gain | 7,605,737 | |||
Net increase in net assets resulting from operations | $ | 9,839,907 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 2,234,170 | $ | 4,017,480 | ||||
Net realized gain | 4,020,870 | 7,130,044 | ||||||
Change in net unrealized appreciation | 3,584,867 | 11,160,840 | ||||||
Net increase in net assets resulting from operations | 9,839,907 | 22,308,364 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (6,161,371 | ) | |||||
Series II | — | (1,036,283 | ) | |||||
Total distributions from net investment income | — | (7,197,654 | ) | |||||
Share transactions–net: | ||||||||
Series I | 12,796,771 | (9,517,933 | ) | |||||
Series II | 20,119,819 | 19,873,135 | ||||||
Net increase in net assets resulting from share transactions | 32,916,590 | 10,355,202 | ||||||
Net increase in net assets | 42,756,497 | 25,465,912 | ||||||
Net assets: | ||||||||
Beginning of period | 165,476,096 | 140,010,184 | ||||||
End of period (includes undistributed net investment income of $4,077,733 and $1,843,563, respectively) | $ | 208,232,593 | $ | 165,476,096 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Global Real Estate Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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. |
Invesco V.I. Global Real Estate 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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. |
Invesco V.I. Global Real Estate 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 (“GAAP”) 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 Daily 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% | ||
Invesco V.I. Global Real Estate 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 Canada Ltd. (formerly 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(s) 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, 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 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 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 the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2012. 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, 2012, 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, 2011, the Adviser waived advisory fees of $1,405.
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, 2011, 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, 2011, Invesco was paid $24,794 for accounting and fund administrative services and reimbursed $217,941 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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, 2011. 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 Real Estate Fund
During the six months ended June 30, 2011, there were no significant transfers between investment levels.
Level 1* | Level 2* | Level 3 | Total | |||||||||||||
Australia | $ | 2,093,672 | $ | 16,254,562 | $ | — | $ | 18,348,234 | ||||||||
Austria | 1,087,826 | — | — | 1,087,826 | ||||||||||||
Canada | 6,463,496 | — | — | 6,463,496 | ||||||||||||
China | — | 2,656,160 | — | 2,656,160 | ||||||||||||
Finland | 1,388,226 | — | — | 1,388,226 | ||||||||||||
France | 9,645,030 | — | — | 9,645,030 | ||||||||||||
Germany | 1,300,798 | — | — | 1,300,798 | ||||||||||||
Hong Kong | 5,102,821 | 20,656,502 | — | 25,759,323 | ||||||||||||
Italy | 764,531 | — | — | 764,531 | ||||||||||||
Japan | 3,307,318 | 15,297,649 | — | 18,604,967 | ||||||||||||
Malta | — | — | 0 | 0 | ||||||||||||
Netherlands | 1,983,668 | — | — | 1,983,668 | ||||||||||||
Singapore | 1,364,422 | 7,135,730 | — | 8,500,152 | ||||||||||||
Sweden | 1,368,449 | — | — | 1,368,449 | ||||||||||||
Switzerland | 2,554,862 | — | — | 2,554,862 | ||||||||||||
United Kingdom | 12,429,781 | — | — | 12,429,781 | ||||||||||||
United States | 95,534,439 | — | — | 95,534,439 | ||||||||||||
Total Investments | $ | 146,389,339 | $ | 62,000,603 | $ | 0 | $ | 208,389,942 | ||||||||
* | 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, 2011, the Fund paid legal fees of $746 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 14,871,434 | ||
December 31, 2017 | 22,621,345 | |||
Total capital loss carryforward | $ | 37,492,779 | ||
* | 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, 2011 was $89,725,669 and $56,092,412, 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 | $ | 26,715,130 | ||
Aggregate unrealized (depreciation) of investment securities | (1,714,778 | ) | ||
Net unrealized appreciation of investment securities | $ | 25,000,352 | ||
Cost of investments for tax purposes is $183,389,590. |
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 2,368,617 | $ | 33,393,101 | 3,250,045 | $ | 40,832,439 | ||||||||||
Series II | 1,670,078 | 22,864,837 | 1,654,806 | 20,893,454 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 477,626 | 6,161,371 | ||||||||||||
Series II | — | — | 81,855 | 1,036,283 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,474,937 | ) | (20,596,330 | ) | (4,611,903 | ) | (56,511,743 | ) | ||||||||
Series II | (200,440 | ) | (2,745,018 | ) | (169,623 | ) | (2,056,602 | ) | ||||||||
Net increase in share activity | 2,363,318 | $ | 32,916,590 | 682,806 | $ | 10,355,202 | ||||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 55% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
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) 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 | ||||||||||||||||||||||||||||||||||||||||||||||
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 06/30/11 | $ | 13.58 | $ | 0.18 | $ | 0.59 | $ | 0.77 | $ | — | $ | — | $ | — | $ | 14.35 | 5.67 | % | $ | 151,694 | 1.13 | %(d) | 1.13 | %(d) | 2.53 | %(d) | 31 | % | ||||||||||||||||||||||||||||
Year ended 12/31/10 | 12.14 | 0.35 | 1.74 | 2.09 | (0.65 | ) | — | (0.65 | ) | 13.58 | 17.51 | 131,462 | 1.20 | 1.20 | 2.82 | 87 | ||||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 13.31 | 0.16 | 0.58 | 0.74 | — | — | — | 14.05 | 5.56 | 56,539 | 1.38 | (d) | 1.38 | (d) | 2.28 | (d) | 31 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 11.93 | 0.32 | 1.70 | 2.02 | (0.64 | ) | — | (0.64 | ) | 13.31 | 17.24 | 34,014 | 1.45 | 1.45 | 2.57 | 87 | ||||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||||
(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 $136,644 and $45,176 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,056.70 | $ | 5.76 | $ | 1,019.19 | $ | 5.66 | 1.13 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,055.60 | 7.03 | 1,017.95 | 6.90 | 1.38 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2011 through June 30, 2011, 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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 funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Real Estate Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile of the performance universe for the one year period, the fifth quintile for the three year period and the third 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 performance of Series I shares of the Fund was
Invesco V.I. Global Real Estate Fund
below the performance of the Index for the one and three year periods and above the performance of the Index for the five year period. Invesco Advisers advised the Board that short and intermediate term performance had been challenged due to the quality bias of the Fund. 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 at a common asset level. The Board noted that the contractual advisory fee for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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. The Board noted that the Fund’s effective fee rate was above the effective fee rate of one mutual fund advised by Invesco Advisers and below the total account fee of a mutual fund subadvised by Invesco Advisers. The Board also noted that Invesco Advisers sub-advises an off-shore fund with comparable investment strategies, but did not consider that to be an apt comparison as the management fee includes more than advisory fees.
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 solely for investment management services. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts. These additional services include 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 for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. 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 often more comparable. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients, and 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, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Semiannual Report to Shareholders § June 30, 2011
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at 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, 2011, is available at 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, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 1.95 | % | ||
Series II Shares | 1.81 | |||
Barclays Capital U.S. Aggregate Index▼ (Broad Market Index) | 2.72 | |||
Barclays Capital U.S. Government Index▼ (Style-Specific Index) | 2.14 | |||
Lipper VUF General U.S. Government Funds Index▼ (Peer Group Index) | 3.48 | |||
▼ | 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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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.
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 0.60% and 0.85%,
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 0.76% and 1.01%, 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
Average Annual Total Returns
As of 6/30/11
Series I Shares | ||||||||
Inception (5/5/93) | 5.03 | % | ||||||
10 | Years | 4.80 | ||||||
5 | Years | 5.87 | ||||||
1 | Year | 2.15 | ||||||
Series II Shares | ||||||||
10 | Years | 4.53 | % | |||||
5 | Years | 5.58 | ||||||
1 | Year | 1.86 |
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, 2012. See current prospectus for more information. |
Invesco V.I. Government Securities Fund
Schedule of Investments
June 30, 2011
(Unaudited)
Principal | ||||||||
Amount | Value | |||||||
U.S. Government Sponsored Mortgage-Backed Securities–69.02% | ||||||||
Collateralized Mortgage Obligations–39.37% | ||||||||
Fannie Mae Grantor Trust, 5.34%, 04/25/12 | $ | 4,500,000 | $ | 4,665,254 | ||||
Fannie Mae REMICs, 4.00%, 09/25/16 to 02/25/40 | 13,379,454 | 13,947,354 | ||||||
4.50%, 11/25/16 to 07/25/27 | 17,045,295 | 17,881,543 | ||||||
5.00%, 02/25/17 to 09/25/37 | 46,061,258 | 48,870,076 | ||||||
4.25%, 12/25/19 to 06/25/33 | 9,265,937 | 9,727,853 | ||||||
3.00%, 07/25/22 | 442,319 | 452,191 | ||||||
5.50%, 12/25/26 to 03/25/28 | 43,922 | 43,901 | ||||||
7.00%, 09/18/27 | 1,096,002 | 1,244,532 | ||||||
6.50%, 01/25/30 to 03/25/32 | 3,884,635 | 4,400,374 | ||||||
3.50%, 12/25/31 | 3,937,868 | 4,126,047 | ||||||
4.75%, 07/25/33 | 8,384,596 | 8,819,325 | ||||||
5.75%, 10/25/35 | 1,483,205 | 1,633,520 | ||||||
0.49%, 05/25/36(a) | 13,971,151 | 14,003,407 | ||||||
6.58%, 06/25/39 | 11,119,697 | 12,826,908 | ||||||
Fannie Mae Whole Loans, 5.50%, 07/25/34 | 1,249,727 | 1,277,133 | ||||||
FDIC Structured Sale Gtd. Notes, 0.74%, 02/25/48(a)(b) | 1,402,723 | 1,405,383 | ||||||
Federal Home Loan Bank, 4.55%, 04/27/12 | 1,063,525 | 1,094,904 | ||||||
5.27%, 12/28/12 | 11,879,604 | 12,460,219 | ||||||
5.07%, 10/20/15 | 2,488,748 | 2,697,485 | ||||||
5.46%, 11/27/15 | 35,617,845 | 39,517,757 | ||||||
Freddie Mac REMICs, 5.38%, 08/15/11 to 09/15/11 | 1,759,290 | 1,765,536 | ||||||
3.88%, 12/15/12 | 300,392 | 302,415 | ||||||
0.85%, 03/15/13 | 3,870,077 | 3,879,889 | ||||||
4.75%, 07/15/14 to 05/15/23 | 3,340,306 | 3,428,139 | ||||||
3.50%, 10/15/16 to 12/15/27 | 4,550,841 | 4,688,740 | ||||||
4.00%, 02/15/17 to 03/15/38 | 27,642,996 | 28,955,300 | ||||||
4.50%, 04/15/17 to 10/15/36 | 19,294,037 | 20,060,877 | ||||||
4.38%, 05/15/17 | 1,066,350 | 1,093,527 | ||||||
4.16%, 07/15/17 | 1,236,028 | 1,267,992 | ||||||
3.77%, 09/15/17 | 1,144,534 | 1,176,131 | ||||||
3.84%, 09/15/17 | 1,574,326 | 1,619,866 | ||||||
5.00%, 02/15/18 to 09/15/32 | 21,396,980 | 22,565,625 | ||||||
3.00%, 10/15/18 to 04/15/26 | 22,041,455 | 22,829,370 | ||||||
3.75%, 10/15/18 | 6,985,610 | 7,278,883 | ||||||
4.25%, 01/15/19 | 1,576,105 | 1,646,399 | ||||||
0.59%, 04/15/28 to 06/15/37(a) | 35,865,202 | 35,908,160 | ||||||
5.50%, 07/15/28 to 02/15/33 | 6,700,342 | 6,847,750 | ||||||
6.00%, 09/15/29 | 2,309,729 | 2,337,023 | ||||||
5.25%, 08/15/32 | 9,443,732 | 9,966,486 | ||||||
0.50%, 03/15/36(a) | 14,063,913 | 14,070,950 | ||||||
5.75%, 05/15/36 | 1,514,316 | 1,621,068 | ||||||
1.05%, 11/15/39(a) | 6,534,350 | 6,604,536 | ||||||
Ginnie Mae REMICs, 6.00%, 01/16/25 | 3,131,551 | 3,499,042 | ||||||
5.00%, 09/16/27 to 08/16/35 | 7,179,000 | 7,548,741 | ||||||
4.21%, 01/16/28 | 1,503,858 | 1,512,994 | ||||||
4.50%, 01/16/31 to 08/20/35 | 71,044,454 | 74,895,603 | ||||||
5.50%, 04/16/31 | 2,060,907 | 2,087,894 | ||||||
4.75%, 09/20/32 | 2,450,790 | 2,584,674 | ||||||
4.00%, 11/16/33 to 02/20/38 | 23,863,770 | 25,069,081 | ||||||
5.77%, 08/20/34(a) | 4,247,012 | 4,686,374 | ||||||
522,894,231 | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–6.91% | ||||||||
Pass Through Ctfs., 7.00%, 09/01/11 to 12/01/37 | 13,514,333 | 15,721,503 | ||||||
6.50%, 10/01/12 to 12/01/35 | 13,612,988 | 15,336,277 | ||||||
6.00%, 09/01/13 to 07/01/38 | 8,068,166 | 8,868,815 | ||||||
8.00%, 07/01/15 to 09/01/36 | 12,289,294 | 14,665,535 | ||||||
7.50%, 03/01/16 to 08/01/36 | 4,728,560 | 5,459,699 | ||||||
5.00%, 07/01/18 to 01/01/40 | 7,369,140 | 7,873,410 | ||||||
10.50%, 08/01/19 | 4,573 | 5,208 | ||||||
4.50%, 09/01/20 to 01/01/40 | 12,727,000 | 13,431,422 | ||||||
8.50%, 09/01/20 to 08/01/31 | 1,014,913 | 1,219,079 | ||||||
10.00%, 03/01/21 | 65,485 | 75,142 | ||||||
9.00%, 06/01/21 to 06/01/22 | 512,580 | 585,587 | ||||||
5.50%, 12/01/22 to 11/01/39 | 4,268,213 | 4,632,424 | ||||||
7.05%, 05/20/27 | 321,687 | 371,944 | ||||||
6.03%, 10/20/30 | 2,019,164 | 2,275,819 | ||||||
Pass Through Ctfs., ARM, 5.93%, 10/01/36(a) | 746,948 | 793,812 | ||||||
5.47%, 01/01/38(a) | 394,115 | 421,606 | ||||||
91,737,282 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Principal | ||||||||
Amount | Value | |||||||
Federal National Mortgage Association (FNMA)–19.24% | ||||||||
Pass Through Ctfs., 7.00%, 07/01/11 to 06/01/36 | $ | 20,313,771 | $ | 22,929,060 | ||||
7.50%, 08/01/11 to 08/01/37 | 15,718,354 | 18,446,258 | ||||||
8.00%, 06/01/12 to 11/01/37 | 13,070,704 | 15,281,793 | ||||||
8.50%, 06/01/12 to 08/01/37 | 5,139,491 | 6,076,301 | ||||||
6.50%, 05/01/13 to 04/01/38 | 16,441,924 | 18,367,124 | ||||||
10.00%, 09/01/13 | 9,711 | 9,851 | ||||||
6.00%, 01/01/14 to 10/01/38 | 15,016,578 | 16,601,434 | ||||||
5.00%, 11/01/17 to 03/01/40 | 50,282,679 | 54,038,976 | ||||||
4.50%, 09/01/18 to 08/01/39 | 60,026,820 | 64,023,987 | ||||||
5.50%, 03/01/21 to 08/01/38 | 19,216,353 | 20,912,536 | ||||||
6.75%, 07/01/24 | 1,077,161 | 1,230,439 | ||||||
6.95%, 10/01/25 | 74,769 | 86,251 | ||||||
Pass Through Ctfs., ARM, 2.46%, 05/01/35(a) | 1,232,822 | 1,295,156 | ||||||
5.50%, 03/01/38(a) | 259,188 | 276,609 | ||||||
Pass Through Ctfs., Balloon, 3.84%, 04/01/18 | 6,600,000 | 6,845,926 | ||||||
Pass Through Ctfs., TBA, 3.50%, 07/01/26(c) | 2,980,000 | 3,034,945 | ||||||
4.00%, 07/01/26(c) | 5,825,000 | 6,068,922 | ||||||
255,525,568 | ||||||||
Government National Mortgage Association (GNMA)–3.50% | ||||||||
Pass Through Ctfs., 8.00%, 07/15/12 to 01/15/37 | 3,836,590 | 4,559,709 | ||||||
6.50%, 02/20/12 to 01/15/37 | 12,534,946 | 14,284,147 | ||||||
6.75%, 08/15/13 | 18,849 | 19,839 | ||||||
7.50%, 10/15/14 to 10/15/35 | 6,579,339 | 7,752,397 | ||||||
11.00%, 10/15/15 | 1,721 | 1,736 | ||||||
9.00%, 10/20/16 to 12/20/16 | 85,585 | 96,756 | ||||||
7.00%, 04/15/17 to 01/15/37 | 4,770,281 | 5,540,592 | ||||||
10.50%, 09/15/17 to 11/15/19 | 3,318 | 3,332 | ||||||
8.50%, 12/15/17 to 01/15/37 | 783,433 | 903,430 | ||||||
10.00%, 06/15/19 | 29,996 | 33,511 | ||||||
6.00%, 09/15/20 to 08/15/33 | 1,891,590 | 2,115,279 | ||||||
6.95%, 08/20/25 to 08/20/27 | 892,558 | 1,034,025 | ||||||
6.38%, 10/20/27 to 09/20/28 | 721,894 | 802,458 | ||||||
6.10%, 12/20/33 | 8,067,478 | 9,320,026 | ||||||
46,467,237 | ||||||||
Total U.S. Government Sponsored Mortgage-Backed Securities (Cost $891,594,451) | 916,624,318 | |||||||
U.S. Government Sponsored Agency Securities–17.37% | ||||||||
Federal Agricultural Mortgage Corp.–5.32% | ||||||||
Medium-Term Notes, 2.11%, 03/15/12 | 37,000,000 | 37,510,920 | ||||||
Unsec. Medium-Term Notes, 2.20%, 11/09/11 | 25,000,000 | 25,137,848 | ||||||
1.25%, 12/06/13 | 8,000,000 | 8,042,536 | ||||||
70,691,304 | ||||||||
Federal Farm Credit Bank (FFCB)–4.59% | ||||||||
Bonds, 1.13%, 02/27/14 | 13,000,000 | 13,090,211 | ||||||
3.00%, 09/22/14 | 5,000,000 | 5,298,641 | ||||||
1.63%, 11/19/14 | 4,800,000 | 4,872,244 | ||||||
1.50%, 11/16/15 | 11,000,000 | 10,923,234 | ||||||
5.59%, 10/04/21 | 10,075,000 | 10,208,874 | ||||||
5.75%, 01/18/22 | 2,775,000 | 2,840,867 | ||||||
Global Bonds, 1.38%, 06/25/13 | 10,000,000 | 10,163,223 | ||||||
Medium-Term Notes, 5.75%, 12/07/28 | 3,100,000 | 3,575,304 | ||||||
60,972,598 | ||||||||
Federal Home Loan Bank (FHLB)–3.37% | ||||||||
Unsec. Global Bonds, 1.63%, 03/20/13 | 12,500,000 | 12,752,237 | ||||||
1.88%, 06/21/13 | 16,000,000 | 16,424,779 | ||||||
3.63%, 10/18/13 | 3,900,000 | 4,166,060 | ||||||
Unsec. Global Notes, 1.38%, 05/28/14 | 4,875,000 | 4,937,166 | ||||||
Series 1, Unsec. Bonds, 5.77%, 03/23/18 | 5,832,373 | 6,433,347 | ||||||
44,713,589 | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–1.32% | ||||||||
Unsec. Global Notes, 0.38%, 11/30/12 | 1,000,000 | 1,000,532 | ||||||
0.63%, 12/28/12 | 5,000,000 | 5,018,235 | ||||||
1.00%, 08/27/14 | 5,000,000 | 4,994,200 | ||||||
1.75%, 09/10/15 | 6,500,000 | 6,542,086 | ||||||
17,555,053 | ||||||||
Federal National Mortgage Association (FNMA)–1.37% | ||||||||
Unsec. Global Notes, 3.00%, 09/16/14 | 7,500,000 | 7,949,483 | ||||||
2.38%, 04/11/16 | 10,000,000 | 10,234,869 | ||||||
18,184,352 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Principal | ||||||||
Amount | Value | |||||||
Financing Corp. (FICO)–0.29% | ||||||||
Sec. Bonds, 9.80%, 04/06/18 | $ | 700,000 | $ | 999,558 | ||||
Series E, Sec. Bonds, | ||||||||
9.65%, 11/02/18 | 1,985,000 | 2,856,486 | ||||||
3,856,044 | ||||||||
Private Export Funding Corp.–0.50% | ||||||||
Sec. Gtd. Notes, 2.13%, 07/15/16 | 5,000,000 | 4,968,219 | ||||||
4.30%, 12/15/21 | 1,540,000 | 1,621,433 | ||||||
6,589,652 | ||||||||
Tennessee Valley Authority–0.61% | ||||||||
Global Bonds, 4.88%, 12/15/16 | 2,420,000 | 2,750,825 | ||||||
Series A, Bonds, 6.79%, 05/23/12 | 5,000,000 | 5,293,575 | ||||||
8,044,400 | ||||||||
Total U.S. Government Sponsored Agency Securities (Cost 226,551,428) | 230,606,992 | |||||||
U.S. Treasury Securities–10.41% | ||||||||
U.S. Treasury Bonds–2.39% | ||||||||
8.75%, 05/15/20 | 3,500,000 | 5,112,187 | ||||||
7.88%, 02/15/21 | 1,100,000 | 1,542,922 | ||||||
7.50%, 11/15/24 | 4,370,000 | 6,155,555 | ||||||
7.63%, 02/15/25 | 550,000 | 783,492 | ||||||
5.38%, 02/15/31 | 3,800,000 | 4,454,313 | ||||||
4.25%, 05/15/39(d) | 3,685,000 | 3,615,330 | ||||||
4.38%, 11/15/39 | 3,000,000 | 3,001,875 | ||||||
4.63%, 02/15/40 | 2,700,000 | 2,815,594 | ||||||
4.75%, 02/15/41 | 4,000,000 | 4,251,875 | ||||||
31,733,143 | ||||||||
U.S. Treasury Notes–8.02% | ||||||||
0.75%, 09/15/13 | 2,500,000 | 2,512,109 | ||||||
1.25%, 03/15/14 | 10,000,000 | 10,146,875 | ||||||
0.75%, 06/15/14 | 7,000,000 | 6,992,344 | ||||||
2.38%, 10/31/14 | 450,000 | 470,672 | ||||||
2.13%, 11/30/14 | 150,000 | 155,602 | ||||||
2.25%, 01/31/15 | 3,500,000 | 3,642,188 | ||||||
2.38%, 02/28/15 | 11,000,000 | 11,493,281 | ||||||
1.25%, 08/31/15 | 3,000,000 | 2,986,875 | ||||||
2.00%, 01/31/16 | 1,200,000 | 1,223,438 | ||||||
2.75%, 05/31/17(d) | 22,000,000 | 22,770,000 | ||||||
2.38%, 07/31/17 | 10,000,000 | 10,109,375 | ||||||
3.63%, 02/15/20 | 2,729,000 | 2,887,623 | ||||||
3.50%, 05/15/20 | 15,750,000 | 16,443,984 | ||||||
2.63%, 08/15/20 | 9,000,000 | 8,714,531 | ||||||
3.13%, 05/15/21 | 6,000,000 | 5,984,062 | ||||||
106,532,959 | ||||||||
Total U.S. Treasury Securities (Cost $137,416,021) | 138,266,102 | |||||||
Foreign Bonds–2.51% | ||||||||
Sovereign Debt–0.31% | ||||||||
Israel Government Agency for International Development (AID) Bond (Israel), Gtd. Bonds, 5.13%, 11/01/24 | 3,800,000 | 4,218,588 | ||||||
Collaterized Mortgage Obligations–2.20% | ||||||||
La Hipotecaria S.A. (Panama)–Series 2010-1 GA, Class A, Floating Rate Pass Through Ctfs., 3.75%, 09/08/39(a)(b) | 28,335,038 | 29,193,944 | ||||||
Total Foreign Bonds (Cost $33,092,714) | 33,412,532 | |||||||
Corporate Bonds & Notes–0.71% | ||||||||
Diversified Banks–0.30% | ||||||||
Ally Financial, Inc., Gtd. Notes, 2.20%, 12/19/12 | 1,700,000 | 1,743,658 | ||||||
U.S. Central Federal Credit Union, Gtd. Notes, 1.90%, 10/19/12 | 2,260,000 | 2,302,752 | ||||||
4,046,410 | ||||||||
Industrial Conglomerates–0.22% | ||||||||
General Electric Capital Corp.–Series G, Sr. Gtd. Medium-Term Global Notes, 2.63%, 12/28/12 | 2,800,000 | 2,891,458 | ||||||
Other Diversified Financial Services–0.19% | ||||||||
Citibank N.A., Sr. Unsec. Gtd. Notes, 1.75%, 12/28/12 | 2,500,000 | 2,550,593 | ||||||
Total Bonds & Notes (Cost $9,307,654) | 9,488,461 | |||||||
Money Market Funds–0.87% | ||||||||
Government & Agency Portfolio–Institutional Class (Cost $11,543,695)(e) | 11,543,695 | 11,543,695 | ||||||
TOTAL INVESTMENTS–100.89% (Cost $1,309,505,963) | 1,339,942,100 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.89)% | (11,845,129 | ) | ||||||
NET ASSETS–100.00% | $ | 1,328,096,971 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Investment Abbreviations:
ARM | – Adjustable Rate Mortgage | |
Ctfs. | – Certificates | |
Gtd. | – Guaranteed | |
REMICs | – Real Estate Mortgage Investment Conduits | |
Sec. | – Secured | |
Sr. | – Senior | |
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, 2011. | |
(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, 2011 was $30,599,327, which represented 2.30% of the Trust’s Net Assets. | |
(c) | Security purchased on a forward commitment basis. This security is subject to dollar roll transactions. See Note 1J. | |
(d) | 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. | |
(e) | 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, 2011
U.S. Government Sponsored Mortgage-Backed Securities | 69.0 | % | ||
U.S. Government Sponsored Agency Securities | 17.4 | |||
U.S. Treasury Securities | 10.4 | |||
Foreign Bonds | 2.5 | |||
Corporate Bonds & Notes | 0.7 | |||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $1,297,962,268) | $ | 1,328,398,405 | ||
Investments in affiliated money market funds, at value and cost | 11,543,695 | |||
Total investments, at value (Cost $1,309,505,963) | 1,339,942,100 | |||
Receivable for: | ||||
Investments sold | 12,018,592 | |||
Fund shares sold | 1,598,938 | |||
Dividends and interest | 5,208,439 | |||
Fund expenses absorbed | 340,698 | |||
Principal paydowns | 172,567 | |||
Investment for trustee deferred compensation and retirement plans | 62,564 | |||
Other assets | 925 | |||
Total assets | 1,359,344,823 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 27,816,386 | |||
Fund shares reacquired | 421,847 | |||
Variation margin | 868,680 | |||
Accrued fees to affiliates | 1,550,831 | |||
Accrued other operating expenses | 427,730 | |||
Trustee deferred compensation and retirement plans | 162,378 | |||
Total liabilities | 31,247,852 | |||
Net assets applicable to shares outstanding | $ | 1,328,096,971 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,321,646,703 | ||
Undistributed net investment income | 12,156,811 | |||
Undistributed net realized gain (loss) | (35,606,832 | ) | ||
Unrealized appreciation | 29,900,289 | |||
$ | 1,328,096,971 | |||
Net Assets: | ||||
Series I | $ | 1,041,630,142 | ||
Series II | $ | 286,466,829 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 88,248,863 | |||
Series II | 24,436,091 | |||
Series I: | ||||
Net asset value per share | $ | 11.80 | ||
Series II: | ||||
Net asset value per share | $ | 11.72 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Interest | $ | 16,382,155 | ||
Dividends from affiliated money market funds | 3,266 | |||
Total investment income | 16,385,421 | |||
Expenses: | ||||
Advisory fees | 2,659,627 | |||
Administrative services fees | 1,560,464 | |||
Custodian fees | 26,725 | |||
Distribution fees — Series II | 141,137 | |||
Transfer agent fees | 11,572 | |||
Trustees’ and officers’ fees and benefits | 26,633 | |||
Other | 134,809 | |||
Total expenses | 4,560,967 | |||
Less: Fees waived and expense offset arrangement(s) | (494,344 | ) | ||
Net expenses | 4,066,623 | |||
Net investment income | 12,318,798 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 1,075,546 | |||
Futures contracts | (1,223,641 | ) | ||
(148,095 | ) | |||
Change in net unrealized appreciation of: | ||||
Investment securities | 5,327,608 | |||
Futures contracts | 6,046,692 | |||
11,374,300 | ||||
Net realized and unrealized gain | 11,226,205 | |||
Net increase in net assets resulting from operations | $ | 23,545,003 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 12,318,798 | $ | 23,688,971 | ||||
Net realized gain (loss) | (148,095 | ) | 32,820,078 | |||||
Change in net unrealized appreciation | 11,374,300 | 7,306,223 | ||||||
Net increase in net assets resulting from operations | 23,545,003 | 63,815,272 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (36,635,025 | ) | (54,918,096 | ) | ||||
Series II | (1,001,427 | ) | (859,253 | ) | ||||
Total distributions from net investment income | (37,636,452 | ) | (55,777,349 | ) | ||||
Share transactions–net: | ||||||||
Series I | (14,818,973 | ) | (128,842,349 | ) | ||||
Series II | 260,528,168 | 9,854,940 | ||||||
Net increase (decrease) in net assets resulting from share transactions | 245,709,195 | (118,987,409 | ) | |||||
Net increase (decrease) in net assets | 231,617,746 | (110,949,486 | ) | |||||
Net assets: | ||||||||
Beginning of period | 1,096,479,225 | 1,207,428,711 | ||||||
End of period (includes undistributed net investment income of $12,156,811 and $37,474,465, respectively) | $ | 1,328,096,971 | $ | 1,096,479,225 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Government Securities Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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. Government Securities Fund
between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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. |
Invesco V.I. Government Securities Fund
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 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. |
Invesco V.I. Government Securities Fund
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 Daily 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 Canada Ltd. (formerly 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 May 2, 2011, 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 and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.60% and Series II shares to 0.85% of average daily net assets. Prior to May 2, 2011, the Adviser had 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 0.73% 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 and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; (5) expenses related to a merger or reorganization, as approved by the Fund’s Board of Trustees; and (6) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012.
Further, the Adviser has contractually agreed, through at least June 30, 2012, 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, 2011, the Adviser waived advisory fees of $494,216.
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, 2011, 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, 2011, Invesco was paid $137,727 for accounting and fund administrative services and reimbursed $1,422,737 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, 2011, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees.
Invesco V.I. Government Securities Fund
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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 11,543,695 | $ | — | $ | — | $ | 11,543,695 | ||||||||
U.S. Treasury Securities | — | 138,266,102 | — | 138,266,102 | ||||||||||||
U.S. Government Sponsored Securities | — | 1,147,231,310 | — | 1,147,231,310 | ||||||||||||
Foreign Government Debt Securities | — | 33,412,532 | — | 33,412,532 | ||||||||||||
Corporate Debt Securities | — | 9,488,461 | — | 9,488,461 | ||||||||||||
$ | 11,543,695 | $ | 1,328,398,405 | $ | — | $ | 1,339,942,100 | |||||||||
Foreign Currency Contracts* | (535,849 | ) | — | — | (535,849 | ) | ||||||||||
Total Investments | $ | 11,007,846 | $ | 1,328,398,405 | $ | — | $ | 1,339,406,251 | ||||||||
* | 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, 2011:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Interest rate risk | ||||||||
Futures contracts(a) | $ | 1,549,313 | $ | (2,085,162 | ) | |||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin 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, 2011
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) | ||||
Interest rate risk | $ | (1,223,641 | ) | |
Change in Unrealized Appreciation | ||||
Interest rate risk | 6,046,692 | |||
Total | $ | 4,823,051 | ||
* | The average value of futures outstanding during the period was $416,954,452 |
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Month/ | Notional | Appreciation | |||||||||||||
Contract | Contracts | Commitment | Value | (Depreciation) | ||||||||||||
U.S. Treasury 10 Year Notes | 1,878 | September-2011/Long | $ | 229,732,219 | $ | 369,572 | ||||||||||
Ultra U.S. Treasury Bonds | 946 | September-2011/Long | 119,432,500 | (1,750,495 | ) | |||||||||||
U.S. Treasury 2 Year Notes | 475 | September-2011/Long | 104,188,281 | 168,534 | ||||||||||||
Subtotal | $ | 453,353,000 | $ | (1,212,389 | ) | |||||||||||
U.S. Treasury 5 Year Notes | 253 | September-2011/Short | $ | (30,156,414 | ) | $ | (79,875 | ) | ||||||||
U.S. Treasury 30 Year Bonds | 446 | September-2011/Short | (54,871,938 | ) | 756,415 | |||||||||||
Subtotal | $ | (85,028,352 | ) | $ | 676,540 | |||||||||||
Total | $ | 368,324,648 | $ | (535,849 | ) | |||||||||||
NOTE 5—Expense Offset Arrangement(s)
The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the six months ended June 30, 2011, the Fund received credits from this arrangement, which resulted in the reduction of the Fund’s total expenses of $128.
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, 2011, the Fund paid legal fees of $1,440 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner of that firm is a Trustee of the Trust.
NOTE 7—Cash Balances
The Fund may borrow for leveraging in an amount up to 5% of the Fund’s total assets (excluding the amount borrowed) at the time the borrowing is made. In doing so, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company, 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 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.
Invesco V.I. Government Securities Fund
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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2017 | $ | 25,293,448 | ||
* | 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 of May 2, 2011, the date of the reorganization of Invesco Van Kampen V.I. Government Fund, into the fund are realized on securities held in the Fund at such date of reorganization, 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, 2011 was $198,340,433 and $247,586,256, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $30,059,011 and $26,521,825, 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 | $ | 32,602,610 | ||
Aggregate unrealized (depreciation) of investment securities | (2,297,762 | ) | ||
Net unrealized appreciation of investment securities | $ | 30,304,848 | ||
Cost of investments for tax purposes is $1,309,637,252. |
Invesco V.I. Government Securities Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 5,819,921 | $ | 69,476,999 | 14,868,780 | $ | 182,569,736 | ||||||||||
Series II | 1,255,547 | 14,879,530 | 1,086,469 | 13,335,480 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 3,158,192 | 36,635,025 | 4,508,875 | 54,918,094 | ||||||||||||
Series II | 86,853 | 1,001,427 | 70,954 | 859,253 | ||||||||||||
Issued in connection with acquisitions:(b) | ||||||||||||||||
Series I | 2,587,718 | 30,250,210 | — | — | ||||||||||||
Series II | 22,298,634 | 259,005,451 | — | — | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (12,710,467 | ) | (151,181,207 | ) | (29,794,392 | ) | (366,330,179 | ) | ||||||||
Series II | (1,224,145 | ) | (14,358,240 | ) | (355,134 | ) | (4,339,793 | ) | ||||||||
Net increase (decrease) in share activity | 21,272,253 | $ | 245,709,195 | (9,614,448 | ) | $ | (118,987,409 | ) | ||||||||
(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) | As of the opening of business on May 2, 2011, the Fund acquired all the net assets of Invesco Van Kampen V.I. Government Fund pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of Invesco Van Kampen V.I. Government Fund on April 1, 2011. The acquisition was accomplished by a tax-free exchange of 24,886,352 shares of the Fund for 32,516,244 shares outstanding of Invesco Van Kampen V.I. Government Fund as of the close of business on April 29, 2011. Each class of Invesco Van Kampen V.I. Government Fund was exchanged for the like class of shares of the Fund based on the relative net asset value of Invesco Van Kampen V.I. Government Fund to the net asset value of the Fund on the close of business, April 29, 2011. Invesco Van Kampen V.I. Government Fund’s net assets at that date of $289,255,661 including $4,992,514 of unrealized appreciation, was combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $1,059,348,706. |
Invesco V.I. Government Securities 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 | 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 06/30/11 | $ | 12.00 | $ | 0.13 | $ | 0.10 | $ | 0.23 | $ | (0.43 | ) | $ | — | $ | (0.43 | ) | $ | 11.80 | 1.95 | % | $ | 1,041,630 | 0.68 | %(d) | 0.77 | %(d) | 2.16 | %(d) | 22 | % | ||||||||||||||||||||||||||
Year ended 12/31/10 | 11.95 | 0.24 | 0.41 | 0.65 | (0.60 | ) | — | (0.60 | ) | 12.00 | 5.40 | 1,072,405 | 0.73 | 0.75 | 1.98 | 61 | ||||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 11.92 | 0.11 | 0.10 | 0.21 | (0.41 | ) | — | (0.41 | ) | 11.72 | 1.81 | 286,467 | 0.93 | (d) | 1.02 | (d) | 1.91 | (d) | 22 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 11.88 | 0.22 | 0.40 | 0.62 | (0.58 | ) | — | (0.58 | ) | 11.92 | 5.10 | 24,074 | 0.98 | 1.00 | 1.73 | 61 | ||||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||||
(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. For the period ending June 30, 2011, the portfolio turnover calculation excludes the value of securities purchased of $284,518,457 and sold of $2,947,012 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco Van Kampen V.I. Government Fund into the Fund. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $1,050,229 and $113,845 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2,4 | (06/30/11) | Period2,5 | Ratio3 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,019.50 | $ | 3.40 | $ | 1,021.42 | $ | 3.41 | 0.68 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,018.10 | 4.65 | 1,020.18 | 4.66 | 0.93 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2011 through June 30, 2011, 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. |
3 | Effective May 2, 2011, 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 0.60% and 0.85% 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 0.60% and 0.85% for Series I and Series II shares, respectively. |
4 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $3.00 and $4.25 for Series I and Series II shares, respectively. |
5 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $3.01 and $4.26 for Series I and Series II shares, respectively. |
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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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 funds in the Lipper performance universe and against the Lipper VA Underlying Funds – General U.S. Government Funds Index. The Board noted that performance of Series I shares of the Fund was in the third quintile of the 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 performance of Series I shares of the Fund 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 June 30, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Semiannual Report to Shareholders § June 30, 2011
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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 800 959 4246 or at 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, 2011, is available at 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, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 3.37 | % | ||
Series II Shares | 3.21 | |||
Barclays Capital U.S. Aggregate Index▼(Broad Market Index) | 2.72 | |||
Barclays Capital U.S. Corporate High Yield 2% Issuer Cap Index▼ (Style-Specific Index) | 4.98 | |||
Lipper VUF High Current Yield Bond Funds Category Average▼(Peer Group) | 4.38 | |||
▼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. 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 Lipper VUF High Current Yield Bond Funds Category Average represents an average of all 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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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 6/30/11
As of 6/30/11
Series I Shares | ||||
Inception (5/1/98) | 3.72 | % | ||
10 Years | 7.38 | |||
5 Years | 7.83 | |||
1 Year | 13.27 | |||
Series II Shares | ||||
10 Years | 7.14 | % | ||
5 Years | 7.57 | |||
1 Year | 13.01 |
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 0.80% and 1.05%, 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 1.09% 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. 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 June 30, 2013. See current prospectus for more information. |
Invesco V.I. High Yield Fund
Schedule of Investments(a)
June 30, 2011
(Unaudited)
Principal | ||||||||
Amount | Value | |||||||
U.S. Dollar Denominated Bonds & Notes–88.13% | ||||||||
Aerospace & Defense–1.79% | ||||||||
Alliant Techsystems Inc., Sr. Unsec. Gtd. Sub. Notes, 6.88%, 09/15/20 | $ | 35,000 | $ | 36,488 | ||||
BE Aerospace, Inc., Sr. Unsec. Notes, 6.88%, 10/01/20 | 85,000 | 89,250 | ||||||
8.50%, 07/01/18 | 180,000 | 195,975 | ||||||
Bombardier Inc. (Canada), Sr. Notes, 7.50%, 03/15/18(b) | 30,000 | 33,713 | ||||||
7.75%, 03/15/20(b) | 230,000 | 259,900 | ||||||
Hexcel Corp., Sr. Unsec. Sub. Global Notes, 6.75%, 02/01/15 | 162,000 | 166,050 | ||||||
Huntington Ingalls Industries Inc., Sr. Unsec. Gtd. Notes, 6.88%, 03/15/18(b) | 65,000 | 66,787 | ||||||
7.13%, 03/15/21(b) | 95,000 | 97,731 | ||||||
Spirit Aerosystems Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 12/15/20 | 240,000 | 245,400 | ||||||
Triumph Group, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 8.00%, 11/15/17 | 320,000 | 339,200 | ||||||
1,530,494 | ||||||||
Airlines–2.99% | ||||||||
American Airlines Inc., Sr. Sec. Gtd. Notes, 7.50%, 03/15/16(b) | 115,000 | 112,988 | ||||||
American Airlines Pass Through Trust, Series 2011-1, Class B, Sec. Gtd. Pass Through Ctfs., 7.00%, 01/31/18(b) | 80,000 | 75,600 | ||||||
Continental Airlines Inc., | ||||||||
Series 2000-2, Class B, Sec. Sub. Pass Through Ctfs., 8.31%, 04/02/18 | 58,693 | 59,133 | ||||||
Series 2001-1, Class B, Sec. Sub. Pass Through Ctfs., 7.37%, 12/15/15 | 42,880 | 42,880 | ||||||
Series 2007-1, Class C, Sec. Sub. Global Pass Through Ctfs., 7.34%, 04/19/14 | 362,290 | 363,195 | ||||||
Series 2009-1, Sec. Pass Through Ctfs., 9.00%, 07/08/16 | 56,362 | 64,676 | ||||||
Series 2009-2, Class B, Sec. Global Pass Through Ctfs., 9.25%, 05/10/17 | 156,526 | 164,352 | ||||||
Delta Air Lines, Inc., Sec. Notes, 12.25%, 03/15/15(b) | 85,000 | 94,988 | ||||||
Sr. Sec. Notes, 9.50%, 09/15/14(b) | 251,000 | 268,570 | ||||||
Series 2002-1, Class C, Sec. Pass Through Ctfs., 7.78%, 01/02/12 | 9,495 | 9,447 | ||||||
Series 2007-1, Class C, Sec. Global Pass Through Ctfs., 8.95%, 08/10/14 | 128,746 | 132,608 | ||||||
Series 2010-1, Class B, Sec. Pass Through Ctfs., 6.38%, 01/02/16(b) | 85,000 | 82,450 | ||||||
Series 2010-2, Class B, Sec. Pass Through Ctfs., 6.75%, 11/23/15 | 125,000 | 118,750 | ||||||
UAL Corp., | ||||||||
Series 2007-1, Class A, Sec. Gtd. Global Pass Through Ctfs., 6.64%, 07/02/22 | 42,409 | 42,488 | ||||||
Series 2007-1, Class B, Sr. Sec. Gtd. Global Pass Through Ctfs., 7.34%, 07/02/19 | 119,072 | 114,309 | ||||||
Series 2009-1, Sr. Sec. Gtd. Global Pass Through Ctfs., 10.40%, 11/01/16 | 168,187 | 191,734 | ||||||
Series 2009-2, Class B, Sec. Gtd. Pass Through Ctfs., 12.00%, 01/15/16(b) | 228,951 | 251,847 | ||||||
Series 2009-2A, Sec. Gtd. Global Pass Through Ctfs., 9.75%, 01/15/17 | 138,428 | 158,500 | ||||||
US Airways, Series 1998-1, Class C, Sec. Pass Through Ctfs., 6.82%, 01/30/14 | 234,563 | 215,212 | ||||||
2,563,727 | ||||||||
Alternative Carriers–1.29% | ||||||||
Cogent Communications Group, Inc., Sr. Sec. Gtd. Notes, 8.38%, 02/15/18(b) | 395,000 | 407,837 | ||||||
Level 3 Communications Inc., Sr. Unsec. Notes, 11.88%, 02/01/19(b) | 245,000 | 268,275 | ||||||
Level 3 Escrow, Inc., Sr. Unsec. Notes, 8.13%, 07/01/19(b) | 95,000 | 96,188 | ||||||
Level 3 Financing Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 11/01/14 | 194,000 | 199,820 | ||||||
Sr. Unsec. Gtd. Notes, 9.38%, 04/01/19(b) | 125,000 | 130,937 | ||||||
1,103,057 | ||||||||
Aluminum–0.62% | ||||||||
Century Aluminum Co., Sr. Sec. Gtd. Sub. Notes, 8.00%, 05/15/14 | 510,630 | 527,545 | ||||||
Apparel Retail–1.15% | ||||||||
Brown Shoe Co., Inc., Sr. Unsec. Gtd. Notes, 7.13%, 05/15/19(b) | 50,000 | 48,250 | ||||||
Express LLC/Express Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.75%, 03/01/18 | 390,000 | 424,125 | ||||||
Gap, Inc. (The), Sr. Unsec. Notes, 5.95%, 04/12/21 | 135,000 | 130,781 | ||||||
J Crew Group, Inc., Sr. Notes, 8.13%, 03/01/19(b) | 160,000 | 156,000 | ||||||
Limited Brands Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 8.50%, 06/15/19 | 140,000 | 159,950 | ||||||
Sr. Unsec. Gtd. Notes, 6.63%, 04/01/21 | 40,000 | 41,000 | ||||||
7.00%, 05/01/20 | 25,000 | 26,375 | ||||||
986,481 | ||||||||
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–2.79% | ||||||||
Hanesbrands Inc., Sr. Unsec. Gtd. Global Notes, 6.38%, 12/15/20 | $ | 495,000 | $ | 481,388 | ||||
Jones Group Inc. (The), Sr. Unsec. Notes, 6.88%, 03/15/19 | 765,000 | 741,094 | ||||||
Levi Strauss & Co., Sr. Unsec. Global Notes, 7.63%, 05/15/20 | 525,000 | 527,625 | ||||||
Phillips-Van Heusen Corp., Sr. Unsec. Notes, 7.38%, 05/15/20 | 140,000 | 150,150 | ||||||
Quiksilver Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 04/15/15 | 505,000 | 491,112 | ||||||
2,391,369 | ||||||||
Auto Parts & Equipment–0.86% | ||||||||
Allison Transmission Inc., Sr. Unsec. Gtd Notes, 7.13%, 05/15/19(b) | 280,000 | 273,700 | ||||||
Dana Holding Corp., Sr. Unsec. Notes, 6.50%, 02/15/19 | 85,000 | 84,787 | ||||||
6.75%, 02/15/21 | 65,000 | 64,675 | ||||||
Tenneco Inc., Sr. Gtd. Global Notes, 6.88%, 12/15/20 | 190,000 | 193,800 | ||||||
Sr. Unsec. Gtd. Global Notes, 7.75%, 08/15/18 | 110,000 | 116,050 | ||||||
733,012 | ||||||||
Automobile Manufacturers–0.66% | ||||||||
Chrysler Group LLC/CG Co-Issuer Inc., Sr. Sec. Gtd. Notes, 8.00%, 06/15/19(b) | 200,000 | 196,500 | ||||||
Ford Motor Co., Sr. Unsec. Global Notes, 7.45%, 07/16/31 | 295,000 | 336,300 | ||||||
Motors Liquidation Corp., Sr. Unsec. Global Notes, 8.38%, 07/15/33* | 755,000 | 22,650 | ||||||
Sr. Unsec. Notes, 7.20%* | 445,000 | 13,350 | ||||||
568,800 | ||||||||
Biotechnology–0.29% | ||||||||
Giant Funding Corp., Sr. Sec. Notes, 8.25%, 02/01/18(b) | 70,000 | 71,925 | ||||||
Savient Pharmaceuticals Inc., Sr. Unsec. Conv. Notes, 4.75%, 02/01/18 | 90,000 | 90,112 | ||||||
STHI Holding Corp., Sec. Gtd. Notes, 8.00%, 03/15/18(b) | 85,000 | 86,700 | ||||||
248,737 | ||||||||
Broadcasting–0.49% | ||||||||
Allbritton Communications Co., Sr. Unsec. Global Notes, 8.00%, 05/15/18 | 130,000 | 132,600 | ||||||
Nielsen Finance LLC/Co., Sr. Unsec. Gtd. Notes, 7.75%, 10/15/18(b) | 270,000 | 284,850 | ||||||
417,450 | ||||||||
Building Products–4.52% | ||||||||
Associated Materials LLC, Sr. Sec. Gtd. Notes, 9.13%, 11/01/17(b) | 500,000 | 500,000 | ||||||
Building Materials Corp. of America, | ||||||||
Sr. Notes, 6.75%, 05/01/21(b) | 150,000 | 150,000 | ||||||
6.88%, 08/15/18(b) | 490,000 | 496,125 | ||||||
Sr. Sec. Gtd. Notes, 7.50%, 03/15/20(b) | 370,000 | 388,962 | ||||||
Gibraltar Industries Inc., Series B, Sr. Unsec. Gtd. Sub. Global Notes, 8.00%, 12/01/15 | 305,000 | 309,194 | ||||||
Nortek Inc., Sr. Gtd. Notes, 8.50%, 04/15/21(b) | 595,000 | 553,350 | ||||||
Sr. Unsec. Gtd. Notes, 10.00%, 12/01/18(b) | 140,000 | 141,750 | ||||||
Ply Gem Industries Inc., Sr. Sec. Gtd. Notes, 8.25%, 02/15/18(b) | 215,000 | 208,013 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 13.13%, 07/15/14 | 265,000 | 279,575 | ||||||
Roofing Supply Group LLC/Roofing Supply Finance Inc., Sr. Sec. Notes, 8.63%, 12/01/17(b) | 525,000 | 528,937 | ||||||
USG Corp., | ||||||||
Sr. Unsec. Gtd. Notes, 8.38%, 10/15/18(b) | 25,000 | 24,438 | ||||||
9.75%, 08/01/14(b) | 105,000 | 110,775 | ||||||
Sr. Unsec. Notes, 9.75%, 01/15/18 | 180,000 | 178,650 | ||||||
3,869,769 | ||||||||
Cable & Satellite–1.25% | ||||||||
Cablevision Systems Corp., Sr. Unsec. Global Notes, 8.63%, 09/15/17 | 135,000 | 146,644 | ||||||
CSC Holdings LLC, Sr. Unsec. Global Notes, 8.63%, 02/15/19 | 115,000 | 130,237 | ||||||
EH Holding Corp., Sr. Sec. Notes, 6.50%, 06/15/19(b) | 140,000 | 143,150 | ||||||
Sr. Unsec. Notes, 7.63%, 06/15/21(b) | 80,000 | 82,000 | ||||||
Kabel BW Erste Beteiligungs GmbH/Kabel Baden-Wurtlemberg GmbH & Co. KG (Germany), Sr. Sec. Gtd. Notes, 7.50%, 03/15/19(b) | 560,000 | 568,868 | ||||||
1,070,899 | ||||||||
Casinos & Gaming–5.87% | ||||||||
Ameristar Casinos Inc., Sr. Unsec. Gtd. Notes, 7.50%, 04/15/21(b) | 120,000 | 124,200 | ||||||
Boyd Gaming Corp., Sr. Notes, 9.13%, 12/01/18(b) | 35,000 | 36,050 | ||||||
Caesars Entertainment Operating Co. Inc., Sec. Global Notes, 12.75%, 04/15/18 | 265,000 | 265,662 | ||||||
Sec. Gtd. Global Notes, 10.00%, 12/15/18 | 80,000 | 72,600 | ||||||
Sr. Sec. Gtd. Global Notes, 11.25%, 06/01/17 | 346,000 | 384,060 | ||||||
Sr. Unsec. Gtd. Global Bonds, 5.63%, 06/01/15 | 389,000 | 317,035 | ||||||
CityCenter Holdings LLC/CityCenter Finance Corp., Sec. Gtd. PIK Notes, 10.75%, 01/15/17(b) | 70,000 | 76,038 | ||||||
Sr. Sec. Gtd. Notes, 7.63%, 01/15/16(b) | 15,000 | 15,525 | ||||||
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) | ||||||||
Great Canadian Gaming Corp. (Canada), Sr. Unsec. Gtd. Sub. Notes, 7.25%, 02/15/15(b) | $ | 245,000 | $ | 249,900 | ||||
Mandalay Resort Group, Sr. Unsec. Gtd. Sub. Notes, 7.63%, 07/15/13 | 200,000 | 197,000 | ||||||
MGM Resorts International, | ||||||||
Sr. Sec. Gtd. Global Notes, 9.00%, 03/15/20 | 50,000 | 55,000 | ||||||
Sr. Unsec. Gtd. Conv. Notes, 4.25%, 04/15/15 | 95,000 | 103,075 | ||||||
Sr. Unsec. Gtd. Global Notes, 6.63%, 07/15/15 | 393,000 | 373,350 | ||||||
6.75%, 04/01/13 | 405,000 | 407,025 | ||||||
Sr. Unsec. Gtd. Notes, 5.88%, 02/27/14 | 10,000 | 9,650 | ||||||
10.00%, 11/01/16(b) | 115,000 | 122,762 | ||||||
Midwest Gaming Borrower LLC/ Midwest Finance Corp., Sr. Sec. Notes, 11.63%, 04/15/16(b) | 45,000 | 47,813 | ||||||
Pinnacle Entertainment Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 08/01/17 | 265,000 | 284,875 | ||||||
Scientific Games Corp., Sr. Unsec. Gtd. Sub. Global Notes, 8.13%, 09/15/18 | 35,000 | 36,575 | ||||||
Scientific Games International Inc., Sr. Unsec. Gtd. Sub. Global Notes, 9.25%, 06/15/19 | 195,000 | 212,550 | ||||||
Seneca Gaming Corp., Sr. Unsec. Gtd. Notes, 8.25%, 12/01/18(b) | 95,000 | 98,563 | ||||||
Snoqualmie Entertainment Authority, Sr. Sec. Floating Rate Notes, 4.20%, 02/01/14(b)(c) | 300,000 | 273,000 | ||||||
Sr. Sec. Notes, 9.13%, 02/01/15(b) | 440,000 | 437,800 | ||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., | ||||||||
Sec. Gtd. First Mortgage Global Notes, 7.75%, 08/15/20 | 380,000 | 415,150 | ||||||
Sr. Sec. Gtd. First Mortgage Global Notes, 7.88%, 11/01/17 | 130,000 | 142,634 | ||||||
7.88%, 05/01/20 | 245,000 | 267,816 | ||||||
5,025,708 | ||||||||
Coal & Consumable Fuels–0.26% | ||||||||
Alpha Natural Resources Inc., Sr. Unsec. Gtd. Notes, 6.00%, 06/01/19 | 75,000 | 75,656 | ||||||
6.25%, 06/01/21 | 35,000 | 35,263 | ||||||
CONSOL Energy Inc., Sr. Unsec. Gtd. Global Notes, 8.00%, 04/01/17 | 35,000 | 38,237 | ||||||
8.25%, 04/01/20 | 70,000 | 76,300 | ||||||
225,456 | ||||||||
Communications Equipment–0.51% | ||||||||
Avaya Inc., Sr. Sec. Gtd. Notes, 7.00%, 04/01/19(b) | 385,000 | 365,750 | ||||||
CommScope Inc., Sr. Unsec. Gtd. Notes, 8.25%, 01/15/19(b) | 70,000 | 72,450 | ||||||
438,200 | ||||||||
Computer & Electronics Retail–0.09% | ||||||||
RadioShack Corp., Sr. Gtd. Notes, 6.75%, 05/15/19(b) | 25,000 | 24,250 | ||||||
Rent-A-Center Inc., Sr. Unsec. Gtd Global Notes, 6.63%, 11/15/20 | 50,000 | 50,000 | ||||||
74,250 | ||||||||
Computer Storage & Peripherals–0.53% | ||||||||
Seagate HDD Cayman (Cayman Islands), Sr. Unsec. Gtd. Notes, 6.88%, 05/01/20(b) | 90,000 | 88,875 | ||||||
7.00%, 11/01/21(b) | 365,000 | 362,262 | ||||||
451,137 | ||||||||
Construction & Engineering–1.48% | ||||||||
Dycom Investments Inc., Sr. Sub. Notes, 7.13%, 01/15/21(b) | 100,000 | 102,500 | ||||||
Great Lakes Dredge & Dock Corp., Sr. Unsec. Gtd. Notes, 7.38%, 02/01/19(b) | 70,000 | 69,475 | ||||||
MasTec, Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 02/01/17 | 455,000 | 466,375 | ||||||
Tutor Perini Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 11/01/18 | 650,000 | 625,625 | ||||||
1,263,975 | ||||||||
Construction & Farm Machinery & Heavy Trucks–1.35% | ||||||||
Case New Holland Inc., Sr. Notes, 7.88%, 12/01/17(b) | 215,000 | 238,112 | ||||||
CNH America LLC, Sr. Unsec. Gtd. Notes, 7.25%, 01/15/16 | 60,000 | 64,800 | ||||||
Commercial Vehicle Group, Inc., Sr. Sec. Gtd. Notes, 7.88%, 04/15/19(b) | 195,000 | 195,975 | ||||||
Manitowoc Co. Inc. (The), Sr. Unsec. Gtd. Notes, 8.50%, 11/01/20 | 105,000 | 112,875 | ||||||
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | 400,000 | 436,000 | ||||||
Titan International Inc., Sr. Sec. Gtd. Notes, 7.88%, 10/01/17(b) | 105,000 | 110,513 | ||||||
1,158,275 | ||||||||
Construction Materials–1.50% | ||||||||
Cemex Finance LLC, Sr. Sec. Gtd. Bonds, 9.50%, 12/14/16(b) | 295,000 | 307,678 | ||||||
Cemex S.A.B. de C.V. (Mexico), | ||||||||
Sr. Sec. Gtd. Notes, 9.00%, 01/11/18(b) | 200,000 | 204,779 | ||||||
Unsec. Sub. Conv. Notes, 4.88%, 03/15/15 | 100,000 | 99,625 | ||||||
Texas Industries Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 08/15/20 | 645,000 | 625,650 | ||||||
U.S. Concrete, Inc., Sr. Sec. Conv. Notes, 9.50%, 08/31/15(b) | 40,000 | 48,200 | ||||||
1,285,932 | ||||||||
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–1.67% | ||||||||
Ally Financial, Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/20 | $ | 260,000 | $ | 273,000 | ||||
8.00%, 03/15/20 | 335,000 | 361,800 | ||||||
8.00%, 11/01/31 | 216,000 | 234,900 | ||||||
Ford Motor Credit Co. LLC, Sr. Unsec. Notes, 8.00%, 12/15/16 | 245,000 | 277,463 | ||||||
National Money Mart Co. (Canada), Sr. Unsec. Gtd. Global Notes, 10.38%, 12/15/16 | 255,000 | 281,137 | ||||||
1,428,300 | ||||||||
Data Processing & Outsourced Services–0.89% | ||||||||
CoreLogic, Inc., Sr. Unsec. Gtd. Notes, 7.25%, 06/01/21(b) | 445,000 | 436,100 | ||||||
First Data Corp., Sr. Sec. Gtd. Notes, 7.38%, 06/15/19(b) | 135,000 | 136,687 | ||||||
SunGard Data Systems Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 11/15/18 | 65,000 | 64,838 | ||||||
7.63%, 11/15/20 | 123,000 | 124,537 | ||||||
762,162 | ||||||||
Department Stores–0.72% | ||||||||
Sears Holdings Corp., Sec. Gtd. Notes, 6.63%, 10/15/18(b) | 670,000 | 618,075 | ||||||
Distillers & Vintners–0.48% | ||||||||
CEDC Finance Corp. International, Inc., Sr. Sec. Gtd. Notes, 9.13%, 12/01/16(b) | 100,000 | 93,000 | ||||||
Constellation Brands Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 05/15/17 | 295,000 | 321,550 | ||||||
414,550 | ||||||||
Diversified Banks–0.13% | ||||||||
RBS Capital Trust II, Jr. Unsec. Gtd. Sub. Global Bonds, 6.43%(d)(e) | 150,000 | 107,813 | ||||||
Diversified Metals & Mining–0.61% | ||||||||
Midwest Vanadium Pty Ltd. (Australia), Sr. Sec. Gtd. Notes, 11.50%, 02/15/18(b) | 65,000 | 64,956 | ||||||
Mirabela Nickel Ltd. (Australia), Sr. Unsec. Gtd. Notes, 8.75%, 04/15/18(b) | 45,000 | 44,518 | ||||||
Taseko Mines Ltd. (Canada), Sr. Unsec. Gtd. Notes, 7.75%, 04/15/19 | 15,000 | 15,206 | ||||||
Thompson Creek Metals Co. Inc. (Canada), Sr. Unsec. Gtd. Notes, 7.38%, 06/01/18(b) | 80,000 | 78,800 | ||||||
Vedanta Resources PLC (United Kingdom), Sr. Unsec. Notes, 9.50%, 07/18/18(b) | 295,000 | 319,735 | ||||||
523,215 | ||||||||
Diversified Support Services–0.04% | ||||||||
Mobile Mini, Inc., Sr. Unsec. Gtd. Global Notes, 7.88%, 12/01/20 | 35,000 | 36,138 | ||||||
Electric Utilities–0.31% | ||||||||
LSP Energy L.P./LSP Batesville Funding Corp., | ||||||||
Series C, Sr. Sec. Mortgage Bonds, 7.16%, 01/15/14 | 74,408 | 60,270 | ||||||
Series D, Sr. Sec. Bonds, 8.16%, 07/15/25 | 275,000 | 200,750 | ||||||
261,020 | ||||||||
Electrical Components & Equipment–0.08% | ||||||||
Polypore International Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 11/15/17 | 65,000 | 69,063 | ||||||
Electronic Manufacturing Services–0.49% | ||||||||
Sanmina-SCI Corp., Sr. Unsec. Gtd. Notes, 7.00%, 05/15/19(b) | 440,000 | 418,000 | ||||||
Environmental & Facilities Services–0.35% | ||||||||
Clean Harbors Inc., Sr. Sec. Gtd. Notes, 7.63%, 08/15/16(b) | 155,000 | 165,850 | ||||||
EnergySolutions Inc./LLC, Sr. Unsec. Gtd. Global Notes, 10.75%, 08/15/18 | 125,000 | 134,375 | ||||||
300,225 | ||||||||
Food Retail–0.46% | ||||||||
New Albertsons Inc., Sr. Unsec. Bonds, 8.00%, 05/01/31 | 205,000 | 176,813 | ||||||
Simmons Foods Inc., Sec. Notes, 10.50%, 11/01/17(b) | 205,000 | 217,812 | ||||||
394,625 | ||||||||
Forest Products–0.29% | ||||||||
Millar Western Forest Products Ltd. (Canada), Sr. Notes, 8.50%, 04/01/21(b) | 260,000 | 235,625 | ||||||
Sino-Forest Corp. (Canada), Sr. Unsec. Gtd. Notes, 6.25%, 10/21/17(b) | 30,000 | 13,950 | ||||||
249,575 | ||||||||
Gas Utilities–0.55% | ||||||||
Ferrellgas L.P./Ferrellgas Finance Corp., Sr. Unsec. Notes, 6.50%, 05/01/21(b) | 240,000 | 226,800 | ||||||
Suburban Propane Partners, L.P./Suburban Energy Finance Corp., Sr. Unsec. Notes, 7.38%, 03/15/20 | 235,000 | 245,575 | ||||||
472,375 | ||||||||
Health Care Equipment–0.52% | ||||||||
DJO Finance LLC/Corp., Sr. Unsec. Gtd. Global Notes, 10.88%, 11/15/14 | 195,000 | 207,675 | ||||||
Sr. Unsec. Gtd. Notes, 7.75%, 04/15/18(b) | 35,000 | 35,438 | ||||||
Sr. Unsec. Gtd. Sub. Notes, 9.75%, 10/15/17(b) | 130,000 | 131,625 | ||||||
Hanger Orthopedic Group Inc., Sr. Unsec. Gtd. Global Notes, 7.13%, 11/15/18 | 65,000 | 66,462 | ||||||
441,200 | ||||||||
Health Care Facilities–2.17% | ||||||||
HCA, Inc., Sr. Sec. Gtd. Global Notes, 7.88%, 02/15/20 | 288,000 | 314,640 | ||||||
Sr. Unsec. Notes, 7.19%, 11/15/15 | 155,000 | 158,100 | ||||||
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–(continued) | ||||||||
Health Management Associates Inc., Sr. Sec. Gtd. Notes, 6.13%, 04/15/16 | $ | 85,000 | $ | 88,188 | ||||
Healthsouth Corp., Sr. Unsec. Gtd. Notes, 7.25%, 10/01/18 | 90,000 | 94,275 | ||||||
7.75%, 09/15/22 | 85,000 | 89,462 | ||||||
8.13%, 02/15/20 | 90,000 | 97,200 | ||||||
Select Medical Holdings Corp., Sr. Unsec. Floating Rate Global Notes, 6.21%, 09/15/15(c) | 155,000 | 149,575 | ||||||
Tenet Healthcare Corp., | ||||||||
Sr. Sec. Gtd. Global Notes, 10.00%, 05/01/18 | 180,000 | 203,850 | ||||||
Sr. Unsec. Global Notes, 8.00%, 08/01/20 | 60,000 | 61,500 | ||||||
9.25%, 02/01/15 | 545,000 | 598,819 | ||||||
1,855,609 | ||||||||
Health Care Services–0.65% | ||||||||
DaVita Inc., Sr. Unsec. Gtd. Notes, 6.38%, 11/01/18 | 65,000 | 65,488 | ||||||
Radnet Management Inc., Sr. Unsec. Gtd. Global Notes, 10.38%, 04/01/18 | 225,000 | 230,625 | ||||||
Universal Hospital Services Inc., Sec. Global Notes, 8.50%, 06/01/15 | 250,000 | 257,812 | ||||||
553,925 | ||||||||
Health Care Supplies–0.16% | ||||||||
Alere Inc., Sr. Unsec. Gtd. Sub. Notes, 9.00%, 05/15/16 | 135,000 | 141,075 | ||||||
Health Care Technology–0.39% | ||||||||
MedAssets Inc., Sr. Unsec. Gtd. Notes, 8.00%, 11/15/18(b) | 330,000 | 333,300 | ||||||
Home Furnishings–0.35% | ||||||||
American Standard Americas, Sr. Sec. Notes, 10.75%, 01/15/16(b) | 310,000 | 302,250 | ||||||
Homebuilding–0.73% | ||||||||
Beazer Homes USA Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 07/15/15 | 110,000 | 96,250 | ||||||
8.13%, 06/15/16 | 300,000 | 262,875 | ||||||
K. Hovnanian Enterprises Inc., Sr. Sec. Gtd. Global Notes, 10.63%, 10/15/16 | 120,000 | 120,000 | ||||||
M/I Homes Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 11/15/18 | 95,000 | 94,762 | ||||||
Standard Pacific Corp., Sr. Sec. Gtd. Notes, 8.38%, 05/15/18 | 55,000 | 54,863 | ||||||
628,750 | ||||||||
Hotels, Resorts & Cruise Lines–0.53% | ||||||||
Royal Caribbean Cruises Ltd., Sr. Unsec. Global Notes, 7.25%, 03/15/18 | 85,000 | 91,906 | ||||||
7.50%, 10/15/27 | 140,000 | 142,450 | ||||||
Starwood Hotels & Resorts Worldwide, Inc., Sr. Unsec. Notes, 7.15%, 12/01/19 | 165,000 | 184,800 | ||||||
Wyndham Worldwide Corp., Sr. Unsec. Notes, 5.63%, 03/01/21 | 35,000 | 35,219 | ||||||
454,375 | ||||||||
Household Products–0.39% | ||||||||
Central Garden and Pet Co., Sr. Gtd. Sub. Notes, 8.25%, 03/01/18 | 325,000 | 337,187 | ||||||
Housewares & Specialties–0.03% | ||||||||
Jarden Corp., Sr. Unsec. Gtd. Notes, 6.13%, 11/15/22 | 25,000 | 24,938 | ||||||
Independent Power Producers & Energy Traders–0.93% | ||||||||
AES Corp. (The), Sr. Unsec. Global Notes, 7.75%, 10/15/15 | 340,000 | 367,200 | ||||||
8.00%, 10/15/17 | 190,000 | 203,300 | ||||||
AES Red Oak LLC, Series A, Sr. Sec. Bonds, 8.54%, 11/30/19 | 219,717 | 227,408 | ||||||
797,908 | ||||||||
Industrial Conglomerates–0.00% | ||||||||
Indalex Holding Corp., Series B, Sec. Gtd. Global Notes, 11.50%, 02/01/14(f) | 230,000 | 2,013 | ||||||
Industrial Machinery–0.64% | ||||||||
Cleaver-Brooks Inc., Sr. Sec. Notes, 12.25%, 05/01/16(b) | 305,000 | 319,869 | ||||||
Columbus McKinnon Corp., Sr. Unsec. Gtd. Sub. Global Notes, 7.88%, 02/01/19 | 25,000 | 25,438 | ||||||
Mueller Water Products Inc., Sr. Unsec. Gtd. Global Notes, 8.75%, 09/01/20 | 40,000 | 43,800 | ||||||
SPX Corp., Sr. Unsec. Gtd. Notes, 6.88%, 09/01/17(b) | 145,000 | 155,512 | ||||||
544,619 | ||||||||
Industrial REIT’s–0.13% | ||||||||
DuPont Fabros Technology L.P., Sr. Unsec. Gtd. Global Notes, 8.50%, 12/15/17 | 100,000 | 109,250 | ||||||
Integrated Telecommunication Services–1.36% | ||||||||
Integra Telecom Holdings, Inc., Sr. Sec. Notes, 10.75%, 04/15/16(b) | 200,000 | 203,500 | ||||||
Intelsat Jackson Holdings S.A. (Luxembourg), Sr. Unsec. Gtd. Notes, 7.25%, 04/01/19(b) | 130,000 | 129,675 | ||||||
7.25%, 10/15/20(b) | 470,000 | 468,825 | ||||||
7.50%, 04/01/21(b) | 360,000 | 359,100 | ||||||
1,161,100 | ||||||||
Internet Retail–0.30% | ||||||||
Travelport LLC, Sr. Unsec. Gtd. Global Notes, 9.88%, 09/01/14 | 105,000 | 97,650 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Internet Retail–(continued) | ||||||||
Travelport LLC/Inc., Sr. Unsec. Gtd. Global Notes, 9.00%, 03/01/16 | $ | 175,000 | $ | 154,875 | ||||
252,525 | ||||||||
Internet Software & Services–0.33% | ||||||||
Equinix Inc., Sr. Unsec. Notes, 8.13%, 03/01/18 | 255,000 | 279,225 | ||||||
Investment Banking & Brokerage–0.85% | ||||||||
Cantor Fitzgerald L.P., Bonds, 7.88%, 10/15/19(b) | 325,000 | 356,000 | ||||||
E*Trade Financial Corp., Sr. Unsec. Notes, 6.75%, 06/01/16 | 100,000 | 98,625 | ||||||
7.88%, 12/01/15 | 275,000 | 276,375 | ||||||
731,000 | ||||||||
Leisure Facilities–0.08% | ||||||||
Speedway Motorsports Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 02/01/19 | 70,000 | 70,175 | ||||||
Leisure Products–0.05% | ||||||||
Toys R US-Delaware Inc., Sr. Sec. Gtd. Notes, 7.38%, 09/01/16(b) | 40,000 | 40,600 | ||||||
Life Sciences Tools & Services–0.23% | ||||||||
Patheon Inc. (Canada), Sr. Sec. Gtd. Notes, 8.63%, 04/15/17(b) | 190,000 | 192,850 | ||||||
Marine–0.32% | ||||||||
CMA CGM S.A. (France), Sr. Unsec. Notes, 8.50%, 04/15/17(b) | 150,000 | 126,563 | ||||||
Navios Maritime Acquisition Corp./Navios Acquisition Finance US Inc. (Greece), Sr. Sec. Gtd. Notes, 8.63%, 11/01/17(b) | 40,000 | 40,944 | ||||||
Stena A.B. (Sweden), Sr. Unsec. Global Notes, 7.00%, 12/01/16 | 105,000 | 103,031 | ||||||
270,538 | ||||||||
Metal & Glass Containers–0.08% | ||||||||
Ball Corp., Sr. Unsec. Gtd. Notes, 5.75%, 05/15/21 | 65,000 | 65,488 | ||||||
Movies & Entertainment–1.47% | ||||||||
AMC Entertainment Inc., Sr. Unsec. Gtd. Global Notes, 8.75%, 06/01/19 | 210,000 | 222,337 | ||||||
Sr. Unsec. Gtd. Sub. Notes, 9.75%, 12/01/20(b) | 400,000 | 406,000 | ||||||
Cinemark USA Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 06/15/19 | 155,000 | 170,500 | ||||||
NAI Entertainment Holdings LLC, Sr. Sec. Notes, 8.25%, 12/15/17(b) | 430,000 | 463,325 | ||||||
1,262,162 | ||||||||
Multi-Line Insurance–2.75% | ||||||||
American International Group, Inc., Jr. Sub. Global Deb., 8.18%, 05/15/58 | 380,000 | 416,100 | ||||||
Fairfax Financial Holdings Ltd. (Canada), Sr. Notes, 5.80%, 05/15/21(b) | 255,000 | 246,713 | ||||||
Hartford Financial Services Group Inc. (The), Jr. Unsec. Sub. Deb., 8.13%, 06/15/38 | 175,000 | 187,847 | ||||||
Sr. Unsec. Global Notes, 5.95%, 10/15/36 | 90,000 | 85,082 | ||||||
Liberty Mutual Group Inc., Jr. Unsec. Gtd. Sub. Bonds, 7.80%, 03/15/37(b) | 495,000 | 492,525 | ||||||
Sr. Unsec. Gtd. Notes, 5.00%, 06/01/21(b) | 260,000 | 249,065 | ||||||
Nationwide Mutual Insurance Co., Sub. Notes, 9.38%, 08/15/39(b) | 545,000 | 680,397 | ||||||
2,357,729 | ||||||||
Multi-Sector Holdings–0.45% | ||||||||
Reynolds Group Issuer Inc./LLC/Luxembourg S.A., Sr. Sec. Gtd. Notes, 7.13%, 04/15/19(b) | 200,000 | 199,500 | ||||||
Sr. Unsec. Gtd. Notes, 8.25%, 02/15/21(b) | 200,000 | 188,000 | ||||||
387,500 | ||||||||
Multi-Utilities–0.00% | ||||||||
CMS Energy Corp., Sr. Unsec. Notes, 6.30%, 02/01/12 | 3,329 | 3,412 | ||||||
Office Services & Supplies–0.35% | ||||||||
IKON Office Solutions, Inc., Sr. Unsec. Notes, 6.75%, 12/01/25 | 265,000 | 261,025 | ||||||
Interface Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 12/01/18 | 35,000 | 36,794 | ||||||
297,819 | ||||||||
Oil & Gas Drilling–0.18% | ||||||||
Precision Drilling Corp. (Canada), Sr. Unsec. Gtd. Global Notes, 6.63%, 11/15/20 | 150,000 | 153,375 | ||||||
Oil & Gas Equipment & Services–0.96% | ||||||||
Bristow Group, Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/17 | 300,000 | 314,625 | ||||||
Calfrac Holdings L.P., Sr. Unsec. Notes, 7.50%, 12/01/20(b) | 70,000 | 71,225 | ||||||
Key Energy Services, Inc., Sr. Unsec. Gtd. Notes, 6.75%, 03/01/21 | 295,000 | 292,603 | ||||||
SESI, LLC, Sr. Unsec. Gtd. Notes, 6.38%, 05/01/19(b) | 145,000 | 142,100 | ||||||
820,553 | ||||||||
Oil & Gas Exploration & Production–7.28% | ||||||||
Berry Petroleum Co., Sr. Unsec. Notes, 6.75%, 11/01/20 | 95,000 | 95,950 | ||||||
Brigham Exploration Co., Sr. Unsec. Gtd. Notes, 6.88%, 06/01/19(b) | 40,000 | 39,900 | ||||||
Chaparral Energy Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 09/01/21 | 360,000 | 366,300 | ||||||
8.88%, 02/01/17 | 295,000 | 303,850 | ||||||
Chesapeake Energy Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 11/15/20 | 230,000 | 244,375 | ||||||
Sr. Unsec. Gtd. Notes, 6.13%, 02/15/21 | 185,000 | 188,006 | ||||||
Cimarex Energy Co., Sr. Unsec. Gtd. Notes, 7.13%, 05/01/17 | 125,000 | 131,719 | ||||||
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–(continued) | ||||||||
Concho Resources Inc., Sr. Unsec. Gtd. Notes, 6.50%, 01/15/22 | $ | 95,000 | $ | 95,713 | ||||
7.00%, 01/15/21 | 60,000 | 61,500 | ||||||
Continental Resources, Inc., Sr. Unsec. Gtd. Global Notes, 7.13%, 04/01/21 | 85,000 | 89,994 | ||||||
7.38%, 10/01/20 | 230,000 | 244,663 | ||||||
8.25%, 10/01/19 | 130,000 | 142,188 | ||||||
Delta Petroleum Corp., Sr. Unsec. Gtd. Sub. Global Notes, 7.00%, 04/01/15 | 525,000 | 404,250 | ||||||
EXCO Resources, Inc., Sr. Unsec. Gtd. Notes, 7.50%, 09/15/18 | 550,000 | 536,250 | ||||||
Forest Oil Corp., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/15/19 | 370,000 | 378,787 | ||||||
Harvest Operations Corp. (Canada), Sr. Unsec. Gtd. Notes, 6.88%, 10/01/17(b) | 210,000 | 217,350 | ||||||
McMoRan Exploration Co., Sr. Unsec. Gtd. Notes, 11.88%, 11/15/14 | 190,000 | 206,150 | ||||||
Newfield Exploration Co., Sr. Unsec. Sub. Global Notes, 7.13%, 05/15/18 | 120,000 | 127,800 | ||||||
OGX Petroleo e Gas Participacoes S.A. (Brazil), Sr. Unsec. Gtd. Notes, 8.50%, 06/01/18(b) | 260,000 | 266,582 | ||||||
Petrohawk Energy Corp., Sr. Unsec. Gtd. Global Notes, 7.25%, 08/15/18 | 425,000 | 436,687 | ||||||
Sr. Unsec. Gtd. Notes, 6.25%, 06/01/19(b) | 335,000 | 326,625 | ||||||
Pioneer Natural Resources Co., Sr. Unsec. Notes, 6.65%, 03/15/17 | 235,000 | 257,325 | ||||||
Plains Exploration & Production Co., Sr. Unsec. Gtd. Notes, 6.63%, 05/01/21 | 85,000 | 85,425 | ||||||
7.63%, 06/01/18 | 250,000 | 263,750 | ||||||
8.63%, 10/15/19 | 100,000 | 108,500 | ||||||
Range Resources Corp., Sr. Unsec. Gtd. Sub. Notes, 5.75%, 06/01/21 | 340,000 | 334,475 | ||||||
SM Energy Co., Sr. Unsec. Notes, 6.63%, 02/15/19(b) | 140,000 | 140,700 | ||||||
Whiting Petroleum Corp., Sr. Unsec. Gtd. Sub. Notes, 6.50%, 10/01/18 | 140,000 | 143,325 | ||||||
6,238,139 | ||||||||
Oil & Gas Refining & Marketing–0.75% | ||||||||
Tesoro Corp., Sr. Unsec. Gtd. Global Bonds, 6.50%, 06/01/17 | 80,000 | 81,700 | ||||||
United Refining Co., Sr. Sec. Gtd. Global Notes, 10.50%, 02/28/18 | 560,000 | 561,400 | ||||||
643,100 | ||||||||
Oil & Gas Storage & Transportation–2.15% | ||||||||
Chesapeake Midstream Partners L.P./CHKM Finance Corp., Sr. Unsec. Gtd. Notes, 5.88%, 04/15/21(b) | 115,000 | 113,562 | ||||||
Copano Energy LLC/Copano Energy Finance Corp., Sr. Unsec. Gtd. Notes, 7.13%, 04/01/21 | 310,000 | 308,450 | ||||||
Inergy L.P./Inergy Finance Corp., Sr. Unsec. Gtd. Notes, 6.88%, 08/01/21(b) | 175,000 | 175,219 | ||||||
MarkWest Energy Partners L.P./MarkWest Energy Finance Corp., Sr. Unsec. Gtd. Notes, 6.75%, 11/01/20 | 95,000 | 96,900 | ||||||
Series B, Sr. Unsec. Gtd. Global Notes, 8.75%, 04/15/18 | 375,000 | 408,281 | ||||||
Overseas Shipholding Group, Inc., Sr. Unsec. Notes, 8.13%, 03/30/18 | 375,000 | 369,375 | ||||||
Targa Resources Partners L.P./Targa Resources Partners Finance Corp., Sr. Unsec. Gtd. Notes, 6.88%, 02/01/21(b) | 275,000 | 262,625 | ||||||
Teekay Corp. (Canada), Sr. Unsec. Global Notes, 8.50%, 01/15/20 | 105,000 | 109,200 | ||||||
1,843,612 | ||||||||
Other Diversified Financial Services–1.67% | ||||||||
International Lease Finance Corp., | ||||||||
Sr. Sec. Notes, 6.75%, 09/01/16(b) | 200,000 | 212,375 | ||||||
7.13%, 09/01/18(b) | 200,000 | 213,500 | ||||||
Sr. Unsec. Global Notes, 5.75%, 05/15/16 | 65,000 | 64,147 | ||||||
6.25%, 05/15/19 | 100,000 | 98,000 | ||||||
8.63%, 09/15/15 | 490,000 | 533,794 | ||||||
8.75%, 03/15/17 | 120,000 | 131,625 | ||||||
Sr. Unsec. Notes, 8.25%, 12/15/20 | 110,000 | 119,762 | ||||||
Series R, Sr. Unsec. Medium-Term Notes, 5.65%, 06/01/14 | 60,000 | 60,450 | ||||||
1,433,653 | ||||||||
Packaged Foods & Meats–0.41% | ||||||||
Chiquita Brands International, Inc., Sr. Unsec. Global Notes, 8.88%, 12/01/15 | 105,000 | 108,281 | ||||||
Del Monte Foods Co., Sr. Unsec. Gtd. Notes, 7.63%, 02/15/19(b) | 180,000 | 182,700 | ||||||
Dole Food Co. Inc., Sr. Sec. Gtd. Notes, 8.00%, 10/01/16(b) | 60,000 | 63,150 | ||||||
354,131 | ||||||||
Paper Packaging–0.31% | ||||||||
Cascades Inc., Sr. Unsec. Gtd. Global Notes, 7.88%, 01/15/20 | 250,000 | 261,250 | ||||||
Paper Products–1.63% | ||||||||
Boise Cascade LLC, Sr. Unsec. Gtd. Sub. Global Notes, 7.13%, 10/15/14 | 750,000 | 744,375 | ||||||
Clearwater Paper Corp., Sr. Unsec. Gtd. Global Notes, 7.13%, 11/01/18 | 225,000 | 231,187 | ||||||
Mercer International Inc., Sr. Unsec. Gtd. Global Notes, 9.50%, 12/01/17 | 205,000 | 221,400 | ||||||
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 Products–(continued) | ||||||||
P.H. Glatfelter Co., Sr. Unsec. Gtd. Global Notes, | ||||||||
7.13%, 05/01/16 | $ | 90,000 | $ | 93,038 | ||||
7.13%, 05/01/16 | 105,000 | 108,544 | ||||||
1,398,544 | ||||||||
Personal Products–0.22% | ||||||||
Elizabeth Arden Inc., Sr. Unsec. Global Notes, 7.38%, 03/15/21 | 40,000 | 41,800 | ||||||
NBTY Inc., Sr. Unsec. Gtd. Notes, 9.00%, 10/01/18(b) | 90,000 | 94,612 | ||||||
Sabra Health Care L.P./Sabra Capital Corp., Sr. Unsec. Gtd. Global Notes, 8.13%, 11/01/18 | 50,000 | 50,063 | ||||||
186,475 | ||||||||
Pharmaceuticals–0.85% | ||||||||
Aptalis Pharma Inc., Sr. Unsec. Gtd. Global Notes, 12.75%, 03/01/16 | 95,000 | 104,381 | ||||||
Elan Finance PLC/Corp. (Ireland), Sr. Unsec. Gtd. Global Notes, 8.75%, 10/15/16 | 105,000 | 111,825 | ||||||
Sr. Unsec. Gtd. Notes, 8.75%, 10/15/16(b) | 100,000 | 106,500 | ||||||
Endo Pharmaceuticals Holdings Inc., Sr. Unsec. Gtd. Notes, 7.00%, 12/15/20(b) | 30,000 | 30,600 | ||||||
Mylan Inc., Sr. Unsec. Gtd. Notes, 6.00%, 11/15/18(b) | 135,000 | 137,700 | ||||||
Valeant Pharmaceuticals International, Sr. Unsec. Gtd. Notes, 6.75%, 10/01/17(b) | 85,000 | 83,194 | ||||||
6.75%, 08/15/21(b) | 135,000 | 127,912 | ||||||
7.00%, 10/01/20(b) | 30,000 | 28,875 | ||||||
730,987 | ||||||||
Property & Casualty Insurance–0.48% | ||||||||
QBE Capital Funding III Ltd. (Botswana), Unsec. Sub. Gtd. Variable Rate Notes, 7.25%, 05/24/41(b)(c) | 200,000 | 198,500 | ||||||
XL Group PLC (Ireland), Series E, Jr. Sub. Global Pfd. Bonds, 6.50%(e) | 225,000 | 208,125 | ||||||
406,625 | ||||||||
Publishing–0.03% | ||||||||
MediMedia USA Inc., Sr. Sub. Notes, 11.38%, 11/15/14(b) | 30,000 | 26,025 | ||||||
Railroads–0.35% | ||||||||
Kansas City Southern de Mexico S.A. de C.V. (Mexico), | ||||||||
Sr. Unsec. Global Notes, 8.00%, 02/01/18 | 255,000 | 278,930 | ||||||
Sr. Unsec. Notes, 6.13%, 06/15/21(b) | 20,000 | 20,116 | ||||||
299,046 | ||||||||
Real Estate Services–0.26% | ||||||||
CB Richard Ellis Services Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 10/15/20 | 215,000 | 221,987 | ||||||
Regional Banks–1.63% | ||||||||
AmSouth Bancorp., Unsec. Sub. Deb., 6.75%, 11/01/25 | 75,000 | 66,938 | ||||||
BB&T Capital Trust II, Jr. Unsec. Gtd. Sub. Global Notes, 6.75%, 06/07/36 | 180,000 | 180,464 | ||||||
Regions Financial Corp., Unsec. Sub. Notes, 7.38%, 12/10/37 | 465,000 | 439,425 | ||||||
Susquehanna Capital II, Jr. Ltd. Gtd. Sub. Notes, 11.00%, 03/23/40 | 175,000 | 188,527 | ||||||
Synovus Financial Corp., Unsec. Sub. Global Notes, 5.13%, 06/15/17 | 310,000 | 275,900 | ||||||
Zions Bancorp., Unsec. Sub. Notes, 6.00%, 09/15/15 | 235,000 | 243,812 | ||||||
1,395,066 | ||||||||
Research & Consulting Services–0.32% | ||||||||
FTI Consulting Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 10/01/20 | 275,000 | 277,062 | ||||||
Semiconductor Equipment–0.76% | ||||||||
Amkor Technology Inc., Sr. Unsec. Global Notes, 7.38%, 05/01/18 | 285,000 | 292,837 | ||||||
Sr. Unsec. Notes, 6.63%, 06/01/21(b) | 210,000 | 204,750 | ||||||
Sensata Technologies B.V. (Netherlands), Sr. Unsec. Gtd. Notes, 6.50%, 05/15/19(b) | 150,000 | 149,240 | ||||||
646,827 | ||||||||
Semiconductors–0.87% | ||||||||
Freescale Semiconductor Inc., Sr. Sec. Gtd. Notes, 9.25%, 04/15/18(b) | 125,000 | 135,625 | ||||||
Sr. Unsec. Gtd. Notes, 8.05%, 02/01/20(b) | 325,000 | 326,625 | ||||||
10.75%, 08/01/20(b) | 245,000 | 279,300 | ||||||
741,550 | ||||||||
Specialized Consumer Services–0.05% | ||||||||
Carriage Services Inc., Sr. Unsec. Gtd. Global Notes, 7.88%, 01/15/15 | 45,000 | 45,225 | ||||||
Specialized Finance–0.91% | ||||||||
CIT Group Inc., Sec. Bonds, 7.00%, 05/02/17(b) | 570,000 | 567,863 | ||||||
Sec. Gtd. Notes, 6.63%, 04/01/18(b) | 205,000 | 214,609 | ||||||
782,472 | ||||||||
Specialized REIT’s–0.71% | ||||||||
Host Hotels & Resorts L.P., | ||||||||
Sr. Gtd. Global Notes, 6.00%, 11/01/20 | 205,000 | 205,256 | ||||||
Sr. Notes, 5.88%, 06/15/19(b) | 55,000 | 55,275 | ||||||
MPT Operating Partnership L.P./MPT Finance Corp., Sr. Unsec. Gtd. Notes, 6.88%, 05/01/21(b) | 200,000 | 197,023 | ||||||
OMEGA Healthcare Investors Inc., Sr. Unsec. Gtd. Notes, 6.75%, 10/15/22(b) | 155,000 | 153,450 | ||||||
611,004 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal | �� | |||||||
Amount | Value | |||||||
Specialty Chemicals–1.02% | ||||||||
Ferro Corp., Sr. Unsec. Notes, 7.88%, 08/15/18 | $ | 260,000 | $ | 270,400 | ||||
Nalco Co., Sr. Unsec. Gtd. Notes, 6.63%, 01/15/19(b) | 65,000 | 66,463 | ||||||
NewMarket Corp., Sr. Unsec. Gtd. Global Notes, 7.13%, 12/15/16 | 150,000 | 157,031 | ||||||
PolyOne Corp., Sr. Unsec. Notes, 7.38%, 09/15/20 | 360,000 | 380,250 | ||||||
874,144 | ||||||||
Specialty Stores–0.32% | ||||||||
Michaels Stores Inc., Sr. Unsec. Gtd. Notes, 7.75%, 11/01/18(b) | 135,000 | 134,663 | ||||||
Sr. Unsec. Gtd. Sub. Disc. Global Notes, 13.00%, 11/01/16(g) | 135,000 | 140,062 | ||||||
274,725 | ||||||||
Steel–0.95% | ||||||||
AK Steel Corp., Sr. Unsec. Gtd. Notes, 7.63%, 05/15/20 | 285,000 | 293,550 | ||||||
APERAM (Luxembourg), Sr. Unsec. Notes, 7.38%, 04/01/16(b) | 150,000 | 150,243 | ||||||
FMG Resources Pty Ltd. (Australia), Sr. Unsec. Gtd. Notes, 6.38%, 02/01/16(b) | 175,000 | 175,439 | ||||||
United States Steel Corp., Sr. Unsec. Notes, 7.00%, 02/01/18 | 190,000 | 193,325 | ||||||
812,557 | ||||||||
Systems Software–1.26% | ||||||||
Allen Systems Group Inc., Sec. Gtd. Notes, 10.50%, 11/15/16(b) | 615,000 | 621,150 | ||||||
Vangent Inc., Sr. Unsec. Gtd. Sub. Global Notes, 9.63%, 02/15/15 | 455,000 | 461,825 | ||||||
1,082,975 | ||||||||
Tires & Rubber–0.43% | ||||||||
Cooper Tire & Rubber Co., Sr. Unsec. Notes, 8.00%, 12/15/19 | 350,000 | 371,875 | ||||||
Trading Companies & Distributors–1.93% | ||||||||
Avis Budget Car Rental LLC/Avis Budget Finance Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 01/15/19 | 370,000 | 375,550 | ||||||
H&E Equipment Services Inc., Sr. Unsec. Gtd. Global Notes, 8.38%, 07/15/16 | 485,000 | 497,125 | ||||||
Hertz Corp. (The), | ||||||||
Sr. Unsec. Gtd. Global Notes, 8.88%, 01/01/14 | 2,569 | 2,633 | ||||||
Sr. Unsec. Gtd. Notes, 6.75%, 04/15/19(b) | 135,000 | 132,975 | ||||||
7.38%, 01/15/21(b) | 285,000 | 289,987 | ||||||
7.50%, 10/15/18(b) | 130,000 | 133,575 | ||||||
Interline Brands, Inc., Sr. Unsec. Gtd. Global Notes, 7.00%, 11/15/18 | 105,000 | 106,575 | ||||||
RSC Equipment Rental Inc./RSC Holdings III LLC, Sr. Unsec. Gtd. Global Notes, 8.25%, 02/01/21 | 110,000 | 110,413 | ||||||
1,648,833 | ||||||||
Wireless Telecommunication Services–5.84% | ||||||||
Clearwire Communications LLC/Clearwire Finance, Inc., | ||||||||
Sr. Sec. Gtd. Notes, 12.00%, 12/01/15(b) | 610,000 | 658,800 | ||||||
Sr. Unsec. Gtd. Conv. Notes, 8.25%, 12/01/17(b)(h) | 60,000 | 53,550 | ||||||
Cricket Communications, Inc., Sr. Notes, 7.75%, 10/15/20(b) | 120,000 | 116,400 | ||||||
Sr. Sec. Gtd. Global Notes, 7.75%, 05/15/16 | 225,000 | 238,781 | ||||||
Sr. Unsec. Gtd. Global Notes, 7.75%, 10/15/20 | 420,000 | 412,650 | ||||||
Digicel Group Ltd. (Bermuda), Sr. Unsec. Notes, 8.88%, 01/15/15(b) | 100,000 | 102,375 | ||||||
Digicel Ltd. (Bermuda), Sr. Unsec. Notes, 8.25%, 09/01/17(b) | 255,000 | 267,113 | ||||||
MetroPCS Wireless Inc., Sr. Unsec. Gtd. Notes, 6.63%, 11/15/20 | 235,000 | 231,475 | ||||||
7.88%, 09/01/18 | 190,000 | 201,044 | ||||||
SBA Telecommunications Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 08/15/19 | 240,000 | 256,500 | ||||||
Sprint Capital Corp., Sr. Unsec. Gtd. Global Notes, 6.90%, 05/01/19 | 700,000 | 725,375 | ||||||
Sprint Nextel Corp., Sr. Unsec. Notes, 8.38%, 08/15/17 | 560,000 | 614,600 | ||||||
VimpelCom (Ireland), Sec. Notes, 7.75%, 02/02/21(b) | 400,000 | 411,170 | ||||||
Wind Acquisition Finance S.A. (Luxembourg), Sr. Sec. Gtd. Notes, 11.75%, 07/15/17(b) | 625,000 | 712,125 | ||||||
5,001,958 | ||||||||
Total U.S. Dollar Denominated Bonds & Notes (Cost $73,136,073) | 75,471,706 | |||||||
Non-U.S. Dollar Denominated Bonds & Notes–13.08%(i) | ||||||||
Belgium–0.48% | ||||||||
Ontex IV S.A., Sr. Unsec. Gtd. Notes, 9.00%, 04/15/19(b) | EUR | 300,000 | 410,157 | |||||
Canada–0.25% | ||||||||
Gateway Casinos & Entertainment Ltd., Sec. Gtd. Notes, 8.88%, 11/15/17(b) | CAD | 200,000 | 220,085 | |||||
Croatia–0.36% | ||||||||
Agrokor D.D., Sr. Unsec. Gtd. Medium-Term Euro Notes, 10.00%, 12/07/16 | EUR | 205,000 | 310,755 | |||||
Czech Republic–0.21% | ||||||||
CET 21 spol sro, Sr. Sec. Notes, 9.00%, 11/01/17(b) | EUR | 115,000 | 177,662 | |||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Germany–2.03% | ||||||||
Hapag-Lloyd AG, Sr. Unsec. Gtd. Notes, 9.00%, 10/15/15(b) | EUR | 300,000 | $ | 443,884 | ||||
Kabel Deutschland Vetrieb und Service GmbH & Co. K.G., Sr. Sec. Notes, 6.50%, 06/29/18(b) | EUR | 205,000 | 298,006 | |||||
KION Finance S.A., Sr. Sec. Gtd Notes, 7.88%, 04/15/18(b) | EUR | 400,000 | 567,184 | |||||
KUKA A.G., REGS, Sr. Sec. Gtd. Sub. Medium-Term Euro Notes, 8.75%, 11/15/17(b) | EUR | 165,000 | 256,702 | |||||
Styrolution GmbH, REGS, Sr. Sec. Euro Notes, 7.63%, 05/15/16(b) | EUR | 120,000 | 171,461 | |||||
1,737,237 | ||||||||
Ireland–1.97% | ||||||||
Ardagh Packaging Finance PLC, Sr. Unsec. Gtd. Notes, 9.25%, 10/15/20(b) | EUR | 400,000 | 594,021 | |||||
Bord Gais Eireann, Sr. Unsec. Medium-Term Euro Notes, 5.75%, 06/16/14 | EUR | 255,000 | 359,073 | |||||
Nara Cable Funding Ltd., Sr. Sec. Notes, 8.88%, 12/01/18(b) | EUR | 500,000 | 734,366 | |||||
1,687,460 | ||||||||
Luxembourg–2.28% | ||||||||
Boardriders S.A., Sr. Notes, 8.88%, 12/15/17(b) | EUR | 100,000 | 152,676 | |||||
Cirsa Funding Luxembourg S.A., Sr. Unsec. Gtd. Notes, 8.75%, 05/15/18(b) | EUR | 180,000 | 266,004 | |||||
Codere Finance Luxembourg S.A., Sr. Sec. Gtd. Notes, 8.25%, 06/15/15(b) | EUR | 100,000 | 147,961 | |||||
ConvaTec Healthcare S.A., Sr. Sec. Gtd. Notes, 7.38%, 12/15/17(b) | EUR | 200,000 | 291,571 | |||||
REGS, Sr. Unsec. Gtd. Euro Notes, 10.88%, 12/15/18(b) | EUR | 100,000 | 150,862 | |||||
Mark IV Europe Lux SCA/Mark IV USA SCA, Sr. Sec. Gtd. Notes, 8.88%, 12/15/17(b) | EUR | 300,000 | 463,467 | |||||
TMD Friction Finance S.A., Sr. Sec. Gtd. Bonds, 10.75%, 05/15/17(b) | EUR | 210,000 | 333,565 | |||||
Xefin Lux SCA, Sr. Sec. Notes, 8.00%, 06/01/18(b) | EUR | 100,000 | 146,692 | |||||
1,952,798 | ||||||||
Netherlands–1.71% | ||||||||
Boats Investments B.V., Series 97, Sec. PIK Medium-Term Euro Notes, 11.00%, 03/31/17 | EUR | 77,113 | 101,513 | |||||
Carlson Wagonlit B.V., Sr. Gtd. Floating Rate Notes, 7.14%, 05/01/15(b)(c) | EUR | 140,000 | 198,007 | |||||
Elster Finance B.V., REGS, Sr. Unsec. Gtd. Medium-Term Euro Notes, 6.25%, 04/15/18(b) | EUR | 200,000 | 289,395 | |||||
Goodyear Dunlop Tires Europe B.V., Sr. Unsec. Gtd. Notes, 6.75%, 04/15/19(b) | EUR | 300,000 | 431,916 | |||||
Polish Television Holding B.V., REGS, Sr. Sec. Medium-Term Euro Notes, 11.25%, 05/15/17(b)(g) | EUR | 110,000 | 166,746 | |||||
Ziggo Bond Co. B.V., Sr. Sec. Gtd. Notes, 8.00%, 05/15/18(b) | EUR | 185,000 | 276,412 | |||||
1,463,989 | ||||||||
Sweden–0.19% | ||||||||
TVN Finance Corp. II A.B., REGS, Sr. Unsec. Gtd. Euro Notes, 10.75%, 11/15/17(b) | EUR | 100,000 | 160,291 | |||||
United Kingdom–3.06% | ||||||||
Bakkavor Finance 2 PLC, REGS, Sr. Sec. Gtd. Euro Notes, 8.25%, 02/15/18(b) | GBP�� | 200,000 | 277,682 | |||||
Exova Ltd., REGS, Sr. Unsec. Gtd. Euro Notes, 10.50%, 10/15/18(b) | GBP | 200,000 | 327,039 | |||||
Infinis PLC, Sr. Sec. Notes, 9.13%, 12/15/14(b) | GBP | 80,000 | 134,668 | |||||
ITV PLC, Series 2006-1 Tranche 1, Unsec. Gtd. Unsub. Medium-Term Euro Notes, 7.38%, 01/05/17 | GBP | 100,000 | 163,318 | |||||
Kerling PLC, Sr. Sec. Gtd. Notes, 10.63%, 02/01/17(b) | EUR | 130,000 | 200,364 | |||||
Odeon & UCI Finco PLC, | ||||||||
Sr. Sec. Gtd. Floating Rate Notes, 6.44%, 08/01/18(b)(c) | EUR | 310,000 | 436,196 | |||||
Sr. Sec. Gtd. Notes, 9.00%, 08/01/18(b) | GBP | 210,000 | 328,644 | |||||
Pipe Holdings PLC, REGS, Sr. Sec. Euro Bonds, 9.50%, 11/01/15(b) | GBP | 200,000 | 325,033 | |||||
R&R Ice Cream PLC, Sr. Sec. Gtd. Notes, 8.38%, 11/15/17(b) | EUR | 300,000 | 428,652 | |||||
2,621,596 | ||||||||
United States–0.54% | ||||||||
CEDC Finance Corp. International Inc., Sr. Sec. Gtd. Notes, 8.88%, 12/01/16(b) | EUR | 355,000 | 460,892 | |||||
Total Non-U.S. Dollar Denominated Bonds & Notes (Cost $10,866,167) | 11,202,922 | |||||||
Shares | ||||||||
Preferred Stocks–2.09% | ||||||||
Automobile Manufacturers–0.20% | ||||||||
General Motors Co., Series B, $2.38 Conv. Pfd. | 3,580 | 174,489 | ||||||
Consumer Finance–1.12% | ||||||||
Ally Financial, Inc., Series A, 8.50% Pfd. | 7,845 | 196,360 | ||||||
Series G, 7.00% Pfd.(b) | 581 | 546,068 | ||||||
GMAC Capital Trust I, Series 2, 8.13% Pfd. | 8,630 | 220,928 | ||||||
963,356 | ||||||||
Industrial REIT’s–0.09% | ||||||||
DuPont Fabros Technology Inc., Series B, 7.63% Pfd. | 3,020 | 75,168 | ||||||
Regional Banks–0.38% | ||||||||
Zions Bancorp., Series C, 9.50% Pfd. | 12,400 | 324,136 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Shares | Value | |||||||
Research & Consulting Services–0.14% | ||||||||
Nielsen Holdings N.V. (Netherlands), $3.13 Conv. Pfd. | 1,885 | $ | 116,516 | |||||
Tires & Rubber–0.16% | ||||||||
Goodyear Tire & Rubber Co. (The), $2.94 Conv. Pfd. | 2,490 | 138,494 | ||||||
Total Preferred Stocks (Cost $1,569,152) | 1,792,159 | |||||||
Common Stocks & Other Equity Interests–0.91% | ||||||||
Automobile Manufacturers–0.35% | ||||||||
General Motors Co.(j)* | 4,667 | 141,690 | ||||||
General Motors Co., Wts. expiring 07/10/16(j)* | 4,242 | 90,779 | ||||||
General Motors Co., Wts. expiring 07/10/19(j)* | 4,242 | 67,575 | ||||||
300,044 | ||||||||
Broadcasting–0.01% | ||||||||
Adelphia Communications Corp.(k) | — | 4,056 | ||||||
Adelphia Recovery Trust, Series ACC-1(k) | 318,570 | 32 | ||||||
Adelphia Recovery Trust, Series ARAHOVA(k) | 109,170 | 4,367 | ||||||
8,455 | ||||||||
Building Products–0.01% | ||||||||
Nortek, Inc.(j) | 215 | 7,738 | ||||||
Construction Materials–0.21% | ||||||||
U.S. Concrete, Inc.(j) | 20,786 | 181,878 | ||||||
Integrated Telecommunication Services–0.31% | ||||||||
Hawaiian Telcom Holdco Inc.–Wts. expiring 10/28/15(j) | 1,527 | 21,378 | ||||||
Largo Limited (Luxembourg), Class A(j) | 17,563 | 24,279 | ||||||
Class B(j) | 158,069 | 218,518 | ||||||
264,175 | ||||||||
Publishing–0.00% | ||||||||
Reader’s Digest Association Inc. (The), Wts., expiring 02/19/14(j) | 669 | 2,007 | ||||||
Semiconductors–0.02% | ||||||||
MagnaChip Semiconductor LLC(j) | 1,372 | 14,225 | ||||||
Total Common Stocks & Other Equity Interests (Cost $2,347,420) | 778,522 | |||||||
Principal | ||||||||
Amount | ||||||||
Bundled Securities–0.08% | ||||||||
Investment Banking & Brokerage–0.08% | ||||||||
Targeted Return Index Securities Trust, Series HY 2006-1, Sec. Variable Rate Bonds, 7.12%, 05/01/16 (Acquired 08/15/08; Cost $67,318) (Cost $67,318)(b)(c) | $ | 70,000 | 69,417 | |||||
TOTAL INVESTMENTS–104.29% (Cost $87,986,130) | 89,314,726 | |||||||
OTHER ASSETS LESS LIABILITIES–(4.29)% | (3,675,177 | ) | ||||||
NET ASSETS–100.00% | $ | 85,639,549 | ||||||
Investment Abbreviations:
CAD | – Canadian Dollar | |
Conv. | – Convertible | |
Ctfs. | – Certificates | |
Deb. | – Debentures | |
Disc. | – Discounted | |
EUR | – Euro | |
GBP | – British Pound | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
Ltd. | – Limited | |
Pfd. | – Preferred | |
PIK | – Payment in Kind | |
REGS | – Regulation S | |
REIT | – Real Estate Investment Trust | |
Sec. | – Secured | |
Sr. | – Senior | |
Sub. | – Subordinated | |
Unsec. | – Unsecured | |
Unsub. | – Unsubordinated | |
Wts. | – Warrants |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2011 was $40,601,241, which represented 47.41% of the Trust’s Net Assets. | |
(c) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2011. | |
(d) | Interest payments have been suspended under European Union agreement for 24 months beginning April 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 aggregate value of these securities at June 30, 2011 was $2,013, which represented 0.04% of the Fund’s Net Assets. | |
(g) | Step coupon bond issued at discount. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. | |
(h) | Security has an irrevocable call by the issuer or mandatory put by the holder. Maturity date reflects such call or put. | |
(i) | Foreign denominated security. Principal amount is denominated in currency indicated. | |
(j) | Non-income producing security. | |
(k) | Non-income producing security acquired as part of the Adelphia Communications bankruptcy reorganization. | |
* | Acquired as part of the General Motors reorganization. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
By credit quality, based on Net Assets
as of June 30, 2011
A | 0.7 | % | ||
BBB | 4.1 | |||
BB | 35.8 | |||
B | 43.3 | |||
CCC | 9.8 | |||
NR | 4.2 | |||
Cash | 2.1 | |||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $87,986,130) | $ | 89,314,726 | ||
Foreign currencies, at value (Cost $27,582) | 28,635 | |||
Receivable for: | ||||
Investments sold | 710,863 | |||
Fund shares sold | 806,031 | |||
Dividends and interest | 1,593,849 | |||
Fund expenses absorbed | 10,370 | |||
Foreign currency contracts outstanding | 95,883 | |||
Investment for trustee deferred compensation and retirement plans | 40,054 | |||
Other assets | 3,505 | |||
Total assets | 92,603,916 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 773,630 | |||
Amount due custodian | 6,012,819 | |||
Accrued fees to affiliates | 88,734 | |||
Accrued other operating expenses | 42,460 | |||
Trustee deferred compensation and retirement plans | 46,724 | |||
Total liabilities | 6,964,367 | |||
Net assets applicable to shares outstanding | $ | 85,639,549 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 87,413,443 | ||
Undistributed net investment income | 2,351,789 | |||
Undistributed net realized gain (loss) | (3,866,643 | ) | ||
Unrealized appreciation | (259,040 | ) | ||
$ | 85,639,549 | |||
Net Assets: | ||||
Series I | $ | 84,078,226 | ||
Series II | $ | 1,561,323 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 16,285,094 | |||
Series II | 302,434 | |||
Series I: | ||||
Net asset value per share | $ | 5.16 | ||
Series II: | ||||
Net asset value per share | $ | 5.16 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Interest | $ | 2,703,974 | ||
Dividends | 41,163 | |||
Dividends from affiliated money market funds | 1,586 | |||
Total investment income | 2,746,723 | |||
Expenses: | ||||
Advisory fees | 224,192 | |||
Administrative services fees | 110,701 | |||
Custodian fees | 12,993 | |||
Distribution fees — Series II | 917 | |||
Transfer agent fees | 9,337 | |||
Trustees’ and officers’ fees and benefits | 8,914 | |||
Professional services fees | 22,021 | |||
Other | 14,801 | |||
Total expenses | 403,876 | |||
Less: Fees waived | (86,416 | ) | ||
Net expenses | 317,460 | |||
Net investment income | 2,429,263 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 2,194,857 | |||
Foreign currencies | 8,529 | |||
Foreign currency contracts | (529,511 | ) | ||
1,673,875 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (2,812,318 | ) | ||
Foreign currencies | (3,680 | ) | ||
Foreign currency contracts | 155,201 | |||
(2,660,797 | ) | |||
Net realized and unrealized gain (loss) | (986,922 | ) | ||
Net increase in net assets resulting from operations | $ | 1,442,341 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Statements of Changes in Net Assets
For the six months ended June 30, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 2,429,263 | $ | 4,456,145 | ||||
Net realized gain | 1,673,875 | 3,536,654 | ||||||
Change in net unrealized appreciation (depreciation) | (2,660,797 | ) | (977,968 | ) | ||||
Net increase in net assets resulting from operations | 1,442,341 | 7,014,831 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (4,229,022 | ) | (5,284,452 | ) | ||||
Series II | (46,711 | ) | (38,411 | ) | ||||
Total distributions from net investment income | (4,275,733 | ) | (5,322,863 | ) | ||||
Share transactions–net: | ||||||||
Series I | 31,073,833 | (6,523,411 | ) | |||||
Series II | 1,099,566 | 17,659 | ||||||
Net increase (decrease) in net assets resulting from share transactions | 32,173,399 | (6,505,752 | ) | |||||
Net increase (decrease) in net assets | 29,340,007 | (4,813,784 | ) | |||||
Net assets: | ||||||||
Beginning of period | 56,299,542 | 61,113,326 | ||||||
End of period (includes undistributed net investment income of $2,351,789 and $4,198,259, respectively) | $ | 85,639,549 | $ | 56,299,542 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. High Yield Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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 (“GAAP”) 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. | 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. 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 Daily 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 Canada Ltd. (formerly 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 May 2, 2011, the Adviser contractually agreed, through at least June 30, 2013, 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 0.80% and Series II shares to 1.05% of average daily net assets. Prior to May 2, 2011, the Adviser waived advisory fees and/or reimbursed expenses of all shares to the extent necessary to limit total annual fund operating expenses to 0.95% and 1.20% for Series I and Series II shares, 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 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 or non-routine items; (5) expenses related to a merger or reorganization, as approved by the Fund’s Board of Trustees; and (6) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2013.
Further, the Adviser has contractually agreed, through at least June 30, 2012, 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, 2011, the Adviser waived advisory fees of $86,416.
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, 2011, 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, 2011, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $85,906 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 1,645,012 | $ | 909,437 | $ | 16,232 | $ | 2,570,681 | ||||||||
Corporate Debt Securities | — | 86,744,045 | — | 86,744,045 | ||||||||||||
$ | 1,645,012 | $ | 87,653,482 | $ | 16,232 | $ | 89,314,726 | |||||||||
Foreign Currency Contracts* | — | 95,883 | — | 95,883 | ||||||||||||
Total Investments | $ | 1,645,012 | $ | 87,749,365 | $ | 16,232 | $ | 89,410,609 | ||||||||
* | 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, 2011:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign Currency Contracts(a) | $ | 95,883 | $ | — | ||||
(a) | Values are disclosed on the Statement of Assets and Liabilities under the Foreign currency contracts outstanding. |
Effect of Derivative Instruments for the six months ended June 30, 2011
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Foreign Currency Contracts* | ||||
Realized Gain (Loss) | ||||
Currency risk | $ | (529,511 | ) | |
Change in Unrealized Appreciation | ||||
Currency risk | 155,201 | |||
Total | $ | (374,310 | ) | |
* | The average value of foreign currency contracts outstanding during the period was $1,844,831. |
Invesco V.I. High Yield Fund
Open Foreign Currency Contracts | ||||||||||||||||||||||||
Contract to | Notional | Unrealized | ||||||||||||||||||||||
Settlement Date | Counterparty | Deliver | Receive | Value | Appreciation | |||||||||||||||||||
08/09/11 | Bank of Montreal | EUR | 6,578,000 | USD | 9,599,561 | $ | 9,530,688 | $ | 68,873 | |||||||||||||||
08/19/11 | RBC Dain Rauscher | GBP | 959,000 | USD | 1,565,307 | 1,538,297 | 27,010 | |||||||||||||||||
Total open foreign currency contracts | $ | 95,883 | ||||||||||||||||||||||
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.
During the six months ended June 30, 2011, the Fund paid legal fees of $670 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 3,209,400 | ||
December 31, 2017 | 1,834,418 | |||
Total capital loss carryforward | $ | 5,043,818 | ||
* | 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 gain as of May 2, 2011, the date of the reorganization of Invesco Van Kampen V.I. High Yield Fund into the Fund are realized on securities held in the Fund at such date of reorganization, the capital loss carryforward may be further limited for up to five years from the date of the reorganization. |
.
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, 2011 was $36,064,459 and $28,773,426, 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 | $ | 3,704,792 | ||
Aggregate unrealized (depreciation) of investment securities | (2,703,256 | ) | ||
Net unrealized appreciation of investment securities | $ | 1,001,536 | ||
Cost of investments for tax purposes is $88,313,190. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 3,382,838 | $ | 18,102,014 | 4,999,888 | $ | 26,982,826 | ||||||||||
Series II | 204,829 | 1,076,577 | 16,305 | 86,476 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 814,841 | 4,229,022 | 1,018,199 | 5,284,452 | ||||||||||||
Series II | 9,000 | 46,712 | 7,401 | 38,411 | ||||||||||||
Issued in connection with acquisitions:(b) | ||||||||||||||||
Series I | 6,239,174 | 32,616,526 | — | — | ||||||||||||
Series II | 1,983 | 10,369 | — | — | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (4,581,051 | ) | (23,873,729 | ) | (7,205,545 | ) | (38,790,689 | ) | ||||||||
Series II | (6,296 | ) | (34,092 | ) | (19,746 | ) | (107,228 | ) | ||||||||
Net increase (decrease) in share activity | 6,065,318 | $ | 32,173,399 | (1,183,498 | ) | $ | (6,505,752 | ) | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 61% 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) | As of the opening of business on May 2, 2011, the Fund acquired all the net assets of Invesco Van Kampen V.I. High Yield Fund pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of Invesco Van Kampen V.I. High Yield Fund on April 1, 2011. The acquisition was accomplished by a tax-free exchange of 6,241,157 shares of the Fund for 2,940,652 shares outstanding of Invesco Van Kampen V.I. High Yield Fund as of the close of business on April 29, 2011. Each class of Invesco Van Kampen V.I. High Yield Fund was exchanged for the like class of shares of the Fund, based on the relative net asset value of Invesco Van Kampen V.I. High Yield Fund to the net asset value of the Fund on the close of business, April 29, 2011. Invesco Van Kampen V.I. High Yield Fund’s net assets at that date of $32,626,895 including $1,685,415 of unrealized appreciation, was combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $63,972,559. |
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 | |||||||||||||||||||||||||||||||||||||||||||||||||||
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 | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | ||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | ||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | $ | 5.35 | $ | 0.18 | $ | 0.00 | $ | 0.18 | $ | (0.37 | ) | $ | (0.37 | ) | $ | 5.16 | 3.37 | % | $ | 84,078 | 0.88 | %(d) | 1.12 | %(d) | 6.77 | %(d) | 48 | % | ||||||||||||||||||||||||
Year ended 12/31/10 | 5.22 | 0.43 | 0.26 | 0.69 | (0.56 | ) | (0.56 | ) | 5.35 | 13.57 | 55,803 | 0.95 | 1.17 | 8.04 | 102 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 3.69 | 0.47 | 1.47 | 1.94 | (0.41 | ) | (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 | ) | (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 | ) | (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 | ) | (0.55 | ) | 6.12 | 10.74 | 58,336 | 0.96 | 1.18 | 7.22 | 135 | |||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 5.35 | 0.17 | 0.00 | 0.17 | (0.36 | ) | (0.36 | ) | 5.16 | 3.21 | 1,561 | 1.13 | (d) | 1.37 | (d) | 6.52 | (d) | 48 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 5.22 | 0.42 | 0.26 | 0.68 | (0.55 | ) | (0.55 | ) | 5.35 | 13.27 | 497 | 1.20 | 1.42 | 7.79 | 102 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 3.68 | 0.46 | 1.48 | 1.94 | (0.40 | ) | (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 | ) | (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 | ) | (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 | ) | (0.53 | ) | 6.09 | 10.41 | 919 | 1.21 | 1.43 | 6.97 | 135 | |||||||||||||||||||||||||||||||||||||
(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 June 30, 2011, the portfolio turnover calculation excludes the value of securities purchased of $30,901,742 and sold of $3,261,324 in effect to realign the Fund’s portfolio holdings after the reorganization of Invesco Van Kampen V.I. High Yield Fund into the Fund. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $71,596 and $740 for Series I and Series II shares, respectively. |
Invesco V.I. High Yield Fund
NOTE 10—Financial Highlights—(continued)
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2,4 | (06/30/11) | Period2,5 | Ratio3 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,033.70 | $ | 4.44 | $ | 1,020.43 | $ | 4.41 | 0.88 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,032.10 | 5.69 | 1,019.19 | 5.66 | 1.13 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2011 through June 30, 2011, 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. |
3 | Effective May 2, 2011, 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 0.80% and 1.05% 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 0.80% and 1.05% for Series I and Series II shares, respectively. |
4 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.03 and $5.29 for Series I and Series II shares, respectively. |
5 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.01 and $5.26 for Series I and Series II shares, respectively. |
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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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 funds in the Lipper performance universe and against the Lipper VA
Invesco V.I. High Yield Fund
Underlying Funds – High Current Yield Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile of the 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 performance of Series I shares of the Fund was above the performance of the Index for the one, three and five year periods. Invesco Advisers advised the Board that underperformance in the one year period was a result of removing bonds in the lowest rated categories from the Fund. The management team believes that such bonds are at risk of restructuring or bankruptcy and that current valuations do not warrant the risk to investors. 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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. The Board noted that the Fund’s rate was above the rates of three mutual funds managed by Invesco Advisers with comparable investment strategies.
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 June 30, 2013 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Invesco V.I. High Yield Securities Fund
Semiannual Report to Shareholders § June 30, 2011
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at 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, 2011, is available at 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.
MS-VIHYI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 4.39 | % | ||
Series II Shares | 4.39 | |||
Barclays Capital U.S. Corporate High Yield 2% Issuer Cap Index▼ (Broad Market/Style-Specific Index) | 4.98 | |||
▼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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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.
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund, Morgan Stanley Variable Investment High Yield Portfolio, 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 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 1.69% and 1.94%, 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.
Average Annual Total Returns
As of 6/30/11
Series I Shares | ||||||||
Inception (3/9/84) | 4.23 | % | ||||||
10 | Years | 4.45 | ||||||
5 | Years | 7.22 | ||||||
1 | Year | 12.26 | ||||||
Series II Shares | ||||||||
Inception (6/5/00) | -1.17 | % | ||||||
10 | Years | 4.22 | ||||||
5 | Years | 7.03 | ||||||
1 | Year | 12.26 |
Invesco V.I. High Yield Securities Fund
Schedule of Investments(a)
June 30, 2011
(Unaudited)
Principal | ||||||||
Amount | Value | |||||||
U.S. Dollar Denominated Bonds & Notes–84.20% | ||||||||
Aerospace & Defense–1.43% | ||||||||
Alliant Techsystems Inc., Sr. Unsec. Gtd. Sub. Notes, 6.88%, 09/15/20 | $ | 15,000 | $ | 15,638 | ||||
BE Aerospace, Inc., Sr. Unsec. Notes, 6.88%, 10/01/20 | 85,000 | 89,250 | ||||||
Hexcel Corp., Sr. Unsec. Sub. Global Notes, 6.75%, 02/01/15 | 53,000 | 54,325 | ||||||
Huntington Ingalls Industries, Inc., Sr. Unsec. Gtd. Notes, 6.88%, 03/15/18(b) | 20,000 | 20,550 | ||||||
7.13%, 03/15/21(b) | 30,000 | 30,862 | ||||||
Spirit Aerosystems Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 12/15/20 | 55,000 | 56,237 | ||||||
Triumph Group, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 8.00%, 11/15/17 | 145,000 | 153,700 | ||||||
420,562 | ||||||||
Airlines–2.89% | ||||||||
American Airlines Inc., Sr. Sec. Gtd. Notes, 7.50%, 03/15/16(b) | 40,000 | 39,300 | ||||||
American Airlines Pass Through Trust, Series 2011-1, Class B, Sec. Gtd. Pass Through Ctfs., 7.00%, 01/31/18(b) | 30,000 | 28,350 | ||||||
Continental Airlines Inc., | ||||||||
Series 2007-1, Class C, Sec. Sub. Global Pass Through Ctfs., 7.34%, 04/19/14 | 207,493 | 208,012 | ||||||
Series 2009-2, Class B, Sec. Global Pass Through Ctfs., 9.25%, 05/10/17 | 120,748 | 126,786 | ||||||
Delta Air Lines Pass Through Trust, | ||||||||
Series 2010-1, Class B, Sec. Pass Through Ctfs., 6.38%, 01/02/16(b) | 30,000 | 29,100 | ||||||
Series 2010-2, Class B, Sec. Pass Through Ctfs., 6.75%, 11/23/15 | 40,000 | 38,000 | ||||||
Delta Air Lines, Inc., Sec. Notes, 12.25%, 03/15/15(b) | 150,000 | 167,625 | ||||||
UAL Pass Through Trust, | ||||||||
Series 2007-1, Class A, Sec. Gtd. Global Pass Through Ctfs., 6.64%, 07/02/22 | 38,168 | 38,239 | ||||||
Series 2009-2, Class B, Sec. Gtd. Pass Through Ctfs., 12.00%, 01/15/16(b) | 87,002 | 95,702 | ||||||
US Airways Pass Through Trust, Series 1998-1, Class C, Sec. Pass Through Ctfs., 6.82%, 01/30/14 | 83,075 | 76,221 | ||||||
847,335 | ||||||||
Alternative Carriers–1.11% | ||||||||
Cogent Communications Group, Inc., Sr. Sec. Gtd. Notes, 8.38%, 02/15/18(b) | 85,000 | 87,762 | ||||||
Level 3 Communications Inc., Sr. Unsec. Notes, 11.88%, 02/01/19(b) | 90,000 | 98,550 | ||||||
Level 3 Escrow, Inc., Sr. Unsec. Notes, 8.13%, 07/01/19(b) | 20,000 | 20,250 | ||||||
Level 3 Financing, Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 9.25%, 11/01/14 | 71,000 | 73,130 | ||||||
Sr. Unsec. Gtd. Notes, 9.38%, 04/01/19(b) | 45,000 | 47,138 | ||||||
326,830 | ||||||||
Aluminum–0.30% | ||||||||
Century Aluminum Co., Sr. Sec. Gtd. Sub. Notes, 8.00%, 05/15/14 | 85,000 | 87,816 | ||||||
Apparel Retail–0.94% | ||||||||
Brown Shoe Co., Inc., Sr. Unsec. Gtd. Notes, 7.13%, 05/15/19(b) | 10,000 | 9,650 | ||||||
Express LLC/Express Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.75%, 03/01/18 | 90,000 | 97,875 | ||||||
Gap, Inc. (The), Sr. Unsec. Notes, 5.95%, 04/12/21 | 65,000 | 62,969 | ||||||
J Crew Group, Inc., Sr. Notes, 8.13%, 03/01/19(b) | 65,000 | 63,375 | ||||||
Limited Brands, Inc., Sr. Unsec. Gtd. Notes, 6.63%, 04/01/21 | 40,000 | 41,000 | ||||||
274,869 | ||||||||
Apparel, Accessories & Luxury Goods–2.39% | ||||||||
Hanesbrands Inc., Sr. Unsec. Gtd. Global Notes, 6.38%, 12/15/20 | 80,000 | 77,800 | ||||||
Jones Group Inc. (The), Sr. Unsec. Notes, 6.88%, 03/15/19 | 210,000 | 203,437 | ||||||
Levi Strauss & Co., Sr. Unsec. Global Notes, 7.63%, 05/15/20 | 165,000 | 165,825 | ||||||
Phillips-Van Heusen Corp., Sr. Unsec. Notes, 7.38%, 05/15/20 | 55,000 | 58,988 | ||||||
Quiksilver Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 04/15/15 | 200,000 | 194,500 | ||||||
700,550 | ||||||||
Auto Parts & Equipment–0.67% | ||||||||
Allison Transmission Inc., Sr. Unsec. Gtd Notes, 7.13%, 05/15/19(b) | 75,000 | 73,312 | ||||||
Dana Holding Corp., Sr. Unsec. Notes, | ||||||||
6.50%, 02/15/19 | 30,000 | 29,925 | ||||||
6.75%, 02/15/21 | 25,000 | 24,875 | ||||||
Tenneco Inc., | ||||||||
Sr. Gtd. Global Notes, 6.88%, 12/15/20 | 25,000 | 25,500 | ||||||
Sr. Unsec. Gtd. Global Notes, 7.75%, 08/15/18 | 40,000 | 42,200 | ||||||
195,812 | ||||||||
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 | |||||||
Automobile Manufacturers–0.63% | ||||||||
Ford Motor Co., Sr. Unsec. Global Notes, 7.45%, 07/16/31 | $ | 155,000 | $ | 176,700 | ||||
Motors Liquidation Co., Sr. Unsec. Notes, 8.38%, 07/15/33(c) | 305,000 | 9,150 | ||||||
185,850 | ||||||||
Biotechnology–0.31% | ||||||||
Giant Funding Corp., Sr. Sec. Notes, 8.25%, 02/01/18(b) | 30,000 | 30,825 | ||||||
Savient Pharmaceuticals Inc., Sr. Unsec. Conv. Notes, 4.75%, 02/01/18 | 30,000 | 30,038 | ||||||
STHI Holding Corp., Sec. Gtd. Notes, 8.00%, 03/15/18(b) | 30,000 | 30,600 | ||||||
91,463 | ||||||||
Broadcasting–1.01% | ||||||||
Allbritton Communications Co., Sr. Unsec. Global Notes, 8.00%, 05/15/18 | 45,000 | 45,900 | ||||||
Clear Channel Communications Inc., Sr. Gtd. Notes, 9.00%, 03/01/21(b) | 105,000 | 101,981 | ||||||
Nielsen Finance LLC/Co., Sr. Unsec. Gtd. Notes, 7.75%, 10/15/18(b) | 140,000 | 147,700 | ||||||
295,581 | ||||||||
Building Products–4.58% | ||||||||
Associated Materials LLC, Sr. Sec. Gtd. Notes, 9.13%, 11/01/17(b) | 190,000 | 190,000 | ||||||
Building Materials Corp. of America, | ||||||||
Sr. Notes, | ||||||||
6.75%, 05/01/21(b) | 40,000 | 40,000 | ||||||
6.88%, 08/15/18(b) | 150,000 | 151,875 | ||||||
Sr. Sec. Gtd. Notes, 7.50%, 03/15/20(b) | 160,000 | 168,200 | ||||||
Gibraltar Industries Inc. Series B, Sr. Unsec. Gtd. Sub. Global Notes, 8.00%, 12/01/15 | 105,000 | 106,444 | ||||||
Nortek Inc., | ||||||||
Sr. Sec. Gtd. Notes, 8.50%, 04/15/21(b) | 155,000 | 144,150 | ||||||
Sr. Unsec. Gtd. Notes, 10.00%, 12/01/18(b) | 75,000 | 75,937 | ||||||
Ply Gem Industries Inc., | ||||||||
Sr. Sec. Gtd. Notes, 8.25%, 02/15/18(b) | 125,000 | 120,937 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 13.13%, 07/15/14 | 55,000 | 58,025 | ||||||
Roofing Supply Group LLC/Roofing Supply Finance Inc., Sr. Sec. Notes, 8.63%, 12/01/17(b) | 190,000 | 191,425 | ||||||
USG Corp., | ||||||||
Sr. Gtd. Notes, 8.38%, 10/15/18(b) | 10,000 | 9,775 | ||||||
Sr. Unsec. Gtd. Notes, 9.75%, 08/01/14(b) | 20,000 | 21,100 | ||||||
Sr. Unsec. Notes, 9.75%, 01/15/18 | 65,000 | 64,513 | ||||||
1,342,381 | ||||||||
Cable & Satellite–1.29% | ||||||||
CSC Holdings LLC, Sr. Unsec. Global Notes, 8.63%, 02/15/19 | 140,000 | 158,550 | ||||||
EH Holding Corp., | ||||||||
Sr. Sec. Notes, 6.50%, 06/15/19(b) | 40,000 | 40,900 | ||||||
Sr. Unsec. Notes, 7.63%, 06/15/21(b) | 25,000 | 25,625 | ||||||
Kabel BW Erste Beteiligungs GmbH/Kabel Baden-Wurtlemberg GmbH & Co. K.G. (Germany), Sr. Sec. Gtd. Notes, 7.50%, 03/15/19(b) | 150,000 | 152,375 | ||||||
377,450 | ||||||||
Casinos & Gaming–5.78% | ||||||||
Ameristar Casinos Inc., Sr. Unsec. Gtd. Notes, 7.50%, 04/15/21(b) | 50,000 | 51,750 | ||||||
Boyd Gaming Corp., Sr. Notes, 9.13%, 12/01/18(b) | 15,000 | 15,450 | ||||||
Caesars Entertainment Operating Co. Inc., | ||||||||
Sec. Global Notes, 12.75%, 04/15/18 | 85,000 | 85,212 | ||||||
Sec. Gtd. Global Notes, 10.00%, 12/15/18 | 30,000 | 27,225 | ||||||
Sr. Sec. Gtd. Global Notes, 11.25%, 06/01/17 | 135,000 | 149,850 | ||||||
Sr. Unsec. Gtd. Global Bonds, 5.63%, 06/01/15 | 115,000 | 93,725 | ||||||
CityCenter Holdings LLC/CityCenter Finance Corp., | ||||||||
Sec. Gtd. PIK Notes, 10.75%, 01/15/17(b) | 25,000 | 27,156 | ||||||
Sr. Sec. Gtd. Notes, 7.63%, 01/15/16(b) | 5,000 | 5,175 | ||||||
Great Canadian Gaming Corp. (Canada), Sr. Unsec. Gtd. Sub. Notes, 7.25%, 02/15/15(b) | 20,000 | 20,400 | ||||||
Mandalay Resort Group, Sr. Unsec. Gtd. Sub. Notes, 7.63%, 07/15/13 | 100,000 | 98,500 | ||||||
MGM Resorts International, | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.63%, 07/15/15 | 65,000 | 61,750 | ||||||
6.75%, 04/01/13 | 245,000 | 246,225 | ||||||
Sr. Unsec. Gtd. Notes, 10.00%, 11/01/16(b) | 40,000 | 42,700 | ||||||
Pinnacle Entertainment Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 08/01/17 | 90,000 | 96,750 | ||||||
Resort at Summerlin L.P.–Series B, Sr. Unsec. Sub. Notes, 13.00%, 12/15/07(c) | 7,210,050 | — | ||||||
Scientific Games Corp., Sr. Unsec. Gtd. Sub. Global Notes, 8.13%, 09/15/18 | 15,000 | 15,675 | ||||||
Scientific Games International Inc., Sr. Unsec. Gtd. Sub. Global Notes, 9.25%, 06/15/19 | 125,000 | 136,250 | ||||||
Seneca Gaming Corp., Sr. Unsec. Gtd. Notes, 8.25%, 12/01/18(b) | 35,000 | 36,313 | ||||||
Snoqualmie Entertainment Authority, | ||||||||
Sr. Sec. Floating Rate Notes, 4.20%, 02/01/14(b)(d) | 75,000 | 68,250 | ||||||
Sr. Sec. Notes, 9.13%, 02/01/15(b) | 150,000 | 149,250 | ||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., | ||||||||
Sec. Gtd. First Mortgage Global Notes, 7.75%, 08/15/20 | 95,000 | 103,787 | ||||||
Sr. Sec. Gtd. First Mortgage Global Notes, 7.88%, 05/01/20 | 150,000 | 163,969 | ||||||
1,695,362 | ||||||||
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 | |||||||
Coal & Consumable Fuels–0.25% | ||||||||
Alpha Natural Resources Inc., Sr. Unsec. Gtd. Notes, | ||||||||
6.00%, 06/01/19 | $ | 25,000 | $ | 25,219 | ||||
6.25%, 06/01/21 | 10,000 | 10,075 | ||||||
Consol Energy Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 04/01/20 | 35,000 | 38,150 | ||||||
73,444 | ||||||||
Communications Equipment–0.57% | ||||||||
Avaya, Inc., Sr. Sec. Gtd. Notes, 7.00%, 04/01/19(b) | 150,000 | 142,500 | ||||||
CommScope Inc., Sr. Unsec. Gtd. Notes, 8.25%, 01/15/19(b) | 25,000 | 25,875 | ||||||
168,375 | ||||||||
Computer & Electronics Retail–0.10% | ||||||||
RadioShack Corp., Sr. Gtd. Notes, 6.75%, 05/15/19(b) | 10,000 | 9,700 | ||||||
Rent-A-Center Inc., Sr. Unsec. Gtd Global Notes, 6.63%, 11/15/20 | 20,000 | 20,000 | ||||||
29,700 | ||||||||
Computer Storage & Peripherals–0.37% | ||||||||
Seagate HDD Cayman (Cayman Islands), Sr. Unsec. Gtd. Notes, | ||||||||
7.00%, 11/01/21(b) | 30,000 | 29,775 | ||||||
7.75%, 12/15/18(b) | 75,000 | 78,563 | ||||||
108,338 | ||||||||
Construction & Engineering–1.41% | ||||||||
Dycom Investments Inc., Sr. Sub. Notes, 7.13%, 01/15/21(b) | 35,000 | 35,875 | ||||||
Great Lakes Dredge & Dock Corp., Sr. Unsec. Gtd. Notes, 7.38%, 02/01/19(b) | 25,000 | 24,812 | ||||||
MasTec, Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 02/01/17 | 110,000 | 112,750 | ||||||
Tutor Perini Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 11/01/18 | 250,000 | 240,625 | ||||||
414,062 | ||||||||
Construction & Farm Machinery & Heavy Trucks–1.32% | ||||||||
Case New Holland Inc., Sr. Notes, 7.88%, 12/01/17(b) | 75,000 | 83,062 | ||||||
Commercial Vehicle Group, Inc., Sr. Sec. Gtd. Notes, 7.88%, 04/15/19(b) | 65,000 | 65,325 | ||||||
Manitowoc Co. Inc. (The), Sr. Unsec. Gtd. Notes, 8.50%, 11/01/20 | 50,000 | 53,750 | ||||||
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | 130,000 | 141,700 | ||||||
Titan International Inc., Sr. Sec. Gtd. Notes, 7.88%, 10/01/17(b) | 40,000 | 42,100 | ||||||
385,937 | ||||||||
Construction Materials–1.63% | ||||||||
Cemex Finance LLC, Sr. Sec. Gtd. Bonds, 9.50%, 12/14/16(b) | 100,000 | 104,298 | ||||||
Cemex S.A.B. de C.V. (Mexico), Sr. Sec. Gtd. Notes, 9.00%, 01/11/18(b) | 100,000 | 102,389 | ||||||
Texas Industries Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 08/15/20 | 280,000 | 271,600 | ||||||
478,287 | ||||||||
Consumer Finance–1.39% | ||||||||
Ally Financial, Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
7.50%, 09/15/20 | 75,000 | 78,750 | ||||||
8.00%, 03/15/20 | 140,000 | 151,200 | ||||||
8.00%, 11/01/31 | 15,000 | 16,313 | ||||||
Ford Motor Credit Co. LLC, Sr. Unsec. Notes, 8.00%, 12/15/16 | 45,000 | 50,962 | ||||||
National Money Mart Co. (Canada), Sr. Unsec. Gtd. Global Notes, 10.38%, 12/15/16 | 100,000 | 110,250 | ||||||
407,475 | ||||||||
Data Processing & Outsourced Services–0.79% | ||||||||
CoreLogic, Inc., Sr. Unsec. Gtd. Notes, 7.25%, 06/01/21(b) | 140,000 | 137,200 | ||||||
First Data Corp., Sr. Sec. Gtd. Notes, 7.38%, 06/15/19(b) | 45,000 | 45,562 | ||||||
SunGard Data Systems Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
7.38%, 11/15/18 | 25,000 | 24,938 | ||||||
7.63%, 11/15/20 | 25,000 | 25,312 | ||||||
233,012 | ||||||||
Department Stores–0.55% | ||||||||
Sears Holdings Corp., Sec. Gtd. Notes, 6.63%, 10/15/18(b) | 175,000 | 161,437 | ||||||
Distillers & Vintners–0.43% | ||||||||
Constellation Brands, Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 05/15/17 | 115,000 | 125,350 | ||||||
Diversified Banks–0.12% | ||||||||
RBS Capital Trust II, Jr. Unsec. Gtd. Sub. Global Bonds, 6.43%(e)(f) | 50,000 | 35,938 | ||||||
Diversified Chemicals–0.09% | ||||||||
Huntsman International LLC, Sr. Unsec. Gtd. Sub. Global Notes, 8.63%, 03/15/21 | 25,000 | 27,187 | ||||||
Diversified Metals & Mining–0.57% | ||||||||
Midwest Vanadium Pty Ltd. (Australia), Sr. Sec. Gtd. Notes, 11.50%, 02/15/18(b) | 30,000 | 29,980 | ||||||
Mirabela Nickel Ltd. (Australia), Sr. Unsec. Gtd. Notes, 8.75%, 04/15/18(b) | 15,000 | 14,839 | ||||||
Taseko Mines Ltd. (Canada), Sr. Unsec. Gtd. Notes, 7.75%, 04/15/19 | 5,000 | 5,068 | ||||||
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 | |||||||
Diversified Metals & Mining–(continued) | ||||||||
Thompson Creek Metals Co. Inc. (Canada), Sr. Gtd. Notes, 7.38%, 06/01/18(b) | $ | 10,000 | $ | 9,850 | ||||
Vedanta Resources PLC (United Kingdom), Sr. Unsec. Notes, 9.50%, 07/18/18(b) | 100,000 | 108,385 | ||||||
168,122 | ||||||||
Diversified Support Services–0.05% | ||||||||
Mobile Mini, Inc., Sr. Unsec. Gtd. Global Notes, 7.88%, 12/01/20 | 15,000 | 15,488 | ||||||
Electrical Components & Equipment–0.09% | ||||||||
Polypore International Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 11/15/17 | 25,000 | 26,563 | ||||||
Electronic Manufacturing Services–0.26% | ||||||||
Sanmina-SCI Corp., Sr. Unsec. Gtd. Notes, 7.00%, 05/15/19(b) | 80,000 | 76,000 | ||||||
Environmental & Facilities Services–0.31% | ||||||||
Clean Harbors Inc., Sr. Sec. Gtd. Notes, 7.63%, 08/15/16(b) | 50,000 | 53,500 | ||||||
EnergySolutions Inc./LLC, Sr. Unsec. Gtd. Global Notes, 10.75%, 08/15/18 | 35,000 | 37,625 | ||||||
91,125 | ||||||||
Food Retail–0.29% | ||||||||
Simmons Foods Inc., Sec. Notes, 10.50%, 11/01/17(b) | 80,000 | 85,000 | ||||||
Forest Products–0.28% | ||||||||
Millar Western Forest Products Ltd. (Canada), Sr. Notes, 8.50%, 04/01/21(b) | 85,000 | 77,031 | ||||||
Sino-Forest Corp. (Canada), Sr. Gtd. Notes, 6.25%, 10/21/17(b) | 10,000 | 4,650 | ||||||
81,681 | ||||||||
Gas Utilities–0.61% | ||||||||
Ferrellgas L.P./Ferrellgas Finance Corp., Sr. Unsec. Notes, 6.50%, 05/01/21(b) | 90,000 | 85,050 | ||||||
Suburban Propane Partners, L.P./Suburban Energy Finance Corp., Sr. Unsec. Notes, 7.38%, 03/15/20 | 90,000 | 94,050 | ||||||
179,100 | ||||||||
Health Care Equipment–0.52% | ||||||||
DJO Finance LLC/Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, 10.88%, 11/15/14 | 90,000 | 95,850 | ||||||
Sr. Unsec. Gtd. Notes, 7.75%, 04/15/18(b) | 10,000 | 10,125 | ||||||
Sr. Unsec. Gtd. Sub. Notes, 9.75%, 10/15/17(b) | 20,000 | 20,250 | ||||||
Hanger Orthopedic Group Inc., Sr. Unsec. Gtd. Global Notes, 7.13%, 11/15/18 | 25,000 | 25,562 | ||||||
151,787 | ||||||||
Health Care Facilities–1.99% | ||||||||
HCA, Inc., Sr. Sec. Gtd. Global Notes, 7.88%, 02/15/20 | 105,000 | 114,713 | ||||||
Health Management Associates Inc., Sr. Sec. Gtd. Notes, 6.13%, 04/15/16 | 30,000 | 31,125 | ||||||
Healthsouth Corp., Sr. Unsec. Gtd. Notes, | ||||||||
7.25%, 10/01/18 | 60,000 | 62,850 | ||||||
7.75%, 09/15/22 | 35,000 | 36,838 | ||||||
Select Medical Holdings Corp., Sr. Unsec. Floating Rate Global Notes, 6.21%, 09/15/15(d) | 45,000 | 43,425 | ||||||
Tenet Healthcare Corp., Sr. Sec. Gtd. Global Notes, 10.00%, 05/01/18 | 135,000 | 152,887 | ||||||
Sr. Unsec. Global Notes, | ||||||||
8.00%, 08/01/20 | 20,000 | 20,500 | ||||||
9.25%, 02/01/15 | 110,000 | 120,862 | ||||||
583,200 | ||||||||
Health Care Services–0.45% | ||||||||
DaVita Inc., Sr. Unsec. Gtd. Notes, 6.38%, 11/01/18 | 25,000 | 25,188 | ||||||
Radnet Management Inc., Sr. Unsec. Gtd. Global Notes, 10.38%, 04/01/18 | 80,000 | 82,000 | ||||||
Universal Hospital Services Inc., Sec. Global Notes, 8.50%, 06/01/15 | 25,000 | 25,781 | ||||||
132,969 | ||||||||
Health Care Technology–0.43% | ||||||||
MedAssets, Inc., Sr. Unsec. Gtd. Notes, 8.00%, 11/15/18(b) | 125,000 | 126,250 | ||||||
Home Furnishings–0.27% | ||||||||
American Standard Americas, Sr. Sec. Notes, 10.75%, 01/15/16(b) | 80,000 | 78,000 | ||||||
Homebuilding–1.02% | ||||||||
Beazer Homes USA Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
6.88%, 07/15/15 | 70,000 | 61,250 | ||||||
8.13%, 06/15/16 | 100,000 | 87,625 | ||||||
K. Hovnanian Enterprises Inc., Sr. Sec. Gtd. Global Notes, 10.63%, 10/15/16 | 80,000 | 80,000 | ||||||
M/I Homes Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 11/15/18 | 35,000 | 34,912 | ||||||
Standard Pacific Corp., Sr. Sec. Gtd. Notes, 8.38%, 05/15/18 | 35,000 | 34,913 | ||||||
298,700 | ||||||||
Hotels, Resorts & Cruise Lines–0.03% | ||||||||
Wyndham Worldwide Corp., Sr. Unsec. Notes, 5.63%, 03/01/21 | 10,000 | 10,063 | ||||||
Household Products–0.28% | ||||||||
Central Garden & Pet Co., Sr. Gtd. Sub. Notes, 8.25%, 03/01/18 | 80,000 | 83,000 | ||||||
Housewares & Specialties–0.03% | ||||||||
Jarden Corp., Sr. Unsec. Gtd. Notes, 6.13%, 11/15/22 | 10,000 | 9,975 | ||||||
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–0.81% | ||||||||
AES Corp. (The), Sr. Unsec. Global Notes, 7.75%, 10/15/15 | $ | 220,000 | $ | 237,600 | ||||
Industrial Machinery–0.69% | ||||||||
Cleaver-Brooks, Inc., Sr. Sec. Notes, 12.25%, 05/01/16(b) | 110,000 | 115,362 | ||||||
Columbus McKinnon Corp., Sr. Unsec. Gtd. Sub. Global Notes, 7.88%, 02/01/19 | 10,000 | 10,175 | ||||||
Mueller Water Products Inc., Sr. Unsec. Gtd. Global Notes, 8.75%, 09/01/20 | 15,000 | 16,425 | ||||||
SPX Corp., Sr. Unsec. Gtd. Notes, 6.88%, 09/01/17(b) | 55,000 | 58,988 | ||||||
200,950 | ||||||||
Industrial REIT’s–0.13% | ||||||||
DuPont Fabros Technology L.P., Sr. Unsec. Gtd. Global Notes, 8.50%, 12/15/17 | 35,000 | 38,238 | ||||||
Integrated Telecommunication Services–1.18% | ||||||||
Integra Telecom Holdings, Inc., Sr. Sec. Notes, 10.75%, 04/15/16(b) | 70,000 | 71,225 | ||||||
Intelsat Jackson Holdings S.A. (Luxembourg), Sr. Unsec. Gtd. Notes, 7.25%, 10/15/20(b) | 275,000 | 274,312 | ||||||
345,537 | ||||||||
Internet Retail–0.30% | ||||||||
Travelport LLC/Inc., Sr. Unsec. Gtd. Global Notes, 9.00%, 03/01/16 | 100,000 | 88,500 | ||||||
Internet Software & Services–0.34% | ||||||||
Equinix Inc., Sr. Unsec. Notes, 8.13%, 03/01/18 | 90,000 | 98,550 | ||||||
Investment Banking & Brokerage–0.89% | ||||||||
Cantor Fitzgerald L.P., Bonds, 7.88%, 10/15/19(b) | 105,000 | 115,015 | ||||||
E*Trade Financial Corp., | ||||||||
Sr. Notes, 6.75%, 06/01/16 | 30,000 | 29,588 | ||||||
Sr. Unsec. Notes, 7.88%, 12/01/15 | 115,000 | 115,575 | ||||||
260,178 | ||||||||
Leisure Facilities–0.09% | ||||||||
Speedway Motorsports Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 02/01/19 | 25,000 | 25,063 | ||||||
Leisure Products–0.05% | ||||||||
Toys R US-Delaware Inc., Sr. Sec. Gtd. Notes, 7.38%, 09/01/16(b) | 15,000 | 15,225 | ||||||
Life Sciences Tools & Services–0.23% | ||||||||
Patheon Inc. (Canada), Sr. Sec. Gtd. Notes, 8.63%, 04/15/17(b) | 65,000 | 65,975 | ||||||
Marine–0.17% | ||||||||
Navios Maritime Acquisition Corp./Navios Acquisition Finance US Inc. (Greece), Sr. Sec. Gtd. Notes, 8.63%, 11/01/17(b) | 10,000 | 10,236 | ||||||
Stena A.B. (Sweden), Sr. Unsec. Global Notes, 7.00%, 12/01/16 | 40,000 | 39,250 | ||||||
49,486 | ||||||||
Metal & Glass Containers–0.14% | ||||||||
Ball Corp., Sr. Unsec. Gtd. Notes, 5.75%, 05/15/21 | 40,000 | 40,300 | ||||||
Movies & Entertainment–1.31% | ||||||||
AMC Entertainment Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 8.75%, 06/01/19 | 95,000 | 100,581 | ||||||
Sr. Unsec. Gtd. Sub. Notes, 9.75%, 12/01/20(b) | 40,000 | 40,600 | ||||||
Cinemark USA Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 06/15/19 | 60,000 | 66,000 | ||||||
NAI Entertainment Holdings LLC, Sr. Sec. Notes, 8.25%, 12/15/17(b) | 165,000 | 177,788 | ||||||
384,969 | ||||||||
Multi-Line Insurance–2.62% | ||||||||
American International Group, Inc., Jr. Sub. Variable Rate Global Deb., 8.18%, 05/15/58(d) | 170,000 | 186,150 | ||||||
Fairfax Financial Holdings Ltd. (Canada), Sr. Notes, 5.80%, 05/15/21(b) | 45,000 | 43,537 | ||||||
Hartford Financial Services Group Inc. (The), Jr. Unsec. Sub. Variable Rate Deb., 8.13%, 06/15/38(d) | 80,000 | 85,873 | ||||||
Liberty Mutual Group Inc., | ||||||||
Jr. Unsec. Gtd. Sub. Bonds, 7.80%, 03/15/37(b) | 230,000 | 228,850 | ||||||
Sr. Gtd. Notes, 5.00%, 06/01/21(b) | 20,000 | 19,159 | ||||||
Nationwide Mutual Insurance Co., Sub. Notes, 9.38%, 08/15/39(b) | 165,000 | 205,992 | ||||||
769,561 | ||||||||
Multi-Sector Holdings–0.34% | ||||||||
Reynolds Group Issuer Inc./LLC/Luxembourg S.A., Sr. Sec. Gtd. Notes, 7.13%, 04/15/19(b) | 100,000 | 99,750 | ||||||
Office Services & Supplies–0.19% | ||||||||
IKON Office Solutions, Inc., Sr. Unsec. Notes, 6.75%, 12/01/25 | 35,000 | 34,475 | ||||||
Interface Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 12/01/18 | 20,000 | 21,025 | ||||||
55,500 | ||||||||
Oil & Gas Drilling–0.19% | ||||||||
Precision Drilling Corp. (Canada), Sr. Unsec. Gtd. Global Notes, 6.63%, 11/15/20 | 55,000 | 56,238 | ||||||
Oil & Gas Equipment & Services–0.90% | ||||||||
Bristow Group, Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/17 | 80,000 | 83,900 | ||||||
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 Equipment & Services–(continued) | ||||||||
Calfrac Holdings L.P., Sr. Unsec. Notes, 7.50%, 12/01/20(b) | $ | 30,000 | $ | 30,525 | ||||
Key Energy Services, Inc., Sr. Unsec. Gtd. Notes, 6.75%, 03/01/21 | 105,000 | 104,147 | ||||||
SESI, LLC, Sr. Gtd. Notes, 6.38%, 05/01/19(b) | 45,000 | 44,100 | ||||||
262,672 | ||||||||
Oil & Gas Exploration & Production–6.83% | ||||||||
Berry Petroleum Co., Sr. Unsec. Notes, 6.75%, 11/01/20 | 35,000 | 35,350 | ||||||
Brigham Exploration Co., Sr. Unsec. Gtd. Notes, 6.88%, 06/01/19(b) | 10,000 | 9,975 | ||||||
Chaparral Energy Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
8.25%, 09/01/21 | 130,000 | 132,275 | ||||||
8.88%, 02/01/17 | 90,000 | 92,700 | ||||||
Chesapeake Energy Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.88%, 11/15/20 | 30,000 | 31,875 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
6.13%, 02/15/21 | 10,000 | 10,163 | ||||||
6.63%, 08/15/20 | 73,000 | 76,924 | ||||||
Cimarex Energy Co., Sr. Unsec. Gtd. Notes, 7.13%, 05/01/17 | 70,000 | 73,762 | ||||||
Concho Resources Inc., Sr. Unsec. Gtd. Notes, | ||||||||
6.50%, 01/15/22 | 30,000 | 30,225 | ||||||
7.00%, 01/15/21 | 25,000 | 25,625 | ||||||
Continental Resources, Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
7.13%, 04/01/21 | 30,000 | 31,763 | ||||||
7.38%, 10/01/20 | 70,000 | 74,462 | ||||||
8.25%, 10/01/19 | 50,000 | 54,687 | ||||||
Delta Petroleum Corp., Sr. Unsec. Gtd. Sub. Global Notes, 7.00%, 04/01/15 | 130,000 | 100,100 | ||||||
EXCO Resources, Inc., Sr. Unsec. Gtd. Notes, 7.50%, 09/15/18 | 130,000 | 126,750 | ||||||
Forest Oil Corp., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/15/19 | 125,000 | 127,969 | ||||||
Harvest Operations Corp. (Canada), Sr. Unsec. Gtd. Notes, 6.88%, 10/01/17(b) | 80,000 | 82,800 | ||||||
McMoRan Exploration Co., Sr. Unsec. Gtd. Notes, 11.88%, 11/15/14 | 155,000 | 168,175 | ||||||
Newfield Exploration Co., Sr. Unsec. Sub. Global Notes, 7.13%, 05/15/18 | 60,000 | 63,900 | ||||||
Petrohawk Energy Corp., Sr. Unsec. Gtd. Global Notes, 7.25%, 08/15/18 | 110,000 | 113,025 | ||||||
Sr. Unsec. Gtd. Notes, 6.25%, 06/01/19(b) | 100,000 | 97,500 | ||||||
Pioneer Natural Resources Co., Sr. Unsec. Notes, 6.65%, 03/15/17 | 70,000 | 76,650 | ||||||
Plains Exploration & Production Co., Sr. Gtd. Notes, 6.63%, 05/01/21 | 30,000 | 30,150 | ||||||
Sr. Unsec. Gtd. Notes, 7.63%, 06/01/18 | 120,000 | 126,600 | ||||||
Range Resources Corp., Sr. Unsec. Gtd. Sub. Notes, 5.75%, 06/01/21 | 105,000 | 103,294 | ||||||
SM Energy Co., Sr. Unsec. Notes, 6.63%, 02/15/19(b) | 50,000 | 50,250 | ||||||
Whiting Petroleum Corp., Sr. Unsec. Gtd. Sub. Notes, 6.50%, 10/01/18 | 55,000 | 56,306 | ||||||
2,003,255 | ||||||||
Oil & Gas Refining & Marketing–0.91% | ||||||||
Tesoro Corp., Sr. Unsec. Gtd. Global Bonds, 6.50%, 06/01/17 | 70,000 | 71,488 | ||||||
United Refining Co., Sr. Sec. Gtd. Global Notes, 10.50%, 02/28/18 | 195,000 | 195,487 | ||||||
266,975 | ||||||||
Oil & Gas Storage & Transportation–2.68% | ||||||||
Chesapeake Midstream Partners L.P./CHKM Finance Corp., Sr. Gtd. Notes, 5.88%, 04/15/21(b) | 35,000 | 34,563 | ||||||
Copano Energy LLC/Copano Energy Finance Corp., Sr. Unsec. Gtd. Notes, 7.13%, 04/01/21 | 110,000 | 109,450 | ||||||
Energy Transfer Equity L.P., Sr. Sec. Gtd. Notes, 7.50%, 10/15/20 | 60,000 | 64,200 | ||||||
Inergy L.P./Inergy Finance Corp., Sr. Unsec. Gtd. Notes, 6.88%, 08/01/21(b) | 65,000 | 65,081 | ||||||
MarkWest Energy Partners L.P./MarkWest Energy Finance Corp., | ||||||||
Sr. Unsec. Gtd. Notes, 6.50%, 08/15/21 | 20,000 | 19,975 | ||||||
6.75%, 11/01/20 | 35,000 | 35,700 | ||||||
Series B, Sr. Unsec. Gtd. Global Notes, 8.75%, 04/15/18 | 175,000 | 190,531 | ||||||
Overseas Shipholding Group, Inc., Sr. Unsec. Notes, 8.13%, 03/30/18 | 100,000 | 98,500 | ||||||
Regency Energy Partners L.P./Regency Energy Finance Corp., Sr. Unsec. Gtd. Notes, 6.88%, 12/01/18 | 75,000 | 77,719 | ||||||
Targa Resources Partners L.P./Targa Resources Partners Finance Corp., Sr. Unsec. Gtd. Notes, 6.88%, 02/01/21(b) | 95,000 | 90,725 | ||||||
786,444 | ||||||||
Other Diversified Financial Services–1.40% | ||||||||
International Lease Finance Corp., | ||||||||
Sr. Sec. Notes, 6.75%, 09/01/16(b) | 65,000 | 69,022 | ||||||
7.13%, 09/01/18(b) | 65,000 | 69,388 | ||||||
Sr. Unsec. Global Notes, 5.75%, 05/15/16 | 20,000 | 19,737 | ||||||
6.25%, 05/15/19 | 30,000 | 29,400 | ||||||
8.63%, 09/15/15 | 155,000 | 168,853 | ||||||
8.75%, 03/15/17 | 34,000 | 37,294 | ||||||
Sr. Unsec. Notes, 8.25%, 12/15/20 | 15,000 | 16,331 | ||||||
410,025 | ||||||||
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 | |||||||
Packaged Foods & Meats–0.23% | ||||||||
Del Monte Foods Co., Sr. Unsec. Gtd. Notes, 7.63%, 02/15/19(b) | $ | 65,000 | $ | 65,975 | ||||
Paper Packaging–0.52% | ||||||||
Cascades Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 7.88%, 01/15/20 | 145,000 | 151,525 | ||||||
Paper Products–1.45% | ||||||||
Boise Cascade LLC, Sr. Unsec. Gtd. Sub. Global Notes, 7.13%, 10/15/14 | 155,000 | 153,837 | ||||||
Clearwater Paper Corp., Sr. Gtd. Global Notes, 7.13%, 11/01/18 | 75,000 | 77,063 | ||||||
Mercer International, Inc., Sr. Unsec. Gtd. Global Notes, 9.50%, 12/01/17 | 75,000 | 81,000 | ||||||
P.H. Glatfelter Co., Sr. Unsec. Gtd. Global Notes, 7.13%, 05/01/16 | 110,000 | 113,712 | ||||||
425,612 | ||||||||
Personal Products–0.25% | ||||||||
Elizabeth Arden Inc., Sr. Unsec. Global Notes, 7.38%, 03/15/21 | 15,000 | 15,675 | ||||||
NBTY Inc., Sr. Unsec. Gtd. Notes, 9.00%, 10/01/18(b) | 35,000 | 36,794 | ||||||
Sabra Health Care L.P./Sabra Capital Corp., Sr. Unsec. Gtd. Global Notes, 8.13%, 11/01/18 | 20,000 | 20,025 | ||||||
72,494 | ||||||||
Pharmaceuticals–1.11% | ||||||||
Aptalis Pharma Inc., Sr. Unsec. Gtd. Global Notes, 12.75%, 03/01/16 | 60,000 | 65,925 | ||||||
Elan Finance PLC/Corp. (Ireland), Sr. Gtd. Notes, 8.75%, 10/15/16(b) | 100,000 | 106,500 | ||||||
Endo Pharmaceuticals Holdings Inc., Sr. Unsec. Gtd. Notes, 7.00%, 12/15/20(b) | 15,000 | 15,300 | ||||||
Mylan Inc., Sr. Unsec. Gtd. Notes, 6.00%, 11/15/18(b) | 50,000 | 51,000 | ||||||
Valeant Pharmaceuticals International, Sr. Unsec. Gtd. Notes, | ||||||||
6.75%, 10/01/17(b) | 30,000 | 29,362 | ||||||
6.75%, 08/15/21(b) | 50,000 | 47,375 | ||||||
7.00%, 10/01/20(b) | 10,000 | 9,625 | ||||||
325,087 | ||||||||
Property & Casualty Insurance–0.27% | ||||||||
XL Group PLC (Ireland)–Series E, Jr. Sub. Variable Rate Global Pfd. Bonds, 6.50%(d)(e) | 85,000 | 78,625 | ||||||
Railroads–0.30% | ||||||||
Kansas City Southern de Mexico S.A. de C.V. (Mexico), | �� | |||||||
Sr. Unsec. Global Notes, 8.00%, 02/01/18 | 75,000 | 82,038 | ||||||
Sr. Unsec. Notes, 6.13%, 06/15/21(b) | 5,000 | 5,029 | ||||||
87,067 | ||||||||
Real Estate Services–0.28% | ||||||||
CB Richard Ellis Services Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 10/15/20 | 80,000 | 82,600 | ||||||
Regional Banks–2.49% | ||||||||
AmSouth Bancorp., Unsec. Sub. Deb., 6.75%, 11/01/25 | 25,000 | 22,313 | ||||||
BB&T Capital Trust II, Jr. Unsec. Gtd. Sub. Global Notes, 6.75%, 06/07/36 | 60,000 | 60,155 | ||||||
CIT Group Inc., Sec. Bonds, 7.00%, 05/02/17(b) | 245,000 | 244,081 | ||||||
Sec. Gtd. Notes, 6.63%, 04/01/18(b) | 80,000 | 83,750 | ||||||
Regions Financial Corp., Unsec. Sub. Notes, 7.38%, 12/10/37 | 150,000 | 141,750 | ||||||
Synovus Financial Corp., Unsec. Sub. Global Notes, 5.13%, 06/15/17 | 100,000 | 89,000 | ||||||
Zions Bancorp., Unsec. Sub. Notes, 6.00%, 09/15/15 | 85,000 | 88,187 | ||||||
729,236 | ||||||||
Research & Consulting Services–0.31% | ||||||||
FTI Consulting Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 10/01/20 | 90,000 | 90,675 | ||||||
Semiconductor Equipment–0.73% | ||||||||
Amkor Technology Inc., | ||||||||
Sr. Unsec. Global Notes, 7.38%, 05/01/18 | 150,000 | 154,125 | ||||||
Sr. Unsec. Notes, 6.63%, 06/01/21(b) | 15,000 | 14,625 | ||||||
Sensata Technologies B.V. (Netherlands), Sr. Unsec. Gtd. Notes, 6.50%, 05/15/19(b) | 45,000 | 44,772 | ||||||
213,522 | ||||||||
Semiconductors–0.76% | ||||||||
Freescale Semiconductor Inc., | ||||||||
Sr. Sec. Gtd. Notes, 9.25%, 04/15/18(b) | 109,000 | 118,265 | ||||||
Sr. Unsec. Gtd. Notes, 8.05%, 02/01/20(b) | 25,000 | 25,125 | ||||||
10.75%, 08/01/20(b) | 70,000 | 79,800 | ||||||
223,190 | ||||||||
Specialized Consumer Services–0.05% | ||||||||
Carriage Services Inc., Sr. Unsec. Gtd. Global Notes, 7.88%, 01/15/15 | 15,000 | 15,075 | ||||||
Specialized REIT’s–0.66% | ||||||||
Host Hotels & Resorts L.P., | ||||||||
Sr. Gtd. Global Notes, 6.00%, 11/01/20 | 75,000 | 75,094 | ||||||
Sr. Notes, 5.88%, 06/15/19(b) | 20,000 | 20,100 | ||||||
MPT Operating Partnership L.P./MPT Finance Corp., Sr. Gtd. Notes, 6.88%, 05/01/21(b) | 45,000 | 44,330 | ||||||
OMEGA Healthcare Investors Inc., Sr. Unsec. Gtd. Notes, 6.75%, 10/15/22(b) | 55,000 | 54,450 | ||||||
193,974 | ||||||||
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 | |||||||
Specialty Chemicals–1.13% | ||||||||
Ferro Corp., Sr. Unsec. Notes, 7.88%, 08/15/18 | $ | 105,000 | $ | 109,200 | ||||
Nalco Co., Sr. Unsec. Gtd. Notes, 6.63%, 01/15/19(b) | 25,000 | 25,563 | ||||||
NewMarket Corp., Sr. Unsec. Gtd. Global Notes, 7.13%, 12/15/16 | 45,000 | 47,109 | ||||||
PolyOne Corp., Sr. Unsec. Notes, 7.38%, 09/15/20 | 140,000 | 147,875 | ||||||
329,747 | ||||||||
Specialty Stores–0.56% | ||||||||
Michaels Stores Inc., | ||||||||
Sr. Unsec. Gtd. Notes, 7.75%, 11/01/18(b) | 25,000 | 24,938 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 13.00%, 11/01/16(g) | 135,000 | 140,062 | ||||||
165,000 | ||||||||
Steel–0.87% | ||||||||
AK Steel Corp., Sr. Unsec. Gtd. Notes, 7.63%, 05/15/20 | 110,000 | 113,300 | ||||||
FMG Resources Pty Ltd. (Australia), Sr. Unsec. Gtd. Notes, 6.38%, 02/01/16(b) | 65,000 | 65,163 | ||||||
United States Steel Corp., Sr. Unsec. Notes, 7.00%, 02/01/18 | 55,000 | 55,963 | ||||||
7.38%, 04/01/20 | 20,000 | 20,850 | ||||||
255,276 | ||||||||
Systems Software–1.88% | ||||||||
Allen Systems Group, Inc., Sec. Gtd. Notes, 10.50%, 11/15/16(b) | 225,000 | 227,250 | ||||||
Vangent Inc., Sr. Unsec. Gtd. Sub. Global Notes, 9.63%, 02/15/15 | 320,000 | 324,800 | ||||||
552,050 | ||||||||
Tires & Rubber–0.62% | ||||||||
Cooper Tire & Rubber Co., Sr. Unsec. Notes, 8.00%, 12/15/19 | 170,000 | 180,625 | ||||||
Trading Companies & Distributors–2.12% | ||||||||
Avis Budget Car Rental LLC/Avis Budget Finance Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 01/15/19 | 160,000 | 162,400 | ||||||
H&E Equipment Services, Inc., Sr. Unsec. Gtd. Global Notes, 8.38%, 07/15/16 | 185,000 | 189,625 | ||||||
Hertz Corp. (The), Sr. Unsec. Gtd. Notes, | ||||||||
6.75%, 04/15/19(b) | 25,000 | 24,625 | ||||||
7.38%, 01/15/21(b) | 125,000 | 127,187 | ||||||
7.50%, 10/15/18(b) | 40,000 | 41,100 | ||||||
Interline Brands, Inc., Sr. Unsec. Gtd. Global Notes, 7.00%, 11/15/18 | 35,000 | 35,525 | ||||||
RSC Equipment Rental Inc./RSC Holdings III LLC, Sr. Unsec. Gtd. Global Notes, 8.25%, 02/01/21 | 40,000 | 40,150 | ||||||
620,612 | ||||||||
Wireless Telecommunication Services–5.39% | ||||||||
Clearwire Communications LLC/Clearwire Finance, Inc., | ||||||||
Sr. Sec. Gtd. Notes, 12.00%, 12/01/15(b) | 270,000 | 291,600 | ||||||
Sr. Unsec. Gtd. Conv. Notes, 8.25%, 12/01/17(b)(h) | 35,000 | 31,238 | ||||||
Cricket Communications, Inc., Sr. Notes, 7.75%, 10/15/20(b) | 35,000 | 33,950 | ||||||
Sr. Sec. Gtd. Global Notes, 7.75%, 05/15/16 | 115,000 | 122,044 | ||||||
Sr. Unsec. Gtd. Global Notes, 7.75%, 10/15/20 | 120,000 | 117,900 | ||||||
MetroPCS Wireless Inc., Sr. Unsec. Gtd. Notes, | ||||||||
6.63%, 11/15/20 | 95,000 | 93,575 | ||||||
7.88%, 09/01/18 | 65,000 | 68,778 | ||||||
SBA Telecommunications Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 08/15/19 | 90,000 | 96,187 | ||||||
Sprint Capital Corp., Sr. Unsec. Gtd. Global Notes, 6.90%, 05/01/19 | 365,000 | 378,231 | ||||||
Sprint Nextel Corp., Sr. Unsec. Notes, 8.38%, 08/15/17 | 25,000 | 27,438 | ||||||
VimpelCom (Ireland), Sec. Notes, 7.75%, 02/02/21(b) | 200,000 | 205,585 | ||||||
Wind Acquisition Finance S.A. (Luxembourg), Sr. Sec. Gtd. Notes, 11.75%, 07/15/17(b) | 100,000 | 113,940 | ||||||
1,580,466 | ||||||||
Total U.S. Dollar Denominated Bonds & Notes (Cost $31,240,655) | 24,686,850 | |||||||
| ||||||||
Non-U.S. Dollar Denominated Bonds & Notes–12.08%(i) | ||||||||
Belgium–0.47% | ||||||||
Ontex IV S.A., Sr. Unsec. Gtd. Notes, 9.00%, 04/15/19(b) | EUR | 100,000 | 136,719 | |||||
Canada–0.26% | ||||||||
Gateway Casinos & Entertainment Ltd., Sec. Gtd. Notes, 8.88%, 11/15/17(b) | CAD | 70,000 | 77,030 | |||||
Croatia–0.41% | ||||||||
Agrokor D.D., Sr. Unsec. Gtd. Medium-Term Euro Notes, 10.00%, 12/07/16 | EUR | 80,000 | 121,270 | |||||
Czech Republic–0.26% | ||||||||
CET 21 Spol. S R.O., Sr. Sec. Notes, 9.00%, 11/01/17(b) | EUR | 50,000 | 77,244 | |||||
Germany–1.49% | ||||||||
Hapag-Lloyd AG, Sr. Unsec. Gtd. Notes, 9.00%, 10/15/15(b) | EUR | 100,000 | 147,961 | |||||
Kabel Deutschland Vetrieb und Service GmbH & Co. K.G., Sr. Sec. Notes, 6.50%, 06/29/18(b) | EUR | 100,000 | 145,369 | |||||
KION Finance S.A., Sr. Sec. Gtd Notes, 7.88%, 04/15/18(b) | EUR | 100,000 | 141,796 | |||||
435,126 | ||||||||
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 | |||||||
Ireland–1.47% | ||||||||
Ardagh Packaging Finance PLC, Sr. Unsec. Gtd. Notes, 9.25%, 10/15/20(b) | EUR | 100,000 | $ | 148,505 | ||||
Bord Gais Eireann, Sr. Unsec. Medium-Term Euro Notes, 5.75%, 06/16/14 | EUR | 95,000 | 133,773 | |||||
Nara Cable Funding Ltd., Sr. Sec. Notes, 8.88%, 12/01/18(b) | EUR | 100,000 | 146,873 | |||||
429,151 | ||||||||
Luxembourg–2.13% | ||||||||
Cirsa Funding Luxembourg S.A., Sr. Unsec. Gtd. Notes, 8.75%, 05/15/18(b) | EUR | 50,000 | 73,890 | |||||
Codere Finance Luxembourg S.A., Sr. Sec. Gtd. Notes, 8.25%, 06/15/15(b) | EUR | 100,000 | 147,961 | |||||
ConvaTec Healthcare S.A., Sr. Sec. Gtd. Notes, 7.38%, 12/15/17(b) | EUR | 100,000 | 145,785 | |||||
Mark IV Europe Lux SCA/Mark IV USA SCA, Sr. Sec. Gtd. Notes, 8.88%, 12/15/17(b) | EUR | 100,000 | 154,489 | |||||
TMD Friction Finance S.A., Sr. Sec. Gtd. Bonds, 10.75%, 05/15/17(b) | EUR | 65,000 | 103,247 | |||||
625,372 | ||||||||
Netherlands–1.81% | ||||||||
Elster Finance B.V.–REGS, Sr. Unsec. Gtd. Medium-Term Euro Notes, 6.25%, 04/15/18(b) | EUR | 100,000 | 144,697 | |||||
Goodyear Dunlop Tires Europe B.V., Sr. Gtd. Notes, 6.75%, 04/15/19(b) | EUR | 100,000 | 143,972 | |||||
Polish Television Holding B.V.–REGS, Sr. Sec. Medium-Term Euro Notes, 11.25%, 05/15/17(b)(g) | EUR | 50,000 | 75,794 | |||||
Ziggo Bond Co. B.V., Sr. Sec. Gtd. Notes, 8.00%, 05/15/18(b) | EUR | 110,000 | 164,353 | |||||
528,816 | ||||||||
Sweden–0.27% | ||||||||
TVN Finance Corp. II A.B.–REGS, Sr. Unsec. Gtd. Euro Notes, 10.75%, 11/15/17(b) | EUR | 50,000 | 80,146 | |||||
United Kingdom–3.07% | ||||||||
Bakkavor Finance 2 PLC–REGS, Sr. Sec. Gtd. Euro Notes, 8.25%, 02/15/18(b) | GBP | 100,000 | 138,841 | |||||
ITV PLC–Series 2006-1, Tranche 1, Unsec. Gtd. Unsub. Medium-Term Euro Notes, 7.38%, 01/05/17 | GBP | 50,000 | 81,659 | |||||
Kerling PLC, Sr. Sec. Gtd. Notes, 10.63%, 02/01/17(b) | EUR | 50,000 | 77,063 | |||||
Odeon & UCI Finco PLC, | ||||||||
Sr. Sec. Gtd. Floating Rate Notes, 6.44%, 08/01/18(b)(d) | EUR | 100,000 | 140,708 | |||||
Sr. Sec. Gtd. Notes, 9.00%, 08/01/18(b) | GBP | 100,000 | 156,497 | |||||
Pipe Holdings PLC–REGS, Sr. Sec. Euro Bonds, 9.50%, 11/01/15(b) | GBP | 100,000 | 162,517 | |||||
R&R Ice Cream PLC, Sr. Sec. Gtd. Notes, 8.38%, 11/15/17(b) | EUR | 100,000 | 142,884 | |||||
900,169 | ||||||||
United States–0.44% | ||||||||
CEDC Finance Corp. International Inc., Sr. Sec. Gtd. Notes, 8.88%, 12/01/16(b) | EUR | 100,000 | 129,829 | |||||
Total Non-U.S. Dollar Denominated Bonds & Notes (Cost $3,472,937) | 3,540,872 | |||||||
Shares | ||||||||
Preferred Stocks–2.67% | ||||||||
Automobile Manufacturers–0.35% | ||||||||
General Motors Co.–Series B, $2.38 Conv. Pfd. | 2,130 | 103,816 | ||||||
Consumer Finance–1.34% | ||||||||
Ally Financial, Inc., Series A, 8.50% Variable Rate Pfd.(d) | 2,690 | 67,331 | ||||||
Series G, 7.00% Pfd.(b) | 264 | 248,127 | ||||||
GMAC Capital Trust I–Series 2, 8.13% Variable Rate Pfd.(d) | 3,025 | 77,440 | ||||||
392,898 | ||||||||
Industrial REIT’s–0.09% | ||||||||
DuPont Fabros Technology, Inc.–Series B, 7.63% Pfd. | 1,045 | 26,010 | ||||||
Regional Banks–0.73% | ||||||||
Zions Bancorp.–Series C, 9.50% Pfd. | 8,200 | 214,348 | ||||||
Tires & Rubber–0.16% | ||||||||
Goodyear Tire & Rubber Co. (The), $2.94 Conv. Pfd. | 855 | 47,555 | ||||||
Total Preferred Stocks (Cost $694,848) | 784,627 | |||||||
Common Stocks & Other Equity Interests–0.26% | ||||||||
Automobile Manufacturers–0.26% | ||||||||
General Motors Co.(j) | 1,183 | 35,916 | ||||||
General Motors Co.–Wts. expiring 07/10/16(k) | 1,075 | 23,005 | ||||||
General Motors Co.–Wts. expiring 07/10/19(k) | 1,075 | 17,125 | ||||||
Total Common Stocks & Other Equity Interests (Cost $90,105) | 76,046 | |||||||
TOTAL INVESTMENTS–99.21% (Cost $35,498,545) | 29,088,395 | |||||||
OTHER ASSETS LESS LIABILITIES–0.79% | 231,767 | |||||||
NET ASSETS–100.00% | $ | 29,320,162 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
Investment Abbreviations:
CAD | – Canadian Dollar | |
Conv. | – Convertible | |
Ctfs. | – Certificates | |
Deb. | – Debentures | |
EUR | – Euro | |
GBP | – British Pound | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
Pfd. | – Preferred | |
PIK | – Payment-in-Kind | |
REGS | – Regulation S | |
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, 2011 was $12,685,394, which represented 43.27% 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, 2011 was $9,150, which represented 0.03% of the Fund’s Net Assets | |
(d) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2011. | |
(e) | Perpetual bonds with no specified maturity date. | |
(f) | Interest payments have been suspended under the European Union agreement for 24 months beginning April 30, 2010. | |
(g) | Step coupon bonds. The interest rate represents the coupon rate at which the bonds will accrue at a specified future date. | |
(h) | Security has an irrevocable call by the issuer or mandatory put by the holder. Maturity date reflects such call or put. | |
(i) | Foreign denominated securities. Principal amounts are denominated in the currency indicated. | |
(j) | Non-income producing security. | |
(k) | Non-income producing security acquired through a corporate action. |
By credit quality, based on Net Assets
as of June 30, 2011
A | 0.7 | % | ||
BBB | 5.0 | |||
BB | 33.7 | |||
B | 46.0 | |||
CCC | 10.3 | |||
C | 0.1 | |||
Not-rated | 4.6 | |||
Cash | (0.4 | ) | ||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $35,498,545) | $ | 29,088,395 | ||
Receivable for: | ||||
Investments sold | 143,077 | |||
Dividends and interest | 510,504 | |||
Foreign currency contracts closed | 6,599 | |||
Foreign currency contracts outstanding | 29,034 | |||
Investment for trustee deferred compensation and retirement plans | 2,316 | |||
Other assets | 3,506 | |||
Total assets | 29,783,431 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 166,709 | |||
Fund shares reacquired | 57,351 | |||
Amount due custodian | 81,617 | |||
Amount due custodian – foreign (Cost $12,042) | 12,220 | |||
Accrued fees to affiliates | 95,443 | |||
Accrued other operating expenses | 48,033 | |||
Trustee deferred compensation and retirement plans | 1,896 | |||
Total liabilities | 463,269 | |||
Net assets applicable to shares outstanding | $ | 29,320,162 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 215,475,752 | ||
Undistributed net investment income | 2,841,316 | |||
Undistributed net realized gain (loss) | (182,615,968 | ) | ||
Unrealized appreciation (depreciation) | (6,380,938 | ) | ||
$ | 29,320,162 | |||
Net Assets: | ||||
Series I | $ | 15,252,151 | ||
Series II | $ | 14,068,011 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 12,845,106 | |||
Series II | 11,871,360 | |||
Series I: | ||||
Net asset value per share | $ | 1.19 | ||
Series II: | ||||
Net asset value per share | $ | 1.19 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Interest | $ | 1,182,685 | ||
Dividends | 22,688 | |||
Dividends from affiliated money market funds | 89 | |||
Total investment income | 1,205,462 | |||
Expenses: | ||||
Advisory fees | 65,166 | |||
Administrative services fees | 90,507 | |||
Custodian fees | 10,850 | |||
Distribution fees – Series II | 19,021 | |||
Transfer agent fees | 1,338 | |||
Trustees’ and officers’ fees and benefits | 6,907 | |||
Professional services fees | 109,046 | |||
Other | 7,841 | |||
Total expenses | 310,676 | |||
Less: Fees waived | (186 | ) | ||
Net expenses | 310,490 | |||
Net investment income | 894,972 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 1,251,697 | |||
Foreign currencies | 3,563 | |||
Foreign currency contracts | (201,269 | ) | ||
1,053,991 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (902,311 | ) | ||
Foreign currencies | 381 | |||
Foreign currency contracts | 29,034 | |||
(872,896 | ) | |||
Net realized and unrealized gain | 181,095 | |||
Net increase in net assets resulting from operations | $ | 1,076,067 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 894,972 | $ | 2,370,243 | ||||
Net realized gain (loss) | 1,053,991 | (43,900,656 | ) | |||||
Change in net unrealized appreciation (depreciation) | (872,896 | ) | 44,931,025 | |||||
Net increase in net assets resulting from operations | 1,076,067 | 3,400,612 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (1,323,198 | ) | |||||
Series II | — | (1,325,494 | ) | |||||
Total distributions from net investment income | — | (2,648,692 | ) | |||||
Share transactions–net: | ||||||||
Series I | (1,343,880 | ) | (1,163,101 | ) | ||||
Series II | (2,588,576 | ) | (958,872 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (3,932,456 | ) | (2,121,973 | ) | ||||
Net increase (decrease) in net assets | (2,856,389 | ) | (1,370,053 | ) | ||||
Net assets: | ||||||||
Beginning of period | 32,176,551 | 33,546,604 | ||||||
End of period (includes undistributed net investment income of $2,841,316 and $1,946,344, respectively) | $ | 29,320,162 | $ | 32,176,551 | ||||
Notes to Financial Statements
June 30, 2011
(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) (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-eight 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 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. | ||
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 V.I. High Yield Securities Fund
independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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. High Yield 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 (“GAAP”) 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. | 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 Daily 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% | ||
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 Canada Ltd. (formerly 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. High Yield Securities Fund
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 and/or expense reimbursement (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 and/or expense reimbursement 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. Unless the Board of the 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 this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2012, 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, 2011, the Adviser waived advisory fees of $186.
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, 2011, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $65,712 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 612,546 | $ | 248,127 | $ | — | $ | 860,673 | ||||||||
Corporate Debt Securities | — | 28,227,722 | 0 | 28,227,722 | ||||||||||||
$ | 612,546 | $ | 28,475,849 | $ | 0 | $ | 29,088,395 | |||||||||
Foreign Currency Contracts* | — | 29,034 | — | 29,034 | ||||||||||||
Total Investments | $ | 612,546 | $ | 28,504,883 | $ | 0 | $ | 29,117,429 | ||||||||
* | Unrealized appreciation. |
Invesco V.I. High Yield Securities 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, 2011:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign currency contracts(a) | $ | 32,995 | $ | (3,961 | ) | |||
(a) | Values are disclosed on the Statement of Assets and Liabilities under the Foreign currency contracts outstanding. |
Effect of Derivative Instruments for the six months ended June 30, 2011
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Foreign Currency Contracts* | ||||
Realized Gain (Loss) | ||||
Currency risk | $ | (201,269 | ) | |
Change in Unrealized Appreciation | ||||
Currency risk | 29,034 | |||
Total | $ | (172,235 | ) | |
* | The average value of foreign currency contracts outstanding during the period was $2,557,605. |
Open Foreign Currency Contracts | ||||||||||||||||||||||||
Settlement | Contract to | Unrealized | ||||||||||||||||||||||
Date | Counterparty | Deliver | Receive | Value | Appreciation | |||||||||||||||||||
08/09/2011 | Bank of Montreal | EUR | 1,855,000 | USD | 2,707,618 | $ | 2,687,660 | $ | 19,958 | |||||||||||||||
08/19/2011 | RBC Capital Markets Corp. | GBP | 332,000 | USD | 541,625 | 532,549 | 9,076 | |||||||||||||||||
Total open foreign currency contracts | $ | 29,034 | ||||||||||||||||||||||
Closed Foreign Currency Contracts | ||||||||||||||||||||||||
Closed | Contract to | |||||||||||||||||||||||
Date | Counterparty | Deliver | Receive | Value | Realized Gain | |||||||||||||||||||
05/20/2011 | Bank of Montreal | USD | 189,380 | EUR | 134,000 | $ | 195,979 | $ | 6,599 | |||||||||||||||
Total foreign currency contracts | $ | 35,633 | ||||||||||||||||||||||
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.
During the six months ended June 30, 2011, the Fund paid legal fees of $652 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner of that firm is a Trustee of the Trust.
Invesco V.I. High Yield Securities 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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2011 | $ | 81,457,642 | ||
December 31, 2012 | 24,097,704 | |||
December 31, 2013 | 15,736,680 | |||
December 31, 2014 | 6,219,062 | |||
December 31, 2016 | 1,794,343 | |||
December 31, 2017 | 10,401,018 | |||
December 31, 2018 | 43,961,613 | |||
Total capital loss carryforward | $ | 183,668,062 | ||
* | 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, 2011 was $14,066,903 and $16,431,027, 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 | $ | 1,092,189 | ||
Aggregate unrealized (depreciation) of investment securities | (7,790,352 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (6,698,163 | ) | |
Cost of investments for tax purposes is $35,786,558. |
Invesco V.I. High Yield Securities Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 332,243 | $ | 395,016 | 685,783 | $ | 764,001 | ||||||||||
Series II | 79,803 | 94,816 | 598,859 | 659,318 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 1,272,306 | 1,323,198 | ||||||||||||
Series II | — | — | 1,274,514 | 1,325,494 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,462,017 | ) | (1,738,896 | ) | (2,886,241 | ) | (3,250,300 | ) | ||||||||
Series II | (2,264,380 | ) | (2,683,392 | ) | (2,643,132 | ) | (2,943,684 | ) | ||||||||
Net increase (decrease) in share activity | (3,314,351 | ) | $ | (3,932,456 | ) | (1,697,911 | ) | $ | (2,121,973 | ) | ||||||
(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. High Yield 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 | 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) | (000’s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | $ | 1.15 | $ | 0.03 | $ | 0.01 | $ | 0.04 | $ | — | $ | 1.19 | 3.48 | % | $ | 15,252 | 1.88 | %(d) | 1.88 | %(d) | 5.89 | %(d) | 46 | % | ||||||||||||||||||||||||
Year ended 12/31/10 | 1.13 | 0.08 | 0.04 | 0.12 | (0.10 | ) | 1.15 | 10.19 | 16,049 | 1.97 | 1.98 | 7.37 | 116 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 0.85 | 0.09 | 0.27 | 0.36 | (0.08 | ) | 1.13 | 44.56 | 16,824 | 1.74 | (e) | 1.75 | (e) | 8.76 | (e) | 75 | ||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 1.13 | 0.07 | (0.33 | ) | (0.26 | ) | (0.02 | ) | 0.85 | (23.13 | ) | 13,226 | 1.48 | (e) | 1.48 | (e) | 6.90 | (e) | 44 | |||||||||||||||||||||||||||||
Year ended 12/31/07 | 1.16 | 0.08 | (0.03 | ) | 0.05 | (0.08 | ) | 1.13 | 4.17 | 21,625 | 1.18 | 1.18 | 6.48 | 26 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 1.14 | 0.08 | 0.02 | 0.10 | (0.08 | ) | 1.16 | 9.29 | 27,907 | 0.95 | 0.95 | 6.78 | 23 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 1.15 | 0.03 | 0.01 | 0.04 | — | 1.19 | 3.48 | 14,068 | 2.13 | (d) | 2.13 | (d) | 5.64 | (d) | 46 | |||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 1.13 | 0.08 | 0.03 | 0.11 | (0.09 | ) | 1.15 | 10.36 | 16,128 | 2.22 | 2.23 | 7.12 | 116 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 0.85 | 0.08 | 0.28 | 0.36 | (0.08 | ) | 1.13 | 44.27 | 16,723 | 1.99 | (e) | 2.00 | (e) | 8.51 | (e) | 75 | ||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 1.13 | 0.07 | (0.33 | ) | (0.26 | ) | (0.02 | ) | 0.85 | (23.20 | ) | 13,973 | 1.73 | (e) | 1.73 | (e) | 6.65 | (e) | 44 | |||||||||||||||||||||||||||||
Year ended 12/31/07 | 1.16 | 0.07 | (0.03 | ) | 0.04 | (0.07 | ) | 1.13 | 3.90 | 24,433 | 1.43 | 1.43 | 6.23 | 26 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 1.14 | 0.08 | 0.02 | 0.10 | (0.08 | ) | 1.16 | 9.01 | 30,764 | 1.20 | 1.20 | 6.53 | 23 | |||||||||||||||||||||||||||||||||||
(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) of $15,945 and $15,343 for Series I and Series II shares, respectively. | |
(e) | The ratios reflect the rebate of certain Fund expenses in connection with investments in a Morgan Stanley affiliate during the period. The effect of the ratios are 0.01% and less than 0.005% for the years ended December 31, 2009 and 2008, respectively. |
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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,043.90 | $ | 9.53 | $ | 1,015.47 | $ | 9.39 | 1.88 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,043.90 | 10.79 | 1,014.23 | 10.64 | 2.13 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2011 through June 30, 2011, 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 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 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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 funds in the Lipper
Invesco V.I. High Yield Securities Fund
performance universe and against the Lipper VA Underlying Funds – High Current Yield Funds Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile of the performance universe for the one year period and the third 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 performance of Series I shares of the Fund 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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. The Board noted that the Fund’s rate was below the rates of two mutual funds and the same as the rate of one mutual fund managed by Invesco Advisers with comparable investment strategies.
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 June 30, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Invesco V.I. International Growth Fund
Semiannual Report to Shareholders § June 30, 2011
Semiannual Report to Shareholders § June 30, 2011
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at 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, 2011, is available at 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
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 6.63 | % | ||
Series II Shares | 6.49 | |||
MSCI EAFE Index▼ (Broad Market Index) | 4.98 | |||
MSCI EAFE Growth Index▼ (Style-Specific Index) | 4.38 | |||
Lipper VUF International Growth Funds Index▼(Peer Group Index) | 3.89 | |||
▼ | 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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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.
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 1.04% and 1.29%, 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 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.
Average Annual Total Returns
As of 6/30/11
Series I Shares | ||||||||
Inception (5/5/93) | 7.98 | % | ||||||
10 | Years | 7.34 | ||||||
5 | Years | 5.56 | ||||||
1 | Year | 31.46 | ||||||
Series II Shares | ||||||||
10 | Years | 7.06 | % | |||||
5 | Years | 5.29 | ||||||
1 | Year | 31.12 |
Invesco V.I. International Growth Fund
Schedule of Investments
June 30, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–92.21% | ||||||||
Australia–6.58% | ||||||||
BHP Billiton Ltd. | 511,912 | $ | 24,193,506 | |||||
Brambles Ltd. | 1,264,000 | 9,819,453 | ||||||
Cochlear Ltd. | 121,838 | 9,408,331 | ||||||
CSL Ltd. | 317,513 | 11,258,011 | ||||||
QBE Insurance Group Ltd. | 572,346 | 10,625,121 | ||||||
WorleyParsons Ltd. | 594,935 | 18,063,361 | ||||||
83,367,783 | ||||||||
Belgium–1.53% | ||||||||
Anheuser-Busch InBev N.V. | 334,791 | 19,425,913 | ||||||
Brazil–2.34% | ||||||||
Banco Bradesco S.A.–ADR | 986,833 | 20,220,208 | ||||||
Petroleo Brasileiro S.A.–ADR | 306,858 | 9,414,403 | ||||||
29,634,611 | ||||||||
Canada–5.98% | ||||||||
Agrium Inc. | 93,912 | 8,247,001 | ||||||
Canadian National Railway Co. | 127,070 | 10,164,019 | ||||||
Canadian Natural Resources Ltd. | 248,868 | 10,433,154 | ||||||
Cenovus Energy Inc. | 314,886 | 11,884,955 | ||||||
Encana Corp. | 235,266 | 7,264,850 | ||||||
Fairfax Financial Holdings Ltd. | 24,717 | 9,892,951 | ||||||
Suncor Energy, Inc. | 290,346 | 11,380,214 | ||||||
Talisman Energy, Inc. | 317,458 | 6,520,990 | ||||||
75,788,134 | ||||||||
China–1.50% | ||||||||
Industrial & Commercial Bank of China Ltd.–Class H | 24,779,000 | 18,973,119 | ||||||
Denmark–1.66% | ||||||||
Novo Nordisk A/S–Class B | 168,041 | 21,073,994 | ||||||
France–7.21% | ||||||||
BNP Paribas | 214,995 | 16,600,933 | ||||||
Cap Gemini S.A. | 251,134 | 14,717,517 | ||||||
Cie Generale des Etablissements Michelin–Class B | 102,833 | 10,059,994 | ||||||
Danone S.A. | 222,465 | 16,603,313 | ||||||
Eutelsat Communications | 193,492 | 8,701,064 | ||||||
Lafarge S.A. | 142,982 | 9,114,619 | ||||||
Publicis Groupe S.A. | 125,797 | 7,024,566 | ||||||
Total S.A. | 147,683 | 8,543,451 | ||||||
91,365,457 | ||||||||
Germany–5.56% | ||||||||
Adidas AG | 247,785 | 19,661,200 | ||||||
Bayer AG | 127,680 | 10,268,187 | ||||||
Bayerische Motoren Werke AG | 141,578 | 14,112,119 | ||||||
Fresenius Medical Care AG & Co. KGaA | 178,730 | 13,365,149 | ||||||
SAP AG | 215,673 | 13,061,707 | ||||||
70,468,362 | ||||||||
Hong Kong–1.49% | ||||||||
Hutchison Whampoa Ltd. | 1,264,000 | 13,704,273 | ||||||
Li & Fung Ltd. | 2,588,620 | 5,206,298 | ||||||
18,910,571 | ||||||||
India–1.19% | ||||||||
Infosys Technologies Ltd. | 231,895 | 15,118,914 | ||||||
Israel–1.63% | ||||||||
Teva Pharmaceutical Industries Ltd.–ADR | 428,115 | 20,643,705 | ||||||
Japan–9.85% | ||||||||
Canon, Inc. | 402,800 | 19,211,835 | ||||||
Denso Corp. | 456,200 | 16,941,255 | ||||||
FANUC Corp. | 90,000 | 15,010,445 | ||||||
Keyence Corp. | 44,400 | 12,594,646 | ||||||
Komatsu Ltd. | 351,937 | 10,951,938 | ||||||
Nidec Corp. | 139,895 | 13,061,041 | ||||||
Toyota Motor Corp. | 355,400 | 14,966,124 | ||||||
Yamada Denki Co., Ltd. | 270,210 | 22,047,188 | ||||||
124,784,472 | ||||||||
Mexico–2.98% | ||||||||
America Movil SAB de C.V.–Series L–ADR | 308,653 | 16,630,224 | ||||||
Fomento Economico Mexicano, S.A.B. de C.V.–ADR | 173,406 | 11,529,765 | ||||||
Grupo Televisa S.A.B. de C.V.–ADR | 390,116 | 9,596,854 | ||||||
37,756,843 | ||||||||
Netherlands–2.14% | ||||||||
Koninklijke (Royal) KPN N.V. | 168,309 | 2,448,815 | ||||||
Koninklijke Ahold N.V. | 881,466 | 11,848,013 | ||||||
Unilever N.V. | 391,860 | 12,849,408 | ||||||
27,146,236 | ||||||||
Russia–1.51% | ||||||||
Gazprom OAO–ADR | 988,451 | 14,477,405 | ||||||
VimpelCom Ltd.–ADR | 361,000 | 4,606,360 | ||||||
19,083,765 | ||||||||
Singapore–2.69% | ||||||||
Keppel Corp. Ltd. | 2,045,662 | 18,509,706 | ||||||
United Overseas Bank Ltd. | 966,000 | 15,520,187 | ||||||
34,029,893 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
Shares | Value | |||||||
South Korea–2.89% | ||||||||
Hyundai Mobis | 62,624 | $ | 23,462,371 | |||||
NHN Corp.(a) | 74,249 | 13,171,296 | ||||||
36,633,667 | ||||||||
Sweden–3.62% | ||||||||
Kinnevik Investment A.B., Class B | 281,253 | 6,249,177 | ||||||
Swedbank A.B.–Class A | 629,871 | 10,588,495 | ||||||
Telefonaktiebolaget LM Ericsson–Class B | 997,696 | 14,353,489 | ||||||
Volvo A.B.–Class B | 837,274 | 14,631,176 | ||||||
45,822,337 | ||||||||
Switzerland–7.91% | ||||||||
ABB Ltd.(a) | 484,602 | 12,567,599 | ||||||
Julius Baer Group Ltd.(a) | 305,016 | 12,601,958 | ||||||
Nestle S.A. | 365,993 | 22,749,386 | ||||||
Novartis AG | 340,808 | 20,879,862 | ||||||
Roche Holding AG | 102,453 | 17,148,628 | ||||||
Syngenta AG(a) | 42,316 | 14,286,558 | ||||||
100,233,991 | ||||||||
Taiwan–1.99% | ||||||||
Hon Hai Precision Industry Co., Ltd. | 2,556,680 | 8,818,880 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd.–ADR | 1,298,663 | 16,376,140 | ||||||
25,195,020 | ||||||||
Turkey–0.64% | ||||||||
Akbank T.A.S. | 1,754,124 | 8,105,933 | ||||||
United Kingdom–19.32% | ||||||||
BG Group PLC | 750,286 | 17,028,577 | ||||||
British American Tobacco PLC | 388,041 | 17,009,886 | ||||||
Centrica PLC | 3,081,981 | 15,993,288 | ||||||
Compass Group PLC | 2,517,241 | 24,282,945 | ||||||
Imperial Tobacco Group PLC | 701,640 | 23,323,651 | ||||||
Informa PLC | 1,624,730 | 11,268,538 | ||||||
International Power PLC | 2,324,616 | 12,003,403 | ||||||
Kingfisher PLC | 2,701,380 | 11,585,752 | ||||||
Next PLC | 340,090 | 12,691,674 | ||||||
Reed Elsevier PLC | 1,642,874 | 14,942,335 | ||||||
Royal Dutch Shell PLC–Class B | 453,570 | 16,191,281 | ||||||
Shire PLC | 574,975 | 17,950,257 | ||||||
Smith & Nephew PLC | 1,084,876 | 11,579,874 | ||||||
Tesco PLC | 2,397,722 | 15,487,087 | ||||||
Vodafone Group PLC | 4,592,272 | 12,205,702 | ||||||
WPP PLC | 894,841 | 11,203,212 | ||||||
244,747,462 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $784,575,255) | 1,168,310,182 | |||||||
Money Market Funds–7.33% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 46,466,618 | 46,466,618 | ||||||
Premier Portfolio–Institutional Class(b) | 46,466,618 | 46,466,618 | ||||||
Total Money Market Funds (Cost $92,933,236) | 92,933,236 | |||||||
TOTAL INVESTMENTS–99.54% (Cost $877,508,491) | 1,261,243,418 | |||||||
OTHER ASSETS LESS LIABILITIES–0.46% | 5,873,051 | |||||||
NET ASSETS–100.00% | $ | 1,267,116,469 | ||||||
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, 2011
Consumer Discretionary | 18.8 | % | ||
Health Care | 12.1 | |||
Consumer Staples | 11.9 | |||
Energy | 10.4 | |||
Financials | 10.2 | |||
Information Technology | 10.1 | |||
Industrials | 9.3 | |||
Materials | 4.4 | |||
Telecommunication Services | 2.8 | |||
Utilities | 2.2 | |||
Money Market Funds Plus Other Assets Less Liabilities | 7.8 | |||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $784,575,255) | $ | 1,168,310,182 | ||
Investments in affiliated money market funds, at value and cost | 92,933,236 | |||
Total investments, at value (Cost $877,508,491) | 1,261,243,418 | |||
Cash | 47,023 | |||
Foreign currencies, at value (Cost $885,961) | 893,717 | |||
Receivable for: | ||||
Investments sold | 2,008,819 | |||
Fund shares sold | 1,886,414 | |||
Dividends | 6,312,506 | |||
Investment for trustee deferred compensation and retirement plans | 62,816 | |||
Other assets | 190 | |||
Total assets | 1,272,454,903 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 3,040,292 | |||
Accrued fees to affiliates | 1,856,303 | |||
Accrued other operating expenses | 281,154 | |||
Trustee deferred compensation and retirement plans | 160,685 | |||
Total liabilities | 5,338,434 | |||
Net assets applicable to shares outstanding | $ | 1,267,116,469 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,122,561,349 | ||
Undistributed net investment income | 17,066,939 | |||
Undistributed net realized gain (loss) | (256,798,926 | ) | ||
Unrealized appreciation | 384,287,107 | |||
$ | 1,267,116,469 | |||
Net Assets: | ||||
Series I | $ | 616,614,713 | ||
Series II | $ | 650,501,756 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 20,451,547 | |||
Series II | 21,784,548 | |||
Series I: | ||||
Net asset value per share | $ | 30.15 | ||
Series II: | ||||
Net asset value per share | $ | 29.86 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $1,972,025) | $ | 24,085,432 | ||
Dividends from affiliated money market funds | 39,158 | |||
Interest | 34,115 | |||
Total investment income | 24,158,705 | |||
Expenses: | ||||
Advisory fees | 4,225,912 | |||
Administrative services fees | 1,599,327 | |||
Custodian fees | 189,056 | |||
Distribution fees–Series II | 746,203 | |||
Transfer agent fees | 35,240 | |||
Trustees’ and officers’ fees and benefits | 26,021 | |||
Other | 58,466 | |||
Total expenses | 6,880,225 | |||
Less: Fees waived | (53,842 | ) | ||
Net expenses | 6,826,383 | |||
Net investment income | 17,332,322 | |||
Realized and unrealized gain from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 40,745,608 | |||
Foreign currencies | (287,569 | ) | ||
Foreign currency contracts | 828 | |||
40,458,867 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities (net of foreign taxes on holdings of $2,324,743) | 16,314,440 | |||
Foreign currencies | 256,745 | |||
16,571,185 | ||||
Net realized and unrealized gain | 57,030,052 | |||
Net increase in net assets resulting from operations | $ | 74,362,374 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 17,332,322 | $ | 18,371,750 | ||||
Net realized gain (loss) | 40,458,867 | (17,156,987 | ) | |||||
Change in net unrealized appreciation | 16,571,185 | 41,178,093 | ||||||
Net increase in net assets resulting from operations | 74,362,374 | 42,392,856 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (8,703,100 | ) | (11,906,519 | ) | ||||
Series II | (6,565,728 | ) | (9,115,881 | ) | ||||
Total distributions from net investment income | (15,268,828 | ) | (21,022,400 | ) | ||||
Share transactions–net: | ||||||||
Series I | 987,466 | (19,927,647 | ) | |||||
Series II | 51,205,717 | (903,010,172 | ) | |||||
Net increase (decrease) in net assets resulting from share transactions | 52,193,183 | (922,937,819 | ) | |||||
Net increase (decrease) in net assets | 111,286,729 | (901,567,363 | ) | |||||
Net assets: | ||||||||
Beginning of period | 1,155,829,740 | 2,057,397,103 | ||||||
End of period (includes undistributed net investment income of $17,066,939 and $15,003,445, respectively) | $ | 1,267,116,469 | $ | 1,155,829,740 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. International Growth Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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 (“GAAP”) 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 Daily 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 Canada Ltd. (formerly 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 May 2, 2011, 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 and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.11% and Series II shares to 1.36% of average daily net assets. Prior to May 2, 2011, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets. 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 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 the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012.
Further, the Adviser has contractually agreed, through at least June 30, 2012, 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, 2011, the Adviser waived advisory fees of $53,842.
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, 2011, 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, 2011, Invesco was paid $141,774 for accounting and fund administrative services and reimbursed $1,457,553 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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, 2011. 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 | $ | 20,666,342 | $ | 62,701,441 | $ | — | $ | 83,367,783 | ||||||||
Belgium | 19,425,913 | — | — | 19,425,913 | ||||||||||||
Brazil | 29,634,611 | — | — | 29,634,611 | ||||||||||||
Canada | 75,788,134 | — | — | 75,788,134 | ||||||||||||
China | — | 18,973,119 | — | 18,973,119 | ||||||||||||
Denmark | — | 21,073,994 | — | 21,073,994 | ||||||||||||
France | 84,340,891 | 7,024,566 | — | 91,365,457 | ||||||||||||
Germany | 56,356,243 | 14,112,119 | — | 70,468,362 | ||||||||||||
Hong Kong | — | 18,910,571 | — | 18,910,571 | ||||||||||||
India | — | 15,118,914 | — | 15,118,914 | ||||||||||||
Israel | 20,643,705 | — | — | 20,643,705 | ||||||||||||
Japan | — | 124,784,472 | — | 124,784,472 | ||||||||||||
Mexico | 37,756,843 | — | — | 37,756,843 | ||||||||||||
Netherlands | 27,146,236 | — | — | 27,146,236 | ||||||||||||
Russia | 4,606,360 | 14,477,405 | — | 19,083,765 | ||||||||||||
Invesco V.I. International Growth Fund
Level 1* | Level 2* | Level 3 | Total | |||||||||||||
Singapore | $ | — | $ | 34,029,893 | $ | — | $ | 34,029,893 | ||||||||
South Korea | 23,462,371 | 13,171,296 | — | 36,633,667 | ||||||||||||
Sweden | 31,468,848 | 14,353,489 | — | 45,822,337 | ||||||||||||
Switzerland | 100,233,991 | — | — | 100,233,991 | ||||||||||||
Taiwan | 16,376,140 | 8,818,880 | — | 25,195,020 | ||||||||||||
Turkey | 8,105,933 | — | — | 8,105,933 | ||||||||||||
United Kingdom | 202,112,338 | 42,635,124 | — | 244,747,462 | ||||||||||||
United States | 92,933,236 | — | — | 92,933,236 | ||||||||||||
$ | 851,058,135 | $ | 410,185,283 | $ | — | $ | 1,261,243,418 | |||||||||
* | 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, 2011, the Fund paid legal fees of $1,499 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 87,932,439 | ||
December 31, 2017 | 143,189,697 | |||
December 31, 2018 | 37,802,555 | |||
Total capital loss carryforward | $ | 268,924,691 | ||
* | 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 2, 2011, the date of reorganization of Invesco Van Kampen V.I. International Growth Equity Fund into the Fund and realized on securities held in each fund at such date of reorganization, the capital loss carryforward may be further limited for up to five years from the date of the reorganization. |
Invesco V.I. International Growth Fund
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, 2011 was $175,247,379 and $175,195,532, 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 | $ | 358,577,075 | ||
Aggregate unrealized (depreciation) of investment securities | (3,175,251 | ) | ||
Net unrealized appreciation of investment securities | $ | 355,401,824 | ||
Cost of investments for tax purposes is $905,841,594. |
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 2,181,242 | $ | 64,470,467 | 3,482,926 | $ | 94,266,556 | ||||||||||
Series II | 2,204,312 | 64,208,102 | 6,653,404 | 171,405,013 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 292,246 | 8,703,100 | 445,770 | 11,906,519 | ||||||||||||
Series II | 222,492 | 6,565,728 | 345,168 | 9,115,882 | ||||||||||||
Issued in connection with acquisitions:(b) | ||||||||||||||||
Series I | 426 | 13,190 | — | — | ||||||||||||
Series II | 1,107,888 | 34,002,342 | — | — | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,453,663 | ) | (72,199,291 | ) | (4,909,461 | ) | (126,100,722 | ) | ||||||||
Series II | (1,841,444 | ) | (53,570,455 | ) | (45,442,204 | ) | (1,083,531,067 | ) | ||||||||
Net increase (decrease) in share activity | 1,713,499 | $ | 52,193,183 | (39,424,397 | ) | $ | (922,937,819 | ) | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 46% 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) | As of the open of business on May 2, 2011, the Fund acquired all the net assets of Invesco Van Kampen V.I. International Growth Equity Fund pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of Invesco Van Kampen V.I. International Growth Equity Fund on April 1, 2011. The acquisition was accomplished by a tax-free exchange of 1,108,314 shares of the Fund for 3,524,810 shares outstanding of Invesco Van Kampen V.I. International Growth Equity Fund as of the close of business on April 29, 2011. Each class of Invesco Van Kampen V.I. International Growth Equity Fund was exchanged for the like class of shares of the Fund based on the relative net asset value of Invesco Van Kampen V.I. International Growth Equity Fund to the net asset value of the Fund on the close of business, April 29, 2011. Invesco Van Kampen V.I. International Growth Equity Fund’s net assets at that date of $34,015,532 including $7,388,865 of unrealized appreciation, was combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $1,248,419,884. The net assets of the Fund immediately following the acquisition were $1,282,435,416. |
Invesco V.I. International Growth 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 06/30/11 | $ | 28.69 | $ | 0.44 | $ | 1.46 | $ | 1.90 | $ | (0.44 | ) | $ | — | $ | (0.44 | ) | $ | 30.15 | 6.63 | % | $ | 616,615 | 1.02 | %(d) | 1.03 | %(d) | 3.04 | %(d) | 15 | % | ||||||||||||||||||||||||||
Year ended 12/31/10 | 26.01 | 0.38 | 2.92 | 3.30 | (0.62 | ) | — | (0.62 | ) | 28.69 | 12.86 | 586,219 | 1.03 | 1.04 | 1.46 | 38 | ||||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 28.35 | 0.40 | 1.44 | 1.84 | (0.33 | ) | — | (0.33 | ) | 29.86 | 6.49 | 650,502 | 1.27 | (d) | 1.28 | (d) | 2.79 | (d) | 15 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 25.63 | 0.31 | 2.89 | 3.20 | (0.48 | ) | — | (0.48 | ) | 28.35 | 12.61 | 569,610 | 1.28 | 1.29 | 1.21 | 38 | ||||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||
(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. For the period ending June 30, 2011, the portfolio turnover calculation excludes the value of securities purchased of $23,376,285 and sold of $7,185,188 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco Van Kampen V.I. International Growth Equity Fund into the Fund. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $597,643 and $601,910 for Series I and Series II, 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,066.30 | $ | 5.23 | $ | 1,019.74 | $ | 5.11 | 1.02 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,064.90 | 6.50 | 1,018.50 | 6.36 | 1.27 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2011 through June 30, 2011, 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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 funds in the Lipper
Invesco V.I. International Growth Fund
performance universe and against the Lipper VA Underlying Funds – International Growth Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile of the 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 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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. The Board noted that the Fund’s effective fee rate was below the effective fee rate of the other mutual fund advised by Invesco Advisers with comparable investment strategies.
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 June 30, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Semiannual Report to Shareholders § June 30, 2011
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at 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, 2011, is available at 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
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 6.80 | % | ||
Series II Shares | 6.68 | |||
S&P 500 Index▼(Broad Market Index) | 6.01 | |||
S&P 500 Consumer Discretionary Index▼(Style-Specific Index) | 8.33 | |||
▼Lipper Inc.
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The S&P 500 Consumer Discretionary Index is an unmanaged index considered representative of the consumer discretionary market.
The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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 6/30/11
As of 6/30/11
Series I Shares | ||||
Inception (4/30/02) | 4.48 | % | ||
5 Years | 2.82 | |||
1 Year | 37.52 | |||
Series II Shares | ||||
Inception | 4.24 | % | ||
5 Years | 2.58 | |||
1 Year | 37.17 |
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 1.01% and 1.26%, 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 1.65% and 1.90%, 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, 2012. See current prospectus for more information. |
Invesco V.I. Leisure Fund
Schedule of Investments
June 30, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.18%(a) | ||||||||
Advertising–2.72% | ||||||||
Interpublic Group of Cos., Inc. (The) | 33,026 | $ | 412,825 | |||||
National CineMedia, Inc. | 8,516 | 144,005 | ||||||
556,830 | ||||||||
Apparel Retail–2.74% | ||||||||
Abercrombie & Fitch Co.–Class A | 4,017 | 268,818 | ||||||
Prada S.P.A. (Italy)(b) | 48,500 | 292,619 | ||||||
561,437 | ||||||||
Apparel, Accessories & Luxury Goods–1.22% | ||||||||
Coach, Inc. | 3,917 | 250,414 | ||||||
Auto Parts & Equipment–3.98% | ||||||||
Autoliv, Inc. (Sweden) | 5,043 | 395,623 | ||||||
Johnson Controls, Inc. | 10,066 | 419,350 | ||||||
814,973 | ||||||||
Automobile Manufacturers–4.08% | ||||||||
Ford Motor Co.(b) | 35,414 | 488,359 | ||||||
Honda Motor Co., Ltd. (Japan) | 9,035 | 348,306 | ||||||
836,665 | ||||||||
Automotive Retail–2.16% | ||||||||
CarMax, Inc.(b) | 13,361 | 441,848 | ||||||
Broadcasting–4.05% | ||||||||
CBS Corp.–Class B | 13,250 | 377,493 | ||||||
Scripps Networks Interactive Inc.–Class A | 9,264 | 452,824 | ||||||
830,317 | ||||||||
Cable & Satellite–9.86% | ||||||||
Comcast Corp.–Class A | 32,660 | 827,604 | ||||||
DIRECTV–Class A(b) | 16,863 | 856,978 | ||||||
Time Warner Cable, Inc. | 4,318 | 336,977 | ||||||
2,021,559 | ||||||||
Casinos & Gaming–7.06% | ||||||||
Las Vegas Sands Corp.(b) | 10,781 | 455,066 | ||||||
MGM Resorts International(b) | 8,732 | 115,350 | ||||||
Penn National Gaming, Inc.(b) | 21,748 | 877,314 | ||||||
1,447,730 | ||||||||
Computer Hardware–2.03% | ||||||||
Apple, Inc.(b) | 1,237 | 415,224 | ||||||
Department Stores–5.06% | ||||||||
Kohl’s Corp. | 8,438 | 421,984 | ||||||
Macy’s, Inc. | 13,803 | 403,600 | ||||||
Nordstrom, Inc. | 4,491 | 210,808 | ||||||
1,036,392 | ||||||||
Footwear–2.97% | ||||||||
Deckers Outdoor Corp.(b) | 2,189 | 192,938 | ||||||
NIKE, Inc.–Class B | 4,621 | 415,798 | ||||||
608,736 | ||||||||
Home Furnishings–3.55% | ||||||||
Mohawk Industries, Inc.(b) | 12,137 | 728,099 | ||||||
Home Improvement Retail–2.71% | ||||||||
Home Depot, Inc. (The) | 15,332 | 555,325 | ||||||
Homefurnishing Retail–1.07% | ||||||||
Bed Bath & Beyond Inc.(b) | 3,775 | 220,347 | ||||||
Hotels, Resorts & Cruise Lines–6.58% | ||||||||
Choice Hotels International, Inc. | 4,839 | 161,429 | ||||||
Hyatt Hotels Corp.–Class A(b) | 8,514 | 347,542 | ||||||
Marriott International Inc.–Class A | 15,456 | 548,533 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 5,211 | 292,024 | ||||||
1,349,528 | ||||||||
Hypermarkets & Super Centers–1.42% | ||||||||
Costco Wholesale Corp. | 3,585 | 291,245 | ||||||
Internet Retail–5.45% | ||||||||
Amazon.com, Inc.(b) | 3,385 | 692,198 | ||||||
Netflix, Inc.(b) | 813 | 213,567 | ||||||
Priceline.com, Inc.(b) | 415 | 212,451 | ||||||
1,118,216 | ||||||||
Internet Software & Services–3.96% | ||||||||
Baidu, Inc.–ADR (China)(b) | 4,116 | 576,775 | ||||||
Google, Inc.–Class A(b) | 312 | 157,991 | ||||||
Yandex N.V. (Netherlands)(b)(c) | 2,147 | 76,240 | ||||||
811,006 | ||||||||
Motorcycle Manufacturers–1.08% | ||||||||
Harley-Davidson, Inc. | 5,419 | 222,016 | ||||||
Movies & Entertainment–9.32% | ||||||||
Time Warner Inc. | 10,246 | 372,647 | ||||||
Viacom Inc.–Class A(c) | 6,907 | 397,014 | ||||||
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 | 8,339 | $ | 425,289 | |||||
Walt Disney Co. (The) | 18,310 | 714,823 | ||||||
1,909,773 | ||||||||
Restaurants–8.00% | ||||||||
Buffalo Wild Wings, Inc.(b) | 3,251 | 215,574 | ||||||
Chipotle Mexican Grill, Inc.(b) | 848 | 261,345 | ||||||
Darden Restaurants, Inc. | 7,415 | 368,971 | ||||||
P.F. Chang’s China Bistro, Inc. | 4,397 | 176,935 | ||||||
Starbucks Corp. | 15,647 | 617,900 | ||||||
1,640,725 | ||||||||
Soft Drinks–1.01% | ||||||||
Hansen Natural Corp.(b) | 2,548 | 206,261 | ||||||
Specialized Consumer Services–1.85% | ||||||||
Weight Watchers International, Inc. | 5,033 | 379,840 | ||||||
Specialty Stores–1.95% | ||||||||
Tiffany & Co. | 5,096 | 400,138 | ||||||
Systems Software–3.30% | ||||||||
Rovi Corp.(b) | 11,813 | 677,594 | ||||||
Total Common Stocks & Other Equity Interests (Cost $15,417,916) | 20,332,238 | |||||||
Money Market Funds–0.67% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 68,023 | 68,023 | ||||||
Premier Portfolio–Institutional Class(d) | 68,024 | 68,024 | ||||||
Total Money Market Funds (Cost $136,047) | 136,047 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–99.84% (Cost $15,553,963) | 20,468,285 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–1.74% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $357,190)(d)(e) | 357,190 | 357,190 | ||||||
TOTAL INVESTMENTS–101.59% (Cost $15,911,153) | 20,825,475 | |||||||
OTHER ASSETS LESS LIABILITIES–(1.59)% | (324,954 | ) | ||||||
NET ASSETS–100.00% | $ | 20,500,521 | ||||||
Investment Abbreviation:
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, 2011. | |
(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 1J. |
By sector, based on Net Assets
as of June 30, 2011
Consumer Discretionary | 87.5 | % | ||
Information Technology | 9.3 | |||
Consumer Staples | 2.4 | |||
Money Market Funds Plus Other Assets Less Liabilities | 0.8 | |||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $15,417,916)* | $ | 20,332,238 | ||
Investments in affiliated money market funds, at value and cost | 493,237 | |||
Total investments, at value (Cost $15,911,153) | 20,825,475 | |||
Receivable for: | ||||
Investments sold | 417,263 | |||
Dividends | 17,124 | |||
Investment for trustee deferred compensation and retirement plans | 13,978 | |||
Other assets | 1,111 | |||
Total assets | 21,274,951 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 295,710 | |||
Fund shares reacquired | 53,136 | |||
Collateral upon return of securities loaned | 357,190 | |||
Accrued fees to affiliates | 30,000 | |||
Accrued other operating expenses | 21,260 | |||
Trustee deferred compensation and retirement plans | 17,134 | |||
Total liabilities | 774,430 | |||
Net assets applicable to shares outstanding | $ | 20,500,521 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 18,169,030 | ||
Undistributed net investment income | 70,399 | |||
Undistributed net realized gain (loss) | (2,653,215 | ) | ||
Unrealized appreciation | 4,914,307 | |||
$ | 20,500,521 | |||
Net Assets: | ||||
Series I | $ | 20,184,490 | ||
Series II | $ | 316,031 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 2,381,094 | |||
Series II | 37,373 | |||
Series I: | ||||
Net asset value per share | $ | 8.48 | ||
Series II: | ||||
Net asset value per share | $ | 8.46 | ||
* | At June 30, 2011, securities with an aggregate value of $349,964 were on loan to brokers. |
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $259) | $ | 111,688 | ||
Dividends from affiliated money market funds (includes securities lending income of $6,418) | 6,529 | |||
Total investment income | 118,217 | |||
Expenses: | ||||
Advisory fees | 76,439 | |||
Administrative services fees | 50,244 | |||
Custodian fees | 6,436 | |||
Distribution fees — Series II | 253 | |||
Transfer agent fees | 1,580 | |||
Trustees’ and officers’ fees and benefits | 8,198 | |||
Professional services fees | 16,251 | |||
Other | 7,561 | |||
Total expenses | 166,962 | |||
Less: fees waived | (64,021 | ) | ||
Net expenses | 102,940 | |||
Net investment income | 15,277 | |||
Realized and unrealized gain from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $85,725) | 1,437,756 | |||
Foreign currencies | (428 | ) | ||
1,437,328 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (108,359 | ) | ||
Foreign currencies | 84 | |||
(108,275 | ) | |||
Net realized and unrealized gain | 1,329,053 | |||
Net increase in net assets resulting from operations | $ | 1,344,330 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 15,277 | $ | 82,921 | ||||
Net realized gain | 1,437,328 | 1,755,492 | ||||||
Change in net unrealized appreciation (depreciation) | (108,275 | ) | 2,139,829 | |||||
Net increase in net assets resulting from operations | 1,344,330 | 3,978,242 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (104,603 | ) | |||||
Series II | — | (460 | ) | |||||
Total distributions from net investment income | — | (105,063 | ) | |||||
Share transactions–net: | ||||||||
Series I | (1,917,545 | ) | (3,420,143 | ) | ||||
Series II | 156,069 | 122,973 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (1,761,476 | ) | (3,297,170 | ) | ||||
Net increase (decrease) in net assets | (417,146 | ) | 576,009 | |||||
Net assets: | ||||||||
Beginning of period | 20,917,667 | 20,341,658 | ||||||
End of period (includes undistributed net investment income of $70,399 and $55,122, respectively) | $ | 20,500,521 | $ | 20,917,667 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Leisure Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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. 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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 (“GAAP”) 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, which may make the Fund more volatile. | |
The leisure sector depends on consumer discretionary spending, which generally falls during economic downturns. Securities of gambling casinos are often subject to high price volatility and are considered speculative. Securities of companies that make video and electronic games may be affected by the games’ risk of rapid obsolescence. | ||
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 Daily 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 Canada Ltd. (formerly 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, 2012, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses after fee waiver and/or expense reimbursement (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 total annual 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 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 the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2012.
Further, the Adviser has contractually agreed, through at least June 30, 2012, 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, 2011, the Adviser waived advisory fees of $64,021.
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, 2011, 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, 2011, Invesco was paid $24,794 for accounting and fund administrative services and reimbursed $25,450 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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
Invesco V.I. Leisure Fund
(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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 20,477,169 | $ | 348,306 | $ | — | $ | 20,825,475 | ||||||||
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, 2011, the Fund engaged in securities purchases of $30,467 and securities sales of $392,619, which resulted in net realized gains of $85,725.
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, 2011, the Fund paid legal fees of $644 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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, 2011 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2017 | $ | 4,070,110 | ||
* | 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. Leisure 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, 2011 was $5,525,540 and $7,415,222, 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 | $ | 4,959,077 | ||
Aggregate unrealized (depreciation) of investment securities | (65,190 | ) | ||
Net unrealized appreciation of investment securities | $ | 4,893,887 | ||
Cost of investments for tax purposes is $15,931,588. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011 (a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 5,351 | $ | 43,660 | 28,641 | $ | 201,622 | ||||||||||
Series II | 20,898 | 171,884 | 28,815 | 204,872 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 14,816 | 104,602 | ||||||||||||
Series II | — | — | 65 | 460 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (240,876 | ) | (1,961,205 | ) | (531,332 | ) | (3,726,367 | ) | ||||||||
Series II | (1,936 | ) | (15,815 | ) | (11,814 | ) | (82,359 | ) | ||||||||
Net increase (decrease) in share activity | (216,563 | ) | $ | (1,761,476 | ) | (470,809 | ) | $ | (3,297,170 | ) | ||||||
(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 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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | to average | to average net | investment | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | securities | Dividends | Distributions | net assets | assets without | income | |||||||||||||||||||||||||||||||||||||||||||||||||
value, | investment | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | (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 06/30/11 | $ | 7.94 | $ | 0.01 | (c) | $ | 0.53 | $ | 0.54 | $ | — | $ | — | $ | — | $ | 8.48 | 6.80 | % | $ | 20,184 | 1.01 | %(d) | 1.64 | %(d) | 0.15 | %(d) | 27 | % | |||||||||||||||||||||||||||
Year ended 12/31/10 | 6.55 | 0.03 | (c) | 1.40 | 1.43 | (0.04 | ) | — | (0.04 | ) | 7.94 | 21.88 | 20,772 | 1.01 | 1.65 | 0.41 | 59 | |||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 7.93 | (0.00 | )(c) | 0.53 | 0.53 | — | — | — | 8.46 | 6.68 | 316 | 1.26 | (d) | 1.89 | (d) | (0.10 | )(d) | 27 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 6.55 | 0.01 | (c) | 1.41 | 1.42 | (0.04 | ) | — | (0.04 | ) | 7.93 | 21.70 | 146 | 1.26 | 1.90 | 0.16 | 59 | |||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||||
(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 $20,348 and $204 for Series I and Series II, 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,068.00 | $ | 5.18 | $ | 1,019.79 | $ | 5.06 | 1.01 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,066.80 | 6.46 | 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, 2011 through June 30, 2011, 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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 funds in the Lipper
Invesco V.I. Leisure Fund
performance universe . The Board noted that performance of Series I shares of the Fund was in the second quintile of the 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). Invesco Advisers advised the Board that a new lead portfolio manager was named in May and that performance was impacted by the conservative, quality bias of the Fund which caused underperformance 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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. The Board noted that the Fund’s effective fee rate above the effective fee rate of the other mutual fund with investment strategies comparable to the 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, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Semiannual Report to Shareholders § June 30, 2011
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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 800 959 4246 or at 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, 2011, is available at 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, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 6.38 | % | ||
Series II Shares | 6.35 | |||
S&P 500 Index▼ (Broad Market Index) | 6.01 | |||
Russell Midcap Index▼ (Style-Specific Index) | 8.08 | |||
Lipper VUF Mid-Cap Core Funds Index▼ (Peer Group Index) | 7.50 | |||
▼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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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 6/30/11
As of 6/30/11
Series I Shares | ||||
Inception (9/10/01) | 7.59 | % | ||
5 Years | 6.23 | |||
1 Year | 27.09 | |||
Series II Shares | ||||
Inception (9/10/01) | 7.34 | % | ||
5 Years | 5.99 | |||
1 Year | 26.74 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.03% and 1.28%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
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
June 30, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–83.23%(a) | ||||||||
Aerospace & Defense–5.86% | ||||||||
Alliant Techsystems Inc. | 118,923 | $ | 8,482,778 | |||||
ITT Corp. | 159,605 | 9,405,523 | ||||||
Moog Inc.–Class A(b) | 102,893 | 4,477,903 | ||||||
Rockwell Collins, Inc. | 85,806 | 5,293,372 | ||||||
27,659,576 | ||||||||
Air Freight & Logistics–0.82% | ||||||||
Expeditors International of Washington, Inc. | 75,261 | 3,852,611 | ||||||
Apparel Retail–2.37% | ||||||||
American Eagle Outfitters, Inc. | 361,052 | 4,603,413 | ||||||
Guess?, Inc. | 98,359 | 4,136,979 | ||||||
Prada S.p.A. (Italy)(b) | 404,500 | 2,440,505 | ||||||
11,180,897 | ||||||||
Apparel, Accessories & Luxury Goods–1.47% | ||||||||
Carter’s, Inc.(b) | 161,982 | 4,982,566 | ||||||
True Religion Apparel, Inc.(b) | 68,009 | 1,977,702 | ||||||
6,960,268 | ||||||||
Application Software–1.20% | ||||||||
Adobe Systems Inc.(b) | 179,381 | 5,641,532 | ||||||
Asset Management & Custody Banks–3.77% | ||||||||
Legg Mason, Inc. | 224,551 | 7,356,291 | ||||||
Northern Trust Corp. | 227,252 | 10,444,502 | ||||||
17,800,793 | ||||||||
Biotechnology–0.96% | ||||||||
Biogen Idec Inc.(b) | 42,590 | 4,553,723 | ||||||
Brewers–1.69% | ||||||||
Molson Coors Brewing Co.–Class B | 178,140 | 7,969,984 | ||||||
Communications Equipment–2.80% | ||||||||
Brocade Communications Systems, Inc.(b) | 304,206 | 1,965,171 | ||||||
Motorola Mobility Holdings Inc.(b) | 218,786 | 4,822,044 | ||||||
Motorola Solutions, Inc.(b) | 102,011 | 4,696,586 | ||||||
Research In Motion Ltd. (Canada)(b) | 60,000 | 1,731,000 | ||||||
13,214,801 | ||||||||
Computer & Electronics Retail–1.97% | ||||||||
Best Buy Co., Inc. | 163,423 | 5,133,116 | ||||||
GameStop Corp.–Class A(b) | 156,924 | 4,185,163 | ||||||
9,318,279 | ||||||||
Computer Storage & Peripherals–0.67% | ||||||||
SMART Technologies Inc.–Class A (Canada)(b) | 557,370 | 3,177,009 | ||||||
Construction & Engineering–2.00% | ||||||||
Chicago Bridge & Iron Co. N.V.–New York Shares (Netherlands) | 133,006 | 5,173,933 | ||||||
Foster Wheeler AG (Switzerland)(b) | 140,720 | 4,275,074 | ||||||
9,449,007 | ||||||||
Construction & Farm Machinery & Heavy Trucks–0.82% | ||||||||
Terex Corp.(b) | 135,538 | 3,856,056 | ||||||
Construction Materials–0.71% | ||||||||
CRH PLC (Ireland) | 151,576 | 3,357,509 | ||||||
Data Processing & Outsourced Services–0.66% | ||||||||
Western Union Co. | 156,055 | 3,125,782 | ||||||
Department Stores–0.76% | ||||||||
Macy’s, Inc. | 122,861 | 3,592,456 | ||||||
Electric Utilities–0.93% | ||||||||
Edison International | 113,780 | 4,408,975 | ||||||
Electrical Components & Equipment–1.72% | ||||||||
Cooper Industries PLC–Class A (Ireland) | 58,917 | 3,515,577 | ||||||
Thomas & Betts Corp.(b) | 85,556 | 4,607,191 | ||||||
8,122,768 | ||||||||
Electronic Manufacturing Services–0.70% | ||||||||
Molex, Inc. | 128,999 | 3,324,304 | ||||||
Environmental & Facilities Services–1.19% | ||||||||
Republic Services, Inc. | 182,609 | 5,633,488 | ||||||
Fertilizers & Agricultural Chemicals–0.65% | ||||||||
Scotts Miracle-Gro Co. (The)–Class A | 59,575 | 3,056,793 | ||||||
Food Retail–3.14% | ||||||||
Kroger Co. (The) | 97,652 | 2,421,769 | ||||||
Safeway, Inc. | 531,129 | 12,412,485 | ||||||
14,834,254 | ||||||||
Gold–0.56% | ||||||||
Agnico-Eagle Mines Ltd. (Canada) | 41,520 | 2,621,158 | ||||||
Health Care Equipment–2.98% | ||||||||
Boston Scientific Corp.(b) | 1,173,153 | 8,106,487 | ||||||
Hologic, Inc.(b) | 296,742 | 5,985,286 | ||||||
14,091,773 | ||||||||
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 | |||||||
Health Care Facilities–0.97% | ||||||||
Rhoen-Klinikum AG (Germany) | 110,662 | $ | 2,671,158 | |||||
VCA Antech, Inc.(b) | 89,032 | 1,887,478 | ||||||
4,558,636 | ||||||||
Health Care Services–2.12% | ||||||||
DaVita, Inc.(b) | 28,511 | 2,469,338 | ||||||
Laboratory Corp. of America Holdings(b) | 36,264 | 3,509,993 | ||||||
Quest Diagnostics Inc. | 68,385 | 4,041,553 | ||||||
10,020,884 | ||||||||
Heavy Electrical Equipment–0.25% | ||||||||
Alstom S.A. (France) | 19,088 | 1,177,338 | ||||||
Industrial Conglomerates–0.59% | ||||||||
Tyco International Ltd. | 56,405 | 2,788,099 | ||||||
Industrial Machinery–2.02% | ||||||||
Parker Hannifin Corp. | 40,824 | 3,663,546 | ||||||
SPX Corp. | 70,911 | 5,861,503 | ||||||
9,525,049 | ||||||||
Insurance Brokers–1.37% | ||||||||
Marsh & McLennan Cos., Inc. | 207,063 | 6,458,295 | ||||||
Leisure Products–0.44% | ||||||||
Hasbro, Inc. | 47,704 | 2,095,637 | ||||||
Life & Health Insurance–0.93% | ||||||||
Torchmark Corp. | 68,103 | 4,368,126 | ||||||
Life Sciences Tools & Services–2.42% | ||||||||
Agilent Technologies, Inc.(b) | 126,598 | 6,470,424 | ||||||
Waters Corp.(b) | 51,739 | 4,953,492 | ||||||
11,423,916 | ||||||||
Managed Health Care–1.75% | ||||||||
Aetna Inc. | 186,948 | 8,242,537 | ||||||
Marine–1.07% | ||||||||
Kirby Corp.(b) | 89,512 | 5,072,645 | ||||||
Multi-Sector Holdings–0.14% | ||||||||
PICO Holdings, Inc.(b) | 23,286 | 675,294 | ||||||
Oil & Gas Equipment & Services–5.70% | ||||||||
Cal Dive International, Inc.(b) | 631,004 | 3,773,404 | ||||||
Cameron International Corp.(b) | 109,715 | 5,517,567 | ||||||
Dresser-Rand Group, Inc.(b) | 116,161 | 6,243,654 | ||||||
ShawCor Ltd. (Canada) | 135,572 | 4,163,876 | ||||||
Weatherford International Ltd.(b) | 384,021 | 7,200,394 | ||||||
26,898,895 | ||||||||
Oil & Gas Exploration & Production–2.60% | ||||||||
Newfield Exploration Co.(b) | 49,733 | 3,382,839 | ||||||
Southwestern Energy Co.(b) | 207,796 | 8,910,292 | ||||||
12,293,131 | ||||||||
Oil & Gas Refining & Marketing–0.48% | ||||||||
Valero Energy Corp. | 88,288 | 2,257,524 | ||||||
Paper Packaging–0.25% | ||||||||
Sealed Air Corp. | 49,843 | 1,185,765 | ||||||
Personal Products–1.04% | ||||||||
Avon Products, Inc. | 175,348 | 4,909,744 | ||||||
Pharmaceuticals–1.11% | ||||||||
Hospira, Inc.(b) | 49,112 | 2,782,686 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 50,671 | 2,443,356 | ||||||
5,226,042 | ||||||||
Property & Casualty Insurance–2.08% | ||||||||
Progressive Corp. (The) | 459,531 | 9,824,773 | ||||||
Restaurants–0.92% | ||||||||
Darden Restaurants, Inc. | 87,582 | 4,358,080 | ||||||
Semiconductor Equipment–0.34% | ||||||||
FormFactor Inc.(b) | 177,735 | 1,610,279 | ||||||
Semiconductors–2.37% | ||||||||
Linear Technology Corp. | 185,541 | 6,126,564 | ||||||
Microchip Technology, Inc. | 66,288 | 2,512,978 | ||||||
Xilinx, Inc. | 69,933 | 2,550,456 | ||||||
11,189,998 | ||||||||
Specialized Finance–0.69% | ||||||||
Moody’s Corp. | 85,062 | 3,262,128 | ||||||
Specialty Chemicals–2.70% | ||||||||
International Flavors & Fragrances Inc. | 103,362 | 6,639,975 | ||||||
Sigma-Aldrich Corp. | 82,959 | 6,087,531 | ||||||
12,727,506 | ||||||||
Specialty Stores–0.29% | ||||||||
Staples, Inc. | 86,801 | 1,371,456 | ||||||
Systems Software–4.19% | ||||||||
CA, Inc. | 328,611 | 7,505,475 | ||||||
Symantec Corp.(b) | 623,130 | 12,288,124 | ||||||
19,793,599 | ||||||||
Thrifts & Mortgage Finance–1.82% | ||||||||
People’s United Financial Inc. | 639,331 | 8,592,609 | ||||||
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 | |||||||
Trucking–1.12% | ||||||||
Con-way Inc. | 135,598 | $ | 5,262,558 | |||||
Wireless Telecommunication Services–1.06% | ||||||||
MetroPCS Communications, Inc.(b) | 289,931 | 4,989,712 | ||||||
Total Common Stocks & Other Equity Interests (Cost $318,279,191) | 392,964,051 | |||||||
Money Market Funds–14.90% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 35,184,050 | 35,184,050 | ||||||
Premier Portfolio–Institutional Class(c) | 35,184,049 | 35,184,049 | ||||||
Total Money Market Funds (Cost $70,368,099) | 70,368,099 | |||||||
TOTAL INVESTMENTS–98.13% (Cost $388,647,290) | 463,332,150 | |||||||
OTHER ASSETS LESS LIABILITIES–1.87% | 8,842,740 | |||||||
NET ASSETS–100.00% | $ | 472,174,890 | ||||||
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. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2011
Industrials | 17.4 | % | ||
Information Technology | 12.9 | |||
Health Care | 12.3 | |||
Financials | 10.8 | |||
Energy | 8.8 | |||
Consumer Discretionary | 8.2 | |||
Consumer Staples | 5.9 | |||
Materials | 4.9 | |||
Telecommunication Services | 1.1 | |||
Utilities | 0.9 | |||
Money Market Funds Plus Other Assets Less Liabilities | 16.8 | |||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $318,279,191) | $ | 392,964,051 | ||
Investments in affiliated money market funds, at value and cost | 70,368,099 | |||
Total investments, at value (Cost $388,647,290) | 463,332,150 | |||
Receivable for: | ||||
Investments sold | 9,185,877 | |||
Fund shares sold | 304,423 | |||
Dividends | 442,530 | |||
Investment for trustee deferred compensation and retirement plans | 26,670 | |||
Total assets | 473,291,650 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 374,522 | |||
Accrued fees to affiliates | 636,240 | |||
Accrued other operating expenses | 26,556 | |||
Trustee deferred compensation and retirement plans | 79,442 | |||
Total liabilities | 1,116,760 | |||
Net assets applicable to shares outstanding | $ | 472,174,890 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 382,363,892 | ||
Undistributed net investment income | 1,131,430 | |||
Undistributed net realized gain | 13,987,308 | |||
Unrealized appreciation | 74,692,260 | |||
$ | 472,174,890 | |||
Net Assets: | ||||
| ||||
Series I | $ | 401,074,931 | ||
Series II | $ | 71,099,959 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 30,420,118 | |||
Series II | 5,444,996 | |||
Series I: | ||||
Net asset value per share | $ | 13.18 | ||
Series II: | ||||
Net asset value per share | $ | 13.06 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $19,201) | $ | 2,535,792 | ||
Dividends from affiliated money market funds (includes securities lending income of $6,552) | 44,885 | |||
Total investment income | 2,580,677 | |||
Expenses: | ||||
Advisory fees | 1,741,532 | |||
Administrative services fees | 654,985 | |||
Custodian fees | 6,147 | |||
Distribution fees–Series II | 82,587 | |||
Transfer agent fees | 9,555 | |||
Trustees’ and officers’ fees and benefits | 15,574 | |||
Other | 16,947 | |||
Total expenses | 2,527,327 | |||
Less: Fees waived | (53,445 | ) | ||
Net expenses | 2,473,882 | |||
Net investment income | 106,795 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $114,930) | 47,686,839 | |||
Foreign currencies | (5,409 | ) | ||
Option contracts written | 21,601 | |||
47,703,031 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (17,841,988 | ) | ||
Foreign currencies | 7,628 | |||
(17,834,360 | ) | |||
Net realized and unrealized gain | 29,868,671 | |||
Net increase in net assets resulting from operations | $ | 29,975,466 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 106,795 | $ | 1,149,522 | ||||
Net realized gain | 47,703,031 | 41,205,337 | ||||||
Change in net unrealized appreciation (depreciation) | (17,834,360 | ) | 18,415,260 | |||||
Net increase in net assets resulting from operations | 29,975,466 | 60,770,119 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (2,274,130 | ) | |||||
Series II | — | (186,084 | ) | |||||
Total distributions from net investment income | — | (2,460,214 | ) | |||||
Share transactions–net: | ||||||||
Series I | (36,774,888 | ) | (71,565,903 | ) | ||||
Series II | 5,574,739 | (1,706,198 | ) | |||||
Net increase (decrease) in net assets resulting from share transactions | (31,200,149 | ) | (73,272,101 | ) | ||||
Net increase (decrease) in net assets | (1,224,683 | ) | (14,962,196 | ) | ||||
Net assets: | ||||||||
Beginning of period | 473,399,573 | 488,361,769 | ||||||
End of period (includes undistributed net investment income of $1,131,430 and $1,024,635, respectively) | $ | 472,174,890 | $ | 473,399,573 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Mid Cap Core Equity Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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. Mid Cap 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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. Mid Cap Core Equity Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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. | |
L. | Call Options Written and Purchased — The Fund may write and/or buy call options. A call option gives the purchaser of such option the right to buy, and the writer the obligation to sell, the underlying security at the stated exercise price during the option period. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. | |
When the Fund writes a call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent 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 and unrealized gains and losses on these contracts are included in the Statement of Operation. 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. | ||
When the Fund buys a call option, an amount equal to the premium paid by the Fund is recorded as an investment on the Statement of Assets and Liabilities. The amount of the investment is subsequently “marked-to-market” to reflect the current value of the option purchased. Realized and unrealized |
Invesco V.I. Mid Cap Core Equity Fund
gains and losses on these contracts are included in the Statement of Operations. A risk in buying an option is that the Fund pays a premium whether or not the option is exercised. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased. | ||
M. | Put Options Purchased — The Fund may purchase put options including options on securities indexes and/or futures contracts. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the option’s underlying instrument at a fixed strike price. In return for this right, the Fund pays an option premium. The option’s underlying instrument may be a security, securities index, or a futures contract. Put options may be used by the Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund’s resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. A risk in buying an option is that the Fund pays a premium whether or not the option is exercised. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco 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 | 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 Canada Ltd. (formerly 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, 2012, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual 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 expnese reimbursement 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. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2012. 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, 2012, 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, 2011, the Adviser waived advisory fees of $53,445.
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, 2011, 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, 2011, Invesco was paid $60,208 for accounting and fund administrative services and reimbursed $594,777 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
Invesco V.I. Mid Cap Core Equity Fund
NOTE 3—Additional Valuation Information
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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 463,332,150 | $ | — | $ | — | $ | 463,332,150 | ||||||||
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, 2011
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Transactions During the Period | ||||||||
Call Option Contracts | ||||||||
Number of | Premiums | |||||||
Contracts | Received | |||||||
Beginning of period | — | $ | — | |||||
Written | 786 | 21,601 | ||||||
Expired | (786 | ) | (21,601 | ) | ||||
End of period | — | $ | — | |||||
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Option Contracts | ||||
Realized Gain (Loss) | ||||
Equity risk | $ | 21,601 | ||
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, 2011, the Fund engaged in securities purchases of $581,844 and securities sales of $508,551, which resulted in net realized gains of $114,930.
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
Invesco V.I. Mid Cap Core Equity Fund
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, 2011, the Fund paid legal fees of $972 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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.
The Fund had a capital loss carryforward as of December 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2017 | $ | 30,475,922 | ||
* | 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, 2011 was $116,701,741 and $174,163,301, 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 | $ | 79,968,285 | ||
Aggregate unrealized (depreciation) of investment securities | (8,523,226 | ) | ||
Net unrealized appreciation of investment securities | $ | 71,445,059 | ||
Cost of investments for tax purposes is $391,887,091 |
Invesco V.I. Mid Cap Core Equity Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,354,495 | $ | 17,518,331 | 1,854,251 | $ | 21,138,305 | ||||||||||
Series II | 1,502,083 | 19,329,945 | 2,043,008 | 22,984,219 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 201,607 | 2,274,130 | ||||||||||||
Series II | — | — | 16,630 | 186,084 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (4,183,103 | ) | (54,293,219 | ) | (8,395,150 | ) | (94,978,338 | ) | ||||||||
Series II | (1,071,477 | ) | (13,755,206 | ) | (2,228,501 | ) | (24,876,501 | ) | ||||||||
Net increase (decrease) in share activity | (2,398,002 | ) | $ | (31,200,149 | ) | (6,508,155 | ) | $ | (73,272,101 | ) | ||||||
(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. |
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 | 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 to | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | Investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | 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 06/30/11 | $ | 12.39 | $ | 0.01 | (c) | $ | 0.78 | $ | 0.79 | $ | — | $ | — | $ | — | $ | 13.18 | 6.38 | % | $ | 401,075 | 1.00 | %(d) | 1.02 | %(d) | 0.08 | %(d) | 28 | % | |||||||||||||||||||||||||||
Year ended 12/31/10 | 10.92 | 0.03 | (c) | 1.50 | 1.53 | (0.06 | ) | — | (0.06 | ) | 12.39 | 14.11 | 411,812 | 1.01 | 1.03 | 0.27 | 61 | |||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 12.28 | (0.01 | )(c) | 0.79 | 0.78 | — | — | — | 13.06 | 6.35 | 71,100 | 1.25 | (d) | 1.27 | (d) | (0.17 | )(d) | 28 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 10.83 | 0.00 | (c) | 1.49 | 1.49 | (0.04 | ) | — | (0.04 | ) | 12.28 | 13.78 | 61,587 | 1.26 | 1.28 | 0.02 | 61 | |||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns and are not annualized for periods less than one year, if applicable. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $417,787 and $66,617 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,063.80 | $ | 5.12 | $ | 1,019.84 | $ | 5.01 | 1.00 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,063.50 | 6.40 | 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, 2011 through June 30, 2011, 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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 and against the Lipper VA Underlying Funds – Mid-Cap Core Funds Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile for the one year period and the second quintile of the 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 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
Invesco V.I. Mid Cap Core Equity Fund
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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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. The Board noted that the Fund’s effective fee rate was above the effective fee rate of one mutual fund with comparable investment strategies.
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, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Invesco V.I. Money Market Fund
Semiannual Report to Shareholders § June 30, 2011
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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 800 959 4246 or at 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, 2011, is available at 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 |
About your Fund
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.
The Fund is a money market fund, and an investment in the Fund is not a deposit in a bank and 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, you may lose money by investing in the Fund.
Invesco V.I. Money Market Fund
Schedule of Investments
June 30, 2011
(Unaudited)
Principal | ||||||||||||||||
Interest | Maturity | Amount | ||||||||||||||
Rate | Date | (000) | Value | |||||||||||||
Commercial Paper–54.21%(a) | ||||||||||||||||
Asset-Backed Securities–Consumer Receivables–4.87% | ||||||||||||||||
Amsterdam Funding Corp.(b) | 0.16 | % | 08/09/11 | $ | 2,000 | $ | 1,999,654 | |||||||||
Thames Asset Global Securitization No. 1, Inc.(b)(c) | 0.14 | % | 07/13/11 | 3,187 | 3,186,851 | |||||||||||
5,186,505 | ||||||||||||||||
Asset-Backed Securities–Fully Backed–2.81% | ||||||||||||||||
Kells Funding LLC (CEP–Federal Republic of Germany)(b)(c) | 0.31 | % | 09/19/11 | 3,000 | 2,997,933 | |||||||||||
Asset-Backed Securities–Fully Supported Bank–12.08% | ||||||||||||||||
Lexington Parker Capital Co., LLC | ||||||||||||||||
Series A, (Multi-CEP’S-Liberty Hampshire Co., LLC; agent)(b)(c) | 0.32 | % | 07/05/11 | 5,000 | 4,999,822 | |||||||||||
Series A, (Multi-CEP’S-Liberty Hampshire Co., LLC; agent)(b)(c) | 0.32 | % | 07/08/11 | 1,000 | 999,938 | |||||||||||
LMA Americas LLC (CEP–Credit Agricole Corp. & Investment Bank)(b)(c) | 0.24 | % | 07/18/11 | 3,875 | 3,874,561 | |||||||||||
Surrey Funding Corp. (CEP–Barclays Bank PLC)(b)(c) | 0.26 | % | 08/02/11 | 3,000 | 2,999,307 | |||||||||||
12,873,628 | ||||||||||||||||
Asset-Backed Securities–Multi-Purpose–10.56% | ||||||||||||||||
Atlantic Asset Securitization LLC(b) | 0.16 | % | 07/18/11 | 5,250 | 5,249,604 | |||||||||||
Nieuw Amsterdam Receivables Corp.(b)(c) | 0.23 | % | 07/12/11 | 3,000 | 2,999,789 | |||||||||||
Regency Markets No. 1, LLC(b)(c) | 0.24 | % | 07/20/11 | 3,000 | 2,999,620 | |||||||||||
11,249,013 | ||||||||||||||||
Asset-Backed Securities–Securities–6.57% | ||||||||||||||||
Scaldis Capital Ltd./LLC(b)(c) | 0.17 | % | 07/19/11 | 5,000 | 4,999,575 | |||||||||||
Solitaire Funding Ltd./LLC(b)(c) | 0.15 | % | 07/12/11 | 2,000 | 1,999,908 | |||||||||||
6,999,483 | ||||||||||||||||
Diversified Banks–4.58% | ||||||||||||||||
Societe Generale North America, Inc.(c) | 0.25 | % | 07/20/11 | 4,875 | 4,874,357 | |||||||||||
Household Products–1.02% | ||||||||||||||||
Reckitt Benckister Treasury Services PLC(b)(c) | 0.32 | % | 07/06/11 | 1,090 | 1,089,952 | |||||||||||
Life & Health Insurance–4.69% | ||||||||||||||||
MetLife Short Term Funding LLC(b) | 0.16 | % | 07/15/11 | 5,000 | 4,999,689 | |||||||||||
Regional Banks–7.03% | ||||||||||||||||
ANZ National (Int’l) Ltd.(b)(c) | 0.28 | % | 10/17/11 | 3,000 | 2,997,480 | |||||||||||
Nordea North America Inc.(c) | 0.29 | % | 10/13/11 | 4,500 | 4,496,295 | |||||||||||
7,493,775 | ||||||||||||||||
Total Commercial Paper (Cost $57,764,335) | 57,764,335 | |||||||||||||||
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 | |||||||||||||
Variable Rate Demand Notes–21.48%(d) | ||||||||||||||||
Credit Enhanced–21.48% | ||||||||||||||||
Atlanticare Health Services, Inc.; Series 2003, VRD Taxable Bonds (LOC–Wells Fargo Bank, N.A.)(e) | 0.19 | % | 10/01/33 | $ | 4,800 | $ | 4,800,000 | |||||||||
Benjamin Rose Institute (The) (Kethley House); Series 2005, VRD Taxable Notes (LOC–JPMorgan Chase Bank, N.A.)(e) | 0.18 | % | 12/01/28 | 4,800 | 4,800,000 | |||||||||||
Collier (County of), Florida Industrial Development Authority (Allete, Inc.); Series 2006, Ref. VRD IDR (LOC–Wells Fargo Bank, N.A.)(e) | 0.13 | % | 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.)(e) | 0.09 | % | 05/15/17 | 600 | 600,000 | |||||||||||
Massachusetts (State of) Housing Finance Agency; Series 2009 B, VRD Taxable RB (LOC–Bank of America, N.A.)(e) | 0.12 | % | 01/01/44 | 4,800 | 4,800,000 | |||||||||||
Miami-Dade (County of), Florida Industrial Development Authority (Professional Modification Services, Inc.); Series 1998, VRD RB (LOC–JPMorgan Chase Bank, N.A.)(e) | 0.13 | % | 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.)(e) | 0.09 | % | 03/01/26 | 385 | 385,000 | |||||||||||
Ogden (City of), Utah Redevelopment Agency; Series 2009 B-1, Ref. VRD Taxable RB (LOC–Wells Fargo Bank, N.A.)(e) | 0.19 | % | 12/01/27 | 2,555 | 2,555,000 | |||||||||||
Pitney Road Partners, LLC; Series 2008, VRD Notes (CEP–General Electric Capital Corp.)(b) | 0.28 | % | 07/01/25 | 2,055 | 2,055,000 | |||||||||||
Rock Island (County of), Illinois Metropolitan Airport Authority (Quad City International Airport Air Freight); Series 1998 A, VRD Priority RB (LOC–U.S. Bank, N.A.)(e) | 0.17 | % | 12/01/18 | 390 | 390,000 | |||||||||||
St. Paul (City of), Minnesota Port Authority; Series 2009-10 CC, VRD District Cooling RB (LOC–Deutsche Bank AG)(c)(e) | 0.12 | % | 03/01/29 | 500 | 500,000 | |||||||||||
Total Variable Rate Demand Notes (Cost $22,885,000) | 22,885,000 | |||||||||||||||
Certificates of Deposit–10.32% | ||||||||||||||||
Bank of Tokyo-Mitsubishi UFJ Ltd. (The) (Cayman Islands)(c) | 0.05 | % | 07/01/11 | 5,000 | 4,999,999 | |||||||||||
Credit Agricole Corporate & Investment Bank | 0.38 | % | 07/07/11 | 1,000 | 1,000,000 | |||||||||||
Deutsche Bank AG (Cayman Islands)(c) | 0.01 | % | 07/01/11 | 5,000 | 5,000,000 | |||||||||||
Total Certificates of Deposit (Cost $10,999,999) | 10,999,999 | |||||||||||||||
U.S. Government Sponsored Agency Securities–4.49% | ||||||||||||||||
Federal Home Loan Bank (FHLB)–4.49% | ||||||||||||||||
Federal Home Loan Bank Unsec. Disc. Notes (Cost $4,789,084) | 0.001 | % | 07/01/11 | 4,789 | 4,789,084 | |||||||||||
TOTAL INVESTMENTS (excluding Repurchase Agreements)–90.50% (Cost $96,438,418) | 96,438,418 | |||||||||||||||
Repurchase | ||||||||||||||||
Amount | ||||||||||||||||
Repurchase Agreements–9.38%(f) | ||||||||||||||||
BMO Capital Markets Corp., Joint agreement dated 06/30/11, aggregate maturing value $150,000,333 (collateralized by Corporate obligations valued at $153,000,859; 0%-6.26%, 05/13/16-12/12/49) | 0.08 | % | 07/01/11 | $ | 5,000,011 | 5,000,000 | ||||||||||
Wells Fargo Securities, LLC, Joint agreement dated 06/30/11, aggregate maturing value $650,002,167 (collateralized by U.S. Government Sponsored Agency & Corporate obligations valued at $682,500,000; 0%-9.79%, 03/15/12-02/12/51) | 0.12 | % | 07/01/11 | 5,000,017 | 5,000,000 | |||||||||||
Total Repurchase Agreements (Cost $10,000,000) | 10,000,000 | |||||||||||||||
TOTAL INVESTMENTS(g)(h)–99.88% (Cost $106,438,418) | 106,438,418 | |||||||||||||||
OTHER ASSETS LESS LIABILITIES–0.12% | 126,133 | |||||||||||||||
NET ASSETS–100.00% | $ | 106,564,551 | ||||||||||||||
Investment Abbreviations:
CEP | – Credit Enhancement Provider | |
Disc. | – Discounted | |
IDR | – Industrial Development Revenue Bonds | |
LOC | – Letter of Credit | |
RB | – Revenue Bonds | |
Ref | – Refunding | |
Unsec. | – Unsecured | |
VRD | – Variable Rate Demand |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Money Market Fund
Notes to Schedule of Investments:
(a) | Security may be traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. | |
(b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2011 was $50,448,683, which represented 47.34% of the Trust’s Net Assets. | |
(c) | The security is credit guaranteed, enhanced or has credit risk by a foreign entity. The foreign credit exposure to countries other than the United States of America (as a percentage of net assets) is summarized as follows: United Kingdom: 17.2%; Cayman Islands: 9.4%; France: 8.2%; other countries less than 5% each: 20.6%. | |
(d) | Demand security payable upon demand by the Fund at specified time intervals no greater than thirteen months. Interest rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2011. | |
(e) | Principal and interest payments are fully enhanced by a letter of credit from the bank listed or a predecessor bank, branch or subsidiary. | |
(f) | Principal amount equals value at period end. See Note 1I. | |
(g) | Also represents cost for federal income tax purposes. | |
(h) | 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 | |||
Wells Fargo Bank, N.A. | 7.9 | % | ||
JP Morgan Chase Bank, N.A. | 5.8 | |||
Liberty Hampshire Co. | 5.6 | |||
Deutsche Bank AG | 5.2 | |||
Number of days to Maturity
as of June 30, 2011
1-7 | 50.6 | % | ||
8-30 | 26.1 | |||
31-60 | 15.1 | |||
61-90 | 6.2 | |||
91-180 | 1.8 | |||
181+ | 0.2 | |||
* | The number of days to maturity of each holding is determined in accordance with the provisions of Rule 2a-7 of the Investment Company Act of 1940. |
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, 2011
(Unaudited)
Assets: | ||||
Investments, excluding repurchase agreements, at value and cost | $ | 96,438,418 | ||
Repurchase agreements, at value and cost | 10,000,000 | |||
Total investments, at value and cost | 106,438,418 | |||
Cash | 75,895 | |||
Receivable for: | ||||
Investments sold | 205,000 | |||
Fund shares sold | 75,671 | |||
Interest | 5,038 | |||
Investment for trustee deferred compensation and retirement plans | 43,909 | |||
Total assets | 106,843,931 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 82,889 | |||
Dividends | 7,726 | |||
Accrued fees to affiliates | 117,004 | |||
Accrued other operating expenses | 18,976 | |||
Trustee deferred compensation and retirement plans | 52,785 | |||
Total liabilities | 279,380 | |||
Net assets applicable to shares outstanding | $ | 106,564,551 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 106,566,694 | ||
Undistributed net realized gain (loss) | (2,143 | ) | ||
$ | 106,564,551 | |||
Net Assets: | ||||
Series I | $ | 105,575,345 | ||
Series II | $ | 989,206 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 105,576,265 | |||
Series II | 989,003 | |||
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, 2011
(Unaudited)
Investment income: | ||||
Interest | $ | 75,202 | ||
Expenses: | ||||
Advisory fees | 127,346 | |||
Administrative services fees | 76,884 | |||
Custodian fees | 6,654 | |||
Distribution fees — Series II | 1,253 | |||
Transfer agent fees | 2,606 | |||
Trustees’ and officers’ fees and benefits | 8,457 | |||
Professional services fees | 14,765 | |||
Other | 3,894 | |||
Total expenses | 241,859 | |||
Less: Fees waived | (181,051 | ) | ||
Net expenses | 60,808 | |||
Net investment income | 14,394 | |||
Net increase in net assets resulting from operations | $ | 14,394 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 14,394 | $ | 55,671 | ||||
Net realized gain (loss) | — | (2,143 | ) | |||||
Net increase in net assets resulting from operations | 14,394 | 53,528 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (14,219 | ) | (53,205 | ) | ||||
Series II | (175 | ) | (2,466 | ) | ||||
Total distributions from net investment income | (14,394 | ) | (55,671 | ) | ||||
Share transactions–net: | ||||||||
Series I | 79,996,971 | (7,905,234 | ) | |||||
Series II | (35,037 | ) | (665,170 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | 79,961,934 | (8,570,404 | ) | |||||
Net increase (decrease) in net assets | 79,961,934 | (8,572,547 | ) | |||||
Net assets: | ||||||||
Beginning of period | 26,602,617 | 35,175,164 | ||||||
End of period | $ | 106,564,551 | $ | 26,602,617 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Money Market Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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. |
Invesco V.I. Money Market Fund
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized 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 (“GAAP”) 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 Daily 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 Canada Ltd. (formerly Invesco Trimark Ltd.) (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid
Invesco V.I. Money Market Fund
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, 2012, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual 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 operating expenses after fee waiver and/or expense reimbursment to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items; (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2012. The advisor 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 reimburse 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, 2011, Invesco voluntarily waived advisory fees of $127,346 and reimbursed Fund expenses of $52,452 and reimbursed Series II expenses of $1,253, in order to increase the fund’s yield.
At the request of the Trustees of the Trust, Invesco Ltd. agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the Invesco Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2011, 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, 2011, Invesco was paid $24,794 for accounting and fund administrative services and reimbursed $52,090 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Short-term Investments | $ | — | $ | 106,438,418 | $ | — | $ | 106,438,418 | ||||||||
Invesco V.I. Money Market 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.
During the six months ended June 30, 2011, the Fund paid legal fees of $649 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner of that firm is a Trustee of the Trust.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The Bank of New York Mellon, the custodian bank. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2018 | $ | 2,143 | ||
* | 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—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 148,910,105 | $ | 148,910,105 | 9,579,686 | $ | 9,579,686 | ||||||||||
Series II | — | — | 36,103 | 36,103 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 4,169 | 4,169 | 53,205 | 53,205 | ||||||||||||
Series II | 175 | 175 | 2,466 | 2,466 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (68,917,303 | ) | (68,917,303 | ) | (17,538,125 | ) | (17,538,125 | ) | ||||||||
Series II | (35,212 | ) | (35,212 | ) | (703,739 | ) | (703,739 | ) | ||||||||
Net increase (decrease) in share activity | 79,961,934 | $ | 79,961,934 | (8,570,404 | ) | $ | (8,570,404 | ) | ||||||||
(a) | There is an entity that is a record owner of more than 5% of the outstanding shares of the Fund that owns 10% 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. | |
77% of the outstanding shares of the Fund are owned by affiliated mutual funds. Affiliated mutual funds are other mutual funds that are also advised by Invesco. |
Invesco V.I. Money Market Fund
NOTE 8—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | ||||||||||||||||||||||||||||||||||||||||||||
Ratio of | expenses | |||||||||||||||||||||||||||||||||||||||||||
expenses | to average net | |||||||||||||||||||||||||||||||||||||||||||
to average | assets without | Ratio of net | ||||||||||||||||||||||||||||||||||||||||||
Net asset | Net gains | Dividends | net assets | fee waivers | investment | |||||||||||||||||||||||||||||||||||||||
value, | Net | (losses) on | Total from | from net | Net asset | Net assets, | with fee waivers | and/or | income to | |||||||||||||||||||||||||||||||||||
beginning | investment | securities | investment | investment | value, end | Total | end of period | and/or expenses | expenses | average | ||||||||||||||||||||||||||||||||||
of period | income | (realized) | operations | income | of period | Return(a) | (000s omitted) | absorbed | absorbed | net assets | ||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | $ | 1.00 | $ | 0.00 | (b) | $ | — | $ | 0.00 | $ | (0.00 | ) | $ | 1.00 | 0.02 | % | $ | 105,575 | 0.20 | %(c) | 0.76 | %(c) | 0.04 | %(c) | ||||||||||||||||||||
Year ended 12/31/10 | 1.00 | 0.00 | (b) | (0.00 | ) | 0.00 | (0.00 | ) | 1.00 | 0.18 | 25,578 | 0.16 | 1.01 | 0.18 | ||||||||||||||||||||||||||||||
Year ended 12/31/09 | 1.00 | 0.00 | (b) | — | 0.00 | (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 | (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 | (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 | (0.04 | ) | 1.00 | 4.27 | 43,568 | 0.90 | 0.90 | 4.20 | ||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 1.00 | 0.00 | (b) | — | 0.00 | (0.00 | ) | 1.00 | 0.02 | 989 | 0.20 | (c) | 1.01 | (c) | 0.04 | (c) | ||||||||||||||||||||||||||||
Year ended 12/31/10 | 1.00 | 0.00 | (b) | (0.00 | ) | 0.00 | (0.00 | ) | 1.00 | 0.18 | 1,024 | 0.16 | 1.26 | 0.18 | ||||||||||||||||||||||||||||||
Year ended 12/31/09 | 1.00 | 0.00 | (b) | — | 0.00 | (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 | (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 | (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 | (0.04 | ) | 1.00 | 4.01 | 2,341 | 1.15 | 1.15 | 3.95 | ||||||||||||||||||||||||||||||||
(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 based on average daily net assets (000’s) of $63,190 and $1,011 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,000.20 | $ | 0.99 | $ | 1,023.80 | $ | 1.00 | 0.20 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,000.20 | 0.99 | 1,023.80 | 1.00 | 0.20 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2011 through June 30, 2011, 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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. Money Market Fund
to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Money Market Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of the 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 performance of Series I shares of the Fund was above the performance of the Index for the one year period and below the Index for the three and five year periods. Invesco Advisers advised the Board that the Fund is viewed as a convenience vehicle for exchanges into other Invesco Funds and is priced accordingly. 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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. The Board noted that the Fund’s rate was above the rate of one mutual fund with comparable investment strategies. The Board noted that Invesco Advisers and its affiliates advise off-shore money market funds with similar investment strategies, but the Board did not consider fee comparisons with the Fund to be apt
Other than the funds described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other 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, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Invesco V.I. S&P 500 Index Fund
Semiannual Report to Shareholders § June 30, 2011
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at 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, 2011, is available at 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.
MS-VISPI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 5.87 | % | ||
Series II Shares | 5.81 | |||
S&P 500 Index▼ (Broad Market/Style-Specific Index) | 6.01 | |||
Lipper VUF S&P 500 Index▼ (Peer Group Index) | 5.85 | |||
▼ Lipper Inc. |
The Fund recently adopted a three-tier benchmark structure to compare its performance to broad market, style-specific and peer group market measures.
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Lipper VUF S&P 500 Index is an unmanaged index considered representative of the S&P 500 variable insurance underlying funds tracked by Lipper.
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 6/30/11
Series I Shares | ||||||||
Inception (5/18/98) | 2.86 | % | ||||||
10 | Years | 2.43 | ||||||
5 | Years | 2.76 | ||||||
1 | Year | 30.42 | ||||||
Series II Shares | ||||||||
Inception (6/5/00) | 0.36 | % | ||||||
10 | Years | 2.17 | ||||||
5 | Years | 2.51 | ||||||
1 | Year | 30.26 |
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund, Morgan Stanley Variable Investment S&P 500 Index Portfolio, 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 0.51% and 0.76%, 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. 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 Fund operating expenses after 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
June 30, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.43%(a) | ||||||||
Advertising–0.16% | ||||||||
Interpublic Group of Cos., Inc. (The) | 4,803 | $ | 60,038 | |||||
Omnicom Group, Inc. | 2,738 | 131,862 | ||||||
191,900 | ||||||||
Aerospace & Defense–2.76% | ||||||||
Boeing Co. (The) | 7,194 | 531,852 | ||||||
General Dynamics Corp. | 3,624 | 270,060 | ||||||
Goodrich Corp. | 1,215 | 116,033 | ||||||
Honeywell International, Inc. | 7,668 | 456,936 | ||||||
ITT Corp. | 1,793 | 105,662 | ||||||
L-3 Communications Holdings, Inc. | 1,042 | 91,123 | ||||||
Lockheed Martin Corp. | 2,774 | 224,611 | ||||||
Northrop Grumman Corp. | 2,851 | 197,717 | ||||||
Precision Castparts Corp. | 1,401 | 230,675 | ||||||
Raytheon Co. | 3,458 | 172,381 | ||||||
Rockwell Collins, Inc. | 1,500 | 92,535 | ||||||
United Technologies Corp. | 8,918 | 789,332 | ||||||
3,278,917 | ||||||||
Agricultural Products–0.17% | ||||||||
Archer-Daniels-Midland Co. | 6,643 | 200,286 | ||||||
Air Freight & Logistics–1.03% | ||||||||
C.H. Robinson Worldwide, Inc. | 1,587 | 125,119 | ||||||
Expeditors International of Washington, Inc. | 2,068 | 105,861 | ||||||
FedEx Corp. | 3,075 | 291,664 | ||||||
United Parcel Service, Inc.–Class B | 9,610 | 700,857 | ||||||
1,223,501 | ||||||||
Airlines–0.07% | ||||||||
Southwest Airlines Co. | 7,714 | 88,094 | ||||||
Aluminum–0.14% | ||||||||
Alcoa Inc. | 10,365 | 164,389 | ||||||
Apparel Retail–0.46% | ||||||||
Abercrombie & Fitch Co.–Class A | 863 | 57,752 | ||||||
Gap, Inc. (The) | 3,780 | 68,418 | ||||||
Limited Brands, Inc. | 2,457 | 94,472 | ||||||
Ross Stores, Inc. | 1,138 | 91,176 | ||||||
TJX Cos., Inc. (The) | 3,761 | 197,565 | ||||||
Urban Outfitters, Inc.(b) | 1,212 | 34,118 | ||||||
543,501 | ||||||||
Apparel, Accessories & Luxury Goods–0.30% | ||||||||
Coach, Inc. | 2,860 | 182,840 | ||||||
Polo Ralph Lauren Corp. | 625 | 82,881 | ||||||
VF Corp. | 851 | 92,385 | ||||||
358,106 | ||||||||
Application Software–0.61% | ||||||||
Adobe Systems Inc.(b) | 4,908 | 154,357 | ||||||
Autodesk, Inc.(b) | 2,249 | 86,811 | ||||||
Citrix Systems, Inc.(b) | 1,831 | 146,480 | ||||||
Compuware Corp.(b) | 2,084 | 20,340 | ||||||
Intuit Inc.(b) | 2,665 | 138,207 | ||||||
Salesforce.com, Inc.(b) | 1,173 | 174,753 | ||||||
720,948 | ||||||||
Asset Management & Custody Banks–1.25% | ||||||||
Ameriprise Financial, Inc. | 2,360 | 136,125 | ||||||
Bank of New York Mellon Corp. | 12,100 | 310,002 | ||||||
BlackRock, Inc. | 935 | 179,342 | ||||||
Federated Investors, Inc.–Class B | 860 | 20,503 | ||||||
Franklin Resources, Inc. | 1,404 | 184,331 | ||||||
Invesco Ltd.(c) | 4,502 | 105,347 | ||||||
Janus Capital Group Inc. | 1,825 | 17,228 | ||||||
Legg Mason, Inc. | 1,476 | 48,354 | ||||||
Northern Trust Corp. | 2,355 | 108,236 | ||||||
State Street Corp. | 4,904 | 221,121 | ||||||
T. Rowe Price Group Inc. | 2,530 | 152,660 | ||||||
1,483,249 | ||||||||
Auto Parts & Equipment–0.23% | ||||||||
Johnson Controls, Inc. | 6,603 | 275,081 | ||||||
Automobile Manufacturers–0.43% | ||||||||
Ford Motor Co.(b) | 37,015 | 510,437 | ||||||
Automotive Retail–0.22% | ||||||||
AutoNation, Inc.(b) | 618 | 22,625 | ||||||
AutoZone, Inc.(b) | 250 | 73,713 | ||||||
CarMax, Inc.(b) | 2,232 | 73,812 | ||||||
O’Reilly Automotive, Inc.(b) | 1,342 | 87,914 | ||||||
258,064 | ||||||||
Biotechnology–1.20% | ||||||||
Amgen Inc.(b) | 9,059 | 528,593 | ||||||
Biogen Idec Inc.(b) | 2,353 | 251,583 | ||||||
Celgene Corp.(b) | 4,509 | 271,983 | ||||||
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) | ||||||||
Cephalon Inc.(b) | 764 | $ | 61,043 | |||||
Gilead Sciences, Inc.(b) | 7,669 | 317,573 | ||||||
1,430,775 | ||||||||
Brewers–0.06% | ||||||||
Molson Coors Brewing Co.–Class B | 1,571 | 70,287 | ||||||
Broadcasting–0.28% | ||||||||
CBS Corp.–Class B | 6,516 | 185,641 | ||||||
Discovery Communications, Inc.–Class A(b) | 2,686 | 110,018 | ||||||
Scripps Networks Interactive Inc.–Class A | 883 | 43,161 | ||||||
338,820 | ||||||||
Building Products–0.04% | ||||||||
Masco Corp. | 3,478 | 41,840 | ||||||
Cable & Satellite–1.16% | ||||||||
AMC Networks Inc.(b) | 1 | 22 | ||||||
Cablevision Systems Corp.(b) | 2,242 | 58,853 | ||||||
Comcast Corp.–Class A | 26,957 | 683,090 | ||||||
DIRECTV–Class A(b) | 7,481 | 380,184 | ||||||
Time Warner Cable, Inc. | 3,277 | 255,737 | ||||||
1,377,886 | ||||||||
Casinos & Gaming–0.13% | ||||||||
International Game Technology | 2,956 | 51,966 | ||||||
Wynn Resorts Ltd. | 740 | 106,220 | ||||||
158,186 | ||||||||
Coal & Consumable Fuels–0.30% | ||||||||
Alpha Natural Resources, Inc.(b) | 2,206 | 100,241 | ||||||
CONSOL Energy Inc. | 2,207 | 106,995 | ||||||
Peabody Energy Corp. | 2,637 | 155,346 | ||||||
362,582 | ||||||||
Commercial Printing–0.03% | ||||||||
R. R. Donnelley & Sons Co. | 1,862 | 36,514 | ||||||
Communications Equipment–1.96% | ||||||||
Cisco Systems, Inc. | 53,602 | 836,727 | ||||||
F5 Networks, Inc.(b) | 799 | 88,090 | ||||||
Harris Corp. | 1,238 | 55,784 | ||||||
JDS Uniphase Corp.(b) | 2,180 | 36,319 | ||||||
Juniper Networks, Inc.(b) | 5,193 | 163,579 | ||||||
Motorola Mobility Holdings Inc.(b) | 2,829 | 62,351 | ||||||
Motorola Solutions, Inc.(b) | 3,307 | 152,254 | ||||||
QUALCOMM, Inc. | 16,269 | 923,917 | ||||||
Tellabs, Inc. | 3,562 | 16,421 | ||||||
2,335,442 | ||||||||
Computer & Electronics Retail–0.11% | ||||||||
Best Buy Co., Inc. | 3,143 | 98,722 | ||||||
GameStop Corp.–Class A(b) | 1,420 | 37,871 | ||||||
136,593 | ||||||||
Computer Hardware–3.38% | ||||||||
Apple, Inc.(b) | 9,011 | 3,024,723 | ||||||
Dell, Inc.(b) | 15,999 | 266,703 | ||||||
Hewlett-Packard Co. | 20,213 | 735,753 | ||||||
4,027,179 | ||||||||
Computer Storage & Peripherals–0.80% | ||||||||
EMC Corp.(b) | 20,051 | 552,405 | ||||||
Lexmark International, Inc.–Class A(b) | 809 | 23,671 | ||||||
NetApp, Inc.(b) | 3,584 | 189,164 | ||||||
SanDisk Corp.(b) | 2,342 | 97,193 | ||||||
Western Digital Corp.(b) | 2,292 | 83,383 | ||||||
945,816 | ||||||||
Construction & Engineering–0.17% | ||||||||
Fluor Corp. | 1,697 | 109,728 | ||||||
Jacobs Engineering Group, Inc.(b) | 1,250 | 54,062 | ||||||
Quanta Services, Inc.(b) | 2,118 | 42,784 | ||||||
206,574 | ||||||||
Construction & Farm Machinery & Heavy Trucks–1.25% | ||||||||
Caterpillar Inc. | 6,279 | 668,462 | ||||||
Cummins Inc. | 1,911 | 197,769 | ||||||
Deere & Co. | 4,089 | 337,138 | ||||||
Joy Global Inc. | 1,036 | 98,669 | ||||||
PACCAR Inc. | 3,560 | 181,881 | ||||||
1,483,919 | ||||||||
Construction Materials–0.04% | ||||||||
Vulcan Materials Co. | 1,277 | 49,203 | ||||||
Consumer Electronics–0.03% | ||||||||
Harman International Industries, Inc. | 702 | 31,990 | ||||||
Consumer Finance–0.83% | ||||||||
American Express Co. | 10,191 | 526,875 | ||||||
Capital One Financial Corp. | 4,458 | 230,345 | ||||||
Discover Financial Services | 5,295 | 141,641 | ||||||
SLM Corp. | 5,114 | 85,966 | ||||||
984,827 | ||||||||
Data Processing & Outsourced Services–1.18% | ||||||||
Automatic Data Processing, Inc. | 4,861 | 256,078 | ||||||
Computer Sciences Corp. | 1,534 | 58,231 | ||||||
Fidelity National Information Services, Inc. | 2,608 | 80,300 | ||||||
Fiserv, Inc.(b) | 1,398 | 87,557 | ||||||
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–(continued) | ||||||||
MasterCard, Inc.–Class A | 916 | $ | 276,027 | |||||
Paychex, Inc. | 3,114 | 95,662 | ||||||
Total System Services, Inc. | 1,590 | 29,542 | ||||||
Visa, Inc.–Class A | 4,655 | 392,230 | ||||||
Western Union Co. | 6,160 | 123,385 | ||||||
1,399,012 | ||||||||
Department Stores–0.37% | ||||||||
JC Penney Co., Inc. | 2,076 | 71,705 | ||||||
Kohl’s Corp. | 2,738 | 136,928 | ||||||
Macy’s, Inc. | 4,137 | 120,966 | ||||||
Nordstrom, Inc. | 1,661 | 77,967 | ||||||
Sears Holdings Corp.(b) | 418 | 29,862 | ||||||
437,428 | ||||||||
Distillers & Vintners–0.09% | ||||||||
Brown-Forman Corp.–Class B | 1,020 | 76,184 | ||||||
Constellation Brands, Inc.–Class A(b) | 1,720 | 35,810 | ||||||
111,994 | ||||||||
Distributors–0.07% | ||||||||
Genuine Parts Co. | 1,532 | 83,341 | ||||||
Diversified Banks–1.67% | ||||||||
Comerica, Inc. | 1,751 | 60,532 | ||||||
U.S. Bancorp | 18,775 | 478,950 | ||||||
Wells Fargo & Co. | 51,545 | 1,446,353 | ||||||
1,985,835 | ||||||||
Diversified Chemicals–0.99% | ||||||||
Dow Chemical Co. (The) | 11,455 | 412,380 | ||||||
E. I. du Pont de Nemours and Co. | 9,049 | 489,098 | ||||||
Eastman Chemical Co. | 700 | 71,449 | ||||||
FMC Corp. | 707 | 60,816 | ||||||
PPG Industries, Inc. | 1,540 | 139,817 | ||||||
1,173,560 | ||||||||
Diversified Metals & Mining–0.42% | ||||||||
Freeport-McMoRan Copper & Gold Inc. | 9,231 | 488,320 | ||||||
Titanium Metals Corp. | 907 | 16,616 | ||||||
504,936 | ||||||||
Diversified REIT’s–0.13% | ||||||||
Vornado Realty Trust | 1,597 | 148,808 | ||||||
Diversified Support Services–0.09% | ||||||||
Cintas Corp. | 1,266 | 41,816 | ||||||
Iron Mountain Inc. | 1,954 | 66,612 | ||||||
108,428 | ||||||||
Drug Retail–0.74% | ||||||||
CVS Caremark Corp. | 13,213 | 496,545 | ||||||
Walgreen Co. | 8,920 | 378,743 | ||||||
875,288 | ||||||||
Education Services–0.07% | ||||||||
Apollo Group, Inc.–Class A(b) | 1,208 | 52,766 | ||||||
DeVry, Inc. | 595 | 35,182 | ||||||
87,948 | ||||||||
Electric Utilities–1.79% | ||||||||
American Electric Power Co., Inc. | 4,683 | 176,455 | ||||||
Duke Energy Corp. | 12,973 | 244,282 | ||||||
Edison International | 3,174 | 122,993 | ||||||
Entergy Corp. | 1,733 | 118,329 | ||||||
Exelon Corp. | 6,449 | 276,275 | ||||||
FirstEnergy Corp. | 4,074 | 179,867 | ||||||
NextEra Energy, Inc. | 4,111 | 236,218 | ||||||
Northeast Utilities | 1,754 | 61,688 | ||||||
Pepco Holdings, Inc. | 2,163 | 42,460 | ||||||
Pinnacle West Capital Corp. | 1,061 | 47,299 | ||||||
PPL Corp. | 5,623 | 156,488 | ||||||
Progress Energy, Inc. | 2,869 | 137,741 | ||||||
Southern Co. | 8,274 | 334,104 | ||||||
2,134,199 | ||||||||
Electrical Components & Equipment–0.51% | ||||||||
Emerson Electric Co. | 7,324 | 411,975 | ||||||
Rockwell Automation, Inc. | 1,405 | 121,898 | ||||||
Roper Industries, Inc. | 943 | 78,552 | ||||||
612,425 | ||||||||
Electronic Components–0.31% | ||||||||
Amphenol Corp.–Class A | 1,715 | 92,593 | ||||||
Corning Inc. | 15,298 | 277,659 | ||||||
370,252 | ||||||||
Electronic Equipment & Instruments–0.04% | ||||||||
FLIR Systems, Inc. | 1,577 | 53,161 | ||||||
Electronic Manufacturing Services–0.06% | ||||||||
Jabil Circuit, Inc. | 1,911 | 38,602 | ||||||
Molex, Inc. | 1,366 | 35,202 | ||||||
73,804 | ||||||||
Environmental & Facilities Services–0.28% | ||||||||
Republic Services, Inc. | 2,931 | 90,421 | ||||||
Stericycle, Inc.(b) | 845 | 75,306 | ||||||
Waste Management, Inc. | 4,620 | 172,188 | ||||||
337,915 | ||||||||
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 | |||||||
Fertilizers & Agricultural Chemicals–0.40% | ||||||||
CF Industries Holdings, Inc. | 705 | $ | 99,877 | |||||
Monsanto Co. | 5,211 | 378,006 | ||||||
477,883 | ||||||||
Food Distributors–0.15% | ||||||||
Sysco Corp. | 5,666 | 176,666 | ||||||
Food Retail–0.28% | ||||||||
Kroger Co. (The) | 5,909 | 146,543 | ||||||
Safeway, Inc. | 3,415 | 79,809 | ||||||
SUPERVALU Inc. | 2,031 | 19,112 | ||||||
Whole Foods Market, Inc. | 1,454 | 92,256 | ||||||
337,720 | ||||||||
Footwear–0.28% | ||||||||
NIKE, Inc.–Class B | 3,695 | 332,476 | ||||||
Gas Utilities–0.09% | ||||||||
Nicor Inc. | 450 | 24,633 | ||||||
ONEOK, Inc. | 1,059 | 78,377 | ||||||
103,010 | ||||||||
General Merchandise Stores–0.34% | ||||||||
Big Lots, Inc.(b) | 761 | 25,227 | ||||||
Family Dollar Stores, Inc. | 1,190 | 62,546 | ||||||
Target Corp. | 6,715 | 315,001 | ||||||
402,774 | ||||||||
Gold–0.22% | ||||||||
Newmont Mining Corp. | 4,801 | 259,110 | ||||||
Health Care Distributors–0.42% | ||||||||
AmerisourceBergen Corp. | 2,668 | 110,455 | ||||||
Cardinal Health, Inc. | 3,415 | 155,109 | ||||||
McKesson Corp. | 2,456 | 205,445 | ||||||
Patterson Cos. Inc. | 966 | 31,772 | ||||||
502,781 | ||||||||
Health Care Equipment–1.86% | ||||||||
Baxter International Inc. | 5,557 | 331,697 | ||||||
Becton, Dickinson and Co. | 2,130 | 183,542 | ||||||
Boston Scientific Corp.(b) | 14,892 | 102,904 | ||||||
C.R. Bard, Inc. | 841 | 92,392 | ||||||
CareFusion Corp.(b) | 2,134 | 57,981 | ||||||
Covidien PLC (Ireland) | 4,822 | 256,675 | ||||||
Edwards Lifesciences Corp.(b) | 1,116 | 97,293 | ||||||
Intuitive Surgical, Inc.(b) | 381 | 141,774 | ||||||
Medtronic, Inc. | 10,420 | 401,483 | ||||||
St. Jude Medical, Inc. | 3,203 | 152,719 | ||||||
Stryker Corp. | 3,250 | 190,742 | ||||||
Varian Medical Systems, Inc.(b) | 1,141 | 79,893 | ||||||
Zimmer Holdings, Inc.(b) | 1,869 | 118,121 | ||||||
2,207,216 | ||||||||
Health Care Facilities–0.03% | ||||||||
Tenet Healthcare Corp.(b) | 4,770 | 29,765 | ||||||
Health Care Services–0.64% | ||||||||
DaVita, Inc.(b) | 929 | 80,461 | ||||||
Express Scripts, Inc.(b) | 5,156 | 278,321 | ||||||
Laboratory Corp. of America Holdings(b) | 975 | 94,370 | ||||||
Medco Health Solutions, Inc.(b) | 3,884 | 219,524 | ||||||
Quest Diagnostics Inc. | 1,532 | 90,541 | ||||||
763,217 | ||||||||
Health Care Supplies–0.04% | ||||||||
DENTSPLY International Inc. | 1,370 | 52,170 | ||||||
Health Care Technology–0.07% | ||||||||
Cerner Corp.(b) | 1,418 | 86,654 | ||||||
Home Entertainment Software–0.06% | ||||||||
Electronic Arts Inc.(b) | 3,201 | 75,544 | ||||||
Home Furnishings–0.03% | ||||||||
Leggett & Platt, Inc. | 1,366 | 33,303 | ||||||
Home Improvement Retail–0.72% | ||||||||
Home Depot, Inc. (The) | 15,516 | 561,990 | ||||||
Lowe’s Cos., Inc. | 12,688 | 295,757 | ||||||
857,747 | ||||||||
Homebuilding–0.07% | ||||||||
D.R. Horton, Inc. | 2,693 | 31,023 | ||||||
Lennar Corp.–Class A | 1,591 | 28,877 | ||||||
Pulte Group Inc.(b) | 3,326 | 25,477 | ||||||
85,377 | ||||||||
Homefurnishing Retail–0.12% | ||||||||
Bed Bath & Beyond Inc.(b) | 2,426 | 141,606 | ||||||
Hotels, Resorts & Cruise Lines–0.35% | ||||||||
Carnival Corp. | 4,207 | 158,309 | ||||||
Marriott International Inc.–Class A | 2,765 | 98,130 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 1,900 | 106,476 | ||||||
Wyndham Worldwide Corp. | 1,687 | 56,768 | ||||||
419,683 | ||||||||
Household Appliances–0.15% | ||||||||
Stanley Black & Decker Inc. | 1,654 | 119,171 | ||||||
Whirlpool Corp. | 752 | 61,152 | ||||||
180,323 | ||||||||
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 | |||||||
Household Products–2.09% | ||||||||
Clorox Co. (The) | 1,298 | $ | 87,537 | |||||
Colgate-Palmolive Co. | 4,754 | 415,547 | ||||||
Kimberly-Clark Corp. | 3,827 | 254,725 | ||||||
Procter & Gamble Co. (The) | 27,202 | 1,729,231 | ||||||
2,487,040 | ||||||||
Housewares & Specialties–0.12% | ||||||||
Fortune Brands, Inc. | 1,518 | 96,803 | ||||||
Newell Rubbermaid, Inc. | 2,792 | 44,058 | ||||||
140,861 | ||||||||
Human Resource & Employment Services–0.03% | ||||||||
Robert Half International, Inc. | 1,443 | 39,004 | ||||||
Hypermarkets & Super Centers–1.12% | ||||||||
Costco Wholesale Corp. | 4,256 | 345,757 | ||||||
Wal-Mart Stores, Inc. | 18,612 | 989,042 | ||||||
1,334,799 | ||||||||
Independent Power Producers & Energy Traders–0.18% | ||||||||
AES Corp. (The)(b) | 6,400 | 81,536 | ||||||
Constellation Energy Group Inc. | 1,977 | 75,047 | ||||||
NRG Energy, Inc.(b) | 2,347 | 57,689 | ||||||
214,272 | ||||||||
Industrial Conglomerates–2.43% | ||||||||
3M Co. | 6,924 | 656,741 | ||||||
General Electric Co.(d) | 103,356 | 1,949,294 | ||||||
Textron Inc. | 2,660 | 62,803 | ||||||
Tyco International Ltd. | 4,569 | 225,846 | ||||||
2,894,684 | ||||||||
Industrial Gases–0.48% | ||||||||
Air Products & Chemicals, Inc. | 2,064 | 197,277 | ||||||
Airgas, Inc. | 679 | 47,557 | ||||||
Praxair, Inc. | 2,962 | 321,051 | ||||||
565,885 | ||||||||
Industrial Machinery–1.09% | ||||||||
Danaher Corp. | 5,305 | 281,112 | ||||||
Dover Corp. | 1,817 | 123,193 | ||||||
Eaton Corp. | 3,324 | 171,020 | ||||||
Flowserve Corp. | 551 | 60,549 | ||||||
Illinois Tool Works Inc. | 4,865 | 274,824 | ||||||
Ingersoll-Rand PLC (Ireland) | 3,227 | 146,538 | ||||||
Pall Corp. | 1,130 | 63,540 | ||||||
Parker Hannifin Corp. | 1,579 | 141,699 | ||||||
Snap-On, Inc. | 576 | 35,988 | ||||||
1,298,463 | ||||||||
Industrial REIT’s–0.12% | ||||||||
Prologis, Inc. | 4,133 | 148,127 | ||||||
Insurance Brokers–0.28% | ||||||||
Aon Corp. | 3,220 | 165,186 | ||||||
Marsh & McLennan Cos., Inc. | 5,337 | 166,461 | ||||||
331,647 | ||||||||
Integrated Oil & Gas–7.02% | ||||||||
Chevron Corp. | 19,590 | 2,014,636 | ||||||
ConocoPhillips | 13,774 | 1,035,667 | ||||||
Exxon Mobil Corp. | 48,007 | 3,906,810 | ||||||
Hess Corp. | 2,945 | 220,168 | ||||||
Marathon Oil Corp.(b) | 6,938 | 224,791 | ||||||
Murphy Oil Corp. | 1,884 | 123,703 | ||||||
Occidental Petroleum Corp. | 7,921 | 824,101 | ||||||
8,349,876 | ||||||||
Integrated Telecommunication Services–2.71% | ||||||||
AT&T Inc. | 57,713 | 1,812,765 | ||||||
CenturyLink Inc. | 5,851 | 236,556 | ||||||
Frontier Communications Corp. | 9,698 | 78,263 | ||||||
Verizon Communications Inc. | 27,570 | 1,026,431 | ||||||
Windstream Corp. | 4,969 | 64,398 | ||||||
3,218,413 | ||||||||
Internet Retail–0.95% | ||||||||
Amazon.com, Inc.(b) | 3,479 | 711,421 | ||||||
Expedia, Inc. | 1,979 | 57,371 | ||||||
Netflix Inc.(b) | 423 | 111,118 | ||||||
Priceline.com Inc.(b) | 482 | 246,750 | ||||||
1,126,660 | ||||||||
Internet Software & Services–1.61% | ||||||||
Akamai Technologies, Inc.(b) | 1,788 | 56,268 | ||||||
eBay Inc.(b) | 11,130 | 359,165 | ||||||
Google, Inc.–Class A(b) | 2,448 | 1,239,618 | ||||||
Monster Worldwide, Inc.(b) | 1,304 | 19,117 | ||||||
VeriSign, Inc. | 1,672 | 55,945 | ||||||
Yahoo! Inc.(b) | 12,697 | 190,963 | ||||||
1,921,076 | ||||||||
Investment Banking & Brokerage–1.02% | ||||||||
Charles Schwab Corp. (The) | 9,760 | 160,552 | ||||||
E*TRADE Financial Corp.(b) | 2,491 | 34,376 | ||||||
Goldman Sachs Group, Inc. (The) | 5,044 | 671,306 | ||||||
Morgan Stanley | 15,052 | 346,346 | ||||||
1,212,580 | ||||||||
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 | |||||||
IT Consulting & Other Services–2.01% | ||||||||
Cognizant Technology Solutions Corp.–Class A(b) | 2,964 | $ | 217,380 | |||||
International Business Machines Corp. | 11,803 | 2,024,805 | ||||||
SAIC, Inc.(b) | 2,670 | 44,909 | ||||||
Teradata Corp.(b) | 1,664 | 100,173 | ||||||
2,387,267 | ||||||||
Leisure Products–0.13% | ||||||||
Hasbro, Inc. | 1,326 | 58,251 | ||||||
Mattel, Inc. | 3,421 | 94,043 | ||||||
152,294 | ||||||||
Life & Health Insurance–1.07% | ||||||||
Aflac, Inc. | 4,543 | 212,067 | ||||||
Lincoln National Corp. | 3,052 | 86,951 | ||||||
MetLife, Inc. | 10,300 | 451,861 | ||||||
Principal Financial Group, Inc. | 3,103 | 94,393 | ||||||
Prudential Financial, Inc. | 4,745 | 301,735 | ||||||
Torchmark Corp. | 740 | 47,464 | ||||||
Unum Group | 2,957 | 75,344 | ||||||
1,269,815 | ||||||||
Life Sciences Tools & Services–0.52% | ||||||||
Agilent Technologies, Inc.(b) | 3,390 | 173,263 | ||||||
Life Technologies Corp.(b) | 1,741 | 90,654 | ||||||
PerkinElmer, Inc. | 1,105 | 29,736 | ||||||
Thermo Fisher Scientific, Inc.(b) | 3,734 | 240,432 | ||||||
Waters Corp.(b) | 903 | 86,453 | ||||||
620,538 | ||||||||
Managed Health Care–1.10% | ||||||||
Aetna Inc. | 3,682 | 162,340 | ||||||
CIGNA Corp. | 2,635 | 135,518 | ||||||
Coventry Health Care, Inc.(b) | 1,471 | 53,647 | ||||||
Humana Inc. | 1,640 | 132,086 | ||||||
UnitedHealth Group, Inc. | 10,557 | 544,530 | ||||||
WellPoint Inc. | 3,577 | 281,760 | ||||||
1,309,881 | ||||||||
Metal & Glass Containers–0.09% | ||||||||
Ball Corp. | 1,635 | 62,882 | ||||||
Owens-Illinois, Inc.(b) | 1,616 | 41,709 | ||||||
104,591 | ||||||||
Motorcycle Manufacturers–0.08% | ||||||||
Harley-Davidson, Inc. | 2,330 | 95,460 | ||||||
Movies & Entertainment–1.50% | ||||||||
News Corp.–Class A | 22,269 | 394,161 | ||||||
Time Warner Inc. | 10,434 | 379,485 | ||||||
Viacom Inc.–Class B | 5,701 | 290,751 | ||||||
Walt Disney Co. (The) | 18,419 | 719,078 | ||||||
1,783,475 | ||||||||
Multi-Line Insurance–0.38% | ||||||||
American International Group, Inc.(b) | 4,212 | 123,496 | ||||||
Assurant, Inc. | 958 | 34,746 | ||||||
Genworth Financial Inc.–Class A(b) | 4,746 | 48,789 | ||||||
Hartford Financial Services Group, Inc. (The) | 4,338 | 114,393 | ||||||
Loews Corp. | 3,010 | 126,691 | ||||||
448,115 | ||||||||
Multi-Sector Holdings–0.06% | ||||||||
Leucadia National Corp. | 1,965 | 67,006 | ||||||
Multi-Utilities–1.27% | ||||||||
Ameren Corp. | 2,349 | 67,745 | ||||||
CenterPoint Energy, Inc. | 4,103 | 79,393 | ||||||
CMS Energy Corp. | 2,495 | 49,127 | ||||||
Consolidated Edison, Inc. | 2,850 | 151,734 | ||||||
Dominion Resources, Inc. | 5,610 | 270,795 | ||||||
DTE Energy Co. | 1,649 | 82,483 | ||||||
Integrys Energy Group, Inc. | 771 | 39,969 | ||||||
NiSource Inc. | 2,709 | 54,857 | ||||||
PG&E Corp. | 3,851 | 161,858 | ||||||
Public Service Enterprise Group Inc. | 4,907 | 160,164 | ||||||
SCANA Corp. | 1,112 | 43,779 | ||||||
Sempra Energy | 2,332 | 123,316 | ||||||
TECO Energy, Inc. | 2,051 | 38,743 | ||||||
Wisconsin Energy Corp. | 2,295 | 71,948 | ||||||
Xcel Energy, Inc. | 4,672 | 113,530 | ||||||
1,509,441 | ||||||||
Office Electronics–0.12% | ||||||||
Xerox Corp. | 13,654 | 142,138 | ||||||
Office REIT’s–0.13% | ||||||||
Boston Properties, Inc. | 1,417 | 150,429 | ||||||
Office Services & Supplies–0.07% | ||||||||
Avery Dennison Corp. | 1,057 | 40,832 | ||||||
Pitney Bowes Inc. | 1,976 | 45,428 | ||||||
86,260 | ||||||||
Oil & Gas Drilling–0.28% | ||||||||
Diamond Offshore Drilling, Inc. | 676 | 47,597 | ||||||
Helmerich & Payne, Inc. | 1,052 | 69,558 | ||||||
Nabors Industries Ltd.(b) | 2,752 | 67,810 | ||||||
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 | |||||||
Oil & Gas Drilling–(continued) | ||||||||
Noble Corp. | 2,456 | $ | 96,791 | |||||
Rowan Cos., Inc.(b) | 1,241 | 48,163 | ||||||
329,919 | ||||||||
Oil & Gas Equipment & Services–2.06% | ||||||||
Baker Hughes Inc. | 4,234 | 307,219 | ||||||
Cameron International Corp.(b) | 2,386 | 119,992 | ||||||
FMC Technologies, Inc.(b) | 2,341 | 104,853 | ||||||
Halliburton Co. | 8,916 | 454,716 | ||||||
National Oilwell Varco Inc. | 4,122 | 322,382 | ||||||
Schlumberger Ltd. | 13,223 | 1,142,467 | ||||||
2,451,629 | ||||||||
Oil & Gas Exploration & Production–2.09% | ||||||||
Anadarko Petroleum Corp. | 4,839 | 371,442 | ||||||
Apache Corp. | 3,735 | 460,862 | ||||||
Cabot Oil & Gas Corp. | 1,031 | 68,366 | ||||||
Chesapeake Energy Corp. | 6,408 | 190,253 | ||||||
Denbury Resources, Inc.(b) | 3,830 | 76,600 | ||||||
Devon Energy Corp. | 4,111 | 323,988 | ||||||
EOG Resources, Inc. | 2,615 | 273,398 | ||||||
EQT Corp. | 1,476 | 77,520 | ||||||
Newfield Exploration Co.(b) | 1,287 | 87,542 | ||||||
Noble Energy, Inc. | 1,718 | 153,984 | ||||||
Pioneer Natural Resources Co. | 1,136 | 101,751 | ||||||
QEP Resources Inc. | 1,744 | 72,952 | ||||||
Range Resources Corp. | 1,564 | 86,802 | ||||||
Southwestern Energy Co.(b) | 3,389 | 145,320 | ||||||
2,490,780 | ||||||||
Oil & Gas Refining & Marketing–0.31% | ||||||||
Marathon Petroleum Corp.(b) | 3,469 | 143,617 | ||||||
Sunoco, Inc. | 1,179 | 49,176 | ||||||
Tesoro Corp.(b) | 1,386 | 31,753 | ||||||
Valero Energy Corp. | 5,530 | 141,402 | ||||||
365,948 | ||||||||
Oil & Gas Storage & Transportation–0.42% | ||||||||
El Paso Corp. | 7,493 | 151,359 | ||||||
Spectra Energy Corp. | 6,318 | 173,176 | ||||||
Williams Cos., Inc. (The) | 5,701 | 172,455 | ||||||
496,990 | ||||||||
Other Diversified Financial Services–3.24% | ||||||||
Bank of America Corp. | 98,752 | 1,082,322 | ||||||
Citigroup Inc. | 28,462 | 1,185,158 | ||||||
JPMorgan Chase & Co. | 38,725 | 1,585,401 | ||||||
3,852,881 | ||||||||
Packaged Foods & Meats–1.60% | ||||||||
Campbell Soup Co. | 1,777 | 61,395 | ||||||
ConAgra Foods, Inc. | 4,029 | 103,988 | ||||||
Dean Foods Co.(b) | 1,770 | 21,718 | ||||||
General Mills, Inc. | 6,220 | 231,508 | ||||||
H.J. Heinz Co. | 3,135 | 167,033 | ||||||
Hershey Co. (The) | 1,493 | 84,877 | ||||||
Hormel Foods Corp. | 1,370 | 40,840 | ||||||
J M Smucker Co. (The) | 1,129 | 86,301 | ||||||
Kellogg Co. | 2,439 | 134,925 | ||||||
Kraft Foods Inc.–Class A | 17,130 | 603,490 | ||||||
McCormick & Co., Inc. | 1,290 | 63,945 | ||||||
Mead Johnson Nutrition Co. | 1,990 | 134,425 | ||||||
Sara Lee Corp. | 5,690 | 108,053 | ||||||
Tyson Foods, Inc.–Class A | 2,942 | 57,134 | ||||||
1,899,632 | ||||||||
Paper Packaging–0.06% | ||||||||
Bemis Co., Inc. | 1,059 | 35,773 | ||||||
Sealed Air Corp. | 1,603 | 38,135 | ||||||
73,908 | ||||||||
Paper Products–0.15% | ||||||||
International Paper Co. | 4,229 | 126,109 | ||||||
MeadWestvaco Corp. | 1,684 | 56,094 | ||||||
182,203 | ||||||||
Personal Products–0.20% | ||||||||
Avon Products, Inc. | 4,171 | 116,788 | ||||||
Estee Lauder Cos. Inc. (The)–Class A | 1,110 | 116,761 | ||||||
233,549 | ||||||||
Pharmaceuticals–5.65% | ||||||||
Abbott Laboratories | 15,146 | 796,982 | ||||||
Allergan, Inc. | 2,969 | 247,169 | ||||||
Bristol-Myers Squibb Co. | 16,625 | 481,460 | ||||||
Eli Lilly and Co. | 9,927 | 372,560 | ||||||
Forest Laboratories, Inc.(b) | 2,787 | 109,641 | ||||||
Hospira, Inc.(b) | 1,649 | 93,432 | ||||||
Johnson & Johnson | 26,713 | 1,776,949 | ||||||
Merck & Co., Inc. | 30,080 | 1,061,523 | ||||||
Mylan Inc.(b) | 4,279 | 105,563 | ||||||
Pfizer Inc. | 77,001 | 1,586,221 | ||||||
Watson Pharmaceuticals, Inc.(b) | 1,245 | 85,569 | ||||||
6,717,069 | ||||||||
Property & Casualty Insurance–1.97% | ||||||||
ACE Ltd. (Switzerland) | 3,287 | 216,350 | ||||||
Allstate Corp. (The) | 5,092 | 155,459 | ||||||
Berkshire Hathaway Inc.–Class B(b) | 16,871 | 1,305,647 | ||||||
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 | |||||||
Property & Casualty Insurance–(continued) | ||||||||
Chubb Corp. (The) | 2,850 | $ | 178,438 | |||||
Cincinnati Financial Corp. | 1,579 | 46,075 | ||||||
Progressive Corp. (The) | 6,369 | 136,169 | ||||||
Travelers Cos., Inc. (The) | 4,081 | 238,249 | ||||||
XL Group PLC (Ireland) | 3,064 | 67,347 | ||||||
2,343,734 | ||||||||
Publishing–0.15% | ||||||||
Gannett Co., Inc. | 2,342 | 33,538 | ||||||
McGraw-Hill Cos., Inc. (The) | 2,968 | 124,389 | ||||||
Washington Post Co. (The)–Class B | 52 | 21,785 | ||||||
179,712 | ||||||||
Railroads–0.87% | ||||||||
CSX Corp. | 10,746 | 281,760 | ||||||
Norfolk Southern Corp. | 3,441 | 257,834 | ||||||
Union Pacific Corp. | 4,779 | 498,928 | ||||||
1,038,522 | ||||||||
Real Estate Services–0.06% | ||||||||
CB Richard Ellis Group, Inc.–Class A(b) | 2,798 | 70,258 | ||||||
Regional Banks–0.98% | ||||||||
BB&T Corp. | 6,773 | 181,787 | ||||||
Fifth Third Bancorp | 8,952 | 114,138 | ||||||
First Horizon National Corp. | 2,530 | 24,136 | ||||||
Huntington Bancshares Inc. | 8,413 | 55,189 | ||||||
KeyCorp | 9,265 | 77,178 | ||||||
M&T Bank Corp. | 1,236 | 108,706 | ||||||
Marshall & Ilsley Corp. | 5,139 | 40,958 | ||||||
PNC Financial Services Group, Inc. | 5,125 | 305,501 | ||||||
Regions Financial Corp. | 12,244 | 75,913 | ||||||
SunTrust Banks, Inc. | 5,201 | 134,186 | ||||||
Zions Bancorp. | 1,765 | 42,378 | ||||||
1,160,070 | ||||||||
Research & Consulting Services–0.07% | ||||||||
Dun & Bradstreet Corp. (The) | 480 | 36,259 | ||||||
Equifax Inc. | 1,214 | 42,150 | ||||||
78,409 | ||||||||
Residential REIT’s–0.26% | ||||||||
Apartment Investment & Management Co.–Class A | 1,194 | 30,483 | ||||||
AvalonBay Communities, Inc. | 849 | 109,011 | ||||||
Equity Residential | 2,870 | 172,200 | ||||||
311,694 | ||||||||
Restaurants–1.30% | ||||||||
Chipotle Mexican Grill, Inc.(b) | 307 | 94,615 | ||||||
Darden Restaurants, Inc. | 1,328 | 66,081 | ||||||
McDonald’s Corp. | 10,110 | 852,475 | ||||||
Starbucks Corp. | 7,304 | 288,435 | ||||||
Yum! Brands, Inc. | 4,516 | 249,464 | ||||||
1,551,070 | ||||||||
Retail REIT’s–0.34% | ||||||||
Kimco Realty Corp. | 4,004 | 74,635 | ||||||
Simon Property Group, Inc. | 2,857 | 332,069 | ||||||
406,704 | ||||||||
Semiconductor Equipment–0.26% | ||||||||
Applied Materials, Inc. | 12,846 | 167,126 | ||||||
KLA-Tencor Corp. | 1,654 | 66,954 | ||||||
MEMC Electronic Materials, Inc.(b) | 2,213 | 18,877 | ||||||
Novellus Systems, Inc.(b) | 892 | 32,237 | ||||||
Teradyne, Inc.(b) | 1,851 | 27,395 | ||||||
312,589 | ||||||||
Semiconductors–2.13% | ||||||||
Advanced Micro Devices, Inc.(b) | 5,596 | 39,116 | ||||||
Altera Corp. | 3,139 | 145,493 | ||||||
Analog Devices, Inc. | 2,919 | 114,250 | ||||||
Broadcom Corp.–Class A(b) | 4,637 | 155,989 | ||||||
First Solar, Inc.(b) | 528 | 69,839 | ||||||
Intel Corp. | 51,670 | 1,145,007 | ||||||
Linear Technology Corp. | 2,218 | 73,238 | ||||||
LSI Corp.(b) | 5,896 | 41,979 | ||||||
Microchip Technology, Inc. | 1,864 | 70,664 | ||||||
Micron Technology, Inc.(b) | 8,392 | 62,772 | ||||||
National Semiconductor Corp. | 2,351 | 57,858 | ||||||
NVIDIA Corp.(b) | 5,849 | 93,204 | ||||||
Texas Instruments Inc. | 11,315 | 371,471 | ||||||
Xilinx, Inc. | 2,587 | 94,348 | ||||||
2,535,228 | ||||||||
Soft Drinks–2.33% | ||||||||
Coca-Cola Co. (The) | 22,309 | 1,501,173 | ||||||
Coca-Cola Enterprises, Inc. | 3,166 | 92,384 | ||||||
Dr. Pepper Snapple Group, Inc. | 2,156 | 90,401 | ||||||
PepsiCo, Inc. | 15,403 | 1,084,833 | ||||||
2,768,791 | ||||||||
Specialized Consumer Services–0.04% | ||||||||
H&R Block, Inc. | 3,017 | 48,393 | ||||||
Specialized Finance–0.40% | ||||||||
CME Group Inc. | 652 | 190,117 | ||||||
IntercontinentalExchange Inc.(b) | 726 | 90,539 | ||||||
Moody’s Corp. | 1,930 | 74,016 | ||||||
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 | |||||||
Specialized Finance–(continued) | ||||||||
NASDAQ OMX Group, Inc. (The)(b) | 1,438 | $ | 36,381 | |||||
NYSE Euronext | 2,584 | 88,554 | ||||||
479,607 | ||||||||
Specialized REIT’s–0.65% | ||||||||
HCP, Inc. | 3,951 | 144,962 | ||||||
Health Care REIT, Inc. | 1,743 | 91,385 | ||||||
Host Hotels & Resorts Inc. | 6,686 | 113,328 | ||||||
Plum Creek Timber Co., Inc. | 1,601 | 64,905 | ||||||
Public Storage | 1,362 | 155,282 | ||||||
Ventas, Inc. | 1,612 | 84,968 | ||||||
Weyerhaeuser Co. | 5,204 | 113,759 | ||||||
768,589 | ||||||||
Specialty Chemicals–0.28% | ||||||||
Ecolab Inc. | 2,259 | 127,362 | ||||||
International Flavors & Fragrances Inc. | 794 | 51,007 | ||||||
Sherwin-Williams Co. (The) | 860 | 72,128 | ||||||
Sigma-Aldrich Corp. | 1,186 | 87,029 | ||||||
337,526 | ||||||||
Specialty Stores–0.17% | ||||||||
Staples, Inc. | 6,949 | 109,794 | ||||||
Tiffany & Co. | 1,243 | 97,601 | ||||||
207,395 | ||||||||
Steel–0.34% | ||||||||
AK Steel Holding Corp. | 1,111 | 17,509 | ||||||
Allegheny Technologies, Inc. | 1,047 | 66,453 | ||||||
Cliffs Natural Resources Inc. | 1,408 | 130,170 | ||||||
Nucor Corp. | 3,079 | 126,916 | ||||||
United States Steel Corp. | 1,422 | 65,469 | ||||||
406,517 | ||||||||
Systems Software–2.98% | ||||||||
BMC Software, Inc.(b) | 1,722 | 94,194 | ||||||
CA, Inc. | 3,725 | 85,079 | ||||||
Microsoft Corp. | 72,320 | 1,880,320 | ||||||
Oracle Corp. | 37,974 | 1,249,724 | ||||||
Red Hat, Inc.(b) | 1,909 | 87,623 | ||||||
Symantec Corp.(b) | 7,353 | 145,001 | ||||||
3,541,941 | ||||||||
Thrifts & Mortgage Finance–0.07% | ||||||||
Hudson City Bancorp, Inc. | 5,103 | 41,794 | ||||||
People’s United Financial Inc. | 3,455 | 46,435 | ||||||
88,229 | ||||||||
Tires & Rubber–0.03% | ||||||||
Goodyear Tire & Rubber Co. (The)(b) | 2,399 | 40,231 | ||||||
Tobacco–1.66% | ||||||||
Altria Group, Inc. | 20,400 | 538,764 | ||||||
Lorillard, Inc. | 1,399 | 152,309 | ||||||
Philip Morris International Inc. | 17,330 | 1,157,124 | ||||||
Reynolds American Inc. | 3,293 | 122,006 | ||||||
1,970,203 | ||||||||
Trading Companies & Distributors–0.16% | ||||||||
Fastenal Co. | 2,872 | 103,363 | ||||||
W.W. Grainger, Inc. | 566 | 86,966 | ||||||
190,329 | ||||||||
Trucking–0.02% | ||||||||
Ryder System, Inc. | 506 | 28,766 | ||||||
Wireless Telecommunication Services–0.34% | ||||||||
American Tower Corp.–Class A(b) | 3,864 | 202,203 | ||||||
MetroPCS Communications, Inc.(b) | 2,618 | 45,056 | ||||||
Sprint Nextel Corp.(b) | 29,155 | 157,145 | ||||||
404,404 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $72,386,951) | 117,111,781 | |||||||
Money Market Funds–1.84% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 1,093,527 | 1,093,527 | ||||||
Premier Portfolio–Institutional Class(e) | 1,093,527 | 1,093,527 | ||||||
Total Money Market Funds (Cost $2,187,054) | 2,187,054 | |||||||
TOTAL INVESTMENTS–100.27% (Cost $74,574,005) | 119,298,835 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.27)% | (317,264 | ) | ||||||
NET ASSETS–100.00% | $ | 118,981,571 | ||||||
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) | Affiliated company. The Fund’s adviser is a subsidiary of Invesco Ltd. and therefore, Invesco Ltd. is considered to be affiliated with the Fund. See Note 4. | |
(d) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1I and Note 5. | |
(e) | 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. S&P 500 Index Fund
By sector, based on Net Assets
as of June 30, 2011
Information Technology | 17.5 | % | ||
Financials | 14.8 | |||
Energy | 12.4 | |||
Health Care | 11.5 | |||
Industrials | 11.0 | |||
Consumer Discretionary | 10.6 | |||
Consumer Staples | 10.5 | |||
Materials | 3.7 | |||
Utilities | 3.3 | |||
Telecommunication Services | 3.1 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.6 | |||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $72,272,884) | $ | 117,006,434 | ||
Investments in affiliated money market funds, at value and cost | 2,187,054 | |||
Investments in affiliates, at value (Cost $114,067) | 105,347 | |||
Total investments, at value (Cost $74,574,005) | 119,298,835 | |||
Receivable for: | ||||
Investments sold | 38,461 | |||
Variation margin | 19,561 | |||
Fund shares sold | 930 | |||
Dividends | 150,587 | |||
Fund expenses absorbed | 7,343 | |||
Investment for trustee deferred compensation and retirement plans | 2,447 | |||
Other assets | 8,957 | |||
Total assets | 119,527,121 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 133,089 | |||
Accrued fees to affiliates | 373,868 | |||
Accrued other operating expenses | 35,079 | |||
Trustee deferred compensation and retirement plans | 3,514 | |||
Total liabilities | 545,550 | |||
Net assets applicable to shares outstanding | $ | 118,981,571 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 93,388,959 | ||
Undistributed net investment income | 2,949,209 | |||
Undistributed net realized gain (loss) | (22,156,925 | ) | ||
Unrealized appreciation | 44,800,328 | |||
$ | 118,981,571 | |||
Net Assets: | ||||
Series I | $ | 36,348,589 | ||
Series II | $ | 82,632,982 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 3,005,429 | |||
Series II | 6,882,332 | |||
Series I: | ||||
Net asset value per share | $ | 12.09 | ||
Series II: | ||||
Net asset value per share | $ | 12.01 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends | $ | 1,218,260 | ||
Dividends from affiliated money market funds | 755 | |||
Dividends from affiliates | 1,094 | |||
Total investment income | 1,220,109 | |||
Expenses: | ||||
Advisory fees | 74,239 | |||
Administrative services fees | 179,460 | |||
Custodian fees | 17,975 | |||
Distribution fees — Series II | 107,999 | |||
Transfer agent fees | 1,506 | |||
Trustees’ and officers’ fees and benefits | 4,981 | |||
Other | 38,182 | |||
Total expenses | 424,342 | |||
Less: Fees waived and expenses reimbursed | (144,276 | ) | ||
Net expenses | 280,066 | |||
Net investment income | 940,043 | |||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities | 3,401,973 | |||
Futures contracts | 14,207 | |||
3,416,180 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 2,745,927 | |||
Futures contracts | 62,116 | |||
2,808,043 | ||||
Net realized and unrealized gain | 6,224,223 | |||
Net increase in net assets resulting from operations | $ | 7,164,266 | ||
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, 2011 and the year ended December 31, 2010 (Unaudited)
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 940,043 | $ | 1,995,988 | ||||
Net realized gain | 3,416,180 | 800,753 | ||||||
Change in net unrealized appreciation | 2,808,043 | 14,020,170 | ||||||
Net increase in net assets resulting from operations | 7,164,266 | 16,816,911 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (728,755 | ) | |||||
Series II | — | (1,463,002 | ) | |||||
Total distributions from net investment income | — | (2,191,757 | ) | |||||
Share transactions–net: | ||||||||
Series I | (3,483,604 | ) | (5,557,429 | ) | ||||
Series II | (10,756,976 | ) | (13,397,694 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (14,240,580 | ) | (18,955,123 | ) | ||||
Net increase (decrease) in net assets | (7,076,314 | ) | (4,329,969 | ) | ||||
Net assets: | ||||||||
Beginning of period | 126,057,885 | 130,387,854 | ||||||
End of period (includes undistributed net investment income of $2,949,209 and $2,009,166, respectively) | $ | 118,981,571 | $ | 126,057,885 | ||||
Notes to Financial Statements
June 30, 2011
(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) (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-eight 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 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”). | ||
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. S&P 500 Index 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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. S&P 500 Index Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 Daily Net Assets | Rate | |||
First $2 billion | 0 | .12% | ||
Over $2 billion | 0 | .10% | ||
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 Canada Ltd. (formerly 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 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 and/or expense reimbursement (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 and/or expense reimbursement 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. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, 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.
Further, the Adviser has contractually agreed, through at least June 30, 2012, 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, 2011, the Adviser waived advisory fees of $74,239 and reimbursed expenses of $70,037.
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 V.I. S&P 500 Index Fund
accounts. Pursuant to such agreement, for the six months ended June 30, 2011, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $154,665 for services provided by insurance companies.
Also, Invesco has entered into service agreements whereby State Street Bank and Trust Company (“SSB”) serves as the 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. For the six months ended June 30, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 119,298,835 | $ | — | $ | — | $ | 119,298,835 | ||||||||
Futures* | 75,498 | — | — | 75,498 | ||||||||||||
Total Investments | $ | 119,374,333 | $ | — | $ | — | $ | 119,374,333 | ||||||||
* | Unrealized appreciation. |
NOTE 4—Investment in Affiliate
The Fund’s Adviser is a Subsidiary of Invesco Ltd. and therefore, Invesco Ltd. is considered to be affiliated with the Fund. The following is a summary of the transactions in and earnings from investments in Invesco Ltd. for the six months ended June 30, 2011.
Change in | ||||||||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||||||
Value | Purchases | Proceeds | Appreciation | Realized | Value | Dividend | ||||||||||||||||||||||
December 31, 2010 | at Cost | from Sales | (Depreciation) | Gain (Loss) | June 30, 2011 | Income | ||||||||||||||||||||||
Invesco Ltd. | $120,733 | $2,350 | $(15,378) | $(1,827) | $(531) | $105,347 | $1,094 | |||||||||||||||||||||
NOTE 5—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, 2011:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Interest rate risk | ||||||||
Futures contracts(a) | $ | 75,538 | $ | (40 | ) | |||
(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, 2011
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 | $ | 14,207 | ||
Change in Unrealized Appreciation | ||||
Interest rate risk | 62,116 | |||
Total | $ | 76,323 | ||
* | The average value of futures outstanding during the period was $1,616,699. |
Open Futures Contracts | ||||||||||||||||
Number of | Notional | Unrealized | ||||||||||||||
Contract | Contracts | Month | Value | Appreciation | ||||||||||||
Long Contracts | �� | |||||||||||||||
S&P 500 E-Mini | 36 | September-2011 | $ | 2,367,900 | $ | 75,498 | ||||||||||
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, 2011, the Fund paid legal fees of $719 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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 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.
Invesco V.I. S&P 500 Index Fund
The Fund utilized $972,761 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of December 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2012 | $ | 3,449,848 | ||
December 31, 2013 | 9,726,077 | |||
December 31, 2014 | 5,449,556 | |||
December 31, 2017 | 1,381,293 | |||
Total capital loss carryforward | $ | 20,006,774 | ||
* | 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, 2011 was $2,211,579 and $15,401,486, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 45,246,694 | ||
Aggregate unrealized (depreciation) of investment securities | (6,056,525 | ) | ||
Net unrealized appreciation of investment securities | $ | 39,190,169 | ||
Cost of investments for tax purposes is $80,108,666. |
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 40,186 | $ | 478,530 | 114,148 | $ | 1,178,964 | ||||||||||
Series II | 90,506 | 1,071,311 | 141,688 | 1,423,360 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 0 | 0 | 73,537 | 728,755 | ||||||||||||
Series II | 0 | 0 | 148,378 | 1,463,002 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (332,275 | ) | (3,962,134 | ) | (723,269 | ) | (7,465,148 | ) | ||||||||
Series II | (997,787 | ) | (11,828,287 | ) | (1,577,214 | ) | (16,284,056 | ) | ||||||||
Net increase (decrease) in share activity | (1,199,370 | ) | $ | (14,240,580 | ) | (1,822,732 | ) | $ | (18,955,123 | ) | ||||||
(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 portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. S&P 500 Index 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 | 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(e) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | $ | 11.42 | $ | 0.10 | $ | 0.57 | $ | 0.67 | $ | 0 | $ | 12.09 | 5.87 | % | $ | 36,349 | 0.28 | %(c) | 0.51 | %(c) | 1.69 | %(c) | 2 | % | ||||||||||||||||||||||||
Year ended 12/31/10 | 10.14 | 0.19 | 1.29 | 1.48 | (0.20 | ) | 11.42 | 14.87 | 37,651 | 0.28 | 0.42 | 1.79 | 6 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 8.27 | 0.18 | 1.94 | 2.12 | (0.25 | ) | 10.14 | 26.34 | 38,873 | 0.28 | (d) | 0.28 | (d) | 2.09 | (d) | 5 | ||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 13.46 | 0.23 | (5.14 | ) | (4.91 | ) | (0.28 | ) | 8.27 | (37.07 | ) | 33,801 | 0.30 | (d) | 0.30 | (d) | 2.01 | (d) | 14 | |||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.02 | 0.23 | 0.45 | 0.68 | (0.24 | ) | 13.46 | 5.23 | 66,275 | 0.27 | 0.27 | 1.71 | 3 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 11.46 | 0.20 | 1.56 | 1.76 | (0.20 | ) | 13.02 | 15.56 | 84,545 | 0.28 | 0.28 | 1.67 | 4 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 11.35 | 0.09 | 0.57 | 0.66 | 0 | 12.01 | 5.81 | 82,633 | 0.53 | (c) | 0.76 | (c) | 1.44 | (c) | 2 | |||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 10.08 | 0.16 | 1.28 | 1.44 | (0.17 | ) | 11.35 | 14.58 | 88,407 | 0.53 | 0.67 | 1.54 | 6 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 8.21 | 0.16 | 1.93 | 2.09 | (0.22 | ) | 10.08 | 26.06 | 91,515 | 0.53 | (d) | 0.53 | (d) | 1.84 | (d) | 5 | ||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 13.36 | 0.20 | (5.11 | ) | (4.91 | ) | (0.24 | ) | 8.21 | (37.27 | ) | 80,115 | 0.55 | (d) | 0.55 | (d) | 1.76 | (d) | 14 | |||||||||||||||||||||||||||||
Year ended 12/31/07 | 12.92 | 0.20 | 0.45 | 0.65 | (0.21 | ) | 13.36 | 5.00 | 152,984 | 0.52 | 0.52 | 1.46 | 3 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 11.38 | 0.17 | 1.54 | 1.71 | (0.17 | ) | 12.92 | 15.21 | 176,883 | 0.53 | 0.53 | 1.42 | 4 | |||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $37,643 and $87,115 for Series I and Series II shares, respectively. | |
(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 less than 0.005%. | |
(e) | Portfolio turnover is calculated at the fund level and is not annualized for the periods less than one year, if applicable. |
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 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,058.70 | $ | 1.43 | $ | 1,023.41 | $ | 1.40 | 0.28 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,058.10 | 2.70 | 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, 2011 through June 30, 2011, 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 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. S&P 500 Index 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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. S&P 500 Index Fund
to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – S&P 500 Index Objective Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of the 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 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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. The Board noted that the Fund’s rate was the same as the rate of the other mutual Fund managed by Invesco Advisers in a manner comparable to the 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 June 30, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Semiannual Report to Shareholders § June 30, 2011
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at 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, 2011, is available at 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.
MS-VISDEWSP-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 7.88 | % | ||
Series II Shares | 7.77 | |||
S&P 500 Index▼(Broad Market Index) | 6.01 | |||
S&P 500 Equal Weight Indexn (Style-Specific Index) | 8.09 | |||
Lipper VUF Multi-Cap Core Index▼(Peer Group Index) | 6.09 | |||
▼Lipper Inc.; nInvesco, Bloomberg LP |
The Fund recently adopted a three-tier benchmark structure to compare its performance to broad market, style-specific and peer group market measures.
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The S&P 500® Equal Weight Index is the equally weighted version of the S&P 500 Index.
The Lipper VUF Multi-Cap Core Index is an unmanaged index considered representative of multi-cap core variable insurance underlying funds tracked by Lipper.
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 6/30/11
As of 6/30/11
Series I Shares | ||||
Inception (11/9/94) | 10.20 | % | ||
10 Years | 6.56 | |||
5 Years | 5.18 | |||
1 Year | 35.97 | |||
Series II Shares | ||||
Inception (7/24/00) | 6.80 | % | ||
10 Years | 6.29 | |||
5 Years | 4.93 | |||
1 Year | 35.67 |
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund, Morgan Stanley V.I. Select Dimensions Equally-Weighted S&P 500 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 0.49% 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. 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 Fund operating expenses after 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 Equally-Weighted S&P 500 Fund
Schedule of Investments
June 30, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.41%(a) | ||||||||
Advertising–0.41% | ||||||||
Interpublic Group of Cos., Inc. (The) | 15,592 | $ | 194,900 | |||||
Omnicom Group, Inc. | 3,908 | 188,209 | ||||||
383,109 | ||||||||
Aerospace & Defense–2.57% | ||||||||
Boeing Co. (The) | 2,388 | 176,545 | ||||||
General Dynamics Corp. | 2,470 | 184,064 | ||||||
Goodrich Corp. | 1,943 | 185,557 | ||||||
Honeywell International, Inc. | 3,170 | 188,900 | ||||||
ITT Corp. | 3,143 | 185,217 | ||||||
L-3 Communications Holdings, Inc. | 2,163 | 189,154 | ||||||
Lockheed Martin Corp. | 2,213 | 179,187 | ||||||
Northrop Grumman Corp. | 2,737 | 189,811 | ||||||
Precision Castparts Corp. | 1,157 | 190,500 | ||||||
Raytheon Co. | 3,631 | 181,005 | ||||||
Rockwell Collins, Inc. | 2,939 | 181,307 | ||||||
Textron Inc. | 8,146 | 192,327 | ||||||
United Technologies Corp. | 2,094 | 185,340 | ||||||
2,408,914 | ||||||||
Agricultural Products–0.19% | ||||||||
Archer-Daniels-Midland Co.(b) | 5,870 | 176,980 | ||||||
Air Freight & Logistics–0.80% | ||||||||
C.H. Robinson Worldwide, Inc. | 2,302 | 181,489 | ||||||
Expeditors International of Washington, Inc. | 3,725 | 190,683 | ||||||
FedEx Corp. | 2,035 | 193,020 | ||||||
United Parcel Service, Inc.–Class B | 2,560 | 186,701 | ||||||
751,893 | ||||||||
Airlines–0.20% | ||||||||
Southwest Airlines Co. | 16,190 | 184,890 | ||||||
Aluminum–0.20% | ||||||||
Alcoa Inc. | 12,024 | 190,701 | ||||||
Apparel Retail–1.17% | ||||||||
Abercrombie & Fitch Co.–Class A | 2,704 | 180,952 | ||||||
Gap, Inc. (The) | 9,933 | 179,787 | ||||||
Limited Brands, Inc. | 4,992 | 191,942 | ||||||
Ross Stores, Inc. | 2,355 | 188,683 | ||||||
TJX Cos., Inc. (The) | 3,538 | 185,851 | ||||||
Urban Outfitters, Inc.(c) | 6,147 | 173,038 | ||||||
1,100,253 | ||||||||
Apparel, Accessories & Luxury Goods–0.61% | ||||||||
Coach, Inc. | 2,985 | 190,831 | ||||||
Polo Ralph Lauren Corp. | 1,427 | 189,234 | ||||||
VF Corp. | 1,723 | 187,049 | ||||||
567,114 | ||||||||
Application Software–1.20% | ||||||||
Adobe Systems Inc.(c) | 5,814 | 182,850 | ||||||
Autodesk, Inc.(c) | 4,961 | 191,494 | ||||||
Citrix Systems, Inc.(c) | 2,388 | 191,040 | ||||||
Compuware Corp.(c) | 18,783 | 183,322 | ||||||
Intuit Inc.(c) | 3,602 | 186,800 | ||||||
Salesforce.com, Inc.(c) | 1,268 | 188,907 | ||||||
1,124,413 | ||||||||
Asset Management & Custody Banks–2.11% | ||||||||
Ameriprise Financial, Inc. | 3,125 | 180,250 | ||||||
Bank of New York Mellon Corp. (The) | 6,760 | 173,191 | ||||||
BlackRock, Inc. | 944 | 181,069 | ||||||
Federated Investors, Inc.–Class B | 7,256 | 172,983 | ||||||
Franklin Resources, Inc. | 1,423 | 186,826 | ||||||
Invesco Ltd.(d) | 7,687 | 179,876 | ||||||
Janus Capital Group Inc. | 19,210 | 181,342 | ||||||
Legg Mason, Inc. | 5,557 | 182,047 | ||||||
Northern Trust Corp. | 3,787 | 174,050 | ||||||
State Street Corp. | 4,073 | 183,652 | ||||||
T. Rowe Price Group Inc. | 3,091 | 186,511 | ||||||
1,981,797 | ||||||||
Auto Parts & Equipment–0.21% | ||||||||
Johnson Controls, Inc. | 4,767 | 198,593 | ||||||
Automobile Manufacturers–0.20% | ||||||||
Ford Motor Co.(c) | 13,859 | 191,116 | ||||||
Automotive Retail–0.81% | ||||||||
AutoNation, Inc.(c) | 5,349 | 195,827 | ||||||
AutoZone, Inc.(c) | 606 | 178,679 | ||||||
CarMax, Inc.(c) | 6,055 | 200,239 | ||||||
O’Reilly Automotive, Inc.(c) | 2,855 | 187,031 | ||||||
761,776 | ||||||||
Biotechnology–0.99% | ||||||||
Amgen Inc.(c) | 3,053 | 178,143 | ||||||
Biogen Idec Inc.(c) | 1,869 | 199,833 | ||||||
Celgene Corp.(c) | 3,059 | 184,519 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Biotechnology–(continued) | ||||||||
Cephalon Inc.(c) | 2,221 | $ | 177,458 | |||||
Gilead Sciences, Inc.(c) | 4,479 | 185,475 | ||||||
925,428 | ||||||||
Brewers–0.19% | ||||||||
Molson Coors Brewing Co.–Class B | 3,967 | 177,484 | ||||||
Broadcasting–0.59% | ||||||||
CBS Corp.–Class B | 6,844 | 194,986 | ||||||
Discovery Communications, Inc.–Class A(c) | 4,367 | 178,872 | ||||||
Scripps Networks Interactive Inc.–Class A | 3,757 | 183,642 | ||||||
557,500 | ||||||||
Building Products��0.19% | ||||||||
Masco Corp. | 14,601 | 175,650 | ||||||
Cable & Satellite–0.80% | ||||||||
Cablevision Systems Corp.–Class A(c) | 6,812 | 178,815 | ||||||
Comcast Corp.–Class A | 7,495 | 189,923 | ||||||
DIRECTV–Class A(c) | 3,796 | 192,913 | ||||||
Time Warner Cable, Inc. | 2,372 | 185,111 | ||||||
746,762 | ||||||||
Casinos & Gaming–0.41% | ||||||||
International Game Technology | 10,839 | 190,550 | ||||||
Wynn Resorts Ltd. | 1,367 | 196,219 | ||||||
386,769 | ||||||||
Coal & Consumable Fuels–0.61% | ||||||||
Alpha Natural Resources, Inc.(c) | 4,192 | 190,484 | ||||||
Consol Energy Inc. | 3,862 | 187,230 | ||||||
Peabody Energy Corp. | 3,287 | 193,637 | ||||||
571,351 | ||||||||
Commercial Printing–0.19% | ||||||||
R. R. Donnelley & Sons Co. | 9,282 | 182,020 | ||||||
Communications Equipment–1.78% | ||||||||
Cisco Systems, Inc. | 11,832 | 184,698 | ||||||
F5 Networks, Inc.(c) | 1,822 | 200,875 | ||||||
Harris Corp. | 3,973 | 179,023 | ||||||
JDS Uniphase Corp.(c) | 11,419 | 190,241 | ||||||
Juniper Networks, Inc.(c) | 6,038 | 190,197 | ||||||
Motorola Mobility Holdings Inc.(c) | 7,136 | 157,277 | ||||||
Motorola Solutions, Inc.(c) | 3,894 | 179,280 | ||||||
Qualcomm, Inc. | 3,358 | 190,701 | ||||||
Tellabs, Inc. | 43,520 | 200,627 | ||||||
1,672,919 | ||||||||
Computer & Electronics Retail–0.38% | ||||||||
Best Buy Co., Inc. | 5,711 | 179,383 | ||||||
GameStop Corp.–Class A(c) | 6,699 | 178,662 | ||||||
358,045 | ||||||||
Computer Hardware–0.59% | ||||||||
Apple, Inc.(c) | 552 | 185,290 | ||||||
Dell, Inc.(c) | 11,063 | 184,420 | ||||||
Hewlett-Packard Co. | 5,060 | 184,184 | ||||||
553,894 | ||||||||
Computer Storage & Peripherals–1.00% | ||||||||
EMC Corp.(c) | 6,857 | 188,910 | ||||||
Lexmark International, Inc.–Class A(c) | 6,382 | 186,737 | ||||||
NetApp, Inc.(c) | 3,588 | 189,375 | ||||||
SanDisk Corp.(c) | 4,311 | 178,907 | ||||||
Western Digital Corp.(c) | 5,292 | 192,523 | ||||||
936,452 | ||||||||
Construction & Engineering–0.60% | ||||||||
Fluor Corp. | 2,927 | 189,260 | ||||||
Jacobs Engineering Group, Inc.(c) | 4,309 | 186,364 | ||||||
Quanta Services, Inc.(c) | 9,416 | 190,203 | ||||||
565,827 | ||||||||
Construction & Farm Machinery & Heavy Trucks–1.03% | ||||||||
Caterpillar Inc. | 1,845 | 196,419 | ||||||
Cummins Inc. | 1,891 | 195,699 | ||||||
Deere & Co. | 2,255 | 185,925 | ||||||
Joy Global Inc. | 2,124 | 202,290 | ||||||
PACCAR Inc. | 3,713 | 189,697 | ||||||
970,030 | ||||||||
Construction Materials–0.19% | ||||||||
Vulcan Materials Co. | 4,547 | 175,196 | ||||||
Consumer Electronics–0.20% | ||||||||
Harman International Industries, Inc. | 4,094 | 186,564 | ||||||
Consumer Finance–0.82% | ||||||||
American Express Co. | 3,651 | 188,757 | ||||||
Capital One Financial Corp. | 3,626 | 187,355 | ||||||
Discover Financial Services | 7,670 | 205,172 | ||||||
SLM Corp. | 11,097 | 186,541 | ||||||
767,825 | ||||||||
Data Processing & Outsourced Services–1.77% | ||||||||
Automatic Data Processing, Inc. | 3,428 | 180,587 | ||||||
Computer Sciences Corp. | 4,591 | 174,274 | ||||||
Fidelity National Information Services, Inc. | 5,711 | 175,842 | ||||||
Fiserv, Inc.(c) | 2,894 | 181,251 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Data Processing & Outsourced Services–(continued) | ||||||||
MasterCard, Inc.–Class A | 665 | $ | 200,391 | |||||
Paychex, Inc. | 5,979 | 183,675 | ||||||
Total System Services, Inc. | 9,979 | 185,410 | ||||||
Visa, Inc.–Class A | 2,379 | 200,455 | ||||||
Western Union Co. | 8,977 | 179,809 | ||||||
1,661,694 | ||||||||
Department Stores–0.97% | ||||||||
JC Penney Co., Inc. | 5,165 | 178,399 | ||||||
Kohl’s Corp. | 3,533 | 176,685 | ||||||
Macy’s, Inc. | 6,494 | 189,885 | ||||||
Nordstrom, Inc. | 4,027 | 189,027 | ||||||
Sears Holdings Corp.(c) | 2,392 | 170,885 | ||||||
904,881 | ||||||||
Distillers & Vintners–0.38% | ||||||||
Brown-Forman Corp.–Class B | 2,427 | 181,273 | ||||||
Constellation Brands, Inc.–Class A(c) | 8,382 | 174,513 | ||||||
355,786 | ||||||||
Distributors–0.20% | ||||||||
Genuine Parts Co. | 3,456 | 188,006 | ||||||
Diversified Banks–0.58% | ||||||||
Comerica, Inc. | 5,147 | 177,932 | ||||||
U.S. Bancorp | 7,229 | 184,411 | ||||||
Wells Fargo & Co. | 6,480 | 181,829 | ||||||
544,172 | ||||||||
Diversified Chemicals–1.01% | ||||||||
Dow Chemical Co. (The) | 5,119 | 184,284 | ||||||
E. I. du Pont de Nemours and Co. | 3,573 | 193,121 | ||||||
Eastman Chemical Co. | 1,864 | 190,258 | ||||||
FMC Corp. | 2,235 | 192,255 | ||||||
PPG Industries, Inc. | 2,089 | 189,660 | ||||||
949,578 | ||||||||
Diversified Metals & Mining–0.42% | ||||||||
Freeport-McMoRan Copper & Gold Inc. | 3,695 | 195,466 | ||||||
Titanium Metals Corp. | 10,747 | 196,885 | ||||||
392,351 | ||||||||
Diversified REIT’s–0.19% | ||||||||
Vornado Realty Trust | 1,936 | 180,396 | ||||||
Diversified Support Services–0.39% | ||||||||
Cintas Corp. | 5,529 | 182,623 | ||||||
Iron Mountain Inc. | 5,441 | 185,484 | ||||||
368,107 | ||||||||
Drug Retail–0.37% | ||||||||
CVS Caremark Corp. | 4,738 | 178,054 | ||||||
Walgreen Co. | 3,964 | 168,311 | ||||||
346,365 | ||||||||
Education Services–0.40% | ||||||||
Apollo Group, Inc.–Class A(c) | 4,233 | 184,898 | ||||||
DeVry, Inc. | 3,170 | 187,442 | ||||||
372,340 | ||||||||
Electric Utilities–2.47% | ||||||||
American Electric Power Co., Inc. | 4,699 | 177,058 | ||||||
Duke Energy Corp. | 9,451 | 177,962 | ||||||
Edison International | 4,503 | 174,491 | ||||||
Entergy Corp. | 2,553 | 174,319 | ||||||
Exelon Corp. | 4,226 | 181,042 | ||||||
FirstEnergy Corp. | 4,028 | 177,836 | ||||||
NextEra Energy, Inc. | 3,126 | 179,620 | ||||||
Northeast Utilities | 5,100 | 179,367 | ||||||
Pepco Holdings, Inc. | 9,191 | 180,420 | ||||||
Pinnacle West Capital Corp. | 4,018 | 179,123 | ||||||
PPL Corp. | 6,540 | 182,008 | ||||||
Progress Energy, Inc. | 3,706 | 177,925 | ||||||
Southern Co. | 4,437 | 179,166 | ||||||
2,320,337 | ||||||||
Electrical Components & Equipment–0.61% | ||||||||
Emerson Electric Co. | 3,402 | 191,362 | ||||||
Rockwell Automation, Inc. | 2,238 | 194,169 | ||||||
Roper Industries, Inc. | 2,213 | 184,343 | ||||||
569,874 | ||||||||
Electronic Components–0.40% | ||||||||
Amphenol Corp.–Class A | 3,531 | 190,639 | ||||||
Corning Inc. | 9,950 | 180,592 | ||||||
371,231 | ||||||||
Electronic Equipment & Instruments–0.19% | ||||||||
FLIR Systems, Inc. | 5,343 | 180,113 | ||||||
Electronic Manufacturing Services–0.40% | ||||||||
Jabil Circuit, Inc. | 9,683 | 195,597 | ||||||
Molex, Inc. | 7,099 | 182,941 | ||||||
378,538 | ||||||||
Environmental & Facilities Services–0.58% | ||||||||
Republic Services, Inc. | 5,814 | 179,362 | ||||||
Stericycle, Inc.(c) | 2,049 | 182,607 | ||||||
Waste Management, Inc. | 4,816 | 179,492 | ||||||
541,461 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Fertilizers & Agricultural Chemicals–0.40% | ||||||||
CF Industries Holdings, Inc. | 1,301 | $ | 184,313 | |||||
Monsanto Co. | 2,689 | 195,060 | ||||||
379,373 | ||||||||
Food Distributors–0.19% | ||||||||
Sysco Corp. | 5,731 | 178,693 | ||||||
Food Retail–0.81% | ||||||||
Kroger Co. (The) | 7,379 | 182,999 | ||||||
Safeway, Inc. | 7,788 | 182,006 | ||||||
SUPERVALU Inc. | 20,477 | 192,689 | ||||||
Whole Foods Market, Inc. | 3,179 | 201,707 | ||||||
759,401 | ||||||||
Footwear–0.21% | ||||||||
NIKE, Inc.–Class B | 2,183 | 196,426 | ||||||
Gas Utilities–0.39% | ||||||||
Nicor Inc. | 3,284 | 179,766 | ||||||
Oneok, Inc. | 2,552 | 188,874 | ||||||
368,640 | ||||||||
General Merchandise Stores–0.57% | ||||||||
Big Lots, Inc.(c) | 5,466 | 181,198 | ||||||
Family Dollar Stores, Inc. | 3,367 | 176,970 | ||||||
Target Corp. | 3,806 | 178,539 | ||||||
536,707 | ||||||||
Gold–0.20% | ||||||||
Newmont Mining Corp. | 3,433 | 185,279 | ||||||
Health Care Distributors–0.77% | ||||||||
AmerisourceBergen Corp. | 4,304 | 178,186 | ||||||
Cardinal Health, Inc. | 4,015 | 182,361 | ||||||
McKesson Corp. | 2,149 | 179,764 | ||||||
Patterson Cos. Inc. | 5,543 | 182,309 | ||||||
722,620 | ||||||||
Health Care Equipment–2.51% | ||||||||
Baxter International Inc. | 3,034 | 181,099 | ||||||
Becton, Dickinson and Co. | 2,080 | 179,234 | ||||||
Boston Scientific Corp.(c) | 26,086 | 180,254 | ||||||
C.R. Bard, Inc. | 1,629 | 178,962 | ||||||
CareFusion Corp.(c) | 6,643 | 180,490 | ||||||
Covidien PLC (Ireland) | 3,373 | 179,545 | ||||||
Edwards Lifesciences Corp.(c) | 2,108 | 183,775 | ||||||
Intuitive Surgical, Inc.(c) | 513 | 190,892 | ||||||
Medtronic, Inc. | 4,618 | 177,932 | ||||||
St. Jude Medical, Inc. | 3,658 | 174,413 | ||||||
Stryker Corp. | 3,068 | 180,061 | ||||||
Varian Medical Systems, Inc.(c) | 2,675 | 187,304 | ||||||
Zimmer Holdings, Inc.(c) | 2,853 | 180,310 | ||||||
2,354,271 | ||||||||
Health Care Facilities–0.18% | ||||||||
Tenet Healthcare Corp.(c) | 27,632 | 172,424 | ||||||
Health Care Services–0.94% | ||||||||
DaVita, Inc.(c) | 2,106 | 182,401 | ||||||
Express Scripts, Inc.(c) | 3,180 | 171,656 | ||||||
Laboratory Corp. of America Holdings(c) | 1,835 | 177,610 | ||||||
Medco Health Solutions, Inc.(c) | 3,209 | 181,373 | ||||||
Quest Diagnostics Inc. | 2,924 | 172,808 | ||||||
885,848 | ||||||||
Health Care Supplies–0.20% | ||||||||
DENTSPLY International Inc. | 4,877 | 185,716 | ||||||
Health Care Technology–0.20% | ||||||||
Cerner Corp.(c) | 3,022 | 184,674 | ||||||
Home Entertainment Software–0.20% | ||||||||
Electronic Arts Inc.(c) | 7,963 | 187,927 | ||||||
Home Furnishings–0.20% | ||||||||
Leggett & Platt, Inc. | 7,549 | 184,045 | ||||||
Home Improvement Retail–0.39% | ||||||||
Home Depot, Inc. (The) | 5,131 | 185,845 | ||||||
Lowe’s Cos., Inc. | 7,761 | 180,909 | ||||||
366,754 | ||||||||
Homebuilding–0.59% | ||||||||
D.R. Horton, Inc. | 15,971 | 183,986 | ||||||
Lennar Corp.–Class A | 10,144 | 184,114 | ||||||
Pulte Group Inc.(c) | 24,634 | 188,696 | ||||||
556,796 | ||||||||
Homefurnishing Retail–0.21% | ||||||||
Bed Bath & Beyond Inc.(c) | 3,406 | 198,808 | ||||||
Hotels, Resorts & Cruise Lines–0.81% | ||||||||
Carnival Corp. | 5,021 | 188,940 | ||||||
Marriott International Inc.–Class A | 5,343 | 189,623 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 3,414 | 191,321 | ||||||
Wyndham Worldwide Corp. | 5,610 | 188,776 | ||||||
758,660 | ||||||||
Household Appliances–0.40% | ||||||||
Stanley Black & Decker Inc. | 2,593 | 186,826 | ||||||
Whirlpool Corp. | 2,328 | 189,313 | ||||||
376,139 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Household Products–0.75% | ||||||||
Clorox Co. (The) | 2,622 | $ | 176,828 | |||||
Colgate-Palmolive Co. | 2,015 | 176,131 | ||||||
Kimberly-Clark Corp. | 2,674 | 177,981 | ||||||
Procter & Gamble Co. (The) | 2,737 | 173,991 | ||||||
704,931 | ||||||||
Housewares & Specialties–0.39% | ||||||||
Fortune Brands, Inc. | 2,790 | 177,918 | ||||||
Newell Rubbermaid, Inc. | 12,033 | 189,881 | ||||||
367,799 | ||||||||
Human Resource & Employment Services–0.20% | ||||||||
Robert Half International, Inc. | 6,844 | 184,993 | ||||||
Hypermarkets & Super Centers–0.38% | ||||||||
Costco Wholesale Corp. | 2,224 | 180,678 | ||||||
Wal-Mart Stores, Inc. | 3,353 | 178,178 | ||||||
358,856 | ||||||||
Independent Power Producers & Energy Traders–0.59% | ||||||||
AES Corp. (The)(c) | 14,435 | 183,902 | ||||||
Constellation Energy Group Inc. | 4,823 | 183,081 | ||||||
NRG Energy, Inc.(c) | 7,598 | 186,759 | ||||||
553,742 | ||||||||
Industrial Conglomerates–0.59% | ||||||||
3M Co. | 1,929 | 182,965 | ||||||
General Electric Co. | 9,579 | 180,660 | ||||||
Tyco International Ltd. | 3,809 | 188,279 | ||||||
551,904 | ||||||||
Industrial Gases–0.60% | ||||||||
Air Products & Chemicals, Inc. | 1,967 | 188,006 | ||||||
Airgas, Inc. | 2,670 | 187,007 | ||||||
Praxair, Inc. | 1,752 | 189,899 | ||||||
564,912 | ||||||||
Industrial Machinery–1.79% | ||||||||
Danaher Corp. | 3,416 | 181,014 | ||||||
Dover Corp. | 2,842 | 192,688 | ||||||
Eaton Corp. | 3,768 | 193,864 | ||||||
Flowserve Corp. | 1,675 | 184,066 | ||||||
Illinois Tool Works Inc. | 3,223 | 182,067 | ||||||
Ingersoll-Rand PLC (Ireland) | 4,037 | 183,320 | ||||||
Pall Corp. | 3,304 | 185,784 | ||||||
Parker Hannifin Corp. | 2,075 | 186,210 | ||||||
Snap-On, Inc. | 3,081 | 192,501 | ||||||
1,681,514 | ||||||||
Industrial REIT’s–0.20% | ||||||||
Prologis, Inc. | 5,255 | 188,339 | ||||||
Insurance Brokers–0.39% | ||||||||
Aon Corp. | 3,586 | 183,962 | ||||||
Marsh & McLennan Cos., Inc. | 5,945 | 185,424 | ||||||
369,386 | ||||||||
Integrated Oil & Gas–1.38% | ||||||||
Chevron Corp. | 1,786 | 183,672 | ||||||
ConocoPhillips | 2,462 | 185,118 | ||||||
Exxon Mobil Corp. | 2,241 | 182,373 | ||||||
Hess Corp. | 2,556 | 191,087 | ||||||
Marathon Oil Corp.(c) | 5,720 | 185,328 | ||||||
Murphy Oil Corp. | 2,805 | 184,176 | ||||||
Occidental Petroleum Corp. | 1,733 | 180,301 | ||||||
1,292,055 | ||||||||
Integrated Telecommunication Services–0.96% | ||||||||
AT&T Inc. | 5,756 | 180,796 | ||||||
CenturyLink Inc. | 4,478 | 181,046 | ||||||
Frontier Communications Corp. | 22,506 | 181,623 | ||||||
Verizon Communications Inc. | 4,986 | 185,629 | ||||||
Windstream Corp. | 13,541 | 175,491 | ||||||
904,585 | ||||||||
Internet Retail–0.82% | ||||||||
Amazon.com, Inc.(c) | 949 | 194,061 | ||||||
Expedia, Inc. | 6,552 | 189,943 | ||||||
Netflix Inc.(c) | 720 | 189,137 | ||||||
Priceline.com Inc.(c) | 382 | 195,557 | ||||||
768,698 | ||||||||
Internet Software & Services–1.20% | ||||||||
Akamai Technologies, Inc.(c) | 6,005 | 188,977 | ||||||
eBay Inc.(c) | 6,141 | 198,170 | ||||||
Google, Inc.–Class A(c) | 364 | 184,322 | ||||||
Monster Worldwide, Inc.(c) | 13,139 | 192,618 | ||||||
VeriSign, Inc. | 5,414 | 181,153 | ||||||
Yahoo! Inc.(c) | 12,057 | 181,337 | ||||||
1,126,577 | ||||||||
Investment Banking & Brokerage–0.76% | ||||||||
Charles Schwab Corp. (The) | 11,132 | 183,121 | ||||||
E*TRADE Financial Corp.(c) | 12,909 | 178,144 | ||||||
Goldman Sachs Group, Inc. (The) | 1,289 | 171,553 | ||||||
Morgan Stanley | 7,758 | 178,512 | ||||||
711,330 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
IT Consulting & Other Services–0.80% | ||||||||
Cognizant Technology Solutions Corp.–Class A(c) | 2,617 | $ | 191,931 | |||||
International Business Machines Corp. | 1,076 | 184,588 | ||||||
SAIC, Inc.(c) | 10,728 | 180,445 | ||||||
Teradata Corp.(c) | 3,155 | 189,931 | ||||||
746,895 | ||||||||
Leisure Products–0.39% | ||||||||
Hasbro, Inc. | 4,059 | 178,312 | ||||||
Mattel, Inc. | 6,778 | 186,327 | ||||||
364,639 | ||||||||
Life & Health Insurance–1.39% | ||||||||
Aflac, Inc. | 3,934 | 183,639 | ||||||
Lincoln National Corp. | 6,571 | 187,208 | ||||||
MetLife, Inc. | 4,374 | 191,887 | ||||||
Principal Financial Group, Inc. | 6,086 | 185,136 | ||||||
Prudential Financial, Inc. | 2,991 | 190,198 | ||||||
Torchmark Corp. | 2,814 | 180,490 | ||||||
Unum Group | 7,073 | 180,220 | ||||||
1,298,778 | ||||||||
Life Sciences Tools & Services–0.98% | ||||||||
Agilent Technologies, Inc.(c) | 3,734 | 190,845 | ||||||
Life Technologies Corp.(c) | 3,422 | 178,183 | ||||||
PerkinElmer, Inc. | 6,836 | 183,957 | ||||||
Thermo Fisher Scientific, Inc.(c) | 2,846 | 183,254 | ||||||
Waters Corp.(c) | 1,923 | 184,108 | ||||||
920,347 | ||||||||
Managed Health Care–1.18% | ||||||||
Aetna Inc. | 4,079 | 179,843 | ||||||
CIGNA Corp. | 3,622 | 186,279 | ||||||
Coventry Health Care, Inc.(c) | 5,182 | 188,988 | ||||||
Humana Inc. | 2,284 | 183,953 | ||||||
UnitedHealth Group, Inc. | 3,545 | 182,851 | ||||||
WellPoint, Inc. | 2,322 | 182,904 | ||||||
1,104,818 | ||||||||
Metal & Glass Containers–0.38% | ||||||||
Ball Corp. | 4,676 | 179,839 | ||||||
Owens-Illinois, Inc.(c) | 6,924 | 178,708 | ||||||
358,547 | ||||||||
Motorcycle Manufacturers–0.21% | ||||||||
Harley-Davidson, Inc. | 4,816 | 197,312 | ||||||
Movies & Entertainment–0.80% | ||||||||
News Corp.–Class A | 11,035 | 195,320 | ||||||
Time Warner Inc. | 5,041 | 183,341 | ||||||
Viacom Inc.–Class B | 3,732 | 190,332 | ||||||
Walt Disney Co. (The) | 4,648 | 181,458 | ||||||
750,451 | ||||||||
Multi-Line Insurance–0.98% | ||||||||
American International Group, Inc.(c) | 6,329 | 185,566 | ||||||
Assurant, Inc. | 5,056 | 183,381 | ||||||
Genworth Financial Inc.–Class A(c) | 17,365 | 178,512 | ||||||
Hartford Financial Services Group, Inc. (The) | 7,247 | 191,104 | ||||||
Loews Corp. | 4,352 | 183,176 | ||||||
921,739 | ||||||||
Multi-Sector Holdings–0.20% | ||||||||
Leucadia National Corp. | 5,388 | 183,731 | ||||||
Multi-Utilities–2.87% | ||||||||
Ameren Corp. | 6,238 | 179,904 | ||||||
CenterPoint Energy, Inc. | 9,451 | 182,877 | ||||||
CMS Energy Corp. | 9,000 | 177,210 | ||||||
Consolidated Edison, Inc. | 3,355 | 178,620 | ||||||
Dominion Resources, Inc. | 3,716 | 179,371 | ||||||
DTE Energy Co. | 3,597 | 179,922 | ||||||
Integrys Energy Group, Inc. | 3,518 | 182,373 | ||||||
NiSource Inc. | 9,083 | 183,931 | ||||||
PG&E Corp. | 4,181 | 175,727 | ||||||
Public Service Enterprise Group Inc. | 5,612 | 183,176 | ||||||
SCANA Corp. | 4,569 | 179,882 | ||||||
Sempra Energy | 3,328 | 175,985 | ||||||
TECO Energy, Inc. | 9,517 | 179,776 | ||||||
Wisconsin Energy Corp. | 5,675 | 177,911 | ||||||
Xcel Energy, Inc. | 7,211 | 175,227 | ||||||
2,691,892 | ||||||||
Office Electronics–0.20% | ||||||||
Xerox Corp. | 17,981 | 187,182 | ||||||
Office REIT’s–0.19% | ||||||||
Boston Properties, Inc. | 1,704 | 180,897 | ||||||
Office Services & Supplies–0.39% | ||||||||
Avery Dennison Corp. | 4,828 | 186,506 | ||||||
Pitney Bowes Inc. | 7,882 | 181,207 | ||||||
367,713 | ||||||||
Oil & Gas Drilling–1.00% | ||||||||
Diamond Offshore Drilling, Inc. | 2,629 | 185,108 | ||||||
Helmerich & Payne, Inc. | 3,034 | 200,608 | ||||||
Nabors Industries Ltd.(c) | 7,370 | 181,597 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Oil & Gas Drilling–(continued) | ||||||||
Noble Corp. | 4,704 | $ | 185,385 | |||||
Rowan Cos., Inc.(c) | 4,878 | 189,315 | ||||||
942,013 | ||||||||
Oil & Gas Equipment & Services–1.24% | ||||||||
Baker Hughes Inc. | 2,553 | 185,246 | ||||||
Cameron International Corp.(c) | 3,841 | 193,164 | ||||||
FMC Technologies, Inc.(c) | 4,412 | 197,613 | ||||||
Halliburton Co. | 3,848 | 196,248 | ||||||
National Oilwell Varco Inc. | 2,564 | 200,530 | ||||||
Schlumberger Ltd. | 2,165 | 187,056 | ||||||
1,159,857 | ||||||||
Oil & Gas Exploration & Production–2.80% | ||||||||
Anadarko Petroleum Corp. | 2,513 | 192,898 | ||||||
Apache Corp. | 1,510 | 186,319 | ||||||
Cabot Oil & Gas Corp. | 2,934 | 194,553 | ||||||
Chesapeake Energy Corp. | 6,320 | 187,641 | ||||||
Denbury Resources, Inc.(c) | 9,436 | 188,720 | ||||||
Devon Energy Corp. | 2,301 | 181,342 | ||||||
EOG Resources, Inc. | 1,732 | 181,081 | ||||||
EQT Corp. | 3,520 | 184,870 | ||||||
Newfield Exploration Co.(c) | 2,780 | 189,096 | ||||||
Noble Energy, Inc. | 2,123 | 190,284 | ||||||
Pioneer Natural Resources Co. | 2,098 | 187,918 | ||||||
QEP Resources Inc. | 4,588 | 191,916 | ||||||
Range Resources Corp. | 3,405 | 188,977 | ||||||
Southwestern Energy Co.(c) | 4,302 | 184,470 | ||||||
2,630,085 | ||||||||
Oil & Gas Refining & Marketing–0.81% | ||||||||
Marathon Petroleum Corp.(c) | 4,530 | 187,521 | ||||||
Sunoco, Inc. | 4,541 | 189,405 | ||||||
Tesoro Corp.(c) | 8,487 | 194,437 | ||||||
Valero Energy Corp. | 7,349 | 187,914 | ||||||
759,277 | ||||||||
Oil & Gas Storage & Transportation–0.59% | ||||||||
El Paso Corp. | 8,968 | 181,154 | ||||||
Spectra Energy Corp. | 6,651 | 182,304 | ||||||
Williams Cos., Inc. (The) | 6,256 | 189,244 | ||||||
552,702 | ||||||||
Other Diversified Financial Services–0.59% | ||||||||
Bank of America Corp. | 16,584 | 181,761 | ||||||
Citigroup Inc. | 4,616 | 192,210 | ||||||
JPMorgan Chase & Co. | 4,326 | 177,106 | ||||||
551,077 | ||||||||
Packaged Foods & Meats–2.68% | ||||||||
Campbell Soup Co. | 5,173 | 178,727 | ||||||
ConAgra Foods, Inc. | 7,185 | 185,445 | ||||||
Dean Foods Co.(c) | 14,013 | 171,940 | ||||||
General Mills, Inc. | 4,659 | 173,408 | ||||||
H.J. Heinz Co. | 3,293 | 175,451 | ||||||
Hershey Co. (The) | 3,181 | 180,840 | ||||||
Hormel Foods Corp. | 6,115 | 182,288 | ||||||
J M Smucker Co. (The) | 2,298 | 175,659 | ||||||
Kellogg Co. | 3,224 | 178,352 | ||||||
Kraft Foods Inc.–Class A | 5,137 | 180,976 | ||||||
McCormick & Co., Inc. | 3,560 | 176,469 | ||||||
Mead Johnson Nutrition Co. | 2,726 | 184,141 | ||||||
Sara Lee Corp. | 9,307 | 176,740 | ||||||
Tyson Foods, Inc.–Class A | 9,742 | 189,190 | ||||||
2,509,626 | ||||||||
Paper Packaging–0.40% | ||||||||
Bemis Co., Inc. | 5,579 | 188,459 | ||||||
Sealed Air Corp. | 7,707 | 183,349 | ||||||
371,808 | ||||||||
Paper Products–0.41% | ||||||||
International Paper Co. | 6,666 | 198,780 | ||||||
MeadWestvaco Corp. | 5,704 | 190,000 | ||||||
388,780 | ||||||||
Personal Products–0.40% | ||||||||
Avon Products, Inc. | 6,473 | 181,244 | ||||||
Estee Lauder Cos. Inc. (The)–Class A | 1,819 | 191,341 | ||||||
372,585 | ||||||||
Pharmaceuticals–2.15% | ||||||||
Abbott Laboratories | 3,427 | 180,329 | ||||||
Allergan, Inc. | 2,190 | 182,317 | ||||||
Bristol-Myers Squibb Co. | 6,435 | 186,358 | ||||||
Eli Lilly and Co. | 4,738 | 177,817 | ||||||
Forest Laboratories, Inc.(c) | 4,570 | 179,784 | ||||||
Hospira, Inc.(c) | 3,271 | 185,335 | ||||||
Johnson & Johnson | 2,671 | 177,675 | ||||||
Merck & Co., Inc. | 5,004 | 176,591 | ||||||
Mylan Inc.(c) | 7,954 | 196,225 | ||||||
Pfizer Inc. | 8,742 | 180,085 | ||||||
Watson Pharmaceuticals, Inc.(c) | 2,787 | 191,551 | ||||||
2,014,067 | ||||||||
Property & Casualty Insurance–1.54% | ||||||||
ACE Ltd. (Switzerland) | 2,753 | 181,202 | ||||||
Allstate Corp. (The) | 5,973 | 182,356 | ||||||
Berkshire Hathaway Inc.–Class B(c) | 2,345 | 181,479 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Property & Casualty Insurance–(continued) | ||||||||
Chubb Corp. (The) | 2,826 | $ | 176,936 | |||||
Cincinnati Financial Corp. | 6,132 | 178,932 | ||||||
Progressive Corp. (The) | 8,699 | 185,984 | ||||||
Travelers Cos., Inc. (The) | 3,057 | 178,468 | ||||||
XL Group PLC (Ireland) | 8,308 | 182,610 | ||||||
1,447,967 | ||||||||
Publishing–0.59% | ||||||||
Gannett Co., Inc. | 12,919 | 185,000 | ||||||
McGraw-Hill Cos., Inc. (The) | 4,460 | 186,919 | ||||||
Washington Post Co. (The)–Class B | 422 | 176,797 | ||||||
548,716 | ||||||||
Railroads–0.60% | ||||||||
CSX Corp. | 7,139 | 187,185 | ||||||
Norfolk Southern Corp. | 2,495 | 186,950 | ||||||
Union Pacific Corp. | 1,771 | 184,892 | ||||||
559,027 | ||||||||
Real Estate Services–0.20% | ||||||||
CB Richard Ellis Group, Inc.–Class A(c) | 7,386 | 185,462 | ||||||
Regional Banks–2.09% | ||||||||
BB&T Corp. | 6,763 | 181,519 | ||||||
Fifth Third Bancorp | 14,113 | 179,941 | ||||||
First Horizon National Corp. | 17,331 | 165,338 | ||||||
Huntington Bancshares Inc. | 27,675 | 181,548 | ||||||
KeyCorp | 21,340 | 177,762 | ||||||
M&T Bank Corp. | 2,012 | 176,955 | ||||||
Marshall & Ilsley Corp. | 23,033 | 183,573 | ||||||
PNC Financial Services Group, Inc. | 3,064 | 182,645 | ||||||
Regions Financial Corp. | 28,250 | 175,150 | ||||||
SunTrust Banks, Inc. | 6,765 | 174,537 | ||||||
Zions Bancorp. | 7,650 | 183,677 | ||||||
1,962,645 | ||||||||
Research & Consulting Services–0.38% | ||||||||
Dun & Bradstreet Corp. (The) | 2,361 | 178,350 | ||||||
Equifax Inc. | 5,158 | 179,086 | ||||||
357,436 | ||||||||
Residential REIT’s–0.57% | ||||||||
Apartment Investment & Management Co.–Class A | 6,978 | 178,148 | ||||||
AvalonBay Communities, Inc. | 1,371 | 176,037 | ||||||
Equity Residential | 2,997 | 179,820 | ||||||
534,005 | ||||||||
Restaurants–1.01% | ||||||||
Chipotle Mexican Grill, Inc.(c) | 658 | 202,789 | ||||||
Darden Restaurants, Inc. | 3,758 | 186,998 | ||||||
McDonald’s Corp. | 2,146 | 180,951 | ||||||
Starbucks Corp. | 4,997 | 197,331 | ||||||
Yum! Brands, Inc. | 3,229 | 178,370 | ||||||
946,439 | ||||||||
Retail REIT’s–0.39% | ||||||||
Kimco Realty Corp. | 9,990 | 186,214 | ||||||
Simon Property Group, Inc. | 1,552 | 180,389 | ||||||
366,603 | ||||||||
Semiconductor Equipment–1.00% | ||||||||
Applied Materials, Inc. | 14,272 | 185,679 | ||||||
KLA–Tencor Corp. | 4,641 | 187,868 | ||||||
MEMC Electronic Materials, Inc.(c) | 20,936 | 178,584 | ||||||
Novellus Systems, Inc.(c) | 5,411 | 195,553 | ||||||
Teradyne, Inc.(c) | 12,853 | 190,224 | ||||||
937,908 | ||||||||
Semiconductors–2.76% | ||||||||
Advanced Micro Devices, Inc.(c) | 25,304 | 176,875 | ||||||
Altera Corp. | 4,120 | 190,962 | ||||||
Analog Devices, Inc. | 4,838 | 189,359 | ||||||
Broadcom Corp.–Class A(c) | 5,602 | 188,451 | ||||||
First Solar, Inc.(c) | 1,456 | 192,585 | ||||||
Intel Corp. | 8,355 | 185,147 | ||||||
Linear Technology Corp. | 5,656 | 186,761 | ||||||
LSI Corp.(c) | 26,279 | 187,107 | ||||||
Microchip Technology, Inc. | 4,962 | 188,110 | ||||||
Micron Technology, Inc.(c) | 22,621 | 169,205 | ||||||
National Semiconductor Corp. | 7,203 | 177,266 | ||||||
NVIDIA Corp.(c) | 11,195 | 178,392 | ||||||
Texas Instruments Inc. | 5,669 | 186,113 | ||||||
Xilinx, Inc. | 5,376 | 196,063 | ||||||
2,592,396 | ||||||||
Soft Drinks–0.77% | ||||||||
Coca-Cola Co. (The) | 2,698 | 181,549 | ||||||
Coca-Cola Enterprises, Inc. | 6,190 | 180,624 | ||||||
Dr. Pepper Snapple Group, Inc. | 4,354 | 182,563 | ||||||
PepsiCo, Inc. | 2,577 | 181,498 | ||||||
726,234 | ||||||||
Specialized Consumer Services–0.20% | ||||||||
H&R Block, Inc. | 11,501 | 184,476 | ||||||
Specialized Finance–0.99% | ||||||||
CME Group Inc. | 637 | 185,743 | ||||||
IntercontinentalExchange Inc.(c) | 1,498 | 186,816 | ||||||
Moody’s Corp. | 4,869 | 186,726 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Specialized Finance–(continued) | ||||||||
NASDAQ OMX Group, Inc. (The)(c) | 7,445 | $ | 188,358 | |||||
NYSE Euronext | 5,312 | 182,042 | ||||||
929,685 | ||||||||
Specialized REIT’s–1.36% | ||||||||
HCP, Inc. | 4,774 | 175,158 | ||||||
Health Care REIT, Inc. | 3,392 | 177,843 | ||||||
Host Hotels & Resorts Inc. | 11,008 | 186,586 | ||||||
Plum Creek Timber Co., Inc. | 4,510 | 182,835 | ||||||
Public Storage | 1,583 | 180,478 | ||||||
Ventas, Inc. | 3,361 | 177,158 | ||||||
Weyerhaeuser Co. | 8,712 | 190,444 | ||||||
1,270,502 | ||||||||
Specialty Chemicals–0.79% | ||||||||
Ecolab Inc. | 3,282 | 185,039 | ||||||
International Flavors & Fragrances Inc. | 2,866 | 184,112 | ||||||
Sherwin-Williams Co. (The) | 2,146 | 179,985 | ||||||
Sigma-Aldrich Corp. | 2,660 | 195,191 | ||||||
744,327 | ||||||||
Specialty Stores–0.40% | ||||||||
Staples, Inc. | 11,530 | 182,174 | ||||||
Tiffany & Co. | 2,399 | 188,369 | ||||||
370,543 | ||||||||
Steel–1.04% | ||||||||
AK Steel Holding Corp. | 12,508 | 197,126 | ||||||
Allegheny Technologies, Inc. | 3,020 | 191,679 | ||||||
Cliffs Natural Resources Inc. | 2,172 | 200,802 | ||||||
Nucor Corp. | 4,478 | 184,583 | ||||||
United States Steel Corp. | 4,297 | 197,834 | ||||||
972,024 | ||||||||
Systems Software–1.21% | ||||||||
BMC Software, Inc.(c) | 3,428 | 187,512 | ||||||
CA, Inc. | 8,203 | 187,356 | ||||||
Microsoft Corp.(b) | 7,297 | 189,722 | ||||||
Oracle Corp. | 5,670 | 186,600 | ||||||
Red Hat, Inc.(c) | 4,283 | 196,590 | ||||||
Symantec Corp.(c) | 9,548 | 188,286 | ||||||
1,136,066 | ||||||||
Thrifts & Mortgage Finance–0.38% | ||||||||
Hudson City Bancorp, Inc. | 21,680 | 177,559 | ||||||
People’s United Financial Inc. | 13,552 | 182,139 | ||||||
359,698 | ||||||||
Tires & Rubber–0.21% | ||||||||
Goodyear Tire & Rubber Co. (The)(c) | 11,968 | 200,703 | ||||||
Tobacco–0.74% | ||||||||
Altria Group, Inc. | 6,540 | 172,721 | ||||||
Lorillard, Inc. | 1,589 | 172,995 | ||||||
Philip Morris International Inc. | 2,586 | 172,667 | ||||||
Reynolds American Inc. | 4,652 | 172,357 | ||||||
690,740 | ||||||||
Trading Companies & Distributors–0.41% | ||||||||
Fastenal Co. | 5,386 | 193,842 | ||||||
W.W. Grainger, Inc. | 1,224 | 188,068 | ||||||
381,910 | ||||||||
Trucking–0.21% | ||||||||
Ryder System, Inc. | 3,439 | 195,507 | ||||||
Wireless Telecommunication Services–0.60% | ||||||||
American Tower Corp.–Class A(c) | 3,528 | 184,620 | ||||||
MetroPCS Communications, Inc.(c) | 11,056 | 190,274 | ||||||
Sprint Nextel Corp.(c) | 34,128 | 183,950 | ||||||
558,844 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $44,740,129) | 92,311,998 | |||||||
Money Market Funds–1.80% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 846,627 | 846,627 | ||||||
Premier Portfolio–Institutional Class(e) | 846,627 | 846,627 | ||||||
Total Money Market Funds (Cost $1,693,254) | 1,693,254 | |||||||
TOTAL INVESTMENTS–100.21% (Cost $46,433,383) | 94,005,252 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.21)% | (198,049 | ) | ||||||
NET ASSETS–100.00% | $ | 93,807,203 | ||||||
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) | 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. | |
(c) | Non-income producing security. | |
(d) | Affiliated company. The Fund’s Adviser is a subsidiary of Invesco Ltd. and therefore, Invesco Ltd. is considered to be affiliated with the Fund. See Note 5. | |
(e) | 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. Select Dimensions Equally-Weighted S&P 500 Fund
By sector, based on Net Assets
as of June 30, 2011
Consumer Discretionary | 16.0 | % | ||
Financials | 15.7 | |||
Information Technology | 14.5 | |||
Industrials | 11.9 | |||
Health Care | 10.1 | |||
Energy | 8.2 | |||
Consumer Staples | 7.8 | |||
Materials | 6.3 | |||
Utilities | 6.3 | |||
Telecommunication Services | 1.6 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.6 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Statement of Assets and Liabilities
June 30, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $44,578,109) | $ | 92,132,122 | ||
Investments in affiliated money market funds, at value and cost | 1,693,254 | |||
Investments in affiliates, at value (Cost $162,020) | 179,876 | |||
Total investments, at value (Cost $46,433,383) | 94,005,252 | |||
Receivable for: | ||||
Investments sold | 240,079 | |||
Variation margin | 15,703 | |||
Fund shares sold | 2,240 | |||
Dividends | 115,401 | |||
Fund expenses absorbed | 5,731 | |||
Investment for trustee deferred compensation and retirement plans | 3,288 | |||
Other assets | 5,844 | |||
Total assets | 94,393,538 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 236,821 | |||
Fund shares reacquired | 4,172 | |||
Accrued fees to affiliates | 293,757 | |||
Accrued other operating expenses | 47,278 | |||
Trustee deferred compensation and retirement plans | 4,307 | |||
Total liabilities | 586,335 | |||
Net assets applicable to shares outstanding | $ | 93,807,203 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 40,389,053 | ||
Undistributed net investment income | 2,017,106 | |||
Undistributed net realized gain | 3,789,416 | |||
Unrealized appreciation | 47,611,628 | |||
$ | 93,807,203 | |||
Net Assets: | ||||
Series I | $ | 43,019,953 | ||
Series II | $ | 50,787,250 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 2,123,039 | |||
Series II | 2,543,350 | |||
Series I: | ||||
Net asset value per share | $ | 20.26 | ||
Series II: Net asset value per share | $ | 19.97 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends | $ | 858,255 | ||
Dividends from affiliated money market funds | 668 | |||
Dividends from affiliated underlying funds | 1,820 | |||
Total investment income | 860,743 | |||
Expenses: | ||||
Advisory fees | 58,534 | |||
Administrative services fees | 146,740 | |||
Custodian fees | 42,126 | |||
Distribution fees – Series II | 67,035 | |||
Transfer agent fees | 1,107 | |||
Trustees’ and officers’ fees and benefits | 9,335 | |||
Other | 27,993 | |||
Total expenses | 352,870 | |||
Less: Fees waived and expenses reimbursed | (105,531 | ) | ||
Net expenses | 247,339 | |||
Net investment income | 613,404 | |||
Realized and unrealized gain from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 6,730,417 | |||
Futures contracts | (33,359 | ) | ||
6,697,058 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 151,553 | |||
Futures contracts | 24,509 | |||
176,062 | ||||
Net realized and unrealized gain | 6,873,120 | |||
Net increase in net assets resulting from operations | $ | 7,486,524 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 613,404 | $ | 1,408,741 | ||||
Net realized gain | 6,697,058 | 8,745,848 | ||||||
Change in net unrealized appreciation | 176,062 | 8,613,235 | ||||||
Net increase in net assets resulting from operations | 7,486,524 | 18,767,824 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (629,718 | ) | |||||
Series II | — | (710,006 | ) | |||||
Total distributions from net investment income | — | (1,339,724 | ) | |||||
Share transactions–net: | ||||||||
Series I | (4,022,633 | ) | (7,540,299 | ) | ||||
Series II | (8,972,273 | ) | (11,702,914 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (12,994,906 | ) | (19,243,213 | ) | ||||
Net increase (decrease) in net assets | (5,508,382 | ) | (1,815,113 | ) | ||||
Net assets: | ||||||||
Beginning of period | 99,315,585 | 101,130,698 | ||||||
End of period (includes undistributed net investment income of $2,017,106 and $1,403,702, respectively) | $ | 93,807,203 | $ | 99,315,585 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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 investment objective’s is to achieve a high level of total return on its assets through a combination of 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 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. |
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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. Select Dimensions Equally-Weighted S&P 500 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 (“GAAP”) 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. | 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. | Collateral — To the extent each Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is such Fund’s practice to replace such collateral no later than the next business day. |
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 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 Daily Net Assets | Rate | |||
First $2 billion | 0 | .12% | ||
Over $2 billion | 0 | .10% | ||
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 Canada Ltd. (formerly 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).
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 and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.37% and Series II shares to 0.62% 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 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 the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012.
Further, the Adviser has contractually agreed, through at least June 30, 2012, 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, 2011, the Adviser waived advisory fees of $58,534 and reimbursed class level expenses of $46,997.
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, 2011, Invesco was paid $24,794 for accounting and fund administrative services and reimbursed $121,946 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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. Select Dimensions Equally-Weighted S&P 500 Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 94,005,252 | $ | — | $ | — | $ | 94,005,252 | ||||||||
Futures* | 39,759 | — | — | 39,759 | ||||||||||||
Total Investments | $ | 94,045,011 | $ | — | $ | — | $ | 94,045,011 | ||||||||
* | 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, 2011:
Value | ||||||||
Risk Exposure/ Derivative Type | Assets | Liabilities | ||||||
Interest rate risk | ||||||||
Futures contracts(a) | $ | 39,759 | $ | — | ||||
(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, 2011
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) | ||||
Interest rate risk | $ | (33,359 | ) | |
Change in Unrealized Appreciation (Depreciation) | ||||
Interest rate risk | 24,509 | |||
Total | $ | (8,850 | ) | |
* | The average value of futures outstanding during the period was $1,065,252 . |
Open Futures Contracts | ||||||||||||||||
Number of | Notional | Unrealized | ||||||||||||||
Contract | Contracts | Month | Value | Appreciation | ||||||||||||
E-Mini S&P 500 Index | 27 | September-2011/Long | $ | 1,775,925 | $ | 39,759 | ||||||||||
NOTE 5—Investments in Other Affiliates
The Investment Company Act of 1940 defines affiliates as those issuances in which a fund holds 5% or more of the outstanding voting securities. The Fund has not owned enough of the outstanding voting securities of the issuer to have control (as defined in the Investment Company Act of 1940) of that issuer. The following is a summary of the investments in affiliates for the six months ended June 30, 2011.
Change in | ||||||||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||||||
Value | Purchases | Proceeds | Appreciation | Realized | Value | Dividend | ||||||||||||||||||||||
12/31/10 | at Cost | from Sales | (Depreciation) | Gain (Loss) | 06/30/11 | Income | ||||||||||||||||||||||
Invesco Ltd. | $ | 206,651 | $ | 13,014 | $ | (36,883 | ) | $ | (1,999 | ) | $ | (907 | ) | $ | 179,876 | $ | 1,820 | |||||||||||
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
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, 2011, the Fund paid legal fees of $700 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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 utilized $8,518,615 of capital loss carryforward in the fiscal year ending December 31, 2010.
The Fund had a capital loss carryforward as of December 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2017 | $ | 670,257 | ||
* | 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, 2011 was $9,403,126 and $22,767,404, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 45,765,485 | ||
Aggregate unrealized (depreciation) of investment securities | (382,938 | ) | ||
Net unrealized appreciation of investment securities | $ | 45,382,547 | ||
Cost of investments for tax purposes is $48,622,705. |
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 13,215 | $ | 261,663 | 36,273 | $ | 613,769 | ||||||||||
Series II | 13,551 | 261,845 | 70,709 | 1,148,335 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 39,137 | 629,719 | ||||||||||||
Series II | — | — | 44,654 | 710,006 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (215,468 | ) | (4,284,296 | ) | (525,472 | ) | (8,783,787 | ) | ||||||||
Series II | (473,265 | ) | (9,234,118 | ) | (829,357 | ) | (13,561,255 | ) | ||||||||
Net increase (decrease) in share activity | (661,967 | ) | $ | (12,994,906 | ) | (1,164,056 | ) | $ | (19,243,213 | ) | ||||||
(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 adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) on | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | securities (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | Rebate | income | |||||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | from | to average | Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | affiliates | net assets | turnover(c) | ||||||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | $ | 18.78 | $ | 0.14 | $ | 1.34 | $ | 1.48 | $ | — | $ | — | $ | — | $ | 20.26 | 7.88 | % | $ | 43,020 | 0.37 | %(d) | 0.59 | %(d) | — | % | 1.39 | %(d) | 10 | % | ||||||||||||||||||||||||||||||
Year ended 12/31/10 | �� | 15.69 | 0.26 | 3.07 | 3.33 | (0.24 | ) | — | (0.24 | ) | 18.78 | 21.51 | 43,669 | 0.35 | 0.40 | — | 1.59 | 21 | ||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 11.61 | 0.22 | 4.75 | 4.97 | (0.34 | ) | (0.55 | ) | (0.89 | ) | 15.69 | 45.08 | 43,553 | 0.37 | (e) | 0.37 | (e) | 0.00 | (f) | 1.72 | (e) | 13 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 25.37 | 0.32 | (8.73 | ) | (8.41 | ) | (0.45 | ) | (4.90 | ) | (5.35 | ) | 11.61 | (40.02 | ) | 36,814 | 0.31 | (e) | 0.31 | (e) | 0.00 | (f) | 1.70 | (e) | 32 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 27.75 | 0.41 | 0.20 | 0.61 | (0.42 | ) | (2.57 | ) | (2.99 | ) | 25.37 | 1.47 | 77,688 | 0.28 | 0.28 | — | 1.48 | 17 | ||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 25.71 | 0.37 | 3.45 | 3.82 | (0.34 | ) | (1.44 | ) | (1.78 | ) | 27.75 | 15.69 | 103,824 | 0.27 | 0.27 | — | 1.40 | 17 | ||||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 18.53 | 0.11 | 1.33 | 1.44 | — | — | — | 19.97 | 7.77 | 50,787 | 0.62 | (d) | 0.84 | (d) | — | 1.14 | (d) | 10 | ||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 15.49 | 0.22 | 3.03 | 3.25 | (0.21 | ) | — | (0.21 | ) | 18.53 | 21.19 | 55,646 | 0.60 | 0.65 | — | 1.34 | 21 | |||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 11.45 | 0.19 | 4.69 | 4.88 | (0.29 | ) | (0.55 | ) | (0.84 | ) | 15.49 | 44.79 | 57,578 | 0.62 | (e) | 0.62 | (e) | 0.00 | (f) | 1.47 | (e) | 13 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 25.08 | 0.27 | (8.63 | ) | (8.36 | ) | (0.37 | ) | (4.90 | ) | (5.27 | ) | 11.45 | (40.19 | ) | 46,447 | 0.56 | (e) | 0.56 | (e) | 0.00 | (f) | 1.45 | (e) | 32 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 27.47 | 0.34 | 0.19 | 0.53 | (0.35 | ) | (2.57 | ) | (2.92 | ) | 25.08 | 1.23 | 99,861 | 0.53 | 0.53 | — | 1.23 | 17 | ||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 25.48 | 0.30 | 3.42 | 3.72 | (0.29 | ) | (1.44 | ) | (1.73 | ) | 27.47 | 15.34 | 112,897 | 0.52 | 0.52 | — | 1.15 | 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 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) of $44,292 and $54,073 for Series I and Series II shares, respectively. | |
(e) | The ratios are annualized and reflect the rebate of certain Fund expenses in connection with investments in a Morgan Stanley affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from Morgan Stanley affiliate”. | |
(f) | Amount is less than 0.005% |
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,078.80 | $ | 1.91 | $ | 1,022.96 | $ | 1.86 | 0.37 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,077.70 | 3.19 | 1,021.72 | 3.11 | 0.62 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2011 through June 30, 2011, 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. Select Dimensions Equally-Weighted S&P 500 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. Select Dimensions Equally-Weighted S&P 500 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
Invesco V.I. Select Dimensions Equally-Weighted S&P 500 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 funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Multi-Cap Core Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of the 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 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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. The Board noted that the Fund’s rate was the same as the rate of one mutual fund and above the rate of the other mutual fund, which was a fund-of-funds that does not pay an advisory fee.
Other than the mutual funds 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 June 30, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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. Select Dimensions Equally-Weighted S&P 500 Fund
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Invesco V.I. Small Cap Equity Fund
Semiannual Report to Shareholders § June 30, 2011
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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 800 959 4246 or at 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, 2011, is available at 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, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 10.47 | % | ||
Series II Shares | 10.33 | |||
S&P 500 Index▼ (Broad Market Index) | 6.01 | |||
Russell 2000 Index▼ (Style-Specific Index) | 6.21 | |||
Lipper VUF Small-Cap Core Funds Index▼ (Peer Group Index) | 6.90 | |||
▼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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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 6/30/11
As of 6/30/11
Series I Shares | ||||
Inception (8/29/03) | 9.03 | % | ||
5 Years | 5.87 | |||
1 Year | 43.10 | |||
Series II Shares | ||||
Inception (8/29/03) | 8.78 | % | ||
5 Years | 5.60 | |||
1 Year | 42.80 |
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. 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
June 30, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.25%(a) | ||||||||
Advertising–1.19% | ||||||||
Interpublic Group of Cos., Inc. (The) | 292,291 | $ | 3,653,638 | |||||
Aerospace & Defense–1.52% | ||||||||
AAR Corp. | 116,759 | 3,163,001 | ||||||
Aerovironment, Inc.(b) | 43,087 | 1,523,126 | ||||||
4,686,127 | ||||||||
Agricultural Products–2.34% | ||||||||
Corn Products International, Inc. | 64,862 | 3,585,572 | ||||||
Darling International, Inc.(b) | 203,979 | 3,610,428 | ||||||
7,196,000 | ||||||||
Air Freight & Logistics–0.90% | ||||||||
UTI Worldwide, Inc. | 140,051 | 2,757,604 | ||||||
Apparel Retail–2.21% | ||||||||
Finish Line, Inc. (The)–Class A | 140,738 | 3,011,793 | ||||||
Genesco, Inc.(b) | 72,523 | 3,778,448 | ||||||
6,790,241 | ||||||||
Apparel, Accessories & Luxury Goods–0.97% | ||||||||
Phillips-Van Heusen Corp. | 45,536 | 2,981,242 | ||||||
Application Software–2.98% | ||||||||
Parametric Technology Corp.(b) | 119,333 | 2,736,306 | ||||||
Quest Software, Inc.(b) | 119,494 | 2,716,098 | ||||||
TIBCO Software, Inc.(b) | 128,084 | 3,716,998 | ||||||
9,169,402 | ||||||||
Asset Management & Custody Banks–1.53% | ||||||||
Affiliated Managers Group, Inc.(b) | 23,113 | 2,344,814 | ||||||
SEI Investments Co. | 104,647 | 2,355,604 | ||||||
4,700,418 | ||||||||
Auto Parts & Equipment–3.23% | ||||||||
Dana Holding Corp.(b) | 177,710 | 3,252,093 | ||||||
Modine Manufacturing Co.(b) | 210,749 | 3,239,212 | ||||||
TRW Automotive Holdings Corp.(b) | 58,117 | 3,430,647 | ||||||
9,921,952 | ||||||||
Automotive Retail–0.96% | ||||||||
Penske Automotive Group, Inc. | 130,126 | 2,959,065 | ||||||
Casinos & Gaming–0.69% | ||||||||
Bally Technologies, Inc.(b) | 51,905 | 2,111,495 | ||||||
Coal & Consumable Fuels–0.75% | ||||||||
James River Coal Co.(b) | 110,266 | 2,295,738 | ||||||
Communications Equipment–0.78% | ||||||||
JDS Uniphase Corp.(b) | 143,905 | 2,397,457 | ||||||
Construction & Farm Machinery & Heavy Trucks–3.19% | ||||||||
Manitowoc Co., Inc. (The) | 171,130 | 2,881,829 | ||||||
Titan International, Inc. | 149,220 | 3,620,077 | ||||||
Trinity Industries, Inc. | 95,084 | 3,316,530 | ||||||
9,818,436 | ||||||||
Data Processing & Outsourced Services–1.94% | ||||||||
Henry (Jack) & Associates, Inc. | 89,478 | 2,685,235 | ||||||
Wright Express Corp.(b) | 63,281 | 3,295,041 | ||||||
5,980,276 | ||||||||
Department Stores–1.13% | ||||||||
Dillard’s, Inc.–Class A | 66,919 | 3,489,157 | ||||||
Diversified Chemicals–0.92% | ||||||||
FMC Corp. | 32,850 | 2,825,757 | ||||||
Diversified Metals & Mining–0.85% | ||||||||
Compass Minerals International, Inc. | 30,265 | 2,604,909 | ||||||
Electrical Components & Equipment–2.01% | ||||||||
Belden Inc. | 85,671 | 2,986,491 | ||||||
GrafTech International Ltd.(b) | 157,722 | 3,197,025 | ||||||
6,183,516 | ||||||||
Electronic Equipment & Instruments–1.75% | ||||||||
Electro Scientific Industries, Inc.(b) | 66,539 | 1,284,203 | ||||||
OSI Systems, Inc.(b) | 95,505 | 4,106,715 | ||||||
5,390,918 | ||||||||
Environmental & Facilities Services–2.75% | ||||||||
ABM Industries, Inc. | 119,077 | 2,779,257 | ||||||
Team, Inc.(b) | 129,694 | 3,129,516 | ||||||
Waste Connections, Inc. | 80,848 | 2,565,307 | ||||||
8,474,080 | ||||||||
Food Distributors–0.96% | ||||||||
United Natural Foods, Inc.(b) | 69,127 | 2,949,649 | ||||||
Gas Utilities–1.27% | ||||||||
Energen Corp. | 32,867 | 1,856,985 | ||||||
UGI Corp. | 63,920 | 2,038,409 | ||||||
3,895,394 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Shares | Value | |||||||
Gold–0.49% | ||||||||
Allied Nevada Gold Corp.(b) | 22,318 | $ | 789,388 | |||||
Detour Gold Corp. (Canada)(b) | 24,861 | 720,515 | ||||||
1,509,903 | ||||||||
Health Care Distributors–0.66% | ||||||||
Owens & Minor, Inc. | 59,204 | 2,041,946 | ||||||
Health Care Equipment–1.75% | ||||||||
Greatbatch, Inc.(b) | 110,475 | 2,962,940 | ||||||
Teleflex, Inc. | 39,620 | 2,419,197 | ||||||
5,382,137 | ||||||||
Health Care Facilities–3.25% | ||||||||
Amsurg Corp.(b) | 119,000 | 3,109,470 | ||||||
Hanger Orthopedic Group, Inc.(b) | 129,877 | 3,178,090 | ||||||
Universal Health Services, Inc.–Class B | 72,039 | 3,712,170 | ||||||
9,999,730 | ||||||||
Health Care Services–0.48% | ||||||||
Gentiva Health Services, Inc.(b) | 70,573 | 1,470,036 | ||||||
Health Care Supplies–1.30% | ||||||||
Cooper Cos., Inc. (The) | 50,553 | 4,005,820 | ||||||
Health Care Technology–0.65% | ||||||||
Omnicell, Inc.(b) | 128,355 | 2,001,054 | ||||||
Home Furnishings–0.82% | ||||||||
Ethan Allen Interiors, Inc. | 117,806 | 2,508,090 | ||||||
Industrial Machinery–3.28% | ||||||||
Gardner Denver, Inc. | 47,939 | 4,029,273 | ||||||
IDEX Corp. | 68,092 | 3,122,018 | ||||||
Valmont Industries, Inc. | 30,610 | 2,950,498 | ||||||
10,101,789 | ||||||||
Insurance Brokers–0.69% | ||||||||
Arthur J. Gallagher & Co. | 73,915 | 2,109,534 | ||||||
Integrated Telecommunication Services–0.60% | ||||||||
Alaska Communications Systems Group, Inc. | 208,295 | 1,847,577 | ||||||
Internet Software & Services–2.11% | ||||||||
Open Text Corp. (Canada)(b) | 51,171 | 3,275,967 | ||||||
ValueClick, Inc.(b) | 194,148 | 3,222,857 | ||||||
6,498,824 | ||||||||
Investment Banking & Brokerage–1.41% | ||||||||
Evercore Partners, Inc., Class A | 86,089 | 2,868,486 | ||||||
KBW, Inc. | 79,253 | 1,482,031 | ||||||
4,350,517 | ||||||||
Life Sciences Tools & Services–0.96% | ||||||||
Charles River Laboratories International, Inc.(b) | 72,615 | 2,951,800 | ||||||
Managed Health Care–1.15% | ||||||||
Healthspring, Inc.(b) | 76,600 | 3,532,026 | ||||||
Metal & Glass Containers–0.85% | ||||||||
AptarGroup, Inc. | 49,886 | 2,611,033 | ||||||
Office REIT’s–1.74% | ||||||||
Alexandria Real Estate Equities, Inc. | 37,424 | 2,897,366 | ||||||
Digital Realty Trust, Inc. | 39,800 | 2,458,844 | ||||||
5,356,210 | ||||||||
Oil & Gas Drilling–0.91% | ||||||||
Patterson-UTI Energy, Inc. | 88,928 | 2,811,014 | ||||||
Oil & Gas Equipment & Services–3.74% | ||||||||
Dresser-Rand Group, Inc.(b) | 54,836 | 2,947,435 | ||||||
Lufkin Industries, Inc. | 33,527 | 2,884,998 | ||||||
Oceaneering International, Inc. | 70,727 | 2,864,443 | ||||||
Superior Energy Services, Inc.(b) | 75,961 | 2,821,192 | ||||||
11,518,068 | ||||||||
Oil & Gas Exploration & Production–1.47% | ||||||||
Forest Oil Corp.(b) | 77,933 | 2,081,590 | ||||||
SandRidge Energy, Inc.(b) | 228,050 | 2,431,013 | ||||||
4,512,603 | ||||||||
Oil & Gas Refining & Marketing–0.98% | ||||||||
Frontier Oil Corp. | 93,239 | 3,012,552 | ||||||
Packaged Foods & Meats–0.91% | ||||||||
TreeHouse Foods, Inc.(b) | 51,484 | 2,811,541 | ||||||
Paper Products–0.80% | ||||||||
Schweitzer-Mauduit International, Inc. | 43,951 | 2,467,849 | ||||||
Pharmaceuticals–3.36% | ||||||||
Endo Pharmaceuticals Holdings, Inc.(b) | 81,539 | 3,275,422 | ||||||
Questcor Pharmaceuticals, Inc.(b) | 151,400 | 3,648,740 | ||||||
ViroPharma, Inc.(b) | 183,730 | 3,399,005 | ||||||
10,323,167 | ||||||||
Property & Casualty Insurance–1.34% | ||||||||
FPIC Insurance Group, Inc.(b) | 53,790 | 2,241,967 | ||||||
Hanover Insurance Group, Inc. | 36,892 | 1,391,198 | ||||||
Safety Insurance Group, Inc. | 11,404 | 479,424 | ||||||
4,112,589 | ||||||||
Real Estate Services–0.99% | ||||||||
Jones Lang LaSalle Inc. | 32,320 | 3,047,776 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Shares | Value | |||||||
Regional Banks–4.60% | ||||||||
Associated Banc-Corp | 154,719 | $ | 2,150,594 | |||||
Commerce Bancshares, Inc. | 48,103 | 2,068,429 | ||||||
East West Bancorp, Inc. | 130,843 | 2,644,337 | ||||||
Texas Capital Bancshares, Inc.(b) | 74,641 | 1,927,977 | ||||||
Wintrust Financial Corp. | 89,837 | 2,890,955 | ||||||
Zions Bancorp. | 103,170 | 2,477,112 | ||||||
14,159,404 | ||||||||
Restaurants–4.03% | ||||||||
Brinker International, Inc. | 120,787 | 2,954,450 | ||||||
DineEquity, Inc.(b) | 53,158 | 2,778,569 | ||||||
P.F. Chang’s China Bistro, Inc. | 46,469 | 1,869,912 | ||||||
Papa John’s International, Inc.(b) | 55,395 | 1,842,438 | ||||||
Texas Roadhouse, Inc. | 168,673 | 2,957,681 | ||||||
12,403,050 | ||||||||
Retail REIT’s–0.92% | ||||||||
Tanger Factory Outlet Centers, Inc. | 106,104 | 2,840,404 | ||||||
Semiconductor Equipment–2.50% | ||||||||
Advanced Energy Industries, Inc.(b) | 133,980 | 1,981,564 | ||||||
Cymer, Inc.(b) | 57,077 | 2,825,882 | ||||||
Veeco Instruments Inc.(b) | 59,400 | 2,875,554 | ||||||
7,683,000 | ||||||||
Semiconductors–2.07% | ||||||||
Lattice Semiconductor Corp.(b) | 449,654 | 2,931,744 | ||||||
Semtech Corp.(b) | 125,611 | 3,434,205 | ||||||
6,365,949 | ||||||||
Specialized REIT’s–0.96% | ||||||||
LaSalle Hotel Properties | 111,788 | 2,944,496 | ||||||
Specialty Chemicals–3.65% | ||||||||
Innophos Holdings, Inc. | 84,283 | 4,113,010 | ||||||
Kraton Performance Polymers, Inc.(b) | 87,295 | 3,419,345 | ||||||
PolyOne Corp. | 237,846 | 3,679,478 | ||||||
11,211,833 | ||||||||
Specialty Stores–1.34% | ||||||||
GNC Acquisition Holdings, Inc.–Class A(b) | 188,657 | 4,114,609 | ||||||
Systems Software–1.05% | ||||||||
Ariba, Inc.(b) | 93,923 | 3,237,526 | ||||||
Technology Distributors–0.69% | ||||||||
Ingram Micro, Inc.–Class A(b) | 117,108 | 2,124,339 | ||||||
Trading Companies & Distributors–1.03% | ||||||||
Beacon Roofing Supply, Inc.(b) | 138,876 | 3,169,150 | ||||||
Trucking–1.90% | ||||||||
Landstar System, Inc. | 50,348 | 2,340,175 | ||||||
Old Dominion Freight Line, Inc.(b) | 93,624 | 3,492,175 | ||||||
5,832,350 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $220,308,637) | 302,213,766 | |||||||
Money Market Funds–2.23% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 3,431,821 | 3,431,821 | ||||||
Premier Portfolio–Institutional Class(c) | 3,431,821 | 3,431,821 | ||||||
Total Money Market Funds (Cost $6,863,642) | 6,863,642 | |||||||
TOTAL INVESTMENTS–100.48% (Cost $227,172,279) | 309,077,408 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.48)% | (1,490,134 | ) | ||||||
NET ASSETS–100.00% | $ | 307,587,274 | ||||||
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. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
By sector, based on Net Assets
as of June 30, 2011
Consumer Discretionary | 16.6 | % | ||
Industrials | 16.6 | |||
Information Technology | 15.9 | |||
Financials | 14.2 | |||
Health Care | 13.6 | |||
Energy | 7.8 | |||
Materials | 7.5 | |||
Consumer Staples | 4.2 | |||
Utilities | 1.3 | |||
Telecommunication Services | 0.6 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.7 | |||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $220,308,637) | $ | 302,213,766 | ||
Investments in affiliated money market funds, at value and cost | 6,863,642 | |||
Total investments, at value (Cost $227,172,279) | 309,077,408 | |||
Receivable for: | ||||
Investments sold | 41,098 | |||
Fund shares sold | 272,987 | |||
Dividends | 176,963 | |||
Investment for trustee deferred compensation and retirement plans | 23,744 | |||
Total assets | 309,592,200 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 1,122,966 | |||
Fund shares reacquired | 429,692 | |||
Accrued fees to affiliates | 385,675 | |||
Accrued other operating expenses | 29,999 | |||
Trustee deferred compensation and retirement plans | 36,594 | |||
Total liabilities | 2,004,926 | |||
Net assets applicable to shares outstanding | $ | 307,587,274 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 251,624,365 | ||
Undistributed net investment income (loss) | (444,314 | ) | ||
Undistributed net realized gain (loss) | (25,497,906 | ) | ||
Unrealized appreciation | 81,905,129 | |||
$ | 307,587,274 | |||
Net Assets: | ||||
Series I | $ | 257,793,095 | ||
Series II | $ | 49,794,179 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 14,117,656 | |||
Series II | 2,773,749 | |||
Series I: | ||||
Net asset value per share | $ | 18.26 | ||
Series II: | ||||
Net asset value per share | $ | 17.95 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends | $ | 1,138,948 | ||
Dividends from affiliated money market funds (includes securities lending income of $13,667) | 19,082 | |||
Total investment income | 1,158,030 | |||
Expenses: | ||||
Advisory fees | 1,067,953 | |||
Administrative services fees | 390,832 | |||
Custodian fees | 13,864 | |||
Distribution fees — Series II | 51,621 | |||
Transfer agent fees | 13,219 | |||
Trustees’ and officers’ fees and benefits | 11,846 | |||
Other | 32,259 | |||
Total expenses | 1,581,594 | |||
Less: Fees waived | (7,263 | ) | ||
Net expenses | 1,574,331 | |||
Net investment income (loss) | (416,301 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains (losses) from securities sold to affiliates of $(75,311)) | 12,617,324 | |||
Foreign currencies | (2,187 | ) | ||
12,615,137 | ||||
Change in net unrealized appreciation of investment securities | 13,787,695 | |||
Net realized and unrealized gain | 26,402,832 | |||
Net increase in net assets resulting from operations | $ | 25,986,531 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (416,301 | ) | $ | (290,151 | ) | ||
Net realized gain | 12,615,137 | 806,612 | ||||||
Change in net unrealized appreciation | 13,787,695 | 53,570,548 | ||||||
Net increase in net assets resulting from operations | 25,986,531 | 54,087,009 | ||||||
Share transactions–net: | ||||||||
Series I | 14,344,183 | (5,817,750 | ) | |||||
Series II | 12,661,181 | 13,329,420 | ||||||
Net increase in net assets resulting from share transactions | 27,005,364 | 7,511,670 | ||||||
Net increase in net assets | 52,991,895 | 61,598,679 | ||||||
Net assets: | ||||||||
Beginning of period | 254,595,379 | 192,996,700 | ||||||
End of period (includes undistributed net investment income (loss) of $(444,314) and $(28,013), respectively) | $ | 307,587,274 | $ | 254,595,379 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Small Cap Equity Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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. Small Cap Equity 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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 (“GAAP”) 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 |
Invesco V.I. Small Cap Equity Fund
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 Daily Net Assets | Rate | |||
First $250 million | 0 | .745% | ||
Next $250 million | 0 | .730% | ||
Next $500 million | 0 | .715% | ||
Next $1.5 billion | 0 | .700% | ||
Next $2.5 billion | 0 | .685% | ||
Next $2.5 billion | 0 | .670% | ||
Next $2.5 billion | 0 | .655% | ||
Over $10 billion | 0 | .640% | ||
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 Canada Ltd. (formerly 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, 2012, to waive advisory fees and/or reimburse expenses 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 1.15% 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 and/or expense reimbursement 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. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2012. 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, 2012, 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, 2011, the Adviser waived advisory fees of $7,263.
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, 2011, 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. Small Cap Equity 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, 2011, Invesco was paid $38,021 for accounting and fund administrative services and reimbursed $352,811 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 309,077,408 | $ | — | $ | — | $ | 309,077,408 | ||||||||
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, 2011, the Fund engaged in securities purchases of $125,857 and securities sales of $3,591,653, which resulted in net realized gains (losses) of $(75,311).
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, 2011, the Fund paid legal fees of $807 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 12,193,641 | ||
December 31, 2017 | 22,760,741 | |||
December 31, 2018 | 1,046,978 | |||
Total capital loss carryforward | $ | 36,001,360 | ||
* | 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, 2011 was $124,700,885 and $93,531,361, 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 | $ | 83,557,885 | ||
Aggregate unrealized (depreciation) of investment securities | (3,764,439 | ) | ||
Net unrealized appreciation of investment securities | $ | 79,793,446 | ||
Cost of investments for tax purposes is $229,283,962. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 3,985,003 | $ | 71,712,291 | 4,244,898 | $ | 60,143,350 | ||||||||||
Series II | 1,426,402 | 25,288,194 | 1,189,752 | 16,471,236 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (3,233,185 | ) | (57,368,108 | ) | (4,793,630 | ) | (65,961,100 | ) | ||||||||
Series II | (722,021 | ) | (12,627,013 | ) | (227,279 | ) | (3,141,816 | ) | ||||||||
Net increase in share activity | 1,456,199 | $ | 27,005,364 | 413,741 | $ | 7,511,670 | ||||||||||
(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. 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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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)(a) | unrealized) | operations | income | gains | Distributions | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | $ | 16.53 | $ | (0.02 | ) | $ | 1.75 | $ | 1.73 | $ | — | $ | — | $ | — | $ | 18.26 | 10.47 | % | $ | 257,793 | 1.05 | %(d) | 1.06 | %(d) | (0.25 | )%(d) | 33 | % | |||||||||||||||||||||||||||
Year ended 12/31/10 | 12.86 | (0.02 | ) | 3.69 | 3.67 | — | — | — | 16.53 | 28.54 | 220,925 | 1.07 | 1.07 | (0.11 | ) | 46 | ||||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 16.27 | (0.04 | ) | 1.72 | 1.68 | — | — | — | 17.95 | 10.33 | 49,794 | 1.30 | (d) | 1.31 | (d) | (0.50 | )(d) | 33 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 12.69 | (0.05 | ) | 3.63 | 3.58 | — | — | — | 16.27 | 28.21 | 33,670 | 1.32 | 1.32 | (0.36 | ) | 46 | ||||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||
(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 and are not annualized for periods less than one year, if applicable. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the period ending December 31, 2007, the portfolio turnover calculation excludes the value of securities purchased of $17,709,035 and sold of $19,432,514 in the effort to realign the Fund’s portfolio holdings after the reorganization of AIM V.I. Small Cap Growth Fund into the Fund. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $248,239 and $41,639 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,104.70 | $ | 5.48 | $ | 1,019.59 | $ | 5.26 | 1.05 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,103.30 | 6.78 | 1,018.35 | 6.51 | 1.30 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2011 through June 30, 2011, 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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. Small Cap Equity Fund
to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Small-Cap Core Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of the performance universe for the one and five year periods and the third quintile for the three year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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. The Board noted that the Fund’s effective fee rate was above the effective fee rate of one mutual fund advised by Invesco Advisers. The Board also noted that Invesco Advisers serves as a sub-adviser to three mutual funds and that the effective fee sub-advisory rate is below the effective fee advisory rate of the Fund.
The Board noted that Invesco Advisers and the Affiliated Sub-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 has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Invesco V.I. Technology Fund
Semiannual Report to Shareholders § June 30, 2011
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at 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, 2011, is available at 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, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 5.44 | % | ||
Series II Shares | 5.28 | |||
S&P 500 Index▼ (Broad Market Index) | 6.01 | |||
Bank of America Merrill Lynch 100 Technology Index▼ (Style-Specific Index) | 2.11 | |||
Lipper VUF Science & Technology Funds Category Average▼ (Peer Group) | 3.72 | |||
▼Lipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
The Bank of America 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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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.
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 1.14% and 1.39%, respectively. The expense ratios presented
above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
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.
Average Annual Total Returns
As of 6/30/11
Series I Shares | ||||||||
Inception (5/20/97) | 3.84 | % | ||||||
10 | Years | -1.31 | ||||||
5 | Years | 5.93 | ||||||
1 | Year | 39.42 | ||||||
Series II Shares | ||||||||
10 | Years | -1.58 | % | |||||
5 | Years | 5.66 | ||||||
1 | Year | 39.11 |
Invesco V.I. Technology Fund
Schedule of Investments(a)
June 30, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.31% | ||||||||
Application Software–8.58% | ||||||||
Autodesk, Inc.(b) | 53,008 | $ | 2,046,109 | |||||
Citrix Systems, Inc.(b) | 37,731 | 3,018,480 | ||||||
NICE Systems Ltd.–ADR (Israel)(b) | 48,939 | 1,779,422 | ||||||
Nuance Communications, Inc.(b) | 64,415 | 1,382,990 | ||||||
Quest Software, Inc.(b) | 41,170 | 935,794 | ||||||
Salesforce.com, Inc.(b) | 5,118 | 762,480 | ||||||
TIBCO Software Inc.(b) | 36,779 | 1,067,326 | ||||||
10,992,601 | ||||||||
Communications Equipment–10.97% | ||||||||
Acme Packet, Inc.(b) | 22,416 | 1,572,034 | ||||||
Ciena Corp.(b) | 50,440 | 927,087 | ||||||
F5 Networks, Inc.(b) | 10,198 | 1,124,330 | ||||||
JDS Uniphase Corp.(b) | 69,243 | 1,153,588 | ||||||
Juniper Networks, Inc.(b) | 37,138 | 1,169,847 | ||||||
Polycom, Inc.(b) | 20,932 | 1,345,928 | ||||||
Qualcomm, Inc. | 84,430 | 4,794,780 | ||||||
Sonus Networks, Inc.(b) | 172,767 | 559,765 | ||||||
Sycamore Networks, Inc. | 63,013 | 1,401,409 | ||||||
14,048,768 | ||||||||
Computer Hardware–8.74% | ||||||||
Apple, Inc.(b) | 30,274 | 10,162,074 | ||||||
Hewlett-Packard Co. | 28,331 | 1,031,248 | ||||||
11,193,322 | ||||||||
Computer Storage & Peripherals–5.07% | ||||||||
EMC Corp.(b) | 146,250 | 4,029,187 | ||||||
NetApp, Inc.(b) | 29,358 | 1,549,515 | ||||||
SanDisk Corp.(b) | 22,095 | 916,943 | ||||||
6,495,645 | ||||||||
Data Processing & Outsourced Services–7.62% | ||||||||
Alliance Data Systems Corp.(b) | 12,808 | 1,204,849 | ||||||
Genpact Ltd. (Bermuda)(b) | 65,360 | 1,126,807 | ||||||
MasterCard, Inc.–Class A | 7,100 | 2,139,514 | ||||||
VeriFone Systems, Inc.(b) | 22,698 | 1,006,656 | ||||||
Visa, Inc.–Class A | 13,035 | 1,098,329 | ||||||
Western Union Co. | 54,673 | 1,095,100 | ||||||
Wright Express Corp.(b) | 40,217 | 2,094,099 | ||||||
9,765,354 | ||||||||
Electronic Manufacturing Services–2.11% | ||||||||
Jabil Circuit, Inc. | 60,329 | 1,218,646 | ||||||
TE Connectivity Ltd. | 40,410 | 1,485,471 | ||||||
2,704,117 | ||||||||
Fertilizers & Agricultural Chemicals–1.26% | ||||||||
Monsanto Co. | 22,225 | 1,612,201 | ||||||
Home Entertainment Software–0.34% | ||||||||
Nintendo Co., Ltd. (Japan) | 2,300 | 433,219 | ||||||
Internet Retail–3.01% | ||||||||
Amazon.com, Inc.(b) | 12,993 | 2,656,939 | ||||||
Netflix Inc.(b) | 4,564 | 1,198,917 | ||||||
3,855,856 | ||||||||
Internet Software & Services–5.93% | ||||||||
Google, Inc.–Class A(b) | 7,691 | 3,894,569 | ||||||
Responsys, Inc.(b) | 17,995 | 319,051 | ||||||
ValueClick, Inc.(b) | 67,845 | 1,126,227 | ||||||
Velti PLC (Ireland)(b) | 70,166 | 1,186,507 | ||||||
VeriSign, Inc. | 31,995 | 1,070,553 | ||||||
7,596,907 | ||||||||
IT Consulting & Other Services–7.60% | ||||||||
Accenture PLC–Class A (Ireland) | 47,824 | 2,889,526 | ||||||
Cognizant Technology Solutions Corp.–Class A(b) | 66,222 | 4,856,722 | ||||||
International Business Machines Corp. | 11,557 | 1,982,603 | ||||||
9,728,851 | ||||||||
Other Diversified Financial Services–0.50% | ||||||||
BlueStream Ventures L.P. (Acquired 08/03/00-06/13/08; Cost $3,149,655)(c)(d) | — | 637,785 | ||||||
Research & Consulting Services–0.63% | ||||||||
Acacia Research–Acacia Technologies(b) | 21,863 | 802,153 | ||||||
Semiconductor Equipment–3.33% | ||||||||
Advanced Energy Industries, Inc.(b) | 50,729 | 750,282 | ||||||
ASML Holding N.V.–New York Shares (Netherlands) | 38,141 | 1,409,691 | ||||||
Cymer, Inc.(b) | 27,397 | 1,356,426 | ||||||
Novellus Systems, Inc.(b) | 20,674 | 747,158 | ||||||
4,263,557 | ||||||||
Semiconductors–16.98% | ||||||||
ARM Holdings PLC–ADR (United Kingdom) | 8,918 | 253,539 | ||||||
Atmel Corp.(b) | 161,654 | 2,274,472 | ||||||
Avago Technologies Ltd. (Singapore) | 72,883 | 2,769,554 | ||||||
Broadcom Corp.–Class A(b) | 50,749 | 1,707,196 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Technology Fund
Shares | Value | |||||||
Semiconductors–(continued) | ||||||||
Cypress Semiconductor Corp.(b) | 53,119 | $ | 1,122,936 | |||||
Intel Corp. | 114,863 | 2,545,364 | ||||||
Lattice Semiconductor Corp.(b) | 123,005 | 801,992 | ||||||
Marvell Technology Group Ltd.(b) | 52,125 | 769,626 | ||||||
Micron Technology, Inc.(b) | 108,587 | 812,231 | ||||||
Microsemi Corp.(b) | 153,811 | 3,153,125 | ||||||
ON Semiconductor Corp.(b) | 180,960 | 1,894,651 | ||||||
Semtech Corp.(b) | 76,514 | 2,091,893 | ||||||
Skyworks Solutions, Inc.(b) | 23,563 | 541,478 | ||||||
Xilinx, Inc. | 27,553 | 1,004,858 | ||||||
21,742,915 | ||||||||
Systems Software–16.64% | ||||||||
Ariba, Inc.(b) | 71,575 | 2,467,190 | ||||||
Check Point Software Technologies Ltd. (Israel)(b) | 96,333 | 5,476,531 | ||||||
CommVault Systems, Inc.(b) | 17,503 | 778,008 | ||||||
Microsoft Corp. | 128,493 | 3,340,818 | ||||||
Oracle Corp. | 96,961 | 3,190,987 | ||||||
Red Hat, Inc.(b) | 41,392 | 1,899,893 | ||||||
Rovi Corp.(b) | 51,656 | 2,962,988 | ||||||
Symantec Corp.(b) | 60,523 | 1,193,514 | ||||||
21,309,929 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $95,308,383) | 127,183,180 | |||||||
Money Market Funds–0.73% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 464,313 | 464,313 | ||||||
Premier Portfolio–Institutional Class(e) | 464,313 | 464,313 | ||||||
Total Money Market Funds (Cost $928,626) | 928,626 | |||||||
TOTAL INVESTMENTS–100.04% (Cost $96,237,009) | 128,111,806 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.04)% | (45,121 | ) | ||||||
NET ASSETS–100.00% | $ | 128,066,685 | ||||||
Investment Abbreviation:
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 value of this security at June 30, 2011 represented 0.50% of the Fund’s Net Assets. | |
(d) | The Fund has a remaining commitment of $101,250 to purchase additional interests in BlueStream Ventures L.P., which is subject to the terms of the limited partnership agreement. | |
(e) | 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, 2011
Information Technology | 93.9 | % | ||
Consumer Discretionary | 3.0 | |||
Materials | 1.3 | |||
Industrials | 0.6 | |||
Financials | 0.5 | |||
Money Market Funds Plus Other Assets Less Liabilities | 0.7 | |||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $95,308,383) | $ | 127,183,180 | ||
Investments in affiliated money market funds, at value and cost | 928,626 | |||
Total investments, at value (Cost $96,237,009) | 128,111,806 | |||
Foreign currencies, at value (Cost $8,370) | 8,404 | |||
Receivable for: | ||||
Investments sold | 858,363 | |||
Fund shares sold | 25,067 | |||
Dividends | 8,318 | |||
Investment for trustee deferred compensation and retirement plans | 33,991 | |||
Other assets | 239 | |||
Total assets | 129,046,188 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 733,693 | |||
Accrued fees to affiliates | 171,305 | |||
Accrued other operating expenses | 23,949 | |||
Trustee deferred compensation and retirement plans | 50,556 | |||
Total liabilities | 979,503 | |||
Net assets applicable to shares outstanding | $ | 128,066,685 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 101,928,688 | ||
Undistributed net investment income | 1,839,526 | |||
Undistributed net realized gain (loss) | (7,576,360 | ) | ||
Unrealized appreciation | 31,874,831 | |||
$ | 128,066,685 | |||
Net Assets: | ||||
Series I | $ | 126,473,726 | ||
Series II | $ | 1,592,959 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 7,498,920 | |||
Series II | 96,329 | |||
Series I: | ||||
Net asset value per share | $ | 16.87 | ||
Series II: | ||||
Net asset value per share | $ | 16.54 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $3,957) | $ | 473,204 | ||
Dividends from affiliated money market funds (includes securities lending income of $4,578) | 6,929 | |||
Total investment income | 480,133 | |||
Expenses: | ||||
Advisory fees | 505,992 | |||
Administrative services fees | 191,130 | |||
Custodian fees | 3,403 | |||
Distribution fees — Series II | 1,844 | |||
Transfer agent fees | 11,285 | |||
Trustees’ and officers’ fees and benefits | 9,903 | |||
Other | 21,594 | |||
Total expenses | 745,151 | |||
Less: Fees waived | (3,418 | ) | ||
Net expenses | 741,733 | |||
Net investment income (loss) | (261,600 | ) | ||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities | 6,159,549 | |||
Foreign currencies | 1,080 | |||
6,160,629 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 620,565 | |||
Foreign currencies | (761 | ) | ||
619,804 | ||||
Net realized and unrealized gain | 6,780,433 | |||
Net increase in net assets resulting from operations | $ | 6,518,833 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (261,600 | ) | $ | 208,234 | |||
Net realized gain | 6,160,629 | 7,911,740 | ||||||
Change in net unrealized appreciation | 619,804 | 14,071,941 | ||||||
Net increase in net assets resulting from operations | 6,518,833 | 22,191,915 | ||||||
Share transactions-net: | ||||||||
Series I | (8,286,332 | ) | (13,096,747 | ) | ||||
Series II | 331,823 | 622,157 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (7,954,509 | ) | (12,474,590 | ) | ||||
Net increase (decrease) in net assets | (1,435,676 | ) | 9,717,325 | |||||
Net assets: | ||||||||
Beginning of period | 129,502,361 | 119,785,036 | ||||||
End of period (includes undistributed net investment income of $1,839,526 and $2,101,126, respectively) | $ | 128,066,685 | $ | 129,502,361 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Technology Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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 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. Technology Fund
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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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 (“GAAP”) 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. |
Invesco V.I. Technology Fund
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, which may make the Fund more volatile. Many products and services offered in technology-related industries are subject to rapid obsolescence, which may lower the value of the issuers 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. |
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 Daily 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% | ||
Invesco V.I. Technology 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 Canada Ltd. (formerly 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, 2012, to waive advisory fees and/or reimburse expenses 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 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 the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2012. 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, 2012, 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, 2011, the Adviser waived advisory fees of $3,418.
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, 2011, 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, 2011, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $166,335 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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, 2011. 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. Technology Fund
During the six months ended June 30, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 127,040,802 | $ | 433,219 | $ | 637,785 | $ | 128,111,806 | ||||||||
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, 2011, the Fund engaged in securities purchases of $2,791,461.
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, 2011, the Fund paid legal fees of $721 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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 $7,468,131 of capital loss carryforward in the fiscal year ending December 31, 2011.
The Fund had a capital loss carryforward as of December 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 2,325,577 | ||
December 31, 2017 | 11,408,336 | |||
Total capital loss carryforward | $ | 13,733,913 | ||
* | 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. Technology 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, 2011 was $29,935,344 and $33,642,340, 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 | $ | 38,734,731 | ||
Aggregate unrealized (depreciation) of investment securities | (4,919,279 | ) | ||
Net unrealized appreciation of investment securities | $ | 33,815,452 | ||
Cost of investments for tax purposes is $94,296,354. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,010,668 | $ | 17,253,394 | 1,717,411 | $ | 23,632,823 | ||||||||||
Series II | 32,702 | 541,614 | 62,723 | 886,304 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,530,202 | ) | (25,539,726 | ) | (2,747,969 | ) | (36,729,570 | ) | ||||||||
Series II | (12,631 | ) | (209,791 | ) | (18,555 | ) | (264,147 | ) | ||||||||
Net increase (decrease) in share activity | (499,463 | ) | $ | (7,954,509 | ) | (986,390 | ) | $ | (12,474,590 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 64% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or 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 | |||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||
(losses) on | to average | to average net | Ratio of | |||||||||||||||||||||||||||||||||||||||||
Net asset | securities | net assets | assets without | net investment | ||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | ||||||||||||||||||||||||||||||||||
of period | income (loss) | unrealized) | operations | of period | return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | ||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | $ | 16.00 | $ | (0.03 | )(c) | $ | 0.90 | $ | 0.87 | $ | 16.87 | 5.44 | % | $ | 126,474 | 1.09 | %(d) | 1.10 | %(d) | (0.38 | )%(d) | 23 | % | |||||||||||||||||||||
Year ended 12/31/10 | 13.19 | 0.02 | (c) | 2.79 | 2.81 | 16.00 | 21.30 | 128,304 | 1.14 | 1.14 | 0.18 | 43 | ||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 15.71 | (0.05 | )(c) | 0.88 | 0.83 | 16.54 | 5.28 | 1,593 | 1.34 | (d) | 1.35 | (d) | (0.63 | )(d) | 23 | |||||||||||||||||||||||||||||
Year ended 12/31/10 | 12.98 | (0.01 | )(c) | 2.74 | 2.73 | 15.71 | 21.03 | 1,198 | 1.39 | 1.39 | (0.07 | ) | 43 | |||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||
(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 $134,562 and $1,488 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,054.40 | $ | 5.55 | $ | 1,019.39 | $ | 5.46 | 1.09 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,052.80 | 6.82 | 1,018.15 | 6.71 | 1.34 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2011 through June 30, 2011, 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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 funds in the Lipper
Invesco V.I. Technology Fund
performance universe and against the Lipper VA Underlying Funds – Science & Technology Funds Index. The Board noted that performance of Series I shares of the Fund was in the third quintile of the performance universe for the one and three year periods 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 performance of Series I shares of the Fund was below the performance of the Index for the one and five year periods and above the performance of the Index for the three year period. 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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. The Board noted that the Fund’s effective fee rate was above the effective fee rate of the two mutual funds advised by Invesco Advisers with comparable investment strategies.
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, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Invesco V.I. Utilities Fund
Semiannual Report to Shareholders § June 30, 2011
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at 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, 2011, is available at 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
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 10.62 | % | ||
Series II Shares | 10.49 | |||
S&P 500 Index▼ (Broad Market Index) | 6.01 | |||
S&P 500 Utilities Index▼ (Style-Specific Index) | 9.06 | |||
Lipper VUF Utility Funds Category Average▼ (Peer Group) | 9.25 | |||
▼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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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 6/30/11
Series I Shares | ||||||||
Inception (12/30/94) | 6.93 | % | ||||||
10 | Years | 4.23 | ||||||
5 | Years | 5.14 | ||||||
1 | Year | 27.81 | ||||||
Series II Shares | ||||||||
10 | Years | 3.97 | % | |||||
5 | Years | 4.88 | ||||||
1 | Year | 27.56 |
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 0.93% and 1.18%, 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 1.04% and 1.29%, 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, 2012. See current prospectus for more information. |
Invesco V.I. Utilities Fund
Schedule of Investments(a)
June 30, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks–95.37% | ||||||||
Electric Utilities–47.86% | ||||||||
American Electric Power Co., Inc. | 85,826 | $ | 3,233,924 | |||||
Duke Energy Corp. | 99,961 | 1,882,266 | ||||||
E.ON AG (Germany) | 53,357 | 1,515,872 | ||||||
Edison International | 60,747 | 2,353,946 | ||||||
Entergy Corp. | 35,959 | 2,455,281 | ||||||
Exelon Corp. | 67,348 | 2,885,188 | ||||||
FirstEnergy Corp. | 45,235 | 1,997,125 | ||||||
NextEra Energy, Inc. | 15,815 | 908,730 | ||||||
Northeast Utilities | 59,859 | 2,105,241 | ||||||
Pepco Holdings, Inc. | 152,313 | 2,989,904 | ||||||
Pinnacle West Capital Corp. | 12,064 | 537,813 | ||||||
Portland General Electric Co. | 129,466 | 3,272,901 | ||||||
PPL Corp. | 64,930 | 1,807,002 | ||||||
Progress Energy, Inc. | 21,604 | 1,037,208 | ||||||
Southern Co. | 79,108 | 3,194,381 | ||||||
32,176,782 | ||||||||
Gas Utilities–5.57% | ||||||||
AGL Resources Inc. | 33,123 | 1,348,437 | ||||||
Atmos Energy Corp. | 16,927 | 562,823 | ||||||
ONEOK, Inc. | 13,024 | 963,906 | ||||||
UGI Corp. | 27,314 | 871,044 | ||||||
3,746,210 | ||||||||
Independent Power Producers & Energy Traders–7.34% | ||||||||
Calpine Corp.(b) | 100,072 | 1,614,161 | ||||||
Constellation Energy Group Inc. | 29,165 | 1,107,104 | ||||||
NRG Energy, Inc.(b) | 90,028 | 2,212,888 | ||||||
4,934,153 | ||||||||
Integrated Telecommunication Services–4.93% | ||||||||
AT&T Inc. | 27,454 | 862,330 | ||||||
CenturyLink Inc. | 18,924 | 765,097 | ||||||
Verizon Communications Inc. | 45,357 | 1,688,641 | ||||||
3,316,068 | ||||||||
Multi-Utilities–27.68% | ||||||||
CMS Energy Corp. | 33,233 | 654,358 | ||||||
Consolidated Edison, Inc. | 9,005 | 479,426 | ||||||
Dominion Resources, Inc. | 75,724 | 3,655,198 | ||||||
DTE Energy Co. | 17,824 | 891,557 | ||||||
National Grid PLC (United Kingdom) | 320,668 | 3,155,892 | ||||||
NiSource Inc. | 28,151 | 570,058 | ||||||
PG&E Corp. | 34,327 | 1,442,764 | ||||||
Public Service Enterprise Group Inc. | 51,477 | 1,680,209 | ||||||
Sempra Energy | 36,439 | 1,926,894 | ||||||
TECO Energy, Inc. | 53,152 | 1,004,041 | ||||||
Xcel Energy, Inc. | 129,530 | 3,147,579 | ||||||
18,607,976 | ||||||||
Oil & Gas Storage & Transportation–1.99% | ||||||||
Southern Union Co. | 33,209 | 1,333,341 | ||||||
Total Common Stocks (Cost $52,255,582) | 64,114,530 | |||||||
Money Market Funds–3.71% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 1,247,361 | 1,247,361 | ||||||
Premier Portfolio–Institutional Class(c) | 1,247,362 | 1,247,362 | ||||||
Total Money Market Funds (Cost $2,494,723) | 2,494,723 | |||||||
TOTAL INVESTMENTS–99.08% (Cost $54,750,305) | 66,609,253 | |||||||
OTHER ASSETS LESS LIABILITIES–0.92% | 619,444 | |||||||
NET ASSETS–100.00% | $ | 67,228,697 | ||||||
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, 2011
Utilities | 90.5 | % | ||
Telecommunication Services | 4.9 | |||
Money Market Funds Plus Other Assets Less Liabilities | 4.6 | |||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $52,255,582) | $ | 64,114,530 | ||
Investments in affiliated money market funds, at value and cost | 2,494,723 | |||
Total investments, at value (Cost $54,750,305) | 66,609,253 | |||
Receivable for: | ||||
Investments sold | 446,275 | |||
Fund shares sold | 12,569 | |||
Dividends | 367,857 | |||
Investment for trustee deferred compensation and retirement plans | 43,905 | |||
Other assets | 121 | |||
Total assets | 67,479,980 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 101,342 | |||
Accrued fees to affiliates | 73,135 | |||
Accrued other operating expenses | 19,757 | |||
Trustee deferred compensation and retirement plans | 57,049 | |||
Total liabilities | 251,283 | |||
Net assets applicable to shares outstanding | $ | 67,228,697 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 50,845,460 | ||
Undistributed net investment income | 3,273,475 | |||
Undistributed net realized gain | 1,245,887 | |||
Unrealized appreciation | 11,863,875 | |||
$ | 67,228,697 | |||
Net Assets: | ||||
Series I | $ | 65,334,981 | ||
Series II | $ | 1,893,716 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 3,972,836 | |||
Series II | 115,979 | |||
Series I: | ||||
Net asset value per share | $ | 16.45 | ||
Series II: | ||||
Net asset value per share | $ | 16.33 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $17,440) | $ | 1,457,128 | ||
Dividends from affiliated money market funds | 1,315 | |||
Total investment income | 1,458,443 | |||
Expenses: | ||||
Advisory fees | 196,491 | |||
Administrative services fees | 98,705 | |||
Custodian fees | 3,038 | |||
Distribution fees — Series II | 2,165 | |||
Transfer agent fees | 10,556 | |||
Trustees’ and officers’ fees and benefits | 9,280 | |||
Other | 24,003 | |||
Total expenses | 344,238 | |||
Less: Fees waived | (39,473 | ) | ||
Net expenses | 304,765 | |||
Net investment income | 1,153,678 | |||
Realized and unrealized gain from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 2,939,500 | |||
Foreign currencies | (1,830 | ) | ||
2,937,670 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 2,562,222 | |||
Foreign currencies | 1,428 | |||
2,563,650 | ||||
Net realized and unrealized gain | 5,501,320 | |||
Net increase in net assets resulting from operations | $ | 6,654,998 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,153,678 | $ | 2,154,889 | ||||
Net realized gain | 2,937,670 | 2,280,276 | ||||||
Change in net unrealized appreciation (depreciation) | 2,563,650 | (674,565 | ) | |||||
Net increase in net assets resulting from operations | 6,654,998 | 3,760,600 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (2,309,020 | ) | |||||
Series II | — | (55,316 | ) | |||||
Total distributions from net investment income | — | (2,364,336 | ) | |||||
Share transactions–net: | ||||||||
Series I | (5,091,391 | ) | (8,086,914 | ) | ||||
Series II | 14,852 | (32,168 | ) | |||||
Net increase (decrease) in net assets resulting from share transactions | (5,076,539 | ) | (8,119,082 | ) | ||||
Net increase (decrease) in net assets | 1,578,459 | (6,722,818 | ) | |||||
Net assets: | ||||||||
Beginning of period | 65,650,238 | 72,373,056 | ||||||
End of period (includes undistributed net investment income of $3,273,475 and $2,119,797, respectively) | $ | 67,228,697 | $ | 65,650,238 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Utilities Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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. | |
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. Utilities 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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. Utilities Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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, which may make the Fund more volatile. | |
The Fund may invest a large percentage of its assets in a limited number of securities or other instruments, which could negatively affect the value of the Fund. | ||
The following factors may affect the Fund’s investments in the utilities sector: governmental regulation, economic factors, ability of the issuer to obtain financing, prices of natural resources and risks associated with nuclear power. | ||
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 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 Canada Ltd. (formerly 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, 2012, to waive advisory fees and/or reimburse expenses 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 0.93% 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 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 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 the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 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.
Further, the Adviser has contractually agreed, through at least June 30, 2012, 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, 2011, the Adviser waived advisory fees of $39,473.
Invesco V.I. Utilities 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, 2011, 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, 2011, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $73,910 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 63,453,361 | $ | 3,155,892 | $ | — | $ | 66,609,253 | ||||||||
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, 2011, the Fund paid legal fees of $676 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner of that firm is a Trustee of the Trust.
Invesco V.I. Utilities 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 (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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2017 | $ | 1,436,392 | ||
* | 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, 2011 was $4,549,433 and $8,697,456, 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 | $ | 12,720,157 | ||
Aggregate unrealized (depreciation) of investment securities | (1,116,600 | ) | ||
Net unrealized appreciation of investment securities | $ | 11,603,557 | ||
Cost of investments for tax purposes is $55,005,696. |
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 227,643 | $ | 3,597,891 | 480,106 | $ | 6,843,415 | ||||||||||
Series II | 10,902 | 173,825 | 7,837 | 110,711 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 160,460 | 2,309,020 | ||||||||||||
Series II | — | — | 3,865 | 55,316 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (556,025 | ) | (8,689,282 | ) | (1,210,979 | ) | (17,239,349 | ) | ||||||||
Series II | (10,338 | ) | (158,973 | ) | (14,275 | ) | (198,195 | ) | ||||||||
Net increase (decrease) in share activity | (327,818 | ) | $ | (5,076,539 | ) | (572,986 | ) | $ | (8,119,082 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 47% 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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 to | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | Investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | 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 06/30/11 | $ | 14.87 | $ | 0.27 | $ | 1.31 | $ | 1.58 | $ | — | $ | — | $ | — | $ | 16.45 | 10.62 | % | $ | 65,335 | 0.92 | %(d) | 1.04 | %(d) | 3.53 | %(d) | 7 | % | ||||||||||||||||||||||||||||
Year ended 12/31/10 | 14.51 | 0.47 | 0.43 | 0.90 | (0.54 | ) | — | (0.54 | ) | 14.87 | 6.30 | 63,945 | 0.92 | 1.04 | 3.25 | 13 | ||||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 14.78 | 0.25 | 1.30 | 1.55 | — | — | — | 16.33 | 10.49 | 1,894 | 1.17 | (d) | 1.29 | (d) | 3.28 | (d) | 7 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 14.43 | 0.43 | 0.42 | 0.85 | (0.50 | ) | — | (0.50 | ) | 14.78 | 6.01 | 1,706 | 1.17 | 1.29 | 3.00 | 13 | ||||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||||
(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) of $64,294 and $1,746 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,106.20 | $ | 4.80 | $ | 1,020.23 | $ | 4.61 | 0.92 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,104.90 | 6.11 | 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, 2011 through June 30, 2011, 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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 funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Utility Funds Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile of the Lipper 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 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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. The Board noted that the Fund’s effective fee rate was above the effective rate of the other mutual fund with comparable investment strategies.
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, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 does not benefit from economies of scale through contractual breakpoints, but does share directly in economies of scale through lower fees charged by third party service providers based on the combined size 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Invesco Van Kampen V.I. Capital Growth Fund
Semiannual Report to Shareholders § June 30, 2011
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at 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, 2011, is available at 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.
VK-VICGR-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 6.06 | % | ||
Series II Shares | 5.94 | |||
S&P 500 Index▼ (Broad Market Index) | 6.01 | |||
Russell 1000 Growth Index▼ (Style-Specific Index) | 6.83 | |||
Lipper VUF Large-Cap Growth Funds Index▼ (Peer Group Index) | 5.68 | |||
▼Lipper Inc. |
The Fund recently adopted a three-tier benchmark structure to compare its performance to broad market, style-specific and peer group market measures.
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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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 6/30/11
Series I Shares | ||||||||
Inception (7/3/95) | 8.45 | % | ||||||
10 | Years | 1.18 | ||||||
5 | Years | 5.45 | ||||||
1 | Year | 32.57 | ||||||
Series II Shares | ||||||||
Inception (9/18/00) | -3.70 | % | ||||||
10 | Years | 0.93 | ||||||
5 | Years | 5.19 | ||||||
1 | Year | 32.24 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund, Van Kampen Life Investment Trust Capital Growth Portfolio, 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.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 1.03% and 1.28%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
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.
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, 2012. See current prospectus for more information. |
Invesco Van Kampen V.I. Capital Growth Fund
Schedule of Investments
June 30, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.72%(a) | ||||||||
Aerospace & Defense–3.31% | ||||||||
Honeywell International, Inc. | 51,983 | $ | 3,097,667 | |||||
Precision Castparts Corp. | 34,618 | 5,699,854 | ||||||
8,797,521 | ||||||||
Apparel Retail–1.13% | ||||||||
Limited Brands, Inc. | 22,344 | 859,127 | ||||||
Prada S.P.A. (Italy)(b) | 355,900 | 2,147,282 | ||||||
3,006,409 | ||||||||
Apparel, Accessories & Luxury Goods–1.73% | ||||||||
Coach, Inc. | 71,745 | 4,586,658 | ||||||
Application Software–2.94% | ||||||||
Citrix Systems, Inc.(b) | 66,501 | 5,320,080 | ||||||
Salesforce.com, Inc.(b) | 16,637 | 2,478,580 | ||||||
7,798,660 | ||||||||
Asset Management & Custody Banks–1.96% | ||||||||
Ameriprise Financial, Inc. | 65,514 | 3,778,847 | ||||||
Franklin Resources, Inc. | 10,813 | 1,419,639 | ||||||
5,198,486 | ||||||||
Biotechnology–1.96% | ||||||||
Dendreon Corp.(b) | 46,274 | 1,825,047 | ||||||
Gilead Sciences, Inc.(b) | 81,454 | 3,373,010 | ||||||
5,198,057 | ||||||||
Cable & Satellite–4.06% | ||||||||
Comcast Corp.–Class A | 158,660 | 4,020,444 | ||||||
DIRECTV–Class A(b) | 132,723 | 6,744,983 | ||||||
10,765,427 | ||||||||
Casinos & Gaming–1.41% | ||||||||
Las Vegas Sands Corp.(b) | 88,397 | 3,731,237 | ||||||
Communications Equipment–2.65% | ||||||||
F5 Networks, Inc.(b) | 13,179 | 1,452,985 | ||||||
Juniper Networks, Inc.(b) | 58,226 | 1,834,119 | ||||||
QUALCOMM, Inc. | 66,114 | 3,754,614 | ||||||
7,041,718 | ||||||||
Computer Hardware–6.83% | ||||||||
Apple, Inc.(b) | 54,035 | 18,137,928 | ||||||
Computer Storage & Peripherals–2.51% | ||||||||
EMC Corp.(b) | 197,082 | 5,429,609 | ||||||
SanDisk Corp.(b) | 30,001 | 1,245,042 | ||||||
6,674,651 | ||||||||
Construction & Engineering–1.62% | ||||||||
Foster Wheeler AG (Switzerland)(b) | 141,902 | 4,310,983 | ||||||
Construction & Farm Machinery & Heavy Trucks–1.18% | ||||||||
Cummins, Inc. | 30,230 | 3,128,503 | ||||||
Data Processing & Outsourced Services–1.32% | ||||||||
Visa, Inc.–Class A | 41,461 | 3,493,504 | ||||||
Department Stores–0.95% | ||||||||
Kohl’s Corp. | 50,571 | 2,529,056 | ||||||
Drug Retail–1.02% | ||||||||
CVS Caremark Corp. | 72,139 | 2,710,984 | ||||||
Fertilizers & Agricultural Chemicals–4.54% | ||||||||
CF Industries Holdings, Inc. | 13,256 | 1,877,977 | ||||||
Monsanto Co. | 64,205 | 4,657,431 | ||||||
Potash Corp. of Saskatchewan, Inc. (Canada) | 96,930 | 5,524,041 | ||||||
12,059,449 | ||||||||
Health Care Equipment–1.35% | ||||||||
Baxter International, Inc. | 35,310 | 2,107,654 | ||||||
Stryker Corp. | 24,945 | 1,464,022 | ||||||
3,571,676 | ||||||||
Health Care Services–2.24% | ||||||||
Express Scripts, Inc.(b) | 65,868 | 3,555,555 | ||||||
Medco Health Solutions, Inc.(b) | 42,131 | 2,381,244 | ||||||
5,936,799 | ||||||||
Health Care Technology–0.90% | ||||||||
Allscripts Healthcare Solutions, Inc.(b) | 122,675 | 2,382,348 | ||||||
Heavy Electrical Equipment–1.48% | ||||||||
ABB Ltd.–ADR (Switzerland) | 150,923 | 3,916,452 | ||||||
Home Improvement Retail–1.11% | ||||||||
Home Depot, Inc. (The) | 81,492 | 2,951,640 | ||||||
Hotels, Resorts & Cruise Lines–1.02% | ||||||||
Starwood Hotels & Resorts Worldwide, Inc. | 48,280 | 2,705,611 | ||||||
Industrial Conglomerates–1.11% | ||||||||
Danaher Corp. | 55,652 | 2,949,000 | ||||||
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 | |||||||
Industrial Machinery–1.65% | ||||||||
Ingersoll-Rand PLC (Ireland) | 96,564 | $ | 4,384,971 | |||||
Integrated Oil & Gas–1.62% | ||||||||
Occidental Petroleum Corp. | 41,419 | 4,309,233 | ||||||
Internet Retail–3.70% | ||||||||
Amazon.com, Inc.(b) | 22,540 | 4,609,205 | ||||||
Netflix, Inc.(b) | 11,570 | 3,039,323 | ||||||
Priceline.com, Inc.(b) | 4,251 | 2,176,214 | ||||||
9,824,742 | ||||||||
Internet Software & Services–5.57% | ||||||||
Baidu, Inc.–ADR (China)(b) | 59,100 | 8,281,683 | ||||||
Google, Inc.–Class A(b) | 12,821 | 6,492,298 | ||||||
14,773,981 | ||||||||
IT Consulting & Other Services–2.51% | ||||||||
Accenture PLC–Class A (Ireland) | 53,871 | 3,254,886 | ||||||
Cognizant Technology Solutions Corp.–Class A(b) | 46,527 | 3,412,290 | ||||||
6,667,176 | ||||||||
Life Sciences Tools & Services–2.45% | ||||||||
Agilent Technologies, Inc.(b) | 64,619 | 3,302,677 | ||||||
Illumina, Inc.(b) | 42,764 | 3,213,715 | ||||||
6,516,392 | ||||||||
Managed Health Care–1.47% | ||||||||
UnitedHealth Group, Inc. | 75,628 | 3,900,892 | ||||||
Movies & Entertainment–1.08% | ||||||||
Walt Disney Co. (The) | 73,329 | 2,862,764 | ||||||
Oil & Gas Equipment & Services–7.94% | ||||||||
Baker Hughes, Inc. | 37,684 | 2,734,351 | ||||||
Cameron International Corp.(b) | 86,491 | 4,349,632 | ||||||
Halliburton Co. | 40,304 | 2,055,504 | ||||||
National Oilwell Varco, Inc. | 99,355 | 7,770,555 | ||||||
Weatherford International Ltd.(b) | 221,784 | 4,158,450 | ||||||
21,068,492 | ||||||||
Oil & Gas Exploration & Production–2.45% | ||||||||
Anadarko Petroleum Corp. | 31,849 | 2,444,729 | ||||||
EOG Resources, Inc. | 38,917 | 4,068,773 | ||||||
6,513,502 | ||||||||
Other Diversified Financial Services–1.37% | ||||||||
JPMorgan Chase & Co. | 88,697 | 3,631,255 | ||||||
Packaged Foods & Meats–0.92% | ||||||||
Mead Johnson Nutrition Co. | 36,109 | 2,439,163 | ||||||
Pharmaceuticals–1.17% | ||||||||
Allergan, Inc. | 37,285 | 3,103,976 | ||||||
Railroads–1.39% | ||||||||
Union Pacific Corp. | 35,476 | 3,703,694 | ||||||
Restaurants–1.20% | ||||||||
Chipotle Mexican Grill, Inc.(b) | 5,495 | 1,693,504 | ||||||
Starbucks Corp. | 38,084 | 1,503,937 | ||||||
3,197,441 | ||||||||
Semiconductors–2.86% | ||||||||
Atmel Corp.(b) | 233,656 | 3,287,540 | ||||||
Broadcom Corp.–Class A | 64,187 | 2,159,251 | ||||||
Xilinx, Inc. | 58,778 | 2,143,633 | ||||||
7,590,424 | ||||||||
Soft Drinks–0.67% | ||||||||
Hansen Natural Corp.(b) | 21,843 | 1,768,191 | ||||||
Specialized Finance–0.48% | ||||||||
Moody’s Corp. | 33,019 | 1,266,279 | ||||||
Systems Software–5.81% | ||||||||
Oracle Corp. | 129,245 | 4,253,453 | ||||||
Rovi Corp.(b) | 194,526 | 11,158,011 | ||||||
15,411,464 | ||||||||
Trucking–0.97% | ||||||||
J.B. Hunt Transport Services, Inc. | 54,936 | 2,586,936 | ||||||
Wireless Telecommunication Services–2.11% | ||||||||
America Movil S.A.B. de C.V.–Series L–ADR (Mexico) | 38,023 | 2,048,679 | ||||||
American Tower Corp.–Class A(b) | 67,985 | 3,557,655 | ||||||
5,606,334 | ||||||||
TOTAL INVESTMENTS–99.72% (Cost $213,940,766) | 264,710,059 | |||||||
OTHER ASSETS LESS LIABILITIES–0.28% | 754,084 | |||||||
NET ASSETS–100.00% | $ | 265,464,143 | ||||||
Investment Abbreviation:
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. |
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
as of June 30, 2011
Information Technology | 33.0 | % | ||
Consumer Discretionary | 17.4 | |||
Industrials | 12.7 | |||
Energy | 12.0 | |||
Health Care | 11.5 | |||
Materials | 4.6 | |||
Financials | 3.8 | |||
Consumer Staples | 2.6 | |||
Telecommunication Services | 2.1 | |||
Other Assets Less Liabilities | 0.3 | |||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $213,940,766) | $ | 264,710,059 | ||
Receivable for: | ||||
Investments sold | 4,866,568 | |||
Fund shares sold | 61,845 | |||
Dividends | 135,779 | |||
Investment for trustee deferred compensation and retirement plans | 37,490 | |||
Other assets | 2,004 | |||
Total assets | 269,813,745 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 3,629,265 | |||
Fund shares reacquired | 74,279 | |||
Amount due custodian | 32,762 | |||
Accrued fees to affiliates | 439,974 | |||
Accrued other operating expenses | 121,753 | |||
Trustee deferred compensation and retirement plans | 51,569 | |||
Total liabilities | 4,349,602 | |||
Net assets applicable to shares outstanding | $ | 265,464,143 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 230,056,088 | ||
Undistributed net investment income (loss) | (284,901 | ) | ||
Undistributed net realized gain (loss) | (15,079,634 | ) | ||
Unrealized appreciation | 50,772,590 | |||
$ | 265,464,143 | |||
Net Assets: | ||||
Series I | $ | 161,152,196 | ||
Series II | $ | 104,311,947 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 4,469,311 | |||
Series II | 2,940,331 | |||
Series I: | ||||
Net asset value per share | $ | 36.06 | ||
Series II: | ||||
Net asset value per share | $ | 35.48 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $2,796) | $ | 736,613 | ||
Dividends from affiliated money market funds (includes securities lending income of $132) | 1,070 | |||
Interest | 11,949 | |||
Total investment income | 749,632 | |||
Expenses: | ||||
Advisory fees | 743,981 | |||
Administrative services fees | 291,939 | |||
Custodian fees | 17,089 | |||
Distribution fees — Series II | 136,155 | |||
Transfer agent fees | 11,165 | |||
Trustees’ and officers’ fees and benefits | 10,704 | |||
Other | 24,715 | |||
Total expenses | 1,235,748 | |||
Less: Fees waived | (205,191 | ) | ||
Net expenses | 1,030,557 | |||
Net investment income (loss) | (280,925 | ) | ||
Realized and unrealized gain from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $3,726,239) | 21,752,075 | |||
Foreign currencies | (1,321 | ) | ||
21,750,754 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (13,303,133 | ) | ||
Foreign currencies | 7,805 | |||
(13,295,328 | ) | |||
Net realized and unrealized gain | 8,455,426 | |||
Net increase in net assets resulting from operations | $ | 8,174,501 | ||
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 Changes in Net Assets
For the six months ended June 30, 2011 and the year ended December 31, 2010
(Unaudited)
2011 | 2010 | |||||||
| ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | (280,925 | ) | $ | (94,648 | ) | ||
Net realized gain (loss) | 21,750,754 | (8,136,508 | ) | |||||
Change in net unrealized appreciation (depreciation) | (13,295,328 | ) | 43,145,195 | |||||
Net increase in net assets resulting from operations | 8,174,501 | 34,914,039 | ||||||
Share transactions–net: | ||||||||
Series I | 84,476,806 | (15,642,359 | ) | |||||
Series II | (11,977,127 | ) | (21,229,104 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | 72,499,679 | (36,871,463 | ) | |||||
Net increase (decrease) in net assets | 80,674,180 | (1,957,424 | ) | |||||
Net assets: | ||||||||
Beginning of period | 184,789,963 | 186,747,387 | ||||||
End of period (includes undistributed net investment income (loss) of $(284,901) and $(3,976), respectively) | $ | 265,464,143 | $ | 184,789,963 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. Capital Growth Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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 seek capital growth.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. |
Invesco Van Kampen V.I. Capital Growth Fund
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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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 (“GAAP”) 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. |
Invesco Van Kampen V.I. Capital Growth Fund
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 Daily Net Assets | Rate | |||
First $500 million | 0 | .70% | ||
Next $500 million | 0 | .65% | ||
Over $1 billion | 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 Canada Ltd. (formerly 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(s) 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 June 30, 2012, 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 0.84% and Series II shares to 1.09% 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 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 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 the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012.
Further, the Adviser has contractually agreed, through at least June 30, 2012, 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, 2011, the Adviser waived advisory fees of $205,191.
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
Invesco Van Kampen V.I. Capital Growth Fund
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, 2011, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $267,144 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 264,710,059 | $ | — | $ | — | $ | 264,710,059 | ||||||||
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, 2011, the Fund engaged in securities purchases of $4,424,628 and securities sales of $26,198,191, which resulted in net realized gains of $3,726,239.
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, 2011, the Fund paid legal fees of $769 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner of that firm is a Trustee of the Trust.
Invesco Van Kampen V.I. Capital Growth 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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2011 | $ | 1,891,381 | ||
December 31, 2016 | 12,927,582 | |||
December 31, 2017 | 5,236,281 | |||
December 31, 2018 | 13,944,388 | |||
Total capital loss carryforward | $ | 33,999,632 | ||
* | 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 2, 2011, the date of reorganization of Invesco V.I. Large Cap Growth Fund into the Fund and realized on securities held in each fund at such date of reorganization, the capital loss carryforward may be further limited for up to five years from the date of the reorganization. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2011 was $121,430,803 and $171,176,221, 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 | $ | 51,386,684 | ||
Aggregate unrealized (depreciation) of investment securities | (3,448,147 | ) | ||
Net unrealized appreciation of investment securities | $ | 47,938,537 | ||
Cost of investments for tax purposes is $216,771,522. |
Invesco Van Kampen V.I. Capital Growth Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 44,274 | $ | 1,579,220 | 727,223 | $ | 20,626,860 | ||||||||||
Series II | 168,704 | 5,894,122 | 260,787 | 7,680,246 | ||||||||||||
Issued in connection with acquisitions:(b) | ||||||||||||||||
Series I | 2,764,202 | 102,182,035 | — | — | ||||||||||||
Series II | 17,638 | 641,933 | — | — | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (541,365 | ) | (19,284,449 | ) | (1,140,807 | ) | (36,269,219 | ) | ||||||||
Series II | (528,422 | ) | (18,513,182 | ) | (995,335 | ) | (28,909,350 | ) | ||||||||
Net increase (decrease) in share activity | 1,925,031 | $ | 72,499,679 | (1,148,132 | ) | $ | (36,871,463 | ) | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 59% 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) | As of the open of business on May 2, 2011, the Fund acquired all the net assets of Invesco V.I. Large Cap Growth Fund pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of Invesco V.I. Large Cap Growth Fund on April 1, 2011. The acquisition was accomplished by a tax-free exchange of 2,781,840 shares of the Fund for 6,596,443 shares outstanding of Invesco V.I. Large Cap Growth Fund as of the close of business on April 29, 2011. Each class of Invesco V.I. Large Cap Growth Fund was exchanged for the like class of shares of the Fund based on the relative net asset value of Invesco V.I. Large Cap Growth Fund to the net asset value of the Fund on the close of business, April 29, 2011. Invesco V.I. Large Cap Growth Fund’s net assets at that date of $102,823,968 including $19,535,310 of unrealized appreciation, was combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $188,601,217. The net assets of the Fund immediately following the acquisition were $291,425,185. |
Invesco Van Kampen V.I. Capital 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 | Net | (losses) on | Dividends | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||
value, | investment | securities (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | |||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | (loss)(a) | unrealized) | operations | income | of period | Return | (000’s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||
Series I(c) | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | $ | 34.00 | $ | (0.02 | ) | $ | 2.08 | (d) | $ | 2.06 | $ | — | $ | 36.06 | 6.06 | %(d)(e) | $ | 161,152 | 0.84 | %(f) | 1.03 | %(f) | (0.14 | )%(f) | 62 | % | ||||||||||||||||||||||
Year ended 12/31/10 | 28.37 | 0.03 | 5.60 | 5.63 | — | 34.00 | 19.84 | (e) | 74,870 | 0.79 | 0.90 | 0.12 | 158 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 17.10 | 0.04 | 11.26 | 11.30 | (0.03 | ) | 28.37 | 66.07 | 74,214 | 0.84 | 0.84 | 0.17 | 13 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 33.68 | (0.01 | ) | (16.43 | ) | (16.44 | ) | (0.14 | ) | 17.10 | (48.99 | ) | 48,599 | 0.85 | 0.87 | (0.04 | ) | 42 | ||||||||||||||||||||||||||||||
Year ended 12/31/07 | 28.81 | 0.11 | 4.77 | 4.88 | (0.01 | ) | 33.68 | 16.96 | 143,558 | 0.80 | 0.80 | 0.35 | 177 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 28.01 | 0.04 | 0.76 | 0.80 | — | 28.81 | 2.86 | 160,456 | 0.78 | 0.78 | 0.16 | 128 | ||||||||||||||||||||||||||||||||||||
Series II(c) | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 33.49 | (0.07 | ) | 2.06 | (d) | 1.99 | — | 35.48 | 5.94 | (d)(e) | 104,312 | 1.09 | (f) | 1.28 | (f) | (0.39 | )(f) | 62 | ||||||||||||||||||||||||||||||
Year ended 12/31/10 | 28.01 | (0.05 | ) | 5.53 | 5.48 | — | 33.49 | 19.56 | (e) | 109,920 | 1.04 | 1.15 | (0.18 | ) | 158 | |||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 16.91 | (0.02 | ) | 11.12 | 11.10 | — | 28.01 | 65.64 | (g) | 112,533 | 1.09 | 1.09 | (0.07 | ) | 13 | |||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 33.29 | (0.08 | ) | (16.25 | ) | (16.33 | ) | (0.05 | ) | 16.91 | (49.11 | )(g) | 69,198 | 1.10 | 1.12 | (0.29 | ) | 42 | ||||||||||||||||||||||||||||||
Year ended 12/31/07 | 28.54 | 0.03 | 4.72 | 4.75 | — | 33.29 | 16.64 | (g) | 261,198 | 1.05 | 1.05 | 0.11 | 177 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 27.81 | (0.02 | ) | 0.75 | 0.73 | — | 28.54 | 2.62 | (g) | 257,360 | 1.03 | 1.03 | (0.09 | ) | 128 | |||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the period ending June 30, 2011, the portfolio turnover calculation excludes the value of securities purchased of $83,359,751 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Large Cap Growth Fund into the Fund. | |
(c) | On June 1, 2010, the Fund’s former Class I and Class II shares were reorganized into Series I and Series II shares. | |
(d) | Includes litigation proceeds received during the period. Had the litigation proceeds not been received net gains (losses) on securities (both realized and unrealized) per share would have been $2.05 and $2.03 for Series I and Series II shares, respectively and total returns would have been lower. | |
(e) | 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. | |
(f) | Ratios are annualized and based on average daily net assets (000’s omitted) of $105,368 and $109,827 for Series I and Series II shares, respectively. | |
(g) | These returns include combined Rule 12b-1 fees and service fees of up to 0.25%. |
Invesco Van Kampen V.I. Capital 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,060.60 | $ | 4.29 | $ | 1,020.63 | $ | 4.21 | 0.84 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,059.40 | 5.57 | 1,019.39 | 5.46 | 1.09 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2011 through June 30, 2011, 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. Capital 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 Van Kampen V.I. Capital 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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 Sib-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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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 funds in the Lipper
Invesco Van Kampen V.I. Capital Growth Fund
performance universe and against the Lipper VA Underlying Funds – Large-Cap Growth Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of the 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 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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. The Board noted that the Fund’s rate was above the rate of the other mutual fund advised by Invesco Advisers with comparable investment strategies. The Board also noted that Invesco Advisers sub-advises two other mutual funds with investment strategies comparable to those of the Fund and that the sub-advisory rate was below the effective fee fate of the Fund.
Other than the mutual funds 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 June 30, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Invesco Van Kampen V.I. Comstock Fund
Semiannual Report to Shareholders § June 30, 2011
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at 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, 2011, is available at 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.
VK-VICOM-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 5.70 | % | ||
Series II Shares | 5.53 | |||
S&P 500 Index▼ (Broad Market Index) | 6.01 | |||
Russell 1000 Value Index▼ (Style-Specific Index) | 5.92 | |||
Lipper VUF Large-Cap Value Funds Index▼ (Peer Group Index) | 5.49 | |||
▼ | Lipper Inc. |
The Fund recently adopted a three-tier benchmark structure to compare its performance to broad market, style-specific and peer group market measures.
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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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 6/30/11
Series I Shares | ||||||||
Inception (4/30/99) | 4.94 | % | ||||||
10 | Years | 3.42 | ||||||
5 | Years | 2.17 | ||||||
1 | Year | 30.02 | ||||||
Series II Shares | ||||||||
Inception (9/18/00) | 4.88 | % | ||||||
10 | Years | 3.16 | ||||||
5 | Years | 1.92 | ||||||
1 | Year | 29.77 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund, Van Kampen Life Investment Trust Comstock Portfolio, 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.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 0.85% and 1.10%, 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.
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, 2012. See current prospectus for more information. |
Invesco Van Kampen V.I. Comstock Fund
Schedule of Investments
June 30, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–96.96%(a) | ||||||||
Aerospace & Defense–1.24% | ||||||||
Honeywell International, Inc. | 411,301 | $ | 24,509,427 | |||||
Aluminum–1.40% | ||||||||
Alcoa Inc. | 1,755,760 | 27,846,354 | ||||||
Asset Management & Custody Banks–2.16% | ||||||||
Bank of New York Mellon Corp. | 1,299,102 | 33,282,993 | ||||||
State Street Corp. | 209,852 | 9,462,227 | ||||||
42,745,220 | ||||||||
Automobile Manufacturers–1.10% | ||||||||
General Motors Co.(b) | 720,489 | 21,874,046 | ||||||
Cable & Satellite–6.27% | ||||||||
Comcast Corp.–Class A | 3,124,459 | 79,173,791 | ||||||
DIRECTV–Class A(b) | 199,269 | 10,126,851 | ||||||
Time Warner Cable, Inc. | 447,579 | 34,929,065 | ||||||
124,229,707 | ||||||||
Communications Equipment–0.78% | ||||||||
Cisco Systems, Inc. | 984,425 | 15,366,874 | ||||||
Computer Hardware–3.52% | ||||||||
Dell, Inc.(b) | 1,517,161 | 25,291,074 | ||||||
Hewlett-Packard Co. | 1,222,063 | 44,483,093 | ||||||
69,774,167 | ||||||||
Data Processing & Outsourced Services–0.30% | ||||||||
Western Union Co. | 293,036 | 5,869,511 | ||||||
Department Stores–0.39% | ||||||||
Macy’s, Inc. | 266,199 | 7,783,659 | ||||||
Diversified Banks–1.95% | ||||||||
U.S. Bancorp | 416,231 | 10,618,053 | ||||||
Wells Fargo & Co. | 999,474 | 28,045,240 | ||||||
38,663,293 | ||||||||
Drug Retail–1.60% | ||||||||
CVS Caremark Corp. | 842,920 | 31,676,934 | ||||||
Electric Utilities–2.41% | ||||||||
American Electric Power Co., Inc. | 137,142 | 5,167,511 | ||||||
FirstEnergy Corp. | 378,330 | 16,703,269 | ||||||
PPL Corp. | 929,173 | 25,858,885 | ||||||
47,729,665 | ||||||||
Electrical Components & Equipment–0.79% | ||||||||
Emerson Electric Co. | 276,777 | 15,568,706 | ||||||
General Merchandise Stores–0.59% | ||||||||
Target Corp. | 249,090 | 11,684,812 | ||||||
Health Care Distributors–1.02% | ||||||||
Cardinal Health, Inc. | 445,416 | 20,230,795 | ||||||
Home Improvement Retail–1.67% | ||||||||
Home Depot, Inc. (The) | 472,740 | 17,122,643 | ||||||
Lowe’s Cos., Inc. | 686,444 | 16,001,009 | ||||||
33,123,652 | ||||||||
Household Products–0.32% | ||||||||
Procter & Gamble Co. (The) | 100,077 | 6,361,895 | ||||||
Hypermarkets & Super Centers–0.97% | ||||||||
Wal-Mart Stores, Inc. | 363,051 | 19,292,530 | ||||||
Industrial Conglomerates–2.12% | ||||||||
General Electric Co. | 1,386,411 | 26,147,711 | ||||||
Textron Inc. | 675,518 | 15,948,980 | ||||||
42,096,691 | ||||||||
Industrial Machinery–1.56% | ||||||||
Ingersoll-Rand PLC (Ireland) | 682,431 | 30,989,192 | ||||||
Integrated Oil & Gas–6.15% | ||||||||
BP PLC–ADR (United Kingdom) | 595,284 | 26,365,128 | ||||||
Chevron Corp. | 433,519 | 44,583,094 | ||||||
Royal Dutch Shell PLC–ADR (United Kingdom) | 512,454 | 36,450,853 | ||||||
Total S.A.–ADR (France) | 250,840 | 14,508,586 | ||||||
121,907,661 | ||||||||
Integrated Telecommunication Services–2.78% | ||||||||
AT&T Inc. | 791,208 | 24,851,843 | ||||||
Verizon Communications Inc. | 812,773 | 30,259,539 | ||||||
55,111,382 | ||||||||
Internet Software & Services–3.44% | ||||||||
eBay Inc.(b) | 1,163,868 | 37,558,020 | ||||||
Yahoo! Inc.(b) | 2,037,870 | 30,649,565 | ||||||
68,207,585 | ||||||||
Investment Banking & Brokerage–2.07% | ||||||||
Goldman Sachs Group, Inc. (The) | 154,689 | 20,587,559 | ||||||
Morgan Stanley | 886,195 | 20,391,347 | ||||||
40,978,906 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Comstock Fund
Shares | Value | |||||||
IT Consulting & Other Services–0.10% | ||||||||
Accenture PLC–Class A (Ireland) | 32,725 | $ | 1,977,245 | |||||
Life & Health Insurance–2.47% | ||||||||
Aflac, Inc. | 152,674 | 7,126,822 | ||||||
MetLife, Inc. | 631,559 | 27,706,494 | �� | |||||
Torchmark Corp. | 221,322 | 14,195,593 | ||||||
49,028,909 | ||||||||
Managed Health Care–2.67% | ||||||||
UnitedHealth Group, Inc. | 704,729 | 36,349,922 | ||||||
WellPoint Inc. | 209,317 | 16,487,900 | ||||||
52,837,822 | ||||||||
Movies & Entertainment–5.30% | ||||||||
News Corp.–Class B | 1,562,235 | 28,245,209 | ||||||
Time Warner Inc. | 651,771 | 23,704,911 | ||||||
Viacom Inc.–Class B | 1,039,828 | 53,031,228 | ||||||
104,981,348 | ||||||||
Multi-Utilities–0.20% | ||||||||
Sempra Energy | 73,415 | 3,882,185 | ||||||
Oil & Gas Drilling–0.53% | ||||||||
Noble Corp. | 267,452 | 10,540,283 | ||||||
Oil & Gas Equipment & Services–4.29% | ||||||||
Halliburton Co. | 1,078,661 | 55,011,711 | ||||||
Weatherford International Ltd.(b) | 1,602,828 | 30,053,025 | ||||||
85,064,736 | ||||||||
Oil & Gas Exploration & Production–0.62% | ||||||||
Chesapeake Energy Corp. | 410,988 | 12,202,234 | ||||||
Other Diversified Financial Services–6.75% | ||||||||
Bank of America Corp. | 2,716,933 | 29,777,586 | ||||||
Citigroup Inc. | 1,205,530 | 50,198,269 | ||||||
JPMorgan Chase & Co. | 1,311,266 | 53,683,230 | ||||||
133,659,085 | ||||||||
Packaged Foods & Meats–4.41% | ||||||||
Kraft Foods Inc.–Class A | 1,323,607 | 46,630,675 | ||||||
Unilever N.V.–New York Shares (Netherlands) | 1,240,256 | 40,742,409 | ||||||
87,373,084 | ||||||||
Paper Products–2.93% | ||||||||
International Paper Co. | 1,948,588 | 58,106,894 | ||||||
Personal Products–0.44% | ||||||||
Avon Products, Inc. | 310,348 | 8,689,744 | ||||||
Pharmaceuticals–8.72% | ||||||||
Abbott Laboratories | 189,705 | 9,982,277 | ||||||
Bristol-Myers Squibb Co. | 1,446,958 | 41,903,904 | ||||||
GlaxoSmithKline PLC–ADR (United Kingdom) | 491,963 | 21,105,213 | ||||||
Merck & Co., Inc. | 911,754 | 32,175,798 | ||||||
Pfizer Inc. | 2,588,600 | 53,325,160 | ||||||
Roche Holding AG–ADR (Switzerland) | 340,186 | 14,211,440 | ||||||
172,703,792 | ||||||||
Property & Casualty Insurance–3.36% | ||||||||
Allstate Corp. (The) | 1,158,940 | 35,382,438 | ||||||
Chubb Corp. (The) | 351,945 | 22,035,276 | ||||||
Travelers Cos., Inc. (The) | 155,741 | 9,092,160 | ||||||
66,509,874 | ||||||||
Regional Banks–1.50% | ||||||||
Fifth Third Bancorp | 311,815 | 3,975,641 | ||||||
PNC Financial Services Group, Inc. | 431,663 | 25,731,432 | ||||||
29,707,073 | ||||||||
Semiconductor Equipment–0.32% | ||||||||
KLA-Tencor Corp. | 154,674 | 6,261,204 | ||||||
Semiconductors–0.62% | ||||||||
Intel Corp. | 553,846 | 12,273,227 | ||||||
Soft Drinks–1.42% | ||||||||
Coca-Cola Co. (The) | 284,077 | 19,115,541 | ||||||
PepsiCo, Inc. | 129,128 | 9,094,485 | ||||||
28,210,026 | ||||||||
Specialty Stores–0.73% | ||||||||
Staples, Inc. | 911,978 | 14,409,252 | ||||||
Systems Software–2.12% | ||||||||
Microsoft Corp. | 1,614,577 | 41,979,002 | ||||||
Wireless Telecommunication Services–0.86% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 640,564 | 17,115,870 | ||||||
Total Common Stocks & Other Equity Interests (Cost $1,922,467,308) | 1,921,135,553 | |||||||
Money Market Funds–2.67% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 26,502,265 | 26,502,265 | ||||||
Premier Portfolio–Institutional Class(c) | 26,502,265 | 26,502,265 | ||||||
Total Money Market Funds (Cost $53,004,530) | 53,004,530 | |||||||
TOTAL INVESTMENTS–99.63% (Cost $1,975,471,838) | 1,974,140,083 | |||||||
OTHER ASSETS LESS LIABILITIES–0.37% | 7,262,657 | |||||||
NET ASSETS–100.00% | $ | 1,981,402,740 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Comstock Fund
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | 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, 2011
Financials | 20.3 | % | ||
Consumer Discretionary | 16.1 | |||
Health Care | 12.4 | |||
Energy | 11.6 | |||
Information Technology | 11.2 | |||
Consumer Staples | 9.2 | |||
Industrials | 5.7 | |||
Materials | 4.3 | |||
Telecommunication Services | 3.6 | |||
Utilities | 2.6 | |||
Money Market Funds Plus Other Assets Less Liabilities | 3.0 | |||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $1,922,467,308) | $ | 1,921,135,553 | ||
Investments in affiliated money market funds, at value and cost | 53,004,530 | |||
Total investments, at value (Cost $1,975,471,838) | 1,974,140,083 | |||
Receivable for: | ||||
Investments sold | 14,390,308 | |||
Fund shares sold | 1,617,826 | |||
Dividends | 3,925,081 | |||
Fund expenses absorbed | 83,135 | |||
Investments for trustee deferred compensation and retirement plans | 4,664 | |||
Other assets | 137 | |||
Total assets | 1,994,161,234 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 7,434,555 | |||
Fund shares reacquired | 1,062,965 | |||
Accrued fees to affiliates | 4,175,474 | |||
Accrued other operating expenses | 61,732 | |||
Trustee deferred compensation and retirement plans | 23,768 | |||
Total liabilities | 12,758,494 | |||
Net assets applicable to shares outstanding | $ | 1,981,402,740 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 2,477,973,318 | ||
Undistributed net investment income | 13,801,057 | |||
Undistributed net realized gain (loss) | (509,039,880 | ) | ||
Unrealized appreciation (depreciation) | (1,331,755 | ) | ||
$ | 1,981,402,740 | |||
Net Assets: | ||||
Series I | $ | 304,490,842 | ||
Series II | $ | 1,676,911,898 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 24,979,265 | |||
Series II | 137,885,716 | |||
Series I: | ||||
Net asset value per share | $ | 12.19 | ||
Series II: | ||||
Net asset value per share | $ | 12.16 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $376,685) | $ | 22,029,166 | ||
Dividends from affiliated money market funds | 40,780 | |||
Total investment income | 22,069,946 | |||
Expenses: | ||||
Advisory fees | 5,498,512 | |||
Administrative services fees | 2,650,081 | |||
Distribution fees — Series II | 2,108,444 | |||
Transfer agent fees | 15,039 | |||
Trustees’ and officers’ fees and benefits | 37,736 | |||
Other | (534,328 | ) | ||
Total expenses | 9,775,484 | |||
Less: Fees waived | (1,665,981 | ) | ||
Net expenses | 8,109,503 | |||
Net investment income | 13,960,443 | |||
Net realized gain from investment securities (includes net gains from securities sold to affiliates of $1,332,073) | 50,163,736 | |||
Change in net unrealized appreciation of investment securities | 41,748,891 | |||
Net realized and unrealized gain | 91,912,627 | |||
Net increase in net assets resulting from operations | $ | 105,873,070 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Comstock Fund
Statement of Changes in Net Assets
For the six month ended June 30, 2011 and the year ended December 31, 2010
(Unaudited)
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 13,960,443 | $ | 26,130,323 | ||||
Net realized gain | 50,163,736 | 53,876,954 | ||||||
Change in net unrealized appreciation | 41,748,891 | 169,893,792 | ||||||
Net increase in net assets resulting from operations | 105,873,070 | 249,901,069 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (4,436,682 | ) | (193,186 | ) | ||||
Series II | (21,508,918 | ) | (2,889,112 | ) | ||||
Total distributions from net investment income | (25,945,600 | ) | (3,082,298 | ) | ||||
Share transactions–net: | ||||||||
Series I | 71,786,212 | 53,459,524 | ||||||
Series II | (58,416,742 | ) | (725,552,245 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | 13,369,470 | (672,092,721 | ) | |||||
Net increase (decrease) in net assets | 93,296,940 | (425,273,950 | ) | |||||
Net assets: | ||||||||
Beginning of period | 1,888,105,800 | 2,313,379,750 | ||||||
End of period (includes undistributed net investment income of $13,801,057 and $25,786,214, respectively) | $ | 1,981,402,740 | $ | 1,888,105,800 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. Comstock Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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 seek capital growth and income through investments in equity securities, including common stocks, preferred stocks and securities convertible into common and preferred stocks.
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 Van Kampen V.I. Comstock 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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 Van Kampen V.I. Comstock Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 Daily Net Assets | Rate | |||
First $500 million | 0 | .60% | ||
Over $500 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 Canada Ltd. (formerly 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(s) 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 June 30, 2012, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.62% and Series II shares to 0.87% 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 total annual 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 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 the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012.
Further, the Adviser has contractually agreed, through at least June 30, 2012, 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, 2011, the Adviser waived advisory fees of $1,665,981.
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, 2011, Invesco was paid $206,377 for accounting and fund administrative services and reimbursed $2,443,704 for services provided by insurance companies.
Invesco Van Kampen V.I. Comstock 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 1,959,928,643 | $ | 14,211,440 | $ | — | $ | 1,974,140,083 | ||||||||
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, 2011, the Fund engaged in securities purchases of $2,950,607 and securities sales of $3,290,556, which resulted in net realized gains (losses) of $1,332,073.
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, 2011, the Fund paid legal fees of $1,986 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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 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
Invesco Van Kampen V.I. Comstock Fund
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 utilized $49,021,247 of capital loss carryforward in the prior period to offset net realized capital gain for federal income tax purposes. The Fund had a capital loss carryforward as of December 31, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 208,187,062 | ||
December 31, 2017 | 341,097,829 | |||
Total capital loss carryforward | $ | 549,284,891 | ||
* | 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 2, 2011, the date the reorganization of Invesco Van Kampen V.I. Value Fund into the Fund and realized on securities held in that fund at such date of reorganization, the capital loss carryforward may be further limited for up to five years from the date of the reorganization. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2011 was $295,786,509 and $271,027,272, 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 | $ | 186,468,277 | ||
Aggregate unrealized (depreciation) of investment securities | (197,842,254 | ) | ||
Net unrealized depreciation of investment securities | $ | (11,373,977 | ) | |
Cost of investments for tax purposes is $1,985,514,060. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 5,753,324 | $ | 69,093,953 | 7,436,847 | $ | 85,067,642 | ||||||||||
Series II | 3,461,850 | 41,926,632 | 7,860,095 | 81,647,180 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 363,662 | 4,436,682 | 18,487 | 193,186 | ||||||||||||
Series II | 1,767,372 | 21,508,918 | 277,000 | 2,889,112 | ||||||||||||
Issued in connection with acquisitions(b): | ||||||||||||||||
Series I | 2,033,402 | 25,661,404 | — | — | ||||||||||||
Series II | 1,023 | 12,889 | — | — | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,245,339 | ) | (27,405,827 | ) | (3,029,626 | ) | (31,801,304 | ) | ||||||||
Series II | (10,041,440 | ) | (121,865,181 | ) | (79,919,957 | ) | (810,088,537 | ) | ||||||||
Net increase (decrease) in share activity | 1,093,854 | $ | 13,369,470 | (67,357,154 | ) | $ | (672,092,721 | ) | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 73% 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 |
Invesco Van Kampen V.I. Comstock Fund
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 portion of the shares owned of record by these entities are also owned beneficially. | ||
(b) | As of the opening of business on May 2, 2011, the Fund acquired all of the net assets of Invesco Van Kampen V.I. Value Fund pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of Invesco Van Kampen V.I. Value Fund on April 1, 2011. The acquisition was accomplished by a tax-free exchange of 2,034,425 shares of the Fund for 2,471,069 shares outstanding of Invesco Van Kampen V.I. Value Fund as of the close of business on April 29, 2011. Class I and Class II shares of Invesco Van Kampen V.I. Value Fund were exchanged for Class I and Class II shares of the Fund, respectively, based on the relative net asset vale of Invesco Van Kampen V.I. Value Fund to the net asset value of the Fund on the close of business, April 29, 2011. Invesco Van Kampen V.I. Value Fund’s net assets at that date of $25,674,293, including $4,451,624 of unrealized appreciation, was combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $2,060,987,398. The net assets of the Fund immediately following the acquisition were $2,086,661,691. |
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 | 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 to | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | Distributions | of period | Return | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||||||||
Series I(f) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | $ | 11.71 | $ | 0.10 | $ | 0.57 | $ | 0.67 | $ | (0.19 | ) | $ | 0 | $ | (0.19 | ) | $ | 12.19 | 5.70 | %(c) | $ | 304,491 | 0.61 | %(d) | 0.78 | %(d) | 1.64 | %(d) | 14 | % | ||||||||||||||||||||||||||
Year ended 12/31/10 | 10.11 | 0.17 | 1.44 | 1.61 | (0.01 | ) | 0 | (0.01 | ) | 11.71 | 15.98 | (c) | 223,354 | 0.61 | 0.73 | 1.58 | 21 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 8.25 | 0.16 | 2.12 | 2.28 | (0.42 | ) | 0 | (0.42 | ) | 10.11 | 28.78 | 148,060 | 0.62 | 0.62 | 1.91 | 27 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 13.86 | 0.26 | (4.93 | ) | (4.67 | ) | (0.30 | ) | (0.64 | ) | (0.94 | ) | 8.25 | (35.67 | ) | 192,548 | 0.60 | 0.60 | 2.38 | 38 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 14.75 | 0.30 | (0.60 | ) | (0.30 | ) | (0.26 | ) | (0.33 | ) | (0.59 | ) | 13.86 | (2.04 | ) | 309,646 | 0.59 | 0.59 | 2.03 | 25 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 13.69 | 0.30 | 1.81 | 2.11 | (0.21 | ) | (0.84 | ) | (1.05 | ) | 14.75 | 16.28 | 400,662 | 0.59 | 0.59 | 2.17 | 27 | |||||||||||||||||||||||||||||||||||||||
Series II(f) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 11.67 | 0.08 | 0.57 | 0.65 | (0.16 | ) | 0 | (0.16 | ) | 12.16 | 5.53 | (c) | 1,676,912 | 0.86 | (d) | 1.03 | (d) | 1.39 | (d) | 14 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 10.10 | 0.14 | 1.44 | 1.58 | (0.01 | ) | 0 | (0.01 | ) | 11.67 | 15.70 | (c) | 1,664,751 | 0.86 | 0.98 | 1.32 | 21 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 8.22 | 0.14 | 2.11 | 2.25 | (0.37 | ) | 0 | (0.37 | ) | 10.10 | 28.41 | (e) | 2,165,319 | 0.87 | 0.87 | 1.63 | 27 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 13.80 | 0.23 | (4.91 | ) | (4.68 | ) | (0.26 | ) | (0.64 | ) | (0.90 | ) | 8.22 | (35.80 | )(e) | 2,268,812 | 0.85 | 0.85 | 2.13 | 38 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 14.70 | 0.26 | (0.59 | ) | (0.33 | ) | (0.24 | ) | (0.33 | ) | (0.57 | ) | 13.80 | (2.33 | )(e) | 3,521,509 | 0.84 | 0.84 | 1.78 | 25 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 13.65 | 0.26 | 1.81 | 2.07 | (0.18 | ) | (0.84 | ) | (1.02 | ) | 14.70 | 16.04 | (e) | 3,440,800 | 0.84 | 0.84 | 1.91 | 27 | ||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the period ended June 30, 2011, the portfolio turnover calculation excludes the value of securities purchased of $21,084,025 and sold of $3,578,203 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco Van Kampen V.I. Value Fund into the Fund. | |
(c) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns 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 $269,840 and $1,700,734 for Series I and Series II shares, respectively. | |
(e) | These returns include combined Rule 12b-1 fees and service fees of up to 0.25%. | |
(f) | On June 1, 2010, the Class I and Class II shares of the predecessor fund were reorganized into Series I and Series II shares of the Fund, respectively. |
Invesco Van Kampen V.I. Comstock 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,057.00 | $ | 3.11 | $ | 1,021.77 | $ | 3.06 | 0.61 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,055.30 | 4.38 | 1,020.53 | 4.31 | 0.86 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2011 through June 30, 2011, 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. Comstock 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 Van Kampen V.I. Comstock 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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 funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Large Cap Value Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of the performance universe for the one and three year periods 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
Invesco Van Kampen V.I. Comstock Fund
funds). The Board noted that 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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. The Board noted that the Fund’s rate was above the rate of two mutual funds with comparable investment strategies and below the total account level fee of eight mutual funds sub-advised by Invesco Advisers with comparable investment strategies. The Board did not consider a comparison of fees to an off-shore fund to be apt as the fee includes more than the advisory fees.
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 solely for investment management services. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts. These additional services include 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 for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. 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 often more comparable. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients, and the Board 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 June 30, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Invesco Van Kampen V.I. Equity and Income Fund
Semiannual Report to Shareholders § June 30, 2011
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at 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, 2011, is available at 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.
VK-VIEQI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 4.14 | % | ||
Series II Shares | 4.10 | |||
Russell 1000 Value Index▼(Broad Market Index) | 5.92 | |||
Barclays Capital U.S. Government/Credit Index▼(Style-Specific Index) | 2.61 | |||
▼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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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.
Effective June 1, 2010, Class II shares of the predecessor fund, Universal Institutional Funds Equity and Income Portfolio, advised by Morgan Stanley Investment Management Inc. 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 0.70% and 0.75%, respectively.1,2 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.71% and 0.96%, 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
Average Annual Total Returns
As of 6/30/11
Series I Shares | ||||||||
Inception | 7.51 | % | ||||||
5 | Years | 4.72 | ||||||
1 | Year | 22.33 | ||||||
Series II Shares | ||||||||
Inception (4/30/03) | 7.49 | % | ||||||
5 | Years | 4.69 | ||||||
1 | Year | 22.19 |
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, 2012. See current prospectus for more information | |
2 | Total annual Fund operating expenses after any contractual fee waivers by the distributor 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, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–63.95% | ||||||||
Agricultural Products–0.23% | ||||||||
Archer-Daniels-Midland Co. | 74,256 | $ | 2,238,818 | |||||
Air Freight & Logistics–0.43% | ||||||||
FedEx Corp. | 43,876 | 4,161,639 | ||||||
Asset Management & Custody Banks–1.25% | ||||||||
Northern Trust Corp. | 109,587 | 5,036,618 | ||||||
State Street Corp. | 156,741 | 7,067,452 | ||||||
12,104,070 | ||||||||
Automobile Manufacturers–0.14% | ||||||||
Ford Motor Co.(b) | 48,000 | 661,920 | ||||||
General Motors Co.(b) | 21,351 | 648,216 | ||||||
1,310,136 | ||||||||
Cable & Satellite–2.28% | ||||||||
Comcast Corp.–Class A | 493,788 | 12,512,588 | ||||||
Time Warner Cable, Inc. | 121,198 | 9,458,292 | ||||||
21,970,880 | ||||||||
Communications Equipment–0.23% | ||||||||
Cisco Systems, Inc. | 141,689 | 2,211,765 | ||||||
Computer Hardware–1.92% | ||||||||
Dell, Inc.(b) | 510,812 | 8,515,236 | ||||||
Hewlett-Packard Co. | 275,455 | 10,026,562 | ||||||
18,541,798 | ||||||||
Consumer Electronics–0.62% | ||||||||
Sony Corp.–ADR (Japan) | 224,744 | 5,930,994 | ||||||
Data Processing & Outsourced Services–0.74% | ||||||||
Western Union Co. | 356,946 | 7,149,628 | ||||||
Diversified Banks–0.98% | ||||||||
U.S. Bancorp | 159,301 | 4,063,769 | ||||||
Wells Fargo & Co. | 192,966 | 5,414,626 | ||||||
9,478,395 | ||||||||
Diversified Chemicals–0.85% | ||||||||
Dow Chemical Co. (The) | 55,205 | 1,987,380 | ||||||
PPG Industries, Inc. | 68,871 | 6,252,798 | ||||||
8,240,178 | ||||||||
Diversified Support Services–0.40% | ||||||||
Cintas Corp. | 117,734 | 3,888,754 | ||||||
Drug Retail–0.85% | ||||||||
Walgreen Co. | 193,532 | 8,217,369 | ||||||
Electric Utilities–2.60% | ||||||||
American Electric Power Co., Inc. | 333,017 | 12,548,080 | ||||||
Edison International | 98,436 | 3,814,395 | ||||||
Entergy Corp. | 52,564 | 3,589,070 | ||||||
FirstEnergy Corp. | 115,858 | 5,115,131 | ||||||
25,066,676 | ||||||||
Food Distributors–0.78% | ||||||||
Sysco Corp. | 242,569 | 7,563,302 | ||||||
Health Care Distributors–0.49% | ||||||||
Cardinal Health, Inc. | 104,253 | 4,735,171 | ||||||
Health Care Equipment–0.67% | ||||||||
Medtronic, Inc. | 167,458 | 6,452,157 | ||||||
Health Care Facilities–0.39% | ||||||||
HCA Holdings, Inc.(b) | 113,537 | 3,746,721 | ||||||
Home Improvement Retail–0.93% | ||||||||
Home Depot, Inc. (The) | 246,619 | 8,932,540 | ||||||
Household Products–1.68% | ||||||||
Energizer Holdings, Inc.(b) | 34,958 | 2,529,561 | ||||||
Procter & Gamble Co. (The) | 214,379 | 13,628,073 | ||||||
16,157,634 | ||||||||
Human Resource & Employment Services–0.61% | ||||||||
Manpower Inc. | 60,080 | 3,223,292 | ||||||
Robert Half International, Inc. | 99,856 | 2,699,108 | ||||||
5,922,400 | ||||||||
Industrial Conglomerates–3.67% | ||||||||
General Electric Co. | 1,364,386 | 25,732,320 | ||||||
Tyco International Ltd. | 195,086 | 9,643,101 | ||||||
35,375,421 | ||||||||
Industrial Machinery–0.72% | ||||||||
Ingersoll-Rand PLC (Ireland) | 152,527 | 6,926,251 | ||||||
Insurance Brokers–2.01% | ||||||||
Marsh & McLennan Cos., Inc. | 622,526 | 19,416,586 | ||||||
Integrated Oil & Gas–4.28% | ||||||||
ConocoPhillips | 55,057 | 4,139,736 | ||||||
Exxon Mobil Corp. | 88,988 | 7,241,843 | ||||||
Hess Corp. | 139,739 | 10,446,888 | ||||||
Occidental Petroleum Corp. | 65,115 | 6,774,565 | ||||||
Royal Dutch Shell PLC–ADR (United Kingdom) | 178,781 | 12,716,692 | ||||||
41,319,724 | ||||||||
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 | |||||||
Integrated Telecommunication Services–0.75% | ||||||||
Verizon Communications Inc. | 193,027 | $ | 7,186,395 | |||||
Internet Software & Services–2.15% | ||||||||
eBay Inc.(b) | 447,327 | 14,435,242 | ||||||
Yahoo! Inc.(b) | 419,628 | 6,311,205 | ||||||
20,746,447 | ||||||||
Investment Banking & Brokerage–1.88% | ||||||||
Charles Schwab Corp. (The) | 529,023 | 8,702,428 | ||||||
Morgan Stanley | 409,359 | 9,419,351 | ||||||
18,121,779 | ||||||||
IT Consulting & Other Services–0.62% | ||||||||
Amdocs Ltd.(b) | 197,874 | 6,013,391 | ||||||
Life & Health Insurance–0.51% | ||||||||
Principal Financial Group, Inc. | 160,522 | 4,883,079 | ||||||
Managed Health Care–1.66% | ||||||||
UnitedHealth Group, Inc. | 310,234 | 16,001,870 | ||||||
Movies & Entertainment–2.69% | ||||||||
Time Warner Inc. | 298,426 | 10,853,754 | ||||||
Viacom Inc.–Class B | 296,681 | 15,130,731 | ||||||
25,984,485 | ||||||||
Office Services & Supplies–0.59% | ||||||||
Avery Dennison Corp. | 148,222 | 5,725,816 | ||||||
Oil & Gas Equipment & Services–1.62% | ||||||||
Baker Hughes Inc. | 59,249 | 4,299,107 | ||||||
Cameron International Corp.(b) | 47,834 | 2,405,572 | ||||||
Schlumberger Ltd. | 103,260 | 8,921,664 | ||||||
15,626,343 | ||||||||
Oil & Gas Exploration & Production–2.43% | ||||||||
Anadarko Petroleum Corp. | 206,867 | 15,879,111 | ||||||
Devon Energy Corp. | 80,556 | 6,348,618 | ||||||
Noble Energy, Inc. | 13,779 | 1,235,012 | ||||||
23,462,741 | ||||||||
Oil & Gas Storage & Transportation–0.35% | ||||||||
Williams Cos., Inc. (The) | 112,512 | 3,403,488 | ||||||
Other Diversified Financial Services–5.35% | ||||||||
Bank of America Corp. | 883,565 | 9,683,872 | ||||||
Citigroup Inc. | 315,552 | 13,139,585 | ||||||
JPMorgan Chase & Co. | 702,476 | 28,759,368 | ||||||
51,582,825 | ||||||||
Packaged Foods & Meats–1.87% | ||||||||
Kraft Foods Inc.–Class A | 278,344 | 9,806,059 | ||||||
Unilever N.V.–New York Shares (Netherlands) | 251,504 | 8,261,907 | ||||||
18,067,966 | ||||||||
Personal Products–1.08% | ||||||||
Avon Products, Inc. | 371,520 | 10,402,560 | ||||||
Pharmaceuticals–4.05% | ||||||||
Abbott Laboratories | 82,077 | 4,318,892 | ||||||
Bristol-Myers Squibb Co. | 368,316 | 10,666,431 | ||||||
Merck & Co., Inc. | 233,059 | 8,224,652 | ||||||
Pfizer Inc. | 769,172 | 15,844,943 | ||||||
39,054,918 | ||||||||
Property & Casualty Insurance–0.48% | ||||||||
Chubb Corp. (The) | 74,556 | 4,667,951 | ||||||
Regional Banks–2.47% | ||||||||
BB&T Corp. | 184,340 | 4,947,685 | ||||||
Fifth Third Bancorp | 254,837 | 3,249,172 | ||||||
PNC Financial Services Group, Inc. | 186,616 | 11,124,180 | ||||||
Regions Financial Corp. | 734,833 | 4,555,965 | ||||||
23,877,002 | ||||||||
Semiconductors–0.52% | ||||||||
Intel Corp. | 226,492 | 5,019,063 | ||||||
Soft Drinks–0.86% | ||||||||
Coca-Cola Co. (The) | 99,033 | 6,663,931 | ||||||
Coca-Cola Enterprises, Inc. | 56,908 | 1,660,575 | ||||||
8,324,506 | ||||||||
Systems Software–1.19% | ||||||||
Microsoft Corp. | 442,596 | 11,507,496 | ||||||
Wireless Telecommunication Services–1.08% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 390,287 | 10,428,469 | ||||||
Total Common Stocks & Other Equity Interests (Cost $534,249,650) | 617,147,597 | |||||||
Principal | ||||||||
Amount | ||||||||
Bonds & Notes–19.72% | ||||||||
Advertising–0.38% | ||||||||
Interpublic Group of Cos., Inc. (The), Sr. Unsec. Conv. Global Notes, 4.25%, 03/15/12(c) | $ | 1,805,000 | 2,073,494 | |||||
4.75%, 03/15/23(c) | 1,148,000 | 1,457,960 | ||||||
WPP Finance (United Kingdom), Sr. Unsec. Gtd. Global Notes, 8.00%, 09/15/14 | 100,000 | 117,276 | ||||||
3,648,730 | ||||||||
Aerospace & Defense–0.02% | ||||||||
Raytheon Co., Sr. Unsec. Notes, 1.63%, 10/15/15 | 185,000 | 181,275 | ||||||
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 | |||||||
Agricultural Products–0.03% | ||||||||
Corn Products International, Inc., Sr. Unsec. Notes, 6.63%, 04/15/37 | $ | 255,000 | $ | 277,739 | ||||
Airlines–0.07% | ||||||||
Continental Airlines, Inc.,–Series 2010-1, Class A, Sec. Pass Through Ctfs., 4.75%, 01/12/21 | 315,000 | 306,928 | ||||||
Delta Air Lines, Inc., Series 2001-1, Class A-2, Sr. Sec. Pass Through Ctfs., 7.11%, 09/18/11 | 100,000 | 100,750 | ||||||
Series 2010-1, Class A, Sec. Pass Through Ctfs., 6.20%, 07/02/18 | 247,073 | 258,346 | ||||||
666,024 | ||||||||
Alternative Carriers–0.32% | ||||||||
TW Telecom, Inc., Sr. Unsec. Conv. Deb., 2.38%, 04/01/13(c) | 2,487,000 | 3,062,119 | ||||||
Application Software–0.11% | ||||||||
Adobe Systems, Inc., Sr. Unsec. Global Notes, 4.75%, 02/01/20 | 185,000 | 190,711 | ||||||
Cadence Design Systems, Inc.,–Series B, Sr. Unsec. Conv. Global Notes, 1.50%, 12/15/13 | 860,000 | 836,350 | ||||||
1,027,061 | ||||||||
Asset Management & Custody Banks–0.48% | ||||||||
Affiliated Managers Group, Inc., Sr. Unsec. Conv. Notes, 3.95%, 08/15/13(c) | 2,511,000 | 2,799,765 | ||||||
Janus Capital Group, Inc., Sr. Unsec. Conv. Notes, 3.25%, 07/15/14 | 1,721,000 | 1,871,587 | ||||||
4,671,352 | ||||||||
Automobile Manufacturers–0.02% | ||||||||
Daimler Finance North America LLC, Unsec. Gtd. Unsub. Global Notes, 7.30%, 01/15/12 | 190,000 | 196,714 | ||||||
Automotive Retail–0.14% | ||||||||
Advance Auto Parts, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 05/01/20 | 585,000 | 622,557 | ||||||
AutoZone, Inc., Sr. Unsec. Global Notes, 6.50%, 01/15/14 | 395,000 | 441,504 | ||||||
Sr. Unsec. Notes, 5.88%, 10/15/12 | 60,000 | 63,620 | ||||||
O’Reilly Automotive, Inc., Sr. Unsec. Gtd. Notes, 4.88%, 01/14/21 | 265,000 | 266,730 | ||||||
1,394,411 | ||||||||
Biotechnology–1.67% | ||||||||
Cephalon, Inc., Sr. Unsec. Conv. Sub. Notes, 2.50%, 05/01/14 | 3,165,000 | 3,892,950 | ||||||
Dendreon Corp., Sr. Unsec. Conv. Notes, 2.88%, 01/15/16 | 4,342,000 | 4,792,482 | ||||||
Gilead Sciences, Inc.,–Series D, Sr. Conv. Notes, 1.63%, 05/01/16(d) | 6,360,000 | 7,401,450 | ||||||
16,086,882 | ||||||||
Brewers–0.09% | ||||||||
Anheuser-Busch InBev Worldwide, Inc., Sr. Unsec. Gtd. Global Notes, 3.63%, 04/15/15 | 395,000 | 418,122 | ||||||
5.38%, 01/15/20 | 50,000 | 55,316 | ||||||
FBG Financial Ltd. (Australia), Sr. Unsec. Gtd. Notes, 5.13%, 06/15/15(d) | 325,000 | 350,016 | ||||||
823,454 | ||||||||
Broadcasting–0.01% | ||||||||
COX Communications Inc., Sr. Unsec. Bonds, 8.38%, 03/01/39(d) | 80,000 | 104,960 | ||||||
Sr. Unsec. Global Notes, 5.45%, 12/15/14 | 20,000 | 22,318 | ||||||
127,278 | ||||||||
Cable & Satellite–0.18% | ||||||||
Comcast Corp., Sr. Unsec. Gtd. Global Notes, 5.70%, 05/15/18 | 445,000 | 496,914 | ||||||
DIRECTV Holdings LLC/DIRECTV Financing Co., Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 05/15/16 | 475,000 | 516,860 | ||||||
Time Warner Cable Inc., Sr. Unsec. Gtd. Global Notes, 8.75%, 02/14/19 | 215,000 | 274,172 | ||||||
Sr. Unsec. Gtd. Notes, 5.88%, 11/15/40 | 470,000 | 466,184 | ||||||
1,754,130 | ||||||||
Casinos & Gaming–0.86% | ||||||||
International Game Technology, Sr. Unsec. Conv. Notes, 3.25%, 05/01/14 | 3,656,000 | 4,378,060 | ||||||
MGM Resorts International, Sr. Unsec. Gtd. Conv. Notes, 4.25%, 04/15/15 | 3,571,000 | 3,874,535 | ||||||
8,252,595 | ||||||||
Communications Equipment–0.96% | ||||||||
Alcatel-Lucent USA, Inc.,–Series B, Sr. Unsec. Gtd. Conv. Notes, 2.88%, 06/15/13(c) | 6,444,000 | 6,315,120 | ||||||
JDS Uniphase Corp., Sr. Unsec. Conv. Notes, 1.00%, 05/15/13(c) | 1,624,000 | 1,666,630 | ||||||
1.00%, 05/15/13(c)(d) | 1,100,000 | 1,128,875 | ||||||
Juniper Networks, Inc., Sr. Unsec. Notes, 4.60%, 03/15/21 | 120,000 | 123,193 | ||||||
9,233,818 | ||||||||
Computer & Electronics Retail–0.04% | ||||||||
Best Buy Co., Inc., Sr. Unsec. Notes, 5.50%, 03/15/21 | 420,000 | 414,178 | ||||||
Computer Storage & Peripherals–0.80% | ||||||||
SanDisk Corp., Sr. Unsec. Conv. Notes, 1.00%, 05/15/13 | 7,906,000 | 7,678,702 | ||||||
Construction Materials–0.59% | ||||||||
Cemex S.A.B. de C.V. (Mexico), Unsec. Sub. Conv. Notes, 4.88%, 03/15/15 | 3,900,000 | 3,885,375 | ||||||
3.75%, 03/15/18(d) | 1,800,000 | 1,791,000 | ||||||
5,676,375 | ||||||||
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 | |||||||
Consumer Finance–0.01% | ||||||||
American Express Credit Corp.–Series C, Sr. Unsec. Medium-Term Global Notes, 7.30%, 08/20/13 | $ | 35,000 | $ | 39,015 | ||||
Capital One Financial Corp., Sr. Unsec. Notes, 6.75%, 09/15/17 | 50,000 | 57,858 | ||||||
96,873 | ||||||||
Department Stores–0.04% | ||||||||
Macy’s Retail Holdings Inc., Sr. Unsec. Gtd. Notes, 5.35%, 03/15/12 | 400,000 | 410,000 | ||||||
Diversified Banks–1.24% | ||||||||
Abbey National Treasury Services PLC (United Kingdom), Gtd. Global Notes, 2.88%, 04/25/14 | 155,000 | 155,531 | ||||||
Sr. Unsec. Gtd. Global Notes, 4.00%, 04/27/16 | 230,000 | 228,155 | ||||||
Sr. Unsec. Gtd. Notes, 3.88%, 11/10/14(d) | 310,000 | 316,619 | ||||||
Ally Financial, Inc., Gtd. Notes, 2.20%, 12/19/12 | 550,000 | 564,125 | ||||||
Bank of Nova Scotia (Canada), Sr. Unsec. Global Notes, 2.38%, 12/17/13 | 395,000 | 405,757 | ||||||
Barclays Bank PLC (United Kingdom), Sr. Unsec. Global Notes, 6.75%, 05/22/19 | 510,000 | 573,772 | ||||||
5.13%, 01/08/20 | 60,000 | 60,256 | ||||||
Unsec. Sub. Global Notes, 5.14%, 10/14/20 | 275,000 | 259,221 | ||||||
Commonwealth Bank of Australia (Australia), Sr. Unsec. Notes, 5.00%, 10/15/19(d) | 320,000 | 335,800 | ||||||
Credit Suisse AG (Switzerland), Sub. Global Notes, 5.40%, 01/14/20 | 560,000 | 565,614 | ||||||
Unsec. Sub. Global Notes, 6.00%, 02/15/18 | 75,000 | 81,093 | ||||||
Danske Bank A/S (Denmark), Sr. Unsec. Notes, 3.88%, 04/14/16(d) | 565,000 | 581,869 | ||||||
Groupe BPCE S.A. (France), Sr. Unsec. Notes, 2.38%, 10/04/13(d) | 390,000 | 390,756 | ||||||
HBOS PLC (United Kingdom)–Series G, Unsec. Sub. Medium-Term Notes, 6.75%, 05/21/18(d) | 325,000 | 314,312 | ||||||
HSBC Bank PLC (United Kingdom), Sr. Notes, 4.13%, 08/12/20(d) | 565,000 | 549,036 | ||||||
HSBC Finance Corp., Sr. Unsec. Global Notes, 7.00%, 05/15/12 | 470,000 | 495,111 | ||||||
Korea Development Bank (South Korea), Sr. Unsec. Gtd. Global Notes, 4.38%, 08/10/15 | 200,000 | 210,027 | ||||||
Lloyds TSB Bank PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 4.88%, 01/21/16 | 665,000 | 680,026 | ||||||
Sr. Unsec. Gtd. Medium-Term Notes, 5.80%, 01/13/20(d) | 185,000 | 181,234 | ||||||
National Australia Bank Ltd. (Australia), Sr. Unsec. Bonds, 3.75%, 03/02/15(d) | 190,000 | 197,969 | ||||||
Nordea Bank AB (Sweden), Sr. Notes, 4.88%, 01/27/20(d) | 245,000 | 257,221 | ||||||
Rabobank Nederland N.V. (Netherlands), Sr. Unsec. Medium-Term Notes, 4.75%, 01/15/20(d) | 490,000 | 511,451 | ||||||
Royal Bank of Scotland PLC (The) (United Kingdom), Sr. Unsec. Gtd. Global Notes, 4.88%, 03/16/15 | 445,000 | 462,099 | ||||||
Santander U.S. Debt S.A. Unipersonal (Spain), Sr. Unsec. Gtd. Notes, 3.72%, 01/20/15(d) | 200,000 | 196,703 | ||||||
Societe Generale (France), Sr. Unsec. Notes, 2.50%, 01/15/14(d) | 705,000 | 706,000 | ||||||
Standard Chartered Bank (United Kingdom), Unsec. Sub. Notes, 6.40%, 09/26/17(d) | 100,000 | 110,389 | ||||||
Standard Chartered PLC (United Kingdom), Sr. Unsec. Notes, 5.50%, 11/18/14(d) | 100,000 | 110,127 | ||||||
3.85%, 04/27/15(d) | 255,000 | 264,828 | ||||||
U.S. Bancorp., Sr. Unsec. Notes, 2.00%, 06/14/13 | 530,000 | 540,970 | ||||||
U.S. Bank N.A., Sub. Variable Rate Notes, 3.78%, 04/29/20(e) | 450,000 | 466,439 | ||||||
Wells Fargo & Co., Sr. Unsec. Global Notes, 3.63%, 04/15/15 | 50,000 | 52,094 | ||||||
Sr. Unsec. Notes, 5.63%, 12/11/17 | 580,000 | 644,397 | ||||||
Westpac Banking Corp. (Australia), Sr. Unsec. Global Notes, 2.10%, 08/02/13 | 440,000 | 445,979 | ||||||
11,914,980 | ||||||||
Diversified Capital Markets–0.05% | ||||||||
Credit Suisse New York (Switzerland), Sr. Unsec. Medium-Term Global Notes, 5.30%, 08/13/19 | 170,000 | 181,356 | ||||||
UBS AG (Switzerland), Sr. Unsec. Medium-Tem Loan Global Notes, 5.88%, 12/20/17 | 250,000 | 274,499 | ||||||
455,855 | ||||||||
Diversified Metals & Mining–0.11% | ||||||||
Anglo American Capital PLC (United Kingdom), Sr. Unsec. Gtd. Notes, 9.38%, 04/08/19(d) | 200,000 | 266,220 | ||||||
Freeport-McMoRan Copper & Gold, Inc., Sr. Unsec. Notes, 8.38%, 04/01/17 | 350,000 | 382,594 | ||||||
Rio Tinto Finance USA Ltd. (Australia), Sr. Unsec. Gtd. Global Notes, 9.00%, 05/01/19 | 295,000 | 391,389 | ||||||
Southern Copper Corp., Sr. Unsec. Global Notes, 5.38%, 04/16/20 | 5,000 | 5,141 | ||||||
6.75%, 04/16/40 | 10,000 | 9,820 | ||||||
1,055,164 | ||||||||
Diversified Real Estate Activities–0.00% | ||||||||
Brookfield Asset Management, Inc. (Canada), Sr. Unsec. Notes, 7.13%, 06/15/12 | 20,000 | 21,081 | ||||||
Diversified REIT’s–0.12% | ||||||||
Dexus Diversified Trust/Dexus Office Trust (Australia), Sr. Unsec. Gtd. Notes, 5.60%, 03/15/21(d) | 1,155,000 | 1,179,268 | ||||||
Diversified Support Services–0.05% | ||||||||
Cintas Corp. No. 2, Sr. Unsec. Gtd. Notes, 2.85%, 06/01/16 | 520,000 | 524,842 | ||||||
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–0.05% | ||||||||
CVS Caremark Corp., Sec. Global Pass-Through Ctfs., 6.04%, 12/10/28 | $ | 385,676 | $ | 414,303 | ||||
Sec. Pass Through Ctfs., 8.35%, 07/10/31(d) | 33,834 | 40,754 | ||||||
455,057 | ||||||||
Electric Utilities–0.11% | ||||||||
Electricite de France S.A. (France), Sr. Unsec. Notes, 4.60%, 01/27/20(d) | 150,000 | 155,744 | ||||||
Enel Finance International N.V. (Luxembourg), Sr. Unsec. Gtd. Notes, 5.13%, 10/07/19(d) | 425,000 | 430,620 | ||||||
Iberdola Finance Ireland Ltd. (Ireland), Unsec. Gtd. Unsub. Notes, 3.80%, 09/11/14(d) | 200,000 | 204,546 | ||||||
Ohio Power Co.–Series M, Sr. Unsec. Notes, 5.38%, 10/01/21 | 200,000 | 216,187 | ||||||
PPL Electric Utilities Corp., Sec. First Mortgage Bonds, 6.25%, 05/15/39 | 50,000 | 56,492 | ||||||
Virginia Electric & Power Co., Sr. Unsec. Notes, 5.00%, 06/30/19 | 15,000 | 16,300 | ||||||
1,079,889 | ||||||||
Electronic Components–0.01% | ||||||||
Corning, Inc., Sr. Unsec. Notes, 6.63%, 05/15/19 | 35,000 | 40,874 | ||||||
7.25%, 08/15/36 | 60,000 | 69,247 | ||||||
110,121 | ||||||||
Environmental & Facilities Services–0.05% | ||||||||
Waste Management, Inc., Sr. Unsec. Gtd. Notes, 5.00%, 03/15/14 | 395,000 | 430,042 | ||||||
Food Retail–0.07% | ||||||||
Delhaize Group S.A. (Belgium), Sr. Unsec. Gtd. Bonds, 5.88%, 02/01/14 | 180,000 | 197,641 | ||||||
Safeway, Inc., Sr. Unsec. Global Notes, 3.95%, 08/15/20 | 500,000 | 488,117 | ||||||
685,758 | ||||||||
General Merchandise Stores–0.04% | ||||||||
Family Dollar Stores, Inc., Sr. Unsec. Notes, 5.00%, 02/01/21 | 435,000 | 425,704 | ||||||
Gold–0.11% | ||||||||
Barrick Gold Corp. (Canada), Sr. Unsec. Notes, 2.90%, 05/30/16(d) | 425,000 | 427,208 | ||||||
Gold Fields Orogen Holding BVI Ltd. (Mali), Sr. Unsec. Gtd. Notes, 4.88%, 10/07/20(d) | 665,000 | 635,080 | ||||||
1,062,288 | ||||||||
Health Care Equipment–0.69% | ||||||||
CareFusion Corp., Sr. Unsec. Global Notes, 4.13%, 08/01/12 | 330,000 | 340,457 | ||||||
Kinetic Concepts, Inc., Sr. Unsec. Gtd. Conv. Notes, 3.25%, 04/15/15(d) | 1,818,000 | 2,329,313 | ||||||
NuVasive Inc., Sr. Unsec. Conv. Notes, 2.75%, 07/01/17 | 1,104,000 | 1,121,940 | ||||||
Teleflex, Inc., Sr. Unsec. Sub. Conv. Notes, 3.88%, 08/01/17 | 2,472,000 | 2,861,340 | ||||||
6,653,050 | ||||||||
Health Care Facilities–0.46% | ||||||||
Lifepoint Hospitals, Inc., Sr. Unsec. Sub. Conv. Notes, 3.50%, 05/15/14 | 4,141,000 | 4,451,575 | ||||||
Health Care Services–0.38% | ||||||||
Express Scripts, Inc., Sr. Unsec. Gtd. Global Notes, 5.25%, 06/15/12 | 925,000 | 960,697 | ||||||
6.25%, 06/15/14 | 70,000 | 78,624 | ||||||
Sr. Unsec. Gtd. Notes, 3.13%, 05/15/16 | 300,000 | 301,876 | ||||||
Medco Health Solutions, Inc., Sr. Unsec. Notes, 2.75%, 09/15/15 | 220,000 | 221,566 | ||||||
Omnicare, Inc., Sr. Conv. Sub. Notes, 3.75%, 12/15/25 | 971,000 | 1,299,926 | ||||||
Series OCR, Sr. Unsec. Gtd. Conv. Deb., 3.25%, 12/15/15(c) | 863,000 | 829,559 | ||||||
3,692,248 | ||||||||
Hotels, Resorts & Cruise Lines–0.66% | ||||||||
Gaylord Entertainment Co., Sr. Gtd. Conv. Notes, 3.75%, 10/01/14(d) | 2,778,000 | 3,541,950 | ||||||
Hyatt Hotels Corp., Sr. Unsec. Notes, 5.75%, 08/15/15(d) | 70,000 | 73,949 | ||||||
Starwood Hotels & Resorts Worldwide, Inc., Sr. Unsec. Gtd. Global Notes, 7.88%, 05/01/12 | 2,000,000 | 2,105,000 | ||||||
Wyndham Worldwide Corp., Sr. Unsec. Notes, | ||||||||
7.38%, 03/01/20 | 20,000 | 22,213 | ||||||
5.63%, 03/01/21 | 580,000 | 583,625 | ||||||
6,326,737 | ||||||||
Housewares & Specialties–0.06% | ||||||||
Tupperware Brands Corp., Sr. Unsec. Gtd. Notes, 4.75%, 06/01/21(d) | 605,000 | 595,167 | ||||||
Hypermarkets & Super Centers–0.01% | ||||||||
Wal-Mart Stores, Inc., Sr. Unsec. Global Notes, 6.50%, 08/15/37 | 50,000 | 57,746 | ||||||
Industrial Conglomerates–0.52% | ||||||||
General Electric Capital Corp., Series G, Sr. Gtd. Medium-Term Global Notes, 2.63%, 12/28/12 | 3,450,000 | 3,562,689 | ||||||
Sr. Unsec. Gtd. Medium-Term Global Notes, 2.20%, 06/08/12 | 80,000 | 81,427 | ||||||
Sr. Unsec. Medium-Term Notes, 6.00%, 08/07/19 | 300,000 | 332,040 | ||||||
General Electric Co., Sr. Unsec. Global Notes, 5.25%, 12/06/17 | 485,000 | 539,253 | ||||||
Koninklije Philips Electronics N.V. (Netherlands), Sr. Unsec. Global Notes, 5.75%, 03/11/18 | 25,000 | 27,971 | ||||||
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 | |||||||
Industrial Conglomerates–(continued) | ||||||||
NBC Universal Media LLC, Sr. Unsec. Notes, 2.10%, 04/01/14(d) | $ | 230,000 | $ | 233,396 | ||||
5.95%, 04/01/41(d) | 215,000 | 216,961 | ||||||
4,993,737 | ||||||||
Industrial Machinery–0.10% | ||||||||
Pentair, Inc., Sr. Unsec. Gtd. Notes, 5.00%, 05/15/21 | 950,000 | 952,896 | ||||||
Integrated Oil & Gas–0.03% | ||||||||
Hess Corp., Sr. Unsec. Global Notes, 5.60%, 02/15/41 | 195,000 | 191,293 | ||||||
Shell International Finance B.V. (Netherlands), Sr. Unsec. Gtd. Global Notes, 3.10%, 06/28/15 | 115,000 | 120,226 | ||||||
311,519 | ||||||||
Integrated Telecommunication Services–0.23% | ||||||||
AT&T Corp., Sr. Unsec. Gtd. Global Notes, 8.00%, 11/15/31 | 4,000 | 5,313 | ||||||
AT&T, Inc., Sr. Unsec. Global Notes, 2.50%, 08/15/15 | 20,000 | 20,290 | ||||||
6.15%, 09/15/34 | 140,000 | 144,012 | ||||||
5.35%, 09/01/40 | 101,000 | 95,550 | ||||||
Deutsche Telekom International Finance B.V. (Netherlands), Sr. Unsec. Gtd. Global Bonds, 8.75%, 06/15/30 | 155,000 | 204,265 | ||||||
NBC Universal Media LLC, Sr. Unsec. Notes, 5.15%, 04/30/20(d) | 175,000 | 184,936 | ||||||
Telecom Italia Capital S.A. (Luxembourg), Sr. Unsec. Gtd. Global Notes, 7.00%, 06/04/18 | 360,000 | 390,195 | ||||||
7.18%, 06/18/19 | 160,000 | 172,266 | ||||||
Verizon Communications, Inc., Sr. Unsec. Global Notes, 3.00%, 04/01/16 | 230,000 | 235,360 | ||||||
6.35%, 04/01/19 | 260,000 | 303,043 | ||||||
8.95%, 03/01/39 | 300,000 | 426,568 | ||||||
Windstream Georgia Communications Corp., Sr. Unsec. Notes, 6.50%, 11/15/13 | 59,000 | 60,442 | ||||||
2,242,240 | ||||||||
Internet Retail–0.05% | ||||||||
Expedia, Inc., Sr. Unsec. Gtd. Global Notes, 5.95%, 08/15/20 | 505,000 | 492,430 | ||||||
Investment Banking & Brokerage–1.22% | ||||||||
Charles Schwab Corp. (The), Sr. Unsec. Notes, 4.45%, 07/22/20 | 510,000 | 520,335 | ||||||
Goldman Sachs Group, Inc. (The), Sr. Global Notes, 3.70%, 08/01/15 | 65,000 | 66,335 | ||||||
Sr. Unsec. Conv. Medium-Term Notes, 1.00%, 03/15/17(d) | 3,328,000 | 3,250,358 | ||||||
Sr. Unsec. Global Notes, 6.15%, 04/01/18 | 905,000 | 985,288 | ||||||
Unsec. Unsub. Global Notes, 6.75%, 10/01/37 | 385,000 | 385,482 | ||||||
Jefferies Group, Inc., Sr. Unsec. Conv. Notes, 3.88%, 11/01/17(c) | 2,041,200 | 2,051,406 | ||||||
Sr. Unsec. Notes, 6.88%, 04/15/21 | 440,000 | 473,184 | ||||||
Macquarie Group Ltd. (Australia), Sr. Unsec. Notes, 6.00%, 01/14/20(d) | 50,000 | 51,605 | ||||||
MF Global Holdings Ltd., Sr. Unsec. Conv. Notes, 9.00%, 07/01/13(c) | 944,000 | 1,092,680 | ||||||
1.88%, 02/01/16 | 628,000 | 625,645 | ||||||
Morgan Stanley, Sr. Unsec. Global Notes, 4.00%, 07/24/15 | 610,000 | 621,483 | ||||||
3.80%, 04/29/16 | 700,000 | 703,779 | ||||||
Sr. Unsec. Notes, 3.45%, 11/02/15 | 715,000 | 714,706 | ||||||
5.75%, 01/25/21 | 220,000 | 227,862 | ||||||
11,770,148 | ||||||||
Life & Health Insurance–0.16% | ||||||||
Aegon N.V. (Netherlands), Sr. Unsec. Global Bonds, 4.63%, 12/01/15 | 275,000 | 291,290 | ||||||
MetLife, Inc., Sr. Unsec. Global Notes, 4.75%, 02/08/21 | 410,000 | 415,990 | ||||||
Monumental Global Funding II, Sr. Sec. Notes, 5.65%, 07/14/11(d) | 25,000 | 25,023 | ||||||
Pacific LifeCorp., Sr. Notes, 6.00%, 02/10/20(d) | 215,000 | 229,634 | ||||||
Prudential Financial, Inc. Series D, Sr. Unsec. Medium-Term Notes, 3.88%, 01/14/15 | 50,000 | 52,213 | ||||||
4.75%, 09/17/15 | 255,000 | 274,333 | ||||||
7.38%, 06/15/19 | 105,000 | 124,398 | ||||||
6.63%, 12/01/37 | 110,000 | 118,379 | ||||||
1,531,260 | ||||||||
Life Sciences Tools & Services–0.37% | ||||||||
Life Technologies Corp., Sr. Unsec. Conv. Notes, 1.50%, 02/15/24(c) | 3,143,000 | 3,606,593 | ||||||
Managed Health Care–0.10% | ||||||||
Aetna, Inc., Sr. Unsec. Global Notes, 3.95%, 09/01/20 | 605,000 | 596,384 | ||||||
WellPoint, Inc., Sr. Unsec. Notes, 4.35%, 08/15/20 | 400,000 | 405,742 | ||||||
1,002,126 | ||||||||
Mortgage Backed Securities–0.01% | ||||||||
U.S. Bank N.A., Sr. Unsec. Medium-Term Notes, 5.92%, 05/25/12 | 65,825 | 68,698 | ||||||
Movies & Entertainment–0.32% | ||||||||
Liberty Media LLC, Sr. Unsec. Conv. Notes, 3.13%, 03/30/13(c) | 2,467,200 | 2,957,556 | ||||||
Time Warner, Inc., Sr. Unsec. Gtd. Notes, 5.88%, 11/15/16 | 130,000 | 147,877 | ||||||
3,105,433 | ||||||||
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 | |||||||
Multi-Line Insurance–0.04% | ||||||||
CNA Financial Corp., Sr. Unsec. Global Bonds, 5.88%, 08/15/20 | $ | 325,000 | $ | 339,369 | ||||
Liberty Mutual Group Inc., Sr. Unsec. Notes, 5.75%, 03/15/14(d) | 45,000 | 47,665 | ||||||
387,034 | ||||||||
Multi-Utilities–0.01% | ||||||||
Nisource Finance Corp., Sr. Unsec. Gtd. Bonds, 6.80%, 01/15/19 | 115,000 | 132,740 | ||||||
Office Electronics–0.01% | ||||||||
Xerox Corp., Sr. Unsec. Notes, 6.88%, 08/15/11 | 40,000 | 40,267 | ||||||
4.25%, 02/15/15 | 40,000 | 42,536 | ||||||
82,803 | ||||||||
Office REIT’s–0.04% | ||||||||
Digital Realty Trust L.P., Sr. Unsec. Gtd. Global Notes, 4.50%, 07/15/15 | 335,000 | 347,889 | ||||||
5.88%, 02/01/20 | 45,000 | 47,510 | ||||||
395,399 | ||||||||
Oil & Gas Equipment & Services–0.13% | ||||||||
Helix Energy Solutions Group, Inc., Sr. Unsec. Conv. Notes, 3.25%, 12/15/12(c) | 1,208,000 | 1,206,490 | ||||||
Oil & Gas Exploration & Production–0.05% | ||||||||
Petrobras International Finance Co. (Cayman Islands), Sr. Unsec. Gtd. Global Notes, 6.88%, 01/20/40 | 15,000 | 16,057 | ||||||
Petroleos Mexicanos (Mexico), Sr. Unsec. Gtd. Global Notes, 5.50%, 01/21/21 | 395,000 | 415,155 | ||||||
431,212 | ||||||||
Oil & Gas Storage & Transportation–0.09% | ||||||||
Enterprise Products Operating LLC, Sr. Unsec. Gtd. Global Notes, 5.25%, 01/31/20 | 115,000 | 122,608 | ||||||
Sr. Unsec. Gtd. Notes, 6.45%, 09/01/40 | 25,000 | 26,664 | ||||||
Series N, Sr. Unsec. Gtd. Notes, 6.50%, 01/31/19 | 245,000 | 281,295 | ||||||
Spectra Energy Capital LLC, Sr. Unsec. Gtd. Notes, 5.65%, 03/01/20 | 50,000 | 54,468 | ||||||
7.50%, 09/15/38 | 120,000 | 144,764 | ||||||
Texas Eastern Transmission LP, Sr. Unsec. Notes, 7.00%, 07/15/32 | 185,000 | 216,434 | ||||||
Transcontinental Gas Pipe Line Co., LLC–Series B, Sr. Unsec. Global Notes, 7.00%, 08/15/11 | 45,000 | 45,296 | ||||||
891,529 | ||||||||
Other Diversified Financial Services–1.06% | ||||||||
Bank of America Corp., Sr. Unsec. Global Notes, 5.75%, 12/01/17 | 975,000 | 1,037,739 | ||||||
Series L, Sr. Unsec. Global Notes, 7.63%, 06/01/19 | 70,000 | 81,262 | ||||||
Sr. Unsec. Medium-Term Global Notes, 5.65%, 05/01/18 | 280,000 | 294,990 | ||||||
Bear Stearns Cos., LLC (The), Sr. Unsec. Global Notes, 7.25%, 02/01/18 | 340,000 | 403,194 | ||||||
Citibank N.A., Sr. Unsec. Gtd. Notes, 1.75%, 12/28/12 | 1,500,000 | 1,530,356 | ||||||
Citigroup Funding, Inc., Unsec. Gtd. Unsub. Global Notes, 2.25%, 12/10/12 | 3,450,000 | 3,540,566 | ||||||
Citigroup Inc., Sr. Unsec. Global Notes, 6.01%, 01/15/15 | 65,000 | 71,385 | ||||||
6.13%, 11/21/17 | 495,000 | 547,508 | ||||||
8.50%, 05/22/19 | 455,000 | 562,484 | ||||||
Sr. Unsec. Notes, 4.75%, 05/19/15 | 75,000 | 79,403 | ||||||
ERAC USA Finance LLC, Sr. Unsec. Gtd. Notes, 2.75%, 07/01/13(d) | 340,000 | 348,021 | ||||||
General Electric Capital Corp., Sr. Unsec. Global Notes, 5.90%, 05/13/14 | 75,000 | 83,289 | ||||||
JPMorgan Chase & Co., Sr. Unsec. Global Notes, 4.75%, 05/01/13 | 65,000 | 69,141 | ||||||
4.40%, 07/22/20 | 400,000 | 395,391 | ||||||
Sr. Unsec. Notes, 6.00%, 01/15/18 | 615,000 | 689,805 | ||||||
Unsec. Sub. Global Notes, 5.13%, 09/15/14 | 70,000 | 75,632 | ||||||
Merrill Lynch & Co., Inc., Sr. Unsec. Medium-Term Notes, 6.88%, 04/25/18 | 410,000 | 456,021 | ||||||
Twin Reefs Pass-Through Trust, Sec. Floating Rate Pass Through Ctfs., 1.39% (Acquired 12/07/04; Cost $90,000)(d)(f) | 90,000 | 0 | ||||||
10,266,187 | ||||||||
Packaged Foods & Meats–0.11% | ||||||||
Grupo Bimbo S.A.B. de C.V. (Mexico), Sr. Unsec. Gtd. Notes, 4.88%, 06/30/20(d) | 270,000 | 269,511 | ||||||
Kraft Foods, Inc., Sr. Unsec. Global Notes, 5.63%, 11/01/11 | 4,000 | 4,066 | ||||||
5.38%, 02/10/20 | 215,000 | 235,708 | ||||||
7.00%, 08/11/37 | 305,000 | 356,344 | ||||||
Sr. Unsec. Notes, 6.88%, 01/26/39 | 200,000 | 231,315 | ||||||
1,096,944 | ||||||||
Paper Packaging–0.01% | ||||||||
Bemis Co. Inc., Sr. Unsec. Notes, 5.65%, 08/01/14 | 40,000 | 43,980 | ||||||
Pharmaceuticals–1.13% | ||||||||
Endo Pharmaceuticals Holdings, Inc., Sr. Unsec. Sub. Conv. Notes, 1.75%, 04/15/15 | 2,398,000 | 3,504,077 | ||||||
GlaxoSmithKline Capital Inc., Sr. Unsec. Gtd. Global Bonds, 5.65%, 05/15/18 | 75,000 | 85,367 | ||||||
6.38%, 05/15/38 | 70,000 | 80,841 | ||||||
Merck & Co. Inc., Sr. Unsec. Global Notes, 5.00%, 06/30/19 | 280,000 | 309,740 | ||||||
Mylan Labs, Inc., Sr. Unsec. Gtd. Conv. Notes, 1.25%, 03/15/12 | 3,580,000 | 4,000,650 | ||||||
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 | |||||||
Pharmaceuticals–(continued) | ||||||||
Pfizer Inc., Sr. Unsec. Global Notes, 6.20%, 03/15/19 | $ | 650,000 | $ | 762,911 | ||||
Salix Pharmaceuticals Ltd., Sr. Unsec. Conv. Notes, 2.75%, 05/15/15 | 1,835,000 | 2,119,425 | ||||||
10,863,011 | ||||||||
Property & Casualty Insurance–0.02% | ||||||||
CNA Financial Corp., Sr. Unsec. Notes, 7.35%, 11/15/19 | 25,000 | 28,576 | ||||||
Travelers Cos., Inc. (The), Sr. Unsec. Notes, 5.35%, 11/01/40 | 205,000 | 195,017 | ||||||
223,593 | ||||||||
Publishing–0.00% | ||||||||
Reed Elsevier Capital Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 08/01/11 | 14,000 | 14,062 | ||||||
Railroads–0.06% | ||||||||
CSX Corp., Sr. Unsec. Global Notes, 6.15%, 05/01/37 | 80,000 | 85,570 | ||||||
Sr. Unsec. Notes, 5.50%, 04/15/41 | 380,000 | 372,647 | ||||||
Union Pacific Corp., Sr. Unsec. Notes, 6.13%, 02/15/20 | 110,000 | 129,071 | ||||||
587,288 | ||||||||
Regional Banks–0.17% | ||||||||
Key Bank NA, Sr. Unsec. Gtd. Global Notes, 3.20%, 06/15/12 | 500,000 | 513,971 | ||||||
Nationwide Building Society (United Kingdom), Sr. Unsec. Notes, 6.25%, 02/25/20(d) | 485,000 | 512,986 | ||||||
PNC Funding Corp., Sr. Unsec. Gtd. Global Notes, 3.63%, 02/08/15 | 40,000 | 41,992 | ||||||
5.13%, 02/08/20 | 360,000 | 383,365 | ||||||
Sr. Unsec. Gtd. Notes, 6.70%, 06/10/19 | 185,000 | 218,168 | ||||||
1,670,482 | ||||||||
Restaurants–0.03% | ||||||||
Yum! Brands, Inc., Sr. Unsec. Global Bonds, 6.25%, 03/15/18 | 110,000 | 126,458 | ||||||
Sr. Unsec. Notes, 5.30%, 09/15/19 | 175,000 | 188,535 | ||||||
314,993 | ||||||||
Retail REIT’s–0.10% | ||||||||
National Retail Properties Inc., Sr. Unsec. Notes, 5.50%, 07/15/21 | 695,000 | 681,491 | ||||||
WEA Finance LLC, Sr. Gtd. Notes, 7.13%, 04/15/18(d) | 270,000 | 313,128 | ||||||
994,619 | ||||||||
Semiconductors–0.87% | ||||||||
Linear Technology Corp., Series A, Sr. Unsec. Conv. Global Notes, 3.00%, 05/01/14(c) | 819,000 | 871,211 | ||||||
Sr. Unsec. Conv. Notes, 3.00%, 05/01/14(c)(d) | 1,193,000 | 1,269,054 | ||||||
Micron Technology, Inc., Sr. Unsec. Conv. Notes, 1.88%, 06/01/14 | 4,736,000 | 4,641,280 | ||||||
Xilinx, Inc., Jr. Unsec. Conv. Sub. Notes, 3.13%, 03/15/37(d) | 1,302,000 | 1,656,795 | ||||||
8,438,340 | ||||||||
Sovereign Debt–0.05% | ||||||||
Brazilian Government International Bond (Brazil), Sr. Unsec. Global Bonds, 6.00%, 01/17/17 | 100,000 | 117,200 | ||||||
Republic of Italy (Italy), Sr. Unsec. Global Notes, 6.88%, 09/27/23 | 320,000 | 363,747 | ||||||
Republic of Peru International Bond (Peru), Sr. Unsec. Global Notes, 7.13%, 03/30/19 | 10,000 | 12,037 | ||||||
492,984 | ||||||||
Specialized REIT’s–0.05% | ||||||||
Senior Housing Properties Trust, Sr. Unsec. Notes, 4.30%, 01/15/16 | 495,000 | 495,928 | ||||||
Steel–0.36% | ||||||||
Allegheny Technologies, Inc., Sr. Unsec. Conv. Notes, 4.25%, 06/01/14 | 995,000 | 1,651,700 | ||||||
ArcelorMittal (Luxembourg), Sr. Unsec. Global Bonds, 9.85%, 06/01/19 | 446,000 | 566,519 | ||||||
Sr. Unsec. Global Notes, 3.75%, 08/05/15 | 585,000 | 599,053 | ||||||
6.13%, 06/01/18 | 15,000 | 16,014 | ||||||
5.50%, 03/01/21 | 85,000 | 85,262 | ||||||
7.00%, 10/15/39 | 40,000 | 40,591 | ||||||
6.75%, 03/01/41 | 85,000 | 84,667 | ||||||
Vale Overseas Ltd. (Brazil), Sr. Unsec. Gtd. Global Notes, 5.63%, 09/15/19 | 185,000 | 197,242 | ||||||
4.63%, 09/15/20 | 20,000 | 19,786 | ||||||
6.88%, 11/10/39 | 185,000 | 201,323 | ||||||
3,462,157 | ||||||||
Systems Software–0.25% | ||||||||
Symantec Corp.–Class B, Sr. Unsec. Conv. Global Notes, 1.00%, 06/15/13 | 1,970,000 | 2,403,400 | ||||||
Technology Distributors–0.01% | ||||||||
Avnet, Inc., Sr. Unsec. Notes, 5.88%, 06/15/20 | 50,000 | 52,879 | ||||||
Thrifts & Mortgage Finance–0.27% | ||||||||
MGIC Investment Corp., Sr. Unsec. Conv. Notes, 5.00%, 05/01/17 | 2,943,000 | 2,637,664 | ||||||
Tobacco–0.00% | ||||||||
Altria Group Inc., Sr. Unsec. Gtd. Global Notes, 4.13%, 09/11/15 | 35,000 | 37,171 | ||||||
Trading Companies & Distributors–0.00% | ||||||||
GATX Corp., Sr. Unsec. Notes, 4.75%, 10/01/12 | 20,000 | 20,832 | ||||||
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 | |||||||
Trucking–0.03% | ||||||||
Ryder System Inc., Sr. Unsec. Medium-Term Notes, 3.15%, 03/02/15 | $ | 280,000 | $ | 287,260 | ||||
Wireless Telecommunication Services–0.57% | ||||||||
American Tower Corp., Sr. Unsec. Global Notes, 4.63%, 04/01/15 | 170,000 | 178,674 | ||||||
Sr. Unsec. Notes, 4.50%, 01/15/18 | 320,000 | 319,955 | ||||||
Clearwire Communications LLC/Clearwire Finance, Inc., Sr. Unsec. Gtd. Conv. Notes, 8.25%, 12/01/17(c)(d) | 1,944,000 | 1,735,020 | ||||||
Crown Castle Towers LLC, Sr. Sec. Gtd. Notes, 3.21%, 08/15/15(d) | 370,000 | 378,325 | ||||||
SBA Communications Corp., Sr. Unsec. Conv. Notes, 1.88%, 05/01/13 | 2,578,000 | 2,845,467 | ||||||
5,457,441 | ||||||||
Total Bonds & Notes (Cost $177,985,536) | 190,321,784 | |||||||
U.S. Treasury Securities–7.09% | ||||||||
U.S. Treasury Bills–0.03% | ||||||||
0.08%, 11/17/11(g)(h) | 20,000 | 19,997 | ||||||
0.10%, 11/17/11(g)(h) | 340,000 | 319,944 | ||||||
339,941 | ||||||||
U.S. Treasury Notes–4.90% | ||||||||
0.88%, 02/29/12 | 500,000 | 502,441 | ||||||
1.00%, 04/30/12 | 400,000 | 402,641 | ||||||
0.75%, 05/31/12 | 800,000 | 803,906 | ||||||
1.38%, 09/15/12 | 1,700,000 | 1,722,445 | ||||||
1.50%, 12/31/13 | 1,085,000 | 1,108,565 | ||||||
1.75%, 03/31/14 | 2,300,000 | 2,363,969 | ||||||
2.63%, 07/31/14 | 1,100,000 | 1,159,812 | ||||||
2.38%, 10/31/14 | 15,720,000 | 16,442,137 | ||||||
2.13%, 11/30/14 | 5,250,000 | 5,446,055 | ||||||
2.25%, 01/31/15 | 6,000,000 | 6,243,750 | ||||||
2.50%, 03/31/15 | 275,000 | 288,535 | ||||||
2.13%, 05/31/15 | 680,000 | 703,056 | ||||||
2.25%, 03/31/16 | 2,000,000 | 2,056,875 | ||||||
2.63%, 04/30/16 | 2,000,000 | 2,090,313 | ||||||
4.00%, 08/15/18 | 3,055,000 | 3,367,183 | ||||||
3.63%, 08/15/19 | 1,525,000 | 1,624,840 | ||||||
3.38%, 11/15/19 | 300,000 | 312,844 | ||||||
2.63%, 11/15/20 | 600,000 | 577,875 | ||||||
3.63%, 02/15/20 | 46,000 | 48,674 | ||||||
47,265,916 | ||||||||
U.S. Treasury Bonds–2.16% | ||||||||
8.13%, 08/15/21 | 2,700,000 | 3,864,797 | ||||||
6.63%, 02/15/27 | 2,500,000 | 3,307,812 | ||||||
5.38%, 02/15/31 | 8,995,000 | 10,543,827 | ||||||
4.25%, 05/15/39 | 805,000 | 789,780 | ||||||
4.50%, 08/15/39 | 40,000 | 40,906 | ||||||
4.63%, 02/15/40 | 250,000 | 260,703 | ||||||
4.38%, 05/15/40 | 80,000 | 79,963 | ||||||
3.88%, 08/15/40 | 20,000 | 18,316 | ||||||
4.25%, 11/15/40 | 2,000,000 | 1,955,312 | ||||||
20,861,416 | ||||||||
Total U.S. Treasury Securities (Cost $66,166,155) | 68,467,273 | |||||||
Shares | ||||||||
Preferred Stocks–1.85% | ||||||||
Agricultural Products–0.05% | ||||||||
Nielsen Holdings N.V., $3.13 Conv. Pfd. (Netherlands) | 7,510 | 464,212 | ||||||
Health Care Facilities–0.21% | ||||||||
HealthSouth Corp.–Series A, $65.00 Conv. Pfd. | 1,785 | 2,008,571 | ||||||
Health Care Services–0.13% | ||||||||
Omnicare Capital Trust II–Series B, $2.00 Conv. Pfd. 26,407 | 1,270,177 | |||||||
Household Appliances–0.15% | ||||||||
Stanley Black & Decker, Inc., $4.75 Conv. Pfd. | 12,300 | 1,496,541 | ||||||
Multi-Utilities–0.24% | ||||||||
CenterPoint Energy, Inc., $1.88 Conv. Pfd. | 62,215 | 2,286,401 | ||||||
Oil & Gas Storage & Transportation–0.44% | ||||||||
El Paso Energy Capital Trust I, $2.38 Conv. Pfd. | 95,499 | 4,251,615 | ||||||
Regional Banks–0.35% | ||||||||
KeyCorp.–Series A, $7.75 Conv. Pfd. | 30,290 | 3,392,480 | ||||||
Trucking–0.28% | ||||||||
Swift Mandatory Common Exchange Security Trust, $0.66 Conv. Pfd.(d) | 199,220 | 2,676,760 | ||||||
Total Preferred Stocks (Cost $13,942,445) | 17,846,757 | |||||||
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 | |||||||
U.S. Government Sponsored Agency Securities–0.74% | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.53% | ||||||||
6.50%, 02/01/26 | $ | 6,485 | $ | 7,350 | ||||
Sr. Unsec. Global Bonds, 6.75%, 03/15/31 | 750,000 | 965,259 | ||||||
Sr. Unsec. Global Notes, 3.00%, 07/28/14 | 1,020,000 | 1,082,420 | ||||||
5.00%, 04/18/17 | 1,500,000 | 1,720,887 | ||||||
5.50%, 08/23/17 | 140,000 | 164,239 | ||||||
Unsec. Global Notes, 4.88%, 06/13/18 | 1,000,000 | 1,138,993 | ||||||
5,079,148 | ||||||||
Federal National Mortgage Association (FNMA)–0.21% | ||||||||
Sr. Unsec. Global Notes, 4.38%, 10/15/15 | 1,700,000 | 1,890,795 | ||||||
Unsec. Global Notes, 2.63%, 11/20/14 | 130,000 | 136,285 | ||||||
2,027,080 | ||||||||
Total U.S. Government Sponsored Agency Securities (Cost $6,763,740) 7,106,228 | ||||||||
Municipal Obligation–0.03% | ||||||||
Texas (State of) Transportation Commission; Series 2010 B, Taxable First Tier Build America RB, 5.03%, 04/01/26 (Cost $240,000) 240,000 | 259,471 | |||||||
Asset-Backed Securities–0.00% | ||||||||
Home Equity Loan–0.00% | ||||||||
Countrywide Asset-Backed Ctfs.–Series 2007-4, Class A1B, Pass Through Ctfs., 5.81%, 09/25/37 (Cost $27,244) | 27,800 | 27,456 | ||||||
U.S. Government Sponsored Mortgage-Backed Securities–0.00% | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.00% | ||||||||
Pass Through Ctfs., 5.50%, 02/01/37 | 648 | 701 | ||||||
Federal National Mortgage Association (FNMA)–0.00% | ||||||||
Pass Through Ctfs., 6.00%, 01/01/17 | 1,734 | 1,896 | ||||||
5.50%, 03/01/21 | 667 | 724 | ||||||
8.00%, 08/01/21 | 5,331 | 6,199 | ||||||
9.50%, 04/01/30 | 12,939 | 15,695 | ||||||
24,514 | ||||||||
Total U.S. Government Sponsored Mortgage-Backed Securities (Cost $22,821) | 25,215 | |||||||
Shares | ||||||||
Money Market Funds–5.99% | ||||||||
Liquid Assets Portfolio–Institutional Class(i) | 28,906,982 | 28,906,982 | ||||||
Premier Portfolio–Institutional Class(i) | 28,906,982 | 28,906,982 | ||||||
Total Money Market Funds (Cost $57,813,964) | 57,813,964 | |||||||
TOTAL INVESTMENTS–99.37% (Cost $857,211,555) | 959,015,745 | |||||||
OTHER ASSETS LESS LIABILITIES–0.63% | 6,071,955 | |||||||
NET ASSETS–100.00% | $ | 965,087,700 | ||||||
Investment Abbreviations:
Conv. | – Convertible | |
Ctfs. | – Certificates | |
Deb. | – Debentures | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
Pfd. | – Preferred | |
RB | – Revenue Bonds | |
REIT | – Real Estate Investment Trust | |
Sec. | – Secured | |
Sr. | – Senior | |
Sub. | – Subordinated | |
Unsec. | – Unsecured | |
Unsub. | – Unsubordinated |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | Security has an irrevocable call by the issuer or mandatory put by the holder. Maturity date reflects such call or put. | |
(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, 2011 was $39,079,611, which represented 4.05% of the Fund’s Net Assets. | |
(e) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2011. | |
(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, 2011 represented 0.00% of the Fund’s Net Assets. | |
(g) | All or a portion of the value was pledged as collateral to cover margin requirements for open future contracts. See Note 1K and Note 4. | |
(h) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. | |
(i) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
By security type, based on Net Assets
as of June 30, 2011
Common Stocks & Other Equity Interests | 64.0 | % | ||
Bonds & Notes | 19.7 | |||
U.S. Treasury Securities | 7.1 | |||
Preferred Stocks | 1.9 | |||
Security types each less than 1.0% of portfolio | 0.7 | |||
Money Market Funds Plus Other Assets Less Liabilities | 6.6 | |||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $799,397,591) | $ | 901,201,781 | ||
Investments in affiliated money market funds, at value and cost | 57,813,964 | |||
Total investments, at value (Cost $857,211,555) | 959,015,745 | |||
Receivable for: | ||||
Investments sold | 5,252,590 | |||
Variation margin | 73,414 | |||
Fund shares sold | 690,096 | |||
Dividends and interest | 3,509,868 | |||
Investment for trustee deferred compensation and retirement plans | 41,886 | |||
Other assets | 2,581 | |||
Total assets | 968,586,180 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 1,103,947 | |||
Fund shares reacquired | 398,217 | |||
Foreign currency contracts outstanding | 347,755 | |||
Accrued fees to affiliates | 1,324,834 | |||
Accrued other operating expenses | 264,702 | |||
Trustee deferred compensation and retirement plans | 59,025 | |||
Total liabilities | 3,498,480 | |||
Net assets applicable to shares outstanding | $ | 965,087,700 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 884,699,882 | ||
Undistributed net investment income | 7,189,824 | |||
Undistributed net realized gain (loss) | (28,279,838 | ) | ||
Unrealized appreciation | 101,477,832 | |||
$ | 965,087,700 | |||
Net Assets: | ||||
Series I | $ | 65,176,309 | ||
Series II | $ | 899,911,391 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 4,517,596 | |||
Series II | 62,421,655 | |||
Series I: | ||||
Net asset value per share | $ | 14.43 | ||
Series II: | ||||
Net asset value per share | $ | 14.42 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $89,652) | $ | 6,868,991 | ||
Dividends from affiliated money market funds | 24,209 | |||
Interest | 3,535,377 | |||
Total investment income | 10,428,577 | |||
Expenses: | ||||
Advisory fees | 1,714,778 | |||
Administrative services fees | 1,197,438 | |||
Custodian fees | 31,843 | |||
Distribution fees — Series II | 1,064,774 | |||
Transfer agent fees | 9,740 | |||
Trustees’ and officers’ fees and benefits | 20,539 | |||
Other | 56,577 | |||
Total expenses | 4,095,689 | |||
Less: Fees waived | (882,159 | ) | ||
Net expenses | 3,213,530 | |||
Net investment income | 7,215,047 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 24,214,250 | |||
Foreign currency contracts | 108,851 | |||
Futures contracts | (43,799 | ) | ||
24,279,302 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (1,045,926 | ) | ||
Foreign currencies | (5 | ) | ||
Foreign currency contracts | (347,755 | ) | ||
Futures contracts | (572,634 | ) | ||
(1,966,320 | ) | |||
Net realized and unrealized gain | 22,312,982 | |||
Net increase in net assets resulting from operations | $ | 29,528,029 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 7,215,047 | $ | 12,050,632 | ||||
Net realized gain | 24,279,302 | 23,430,319 | ||||||
Change in net unrealized appreciation (depreciation) | (1,966,320 | ) | 48,708,386 | |||||
Net increase in net assets resulting from operations | 29,528,029 | 84,189,337 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (691 | ) | — | |||||
Series II | (12,068,022 | ) | (13,994,794 | ) | ||||
Total distributions from net investment income | (12,068,713 | ) | (13,994,794 | ) | ||||
Share transactions–net: | ||||||||
Series I | 67,075,715 | 44,483 | ||||||
Series II | 80,093,053 | 57,438,806 | ||||||
Net increase in net assets resulting from share transactions | 147,168,768 | 57,483,289 | ||||||
Net increase in net assets | 164,628,084 | 127,677,832 | ||||||
Net assets: | ||||||||
Beginning of period | 800,459,616 | 672,781,784 | ||||||
End of period (includes undistributed net investment income of $7,189,824 and $12,043,490, respectively) | $ | 965,087,700 | $ | 800,459,616 | ||||
Notes to Financial Statements
June 30, 2011
(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) (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-eight 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 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 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 Van Kampen V.I. Equity and 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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. Equity and 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 (“GAAP”) 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. | 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. | 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. |
Invesco Van Kampen V.I. Equity and Income 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 Daily Net Assets | Rate | |||
First $150 million | 0 | .50% | ||
Next $100 million | 0 | .45% | ||
Next $100 million | 0 | .40% | ||
Over $350 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 Canada Ltd. (formerly 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 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 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. 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 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 the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, 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 expense reimbursements prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2012, 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, 2011, the Adviser waived advisory fees of $30,333.
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, 2011, Invesco was paid $105,424 for accounting and fund administrative services and reimbursed $1,092,014 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, 2011, 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. IDI has contractually agreed to waive 0.20% of Rule 12b-1 plan fees on Series II shares through at least June 30, 2012. For the six months ended June 30, 2011, 12b-1 fees incurred for Series II shares were $212,948 after fee waivers of $851,826.
Certain officers and trustees of the Trust are officers and directors of the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3 — Additional Valuation Information
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 |
Invesco Van Kampen V.I. Equity and Income Fund
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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 685,372,374 | $ | 7,435,944 | $ | — | $ | 692,808,318 | ||||||||
U.S. Treasury Securities | — | 68,467,273 | — | 68,467,273 | ||||||||||||
U.S. Government Sponsored Securities | — | 7,131,443 | — | 7,131,443 | ||||||||||||
Corporate Debt Securities | — | 189,828,800 | 0 | �� | 189,828,800 | |||||||||||
Asset Backed Securities | — | 27,456 | — | 27,456 | ||||||||||||
Municipal Obligations | — | 259,471 | — | 259,471 | ||||||||||||
Foreign Government Debt Securities | — | 492,984 | — | 492,984 | ||||||||||||
$ | 685,372,374 | $ | 273,643,371 | $ | 0 | $ | 959,015,745 | |||||||||
Foreign Currency Contracts* | — | (347,755 | ) | — | (347,755 | ) | ||||||||||
Futures* | 21,397 | — | — | 21,397 | ||||||||||||
Total Investments | $ | 685,393,771 | $ | 273,295,616 | $ | 0 | $ | 958,689,387 | ||||||||
* | 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, 2011:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign currency contracts(a) | $ | 4,995 | $ | (352,750 | ) | |||
Interest rate risk | ||||||||
Futures contracts(b) | 101,935 | (80,538 | ) | |||||
(a) | Values are disclosed on the Statement of Assets and Liabilities under Foreign currency contracts outstanding. | |
(b) | 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, 2011
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 | ||||||||
Futures* | Contracts* | |||||||
Realized Gain (Loss) | ||||||||
Currency risk | $ | — | $ | 108,851 | ||||
Interest rate risk | (43,799 | ) | — | |||||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Currency risk | — | (347,755 | ) | |||||
Interest rate risk | (572,634 | ) | — | |||||
Total | $ | (616,433 | ) | $ | (238,904 | ) | ||
* | The average notional value of futures and foreign currency contracts outstanding during the period was $34,669,040 and $7,969,354, respectively. |
Invesco Van Kampen V.I. Equity and Income Fund
Open Foreign Currency Contracts | ||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||
Contract to | Notional | Appreciation | ||||||||||||||||||||
Settlement Date | Counterparty | Deliver | Receive | Value | (Depreciation) | |||||||||||||||||
8/15/11 | Bank of New York | EUR | 2,118,174 | USD | 2,996,898 | $ | 3,068,402 | $ | (71,504 | ) | ||||||||||||
8/15/11 | Bank of New York | GBP | 972,411 | USD | 1,552,381 | 1,559,892 | (7,511 | ) | ||||||||||||||
8/15/11 | Bank of New York | JPY | 128,349,090 | USD | 1,597,813 | 1,595,088 | 2,725 | |||||||||||||||
8/15/11 | BNP Paribas | EUR | 3,399,163 | USD | 4,809,153 | 4,924,052 | (114,899 | ) | ||||||||||||||
8/15/11 | BNP Paribas | GBP | 1,941,070 | USD | 3,097,579 | 3,113,765 | (16,186 | ) | ||||||||||||||
8/15/11 | Morgan Stanley | EUR | 1,135,008 | USD | 1,607,427 | 1,644,181 | (36,754 | ) | ||||||||||||||
8/15/11 | Morgan Stanley | JPY | 127,402,473 | USD | 1,585,594 | 1,583,324 | 2,270 | |||||||||||||||
8/15/11 | State Street CA | EUR | 3,386,030 | USD | 4,803,050 | 4,905,028 | (101,978 | ) | ||||||||||||||
8/15/11 | State Street CA | GBP | 970,171 | USD | 1,552,381 | 1,556,299 | (3,918 | ) | ||||||||||||||
Total open foreign currency contracts | $ | (347,755 | ) | |||||||||||||||||||
Currency Abbreviations: | ||
EUR | – Euro | |
JPY | – Japanese Yen | |
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Notional | Appreciation | ||||||||||||||
Contract | Contracts | Month | Value | (Depreciation) | ||||||||||||
Long Contracts | ||||||||||||||||
U.S. Treasury 2 Year Notes | 49 | September-2011 | $ | 10,747,844 | $ | 28,161 | ||||||||||
Short Contracts | ||||||||||||||||
U.S. Treasury 5 Year Notes | 87 | September-2011 | (10,369,992 | ) | (56,597 | ) | ||||||||||
U.S. Treasury 10 Year Notes | 43 | September-2011 | (5,260,109 | ) | (23,941 | ) | ||||||||||
U.S. Treasury Long Bond | 48 | September-2011 | (5,905,500 | ) | 73,774 | |||||||||||
Subtotal | (21,535,601 | ) | (6,764 | ) | ||||||||||||
Total | $ | 21,397 | ||||||||||||||
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, 2011, the Fund engaged in securities purchases of $409,233.
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, 2011, the Fund paid legal fees of $1,195 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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 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 Van Kampen V.I. Equity and Income 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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2017 | $ | 48,332,887 | ||
* | 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, 2011 was $143,641,085 and $117,769,945, 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 | $ | 112,706,245 | ||
Aggregate unrealized (depreciation) of investment securities | (14,534,276 | ) | ||
Net unrealized appreciation of investment securities | $ | 98,171,969 | ||
Cost of investments for tax purposes is $860,843,776. |
NOTE 10 — Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I(b) | 52,814 | $ | 700,637 | 3,269 | $ | 44,487 | ||||||||||
Series II | 5,546,689 | 80,512,933 | 9,140,570 | 119,604,678 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 36 | 517 | — | — | ||||||||||||
Series II | 834,580 | 12,068,022 | 1,110,698 | 13,994,794 | ||||||||||||
Issued in connection with acquisitions:(c) | ||||||||||||||||
Series I | 4,636,112 | 68,904,153 | — | — | ||||||||||||
Series II | 2,097,600 | 31,153,983 | — | — | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (174,635 | ) | (2,529,592 | ) | — | (4 | ) | |||||||||
Series II | (3,014,557 | ) | (43,641,885 | ) | (5,846,609 | ) | (76,160,666 | ) | ||||||||
Net increase in share activity | 9,978,639 | $ | 147,168,768 | 4,407,928 | $ | 57,483,289 | ||||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 70% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or 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. | |
(c) | As of the opening of business on May 2, 2011, the Fund acquired all the net assets of Invesco V.I. Basic Balanced Fund, Invesco V.I. Income Builder Fund and Invesco V.I. Select Dimensions Balanced Fund pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of Invesco V.I. Basic Balanced Fund, Invesco V.I. Income Builder Fund and Invesco V.I. Select Dimensions Balanced Fund on April 1, 2011. The acquisition was accomplished by a tax-free exchange of 6,733,712 shares of the Fund for 3,229,995, 2,847,069 and 2,619,937 shares outstanding of Invesco V.I. Basic Balanced Fund, Invesco V.I. Income Builder Fund and Invesco V.I. Select Dimensions Balanced Fund, respectively, as of the close of business on April 29, 2011. Each class of Invesco V.I. Basic Balanced Fund, Invesco V.I. Income Builder Fund and Invesco V.I. Select Dimensions Balanced Fund was exchanged for the like class of shares of the Fund based on the relative net asset value of Invesco V.I. Basic Balanced Fund, Invesco V.I. Income Builder Fund and Invesco V.I. Select Dimensions Balanced Fund to the net asset value of the Fund on the close of business, April 29, 2011. Invesco V.I. Basic Balanced Fund, Invesco V.I. Income Builder Fund and Invesco V.I. Select Dimensions Balanced Fund’s net assets at that date of $31,074,478, $31,415,510 and $37,568,148 including $4,748,247, $4,098,925 and $3,365,752 of unrealized appreciation, respectively, was combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $883,038,141. The net assets of the Fund immediately following the acquisition were $983,096.277. |
Invesco Van Kampen V.I. Equity and Income Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | Ratio of | Ratio of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
to average | expenses | rebate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | net assets | to average net | from | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | with fee | assets without | Ratio of net | Morgan | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | securities | Dividends | Distributions | waivers | fee waivers | investment | Stanley | |||||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | and/or | and/or | income to | Affiliates to | |||||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | expenses | expenses | average | average | Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | distributions | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | net assets | turnover(c) | ||||||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | $ | 14.06 | $ | 0.12 | $ | 0.46 | $ | 0.58 | $ | (0.21 | ) | $ | — | $ | (0.21 | ) | $ | 14.43 | 4.14 | % | $ | 65,176 | 0.68 | %(e) | 0.69 | %(e) | 1.71 | %(e) | — | % | 15 | % | ||||||||||||||||||||||||||||
Year ended 12/31/10(d) | 12.27 | 0.13 | 1.66 | 1.79 | — | — | — | 14.06 | 14.59 | 46 | 0.69 | (f) | 0.70 | (f) | 1.73 | (f) | — | 34 | ||||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 14.05 | 0.12 | 0.46 | 0.58 | (0.21 | ) | — | (0.21 | ) | 14.42 | 4.10 | 899,911 | 0.73 | (e) | 0.94 | (e) | 1.66 | (e) | — | 15 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 12.80 | 0.22 | 1.29 | 1.51 | (0.26 | ) | — | (0.26 | ) | 14.05 | 12.03 | 800,414 | 0.74 | 0.98 | 1.68 | — | 34 | |||||||||||||||||||||||||||||||||||||||||||
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 | (g) | 1.04 | (g) | 2.09 | (g)(h) | 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 | )(i) | 517,124 | 0.75 | (g) | 1.05 | (g) | 2.50 | (g)(h) | 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 | (g) | 1.04 | (g) | 2.31 | (g)(h) | 0.00 | (j) | 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 | (h) | — | 56 | |||||||||||||||||||||||||||||||||||||||||
(a) | Calculate 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. For the period ending June 30, 2011, the portfolio turnover calculation excludes the value of securities purchased of $84,964,454 and sold of $9,277,782 in effect to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Basic Balanced Fund, Invesco V.I. Income Builder Fund and Invesco V.I. Select Dimensions Balanced Fund into the Fund. | |
(d) | Commencement date of June 1, 2010. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $21,972 and $858,879 for Series I and Series II shares, respectively. | |
(f) | Annualized. | |
(g) | 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”. | |
(h) | Ratio of net investment income to average net assets without fee waivers and/or expenses absorbed was 1.79%, 2.20%, 2.01% and 1.95% for the years ended December 31, 2009 through December 31, 2006, respectively. | |
(i) | 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)%. | |
(j) | Amount is less than 0.005%. |
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. 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,041.40 | $ | 3.44 | $ | 1,021.42 | $ | 3.41 | 0.68 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,041.00 | 3.69 | 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, 2011 through June 30, 2011, 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. Equity and 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 Van Kampen V.I. Equity and 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
Invesco Van Kampen V.I. Equity and 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 funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Mixed-Asset Target Allocation Growth Funds Index. The Board noted that performance of Series II shares of the Fund was in the fourth quintile of the performance universe for the one year period, the first 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 performance of Series II 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 at a common asset level. The Board noted that the contractual advisory fee rate for Series II shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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. The Board noted that the Fund’s rate was above the rate of one mutual fund advised by Invesco Advisers and below the total account level fee of two mutual funds subadvised by Invesco Advisers with comparable strategies.
Other than the mutual funds 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 June 30, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Invesco Van Kampen V.I. Global Value Equity Fund
Semiannual Report to Shareholders § June 30, 2011
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at 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, 2011, is available at 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.
VK-VIGVE-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 4.05% | |||
Series II Shares | 3.93 | |||
MSCI World Index▼ (Broad Market/Style-Specific Index) | 5.29 | |||
Lipper VUF Global Core Funds Index▼ (Peer Group Index) | 6.19 | |||
▼ | Lipper Inc. |
The Fund recently adopted a three-tier benchmark structure to compare its performance to broad market, style-specific and peer group market measures.
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries.
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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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.
Effective June 1, 2010, Class I shares of the predecessor fund, Universal Funds Global Value Equity Portfolio, advised by Morgan Stanley Investment Management Inc. 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 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 0.94% 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 1.10% 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. 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
Average Annual Total Returns
As of 6/30/11
Series I Shares | ||||||||
Inception (1/2/97) | 4.76% | |||||||
10 | Years | 2.45 | ||||||
5 | Years | -0.21 | ||||||
1 | Year | 27.36 | ||||||
Series II Shares | ||||||||
10 | Years | 2.19 | % | |||||
5 | Years | -0.46 | ||||||
1 | Year | 27.25 |
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, 2012. See current prospectus for more information |
Invesco Van Kampen V.I. Global Value Equity Fund
Schedule of Investments
June 30, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–92.70% | ||||||||
Australia–2.43% | ||||||||
Australia & New Zealand Banking Group Ltd. | 45,373 | $ | 1,071,503 | |||||
Macquarie Group Ltd. | 25,581 | 861,333 | ||||||
Telstra Corp. Ltd. | 362,690 | 1,126,180 | ||||||
3,059,016 | ||||||||
Bermuda–0.69% | ||||||||
PartnerRe Ltd. | 12,667 | 872,123 | ||||||
Brazil–1.41% | ||||||||
Banco Santander Brasil S.A.(a) | 28,300 | 328,324 | ||||||
Companhia Energetica de Minas Gerais–ADR | 14,485 | 298,970 | ||||||
PDG Realty S.A. Empreendimentos e Participacoes | 66,700 | 375,588 | ||||||
Petroleo Brasileiro S.A.–ADR | 12,509 | 423,555 | ||||||
Vale S.A.–ADR | 10,939 | 349,501 | ||||||
1,775,938 | ||||||||
Canada–2.20% | ||||||||
Nexen, Inc. | 60,336 | 1,360,125 | ||||||
Toronto-Dominion Bank (The)(b) | 16,560 | 1,404,269 | ||||||
2,764,394 | ||||||||
China–1.25% | ||||||||
China Construction Bank Corp.–Class H | 246,000 | 204,752 | ||||||
China Dongxiang Group Co. | 586,000 | 186,972 | ||||||
China Minsheng Banking Corp., Ltd.–Class H | 428,000 | 396,430 | ||||||
CNOOC Ltd. | 115,000 | 270,168 | ||||||
KWG Property Holding Ltd. | 232,500 | 155,616 | ||||||
Renhe Commercial Holdings Co., Ltd. | 1,870,000 | 360,461 | ||||||
1,574,399 | ||||||||
Finland–0.52% | ||||||||
Nokia Corp.–ADR(b) | 101,884 | 654,095 | ||||||
France–5.34% | ||||||||
BNP Paribas | 32,722 | 2,526,643 | ||||||
Bouygues S.A. | 28,012 | 1,231,826 | ||||||
Sanofi-Aventis S.A. | 18,537 | 1,490,769 | ||||||
Total S.A. | 25,291 | 1,463,083 | ||||||
6,712,321 | ||||||||
Germany–2.53% | ||||||||
Deutsche Lufthansa AG | 81,157 | 1,768,838 | ||||||
Salzgitter AG | 18,538 | 1,414,209 | ||||||
3,183,047 | ||||||||
Hong Kong–1.98% | ||||||||
Cheung Kong (Holdings) Ltd. | 77,000 | 1,132,381 | ||||||
China Mobile Ltd. | 33,500 | 311,718 | ||||||
Esprit Holdings Ltd. | 334,300 | 1,041,362 | ||||||
2,485,461 | ||||||||
Indonesia–0.17% | ||||||||
PT Telekomunikasi Indonesia Tbk | 251,000 | 215,478 | ||||||
Italy–1.02% | ||||||||
Eni S.p.A. | 53,808 | 1,275,995 | ||||||
Japan–10.96% | ||||||||
Asahi Group Holdings Ltd. | 93,500 | 1,884,342 | ||||||
FUJIFILM Holdings Corp. | 33,100 | 1,031,909 | ||||||
Mitsubishi Corp. | 62,700 | 1,571,238 | ||||||
Mitsubishi UFJ Financial Group, Inc. | 311,000 | 1,514,315 | ||||||
Nippon Telegraph & Telephone Corp. | 37,200 | 1,809,204 | ||||||
Nippon Yusen Kabushiki Kaisha | 331,000 | 1,232,606 | ||||||
Nissan Motor Co., Ltd. | 217,300 | 2,281,481 | ||||||
Seven & I Holdings Co., Ltd. | 39,800 | 1,070,894 | ||||||
Sumitomo Chemical Co., Ltd. | 276,000 | 1,378,753 | ||||||
13,774,742 | ||||||||
Mexico–0.41% | ||||||||
America Movil S.A.B. de C.V.–Series L | 211,200 | 284,774 | ||||||
Desarrolladora Homex S.A.B. de C.V.–ADR(b)(c) | 8,987 | 226,742 | ||||||
511,516 | ||||||||
Netherlands–0.96% | ||||||||
Unilever N.V. | 36,716 | 1,203,947 | ||||||
Norway–2.12% | ||||||||
Statoil A.S.A. | 44,056 | 1,115,859 | ||||||
Yara International A.S.A. | 27,337 | 1,545,655 | ||||||
2,661,514 | ||||||||
Poland–0.26% | ||||||||
KGHM Polska Miedz S.A. | 4,608 | 331,051 | ||||||
Russia–0.65% | ||||||||
Gazprom OAO–ADR | 16,444 | 240,848 | ||||||
Magnitogorsk Iron & Steel Works–GDR | 23,624 | 268,841 | ||||||
Rosneft Oil Co.–GDR | 35,940 | 302,615 | ||||||
812,304 | ||||||||
South Africa–0.97% | ||||||||
Sasol Ltd. | 5,732 | 301,797 | ||||||
Standard Bank Group Ltd. | 20,385 | 301,674 | ||||||
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 | |||||||
South Africa–(continued) | ||||||||
Steinhoff International Holdings Ltd.(c) | 98,851 | $ | 336,126 | |||||
Tiger Brands Ltd. | 9,539 | 278,646 | ||||||
1,218,243 | ||||||||
South Korea–2.42% | ||||||||
Dongbu Insurance Co., Ltd. | 5,656 | 294,018 | ||||||
Hyundai Mipo Dockyard Co., Ltd. | 2,148 | 342,794 | ||||||
Hyundai Mobis | 1,656 | 620,428 | ||||||
KT&G Corp. | 3,906 | 242,925 | ||||||
LG Electronics, Inc. | 1,784 | 139,240 | ||||||
POSCO | 846 | 367,671 | ||||||
Samsung Electronics Co., Ltd. | 591 | 459,348 | ||||||
Shinhan Financial Group Co., Ltd. | 6,284 | 300,159 | ||||||
SK Telecom Co., Ltd.–ADR | 14,838 | 277,471 | ||||||
3,044,054 | ||||||||
Spain–3.12% | ||||||||
Banco Santander S.A. | 112,611 | 1,300,784 | ||||||
Iberdrola S.A.(c) | 161,785 | 1,440,264 | ||||||
Telefonica S.A. | 48,445 | 1,184,825 | ||||||
3,925,873 | ||||||||
Switzerland–5.33% | ||||||||
ACE Ltd. | 40,447 | 2,662,221 | ||||||
Holcim Ltd.(c) | 17,315 | 1,306,967 | ||||||
Swisscom AG | 3,276 | 1,502,377 | ||||||
Zurich Financial Services AG(c) | 4,828 | 1,221,072 | ||||||
6,692,637 | ||||||||
Taiwan–0.80% | ||||||||
AU Optronics Corp.–ADR(c) | 24,386 | 167,776 | ||||||
Coretronic Corp | 121,000 | 191,558 | ||||||
HTC Corp. | 8,833 | 301,734 | ||||||
Powertech Technology, Inc. | 103,000 | 346,147 | ||||||
1,007,215 | ||||||||
Thailand–0.33% | ||||||||
Bangkok Bank PCL–NVDR | 57,200 | 294,001 | ||||||
PTT PCL | 11,500 | 125,720 | ||||||
419,721 | ||||||||
Turkey–0.17% | ||||||||
Asya Katilim Bankasi A.S.(c) | 135,217 | 210,782 | ||||||
United Arab Emirates–0.23% | ||||||||
Dragon Oil PLC | 33,927 | 284,534 | ||||||
United Kingdom–9.03% | ||||||||
Barclays PLC | 323,859 | 1,333,094 | ||||||
BHP Billiton PLC | 60,051 | 2,353,946 | ||||||
GlaxoSmithKline PLC | 50,528 | 1,081,907 | ||||||
Imperial Tobacco Group PLC | 79,203 | 2,632,836 | ||||||
National Grid PLC | 113,842 | 1,120,390 | ||||||
Royal Dutch Shell PLC–Class A | 79,191 | 2,822,017 | ||||||
11,344,190 | ||||||||
United States–35.40% | ||||||||
3M Co. | 15,771 | 1,495,879 | ||||||
Apache Corp. | 10,702 | 1,320,520 | ||||||
Archer-Daniels-Midland Co. | 72,177 | 2,176,136 | ||||||
Avon Products, Inc. | 33,902 | 949,256 | ||||||
Bank of America Corp. | 112,339 | 1,231,235 | ||||||
Bank of New York Mellon Corp. | 40,497 | 1,037,533 | ||||||
Best Buy Co., Inc. | 45,911 | 1,442,064 | ||||||
Chevron Corp. | 27,192 | 2,796,425 | ||||||
Cisco Systems, Inc. | 61,003 | 952,257 | ||||||
Coach, Inc. | 38,213 | 2,442,957 | ||||||
ConocoPhillips | 30,005 | 2,256,076 | ||||||
CVS Caremark Corp. | 40,875 | 1,536,083 | ||||||
Energen Corp. | 26,174 | 1,478,831 | ||||||
GameStop Corp.–Class A(b)(c) | 55,738 | 1,486,532 | ||||||
General Dynamics Corp. | 32,037 | 2,387,397 | ||||||
Gilead Sciences, Inc.(c) | 29,587 | 1,225,198 | ||||||
Johnson & Johnson | 32,278 | 2,147,133 | ||||||
Merck & Co., Inc. | 56,086 | 1,979,275 | ||||||
Microsoft Corp. | 44,575 | 1,158,950 | ||||||
Morgan Stanley | 48,604 | 1,118,378 | ||||||
Oracle Corp. | 68,848 | 2,265,788 | ||||||
Stryker Corp. | 20,749 | 1,217,759 | ||||||
Valero Energy Corp. | 57,872 | 1,479,787 | ||||||
W. R. Berkley Corp. | 34,398 | 1,115,871 | ||||||
WellPoint, Inc. | 34,758 | 2,737,888 | ||||||
Western Digital Corp.(c) | 83,854 | 3,050,609 | ||||||
44,485,817 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $100,031,157) | 116,500,407 | |||||||
Investment Companies–2.52% | ||||||||
Investment Companies–Exchange Traded Funds–2.52% | ||||||||
WisdomTree India Earnings Fund | 27,200 | 651,712 | ||||||
SPDR S&P 500 ETF Trust | 9,500 | 1,253,715 | ||||||
iShares MSCI EAFE Index Fund | 21,000 | 1,262,940 | ||||||
Total Investment Companies (Cost $3,139,118) | 3,168,367 | |||||||
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 | |||||||
Preferred Stocks–1.99% | ||||||||
Brazil–0.14% | ||||||||
Usinas Siderurgicas de Minas Gerais S.A.–Class A -4.93% Pfd. | 20,100 | $ | 176,535 | |||||
Germany–1.85% | ||||||||
Porsche Automobil Holding SE -1.04% Pfd. | 29,216 | 2,318,226 | ||||||
Total Preferred Stocks (Cost $1,688,270) | 2,494,761 | |||||||
Money Market Funds–1.06% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 667,306 | 667,306 | ||||||
Premier Portfolio–Institutional Class(d) | 667,306 | 667,306 | ||||||
Total Money Market Funds (Cost $1,334,612) | 1,334,612 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–98.27% (Cost $106,193,157) | 123,498,147 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–2.22% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $2,790,660)(d)(e) | 2,790,660 | 2,790,660 | ||||||
TOTAL INVESTMENTS–100.49% (Cost $108,983,817) | 126,288,807 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.49%) | (609,702 | ) | ||||||
NET ASSETS–100.00% | $ | 125,679,105 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt | |
ETF | – Exchange-Traded Fund | |
GDR | – Global Depositary Receipt | |
NVDR | – Non-Voting Depositary Receipt | |
Pfd. | – Preferred | |
SPDR | – Standard & Poor’s Depositary Receipt |
Notes to Schedule of Investments:
(a) | Each unit represents 55 common shares and 50 preferred shares. | |
(b) | All or a portion of this security was out on loan at June 30, 2011. | |
(c) | Non-income producing security. | |
(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 1J. |
By country, based on Net Assets
as of June 30, 2011
United States | 37.4 | % | ||
Japan | 11.0 | |||
United Kingdom | 9.0 | |||
France | 5.3 | |||
Switzerland | 5.3 | |||
Germany | 4.4 | |||
Spain | 3.1 | |||
Australia | 2.4 | |||
South Korea | 2.4 | |||
Canada | 2.2 | |||
Norway | 2.1 | |||
Countries each less than 2.0% of portfolio | 12.6 | |||
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. Global Value Equity Fund
Statement of Assets and Liabilities
June 30, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $104,858,545)* | $ | 122,163,535 | ||
Investments in affiliated money market funds, at value and cost | 4,125,272 | |||
Total investments, at value (Cost $108,983,817) | 126,288,807 | |||
Foreign currencies, at value (Cost $25,770) | 28,378 | |||
Receivable for: | ||||
Investments sold | 3,497,947 | |||
Fund shares sold | 2,024 | |||
Dividends | 506,223 | |||
Investment for trustee deferred compensation and retirement plans | 4,763 | |||
Other assets | 1,024 | |||
Total assets | 130,329,166 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 1,430,356 | |||
Fund shares reacquired | 26,428 | |||
Collateral upon return of securities loaned | 2,790,660 | |||
Accrued fees to affiliates | 139,324 | |||
Accrued other operating expenses | 254,175 | |||
Trustee deferred compensation and retirement plans | 9,118 | |||
Total liabilities | 4,650,061 | |||
Net assets applicable to shares outstanding | $ | 125,679,105 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 125,508,368 | ||
Undistributed net investment income | 1,703,927 | |||
Undistributed net realized gain (loss) | (18,847,527 | ) | ||
Unrealized appreciation | 17,314,337 | |||
$ | 125,679,105 | |||
Net Assets: | ||||
Series I | $ | 100,041,556 | ||
Series II | $ | 25,637,549 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 12,595,345 | |||
Series II | 3,228,108 | |||
Series I: | ||||
Net asset value per share | $ | 7.94 | ||
Series II: | ||||
Net asset value per share | $ | 7.94 | ||
* | At June 30, 2011, securities with an aggregate value of $2,755,094 were on loan to brokers. |
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $118,218) | $ | 2,045,553 | ||
Dividends from affiliated money market funds (includes securities lending income of $58,297) | 59,183 | |||
Total investment income | 2,104,736 | |||
Expenses: | ||||
Advisory fees | 245,119 | |||
Administrative services fees | 116,257 | |||
Custodian fees | 58,384 | |||
Distribution fees — Series II | 10,731 | |||
Transfer agent fees | 4,403 | |||
Trustees’ and officers’ fees and benefits | 8,701 | |||
Professional services fees | 27,348 | |||
Other | 12,404 | |||
Total expenses | 483,347 | |||
Less: Fees waived | (97,141 | ) | ||
Net expenses | 386,206 | |||
Net investment income | 1,718,530 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 2,064,221 | |||
Foreign currencies | (22,203 | ) | ||
2,042,018 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities (net of foreign taxes on holdings of $1,021) | (5,693,423 | ) | ||
Foreign currencies | (7,199 | ) | ||
(5,700,622 | ) | |||
Net realized and unrealized gain (loss) | (3,658,604 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (1,940,074 | ) | |
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,718,530 | $ | 875,486 | ||||
Net realized gain | 2,042,018 | 2,174,772 | ||||||
Change in net unrealized appreciation (depreciation) | (5,700,622 | ) | 1,296,804 | |||||
Net increase (decrease) in net assets resulting from operations | (1,940,074 | ) | 4,347,062 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (1,439,970 | ) | (823,810 | ) | ||||
Series II | (353 | ) | — | |||||
Total distributions from net investment income | (1,440,323 | ) | (823,810 | ) | ||||
Share transactions–net: | ||||||||
Series I | 57,440,526 | (4,776,026 | ) | |||||
Series II | 26,889,842 | 10,000 | ||||||
Net increase (decrease) in net assets resulting from share transactions | 84,330,368 | (4,766,026 | ) | |||||
Net increase (decrease) in net assets | 80,949,971 | (1,242,774 | ) | |||||
Net assets: | ||||||||
Beginning of period | 44,729,134 | 45,971,908 | ||||||
End of period (includes undistributed net investment income of $1,703,927 and $1,425,720, respectively) | $ | 125,679,105 | $ | 44,729,134 | ||||
Notes to Financial Statements
June 30, 2011
(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) (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-eight 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 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 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. Global Value 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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. Global Value 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 (“GAAP”) 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. | 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 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 Van Kampen V.I. Global Value 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 Daily 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% | ||
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 Canada Ltd. (formerly 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 May 2, 2011, 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 and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.94% and Series II shares to 1.19% of average daily net assets. Prior to May 2, 2011, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.15% 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 and/or expense reimbursement 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. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012.
Further, the Adviser has contractually agreed, through at least June 30, 2012, 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, 2011, the Adviser waived advisory fees of $97,141.
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, 2011, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $91,462 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
Invesco Van Kampen V.I. Global Value Equity Fund
NOTE 3—Additional Valuation Information
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, 2011. 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 | $ | — | $ | 3,059,016 | $ | — | $ | 3,059,016 | ||||||||
Bermuda | 872,123 | — | — | 872,123 | ||||||||||||
Brazil | 1,952,473 | — | — | 1,952,473 | ||||||||||||
Canada | 2,764,394 | — | — | 2,764,394 | ||||||||||||
China | 360,461 | 1,213,938 | — | 1,574,399 | ||||||||||||
Finland | 654,095 | — | — | 654,095 | ||||||||||||
France | 6,712,321 | — | — | 6,712,321 | ||||||||||||
Germany | 5,501,273 | — | — | 5,501,273 | ||||||||||||
Hong Kong | — | 2,485,461 | — | 2,485,461 | ||||||||||||
Indonesia | — | 215,478 | — | 215,478 | ||||||||||||
Italy | — | 1,275,995 | — | 1,275,995 | ||||||||||||
Japan | — | 13,774,742 | — | 13,774,742 | ||||||||||||
Mexico | 511,516 | — | — | 511,516 | ||||||||||||
Netherlands | 1,203,947 | — | — | 1,203,947 | ||||||||||||
Norway | 1,115,859 | 1,545,655 | — | 2,661,514 | ||||||||||||
Poland | 331,051 | — | — | 331,051 | ||||||||||||
Russia | 571,456 | 240,848 | — | 812,304 | ||||||||||||
South Africa | 916,569 | 301,674 | — | 1,218,243 | ||||||||||||
South Korea | 1,802,513 | 1,241,541 | — | 3,044,054 | ||||||||||||
Spain | 3,925,873 | — | — | 3,925,873 | ||||||||||||
Switzerland | 6,692,637 | — | — | 6,692,637 | ||||||||||||
Taiwan | 167,776 | 839,439 | — | 1,007,215 | ||||||||||||
Thailand | 294,001 | 125,720 | — | 419,721 | ||||||||||||
Turkey | 210,782 | — | — | 210,782 | ||||||||||||
United Arab Emirates | 284,534 | — | — | 284,534 | ||||||||||||
United Kingdom | 5,047,837 | 6,296,353 | — | 11,344,190 | ||||||||||||
United States | 51,779,456 | — | — | 51,779,456 | ||||||||||||
Total Investments | $ | 93,672,947 | $ | 32,615,860 | $ | — | $ | 126,288,807 | ||||||||
* | Transfers occurred between Level 1 and Level 2 due to foreign fair value adjustments. |
Invesco Van Kampen V.I. Global Value Equity 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.
During the six months ended June 30, 2011, the Fund paid legal fees of $661 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 2,956,661 | ||
December 31, 2017 | 17,917,975 | |||
Total capital loss carryforward | $ | 20,874,636 | ||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. To the extent that unrealized gains as of May 2, 2011, the date of reorganization of Invesco V.I. Global Dividend Growth Fund into the Fund and realized on securities held in each fund at such date of reorganization, the capital loss carryforward may be further limited for up to five years from the date of the reorganization. |
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, 2011 was $18,684,562 and $21,969,605, 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 | $ | 19,784,691 | ||
Aggregate unrealized (depreciation) of investment securities | (2,489,145 | ) | ||
Net unrealized appreciation of investment securities | $ | 17,295,546 | ||
Cost of investments for tax purposes is $108,993,261. |
Invesco Van Kampen V.I. Global Value Equity Fund
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 606,664 | $ | 4,880,297 | 424,256 | $ | 3,147,637 | ||||||||||
Series II(b) | 28 | 58,292 | 1,534 | 10,000 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 180,447 | 1,439,970 | 123,510 | 823,810 | ||||||||||||
Issued in connection with acquisitions:(c) | ||||||||||||||||
Series I | 7,111,889 | 58,977,691 | — | — | ||||||||||||
Series II(b) | 3,419,989 | 28,363,525 | — | — | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (982,318 | ) | (7,857,432 | ) | (1,215,233 | ) | (8,747,473 | ) | ||||||||
Series II(b) | (193,443 | ) | (1,531,975 | ) | — | — | ||||||||||
Net increase (decrease) in share activity | 10,143,256 | $ | 84,330,368 | (665,933 | ) | $ | (4,766,026 | ) | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 86% 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. | |
(c) | As of the open of business on May 2, 2011, the Fund acquired all the net assets of Invesco V.I. Global Dividend Growth Fund pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of Invesco V.I. Global Dividend Growth Fund on April 1, 2011. The acquisition was accomplished by a tax-free exchange of 10,531,878 shares of the Fund for 8,939,065 shares outstanding of Invesco V.I. Global Dividend Growth Fund as of the close of business on April 29, 2011. Each class of Invesco V.I. Global Dividend Growth Fund was exchanged for the like class of shares of the Fund based on the relative net asset value of Invesco V.I. Global Dividend Growth Fund to the net asset value of the Fund on the close of business, April 29, 2011. Invesco V.I. Global Dividend Growth Fund’s net assets at that date of $87,341,216 including $17,119,889 of unrealized appreciation, was combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $48,932,340. The net assets of the Fund immediately following the acquisition were $136,273,556. |
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 06/30/11 | $ | 7.87 | $ | 0.19 | $ | 0.13 | $ | 0.32 | $ | (0.25 | ) | $ | — | $ | (0.25 | ) | $ | 7.94 | 4.05 | % | $ | 100,042 | 1.02 | %(d) | 1.29 | %(d) | 4.73 | %(d) | 39 | % | ||||||||||||||||||||||||||
Year ended 12/31/10 | 7.24 | 0.15 | 0.62 | 0.77 | (0.14 | ) | — | (0.14 | ) | 7.87 | 10.95 | 44,717 | 1.12 | 1.15 | 2.04 | 130 | ||||||||||||||||||||||||||||||||||||||||
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 | (e) | 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 | (e) | 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 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 7.86 | 0.17 | 0.14 | 0.31 | (0.23 | ) | — | (0.23 | ) | 7.94 | 3.93 | 25,638 | 1.27 | (d) | 1.54 | (d)) | 4.48 | (d) | 39 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10(g) | 6.52 | 0.07 | 1.27 | 1.34 | — | — | — | 7.86 | 20.55 | 12 | 1.40 | (h) | 1.45 | (h) | 1.76 | (h) | 130 | |||||||||||||||||||||||||||||||||||||||
(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. For the period ending June 30, 2011, the portfolio turnover calculation excludes the value of securities purchased of $70,017,245 and sold of $1,611,383 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Global Dividend Growth Fund into the Fund. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $65,120 and $8,656 for Series I and Series II, 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, 2008 and 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. | |
(h) | Annualized. |
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. 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,040.50 | $ | 5.16 | $ | 1,019.74 | $ | 5.11 | 1.02 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,039.30 | 6.42 | 1,018.50 | 6.36 | 1.27 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2011 through June 30, 2011, 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. Global Value 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 Van Kampen V.I. Global Value 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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
Invesco Van Kampen V.I. Global Value Equity Fund
managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
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 assets of the Fund.
The Board noted that performance of Series I shares of the Fund was in the second quintile of the 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). 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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 June 30, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Invesco Van Kampen V.I. Growth and Income Fund
Semiannual Report to Shareholders § June 30, 2011
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at 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, 2011, is available at 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.
VK-VIGRI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 4.62 | % | ||
Series II Shares | 4.46 | |||
S&P 500 Index▼ (Broad Market Index) | 6.01 | |||
Russell 1000 Value Index▼ (Style-Specific Index) | 5.92 | |||
Lipper VUF Large-Cap Value Funds Index▼ (Peer Group Index) | 5.49 | |||
▼Lipper Inc. | ||
The Fund recently adopted a three-tier benchmark structure to compare its performance to broad market, style-specific and peer group market measures. |
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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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.
Effective June 1, 2010, Class I and Class II shares of the predecessor fund, Van Kampen Life Investment Trust Growth and Income Portfolio, 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.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 0.85% and 1.10%, 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
Average Annual Total Returns
As of 6/30/11
Series I Shares | ||||||||
Inception (12/23/96) | 8.04 | % | ||||||
10 | Years | 4.70 | ||||||
5 | Years | 2.89 | ||||||
1 | Year | 28.33 | ||||||
Series II Shares | ||||||||
Inception (9/18/00) | 4.31 | % | ||||||
10 | Years | 4.44 | ||||||
5 | Years | 2.64 | ||||||
1 | Year | 28.02 |
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, 2012. See current prospectus for more information. |
Invesco Van Kampen V.I. Growth and Income Fund
Schedule of Investments
June 30, 2011
(Unaudited
Number of | ||||||||
Description | Shares | Value | ||||||
Common Stocks 94.1% | ||||||||
Air Freight & Logistics–0.6% | ||||||||
FedEx Corp. | 130,290 | $ | 12,358,007 | |||||
Asset Management & Custody Banks–1.8% | ||||||||
Northern Trust Corp. | 327,240 | 15,039,950 | ||||||
State Street Corp. | 463,550 | 20,901,470 | ||||||
35,941,420 | ||||||||
Automobile Manufacturers–0.2% | ||||||||
Ford Motor Co.(a) | 141,285 | 1,948,320 | ||||||
General Motors Co.(a) | 62,845 | 1,907,974 | ||||||
3,856,294 | ||||||||
Cable & Satellite–3.5% | ||||||||
Comcast Corp., Class A | 1,502,852 | 38,082,270 | ||||||
Time Warner Cable, Inc. | 384,100 | 29,975,164 | ||||||
68,057,434 | ||||||||
Communications Equipment–0.3% | ||||||||
Cisco Systems, Inc. | 422,328 | 6,592,540 | ||||||
Computer Hardware–2.8% | ||||||||
Dell, Inc.(a) | 1,526,383 | 25,444,805 | ||||||
Hewlett-Packard Co. | 824,406 | 30,008,378 | ||||||
55,453,183 | ||||||||
Consumer Electronics–0.9% | ||||||||
Sony Corp.–ADR (Japan) | 665,980 | 17,575,212 | ||||||
Data Processing & Outsourced Services–1.1% | ||||||||
Western Union Co. | 1,091,515 | 21,863,045 | ||||||
Diversified Banks–1.5% | ||||||||
U.S. Bancorp | 474,889 | 12,114,418 | ||||||
Wells Fargo & Co. | 587,676 | 16,490,189 | ||||||
28,604,607 | ||||||||
Diversified Chemicals–1.3% | ||||||||
Dow Chemical Co. | 162,492 | 5,849,712 | ||||||
PPG Industries, Inc. | 208,312 | 18,912,646 | ||||||
24,762,358 | ||||||||
Diversified Support Services–0.6% | ||||||||
Cintas Corp. | 361,717 | 11,947,513 | ||||||
Drug Retail–1.2% | ||||||||
Walgreen Co. | 578,070 | 24,544,852 | ||||||
Electric Utilities–4.0% | ||||||||
American Electric Power Co., Inc. | 1,054,484 | 39,732,957 | ||||||
Edison International | 297,542 | 11,529,753 | ||||||
Entergy Corp. | 161,069 | 10,997,791 | ||||||
FirstEnergy Corp. | 354,505 | 15,651,396 | ||||||
77,911,897 | ||||||||
Food Distributors–1.1% | ||||||||
Sysco Corp. | 720,209 | 22,456,117 | ||||||
Health Care Distributors–0.8% | ||||||||
Cardinal Health, Inc. | 330,253 | 15,000,091 | ||||||
Health Care Equipment–1.0% | ||||||||
Medtronic, Inc. | 498,907 | 19,222,887 | ||||||
Health Care Facilities–0.6% | ||||||||
HCA Holdings, Inc.(a) | 338,260 | 11,162,580 | ||||||
Home Improvement Retail–1.4% | ||||||||
Home Depot, Inc. | 753,777 | 27,301,803 | ||||||
Household Products–2.4% | ||||||||
Energizer Holdings, Inc.(a) | 103,228 | 7,469,578 | ||||||
Procter & Gamble Co. | 633,884 | 40,296,006 | ||||||
47,765,584 | ||||||||
Human Resource & Employment Services–0.9% | ||||||||
Manpower, Inc. | 179,009 | 9,603,833 | ||||||
Robert Half International, Inc. | 315,951 | 8,540,155 | ||||||
18,143,988 | ||||||||
Industrial Conglomerates–5.4% | ||||||||
General Electric Co. | 4,046,081 | 76,309,088 | ||||||
Tyco International Ltd. (Switzerland) | 585,054 | 28,919,219 | ||||||
105,228,307 | ||||||||
Industrial Machinery–1.1% | ||||||||
Ingersoll-Rand PLC (Ireland) | 465,271 | 21,127,956 | ||||||
Insurance Brokers–2.9% | ||||||||
Marsh & McLennan Cos., Inc. | 1,846,676 | 57,597,824 | ||||||
Integrated Oil & Gas–6.4% | ||||||||
ConocoPhillips | 163,558 | 12,297,926 | ||||||
Exxon Mobil Corp. | 269,484 | 21,930,608 | ||||||
Hess Corp. | 428,170 | 32,009,989 | ||||||
Occidental Petroleum Corp. | 194,459 | 20,231,514 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Growth and Income Fund
Number of | ||||||||
Description | Shares | Value | ||||||
Integrated Oil & Gas–(continued) | ||||||||
Royal Dutch Shell PLC–ADR (United Kingdom) | 563,443 | $ | 40,077,701 | |||||
126,547,738 | ||||||||
Integrated Telecommunication Services–1.1% | ||||||||
Verizon Communications, Inc. | 591,889 | 22,036,027 | ||||||
Internet Software & Services–3.2% | ||||||||
eBay, Inc.(a) | 1,337,313 | 43,155,091 | ||||||
Yahoo!, Inc.(a) | 1,291,150 | 19,418,896 | ||||||
62,573,987 | ||||||||
Investment Banking & Brokerage–2.8% | ||||||||
Charles Schwab Corp. | 1,620,542 | 26,657,916 | ||||||
Morgan Stanley | 1,220,328 | 28,079,747 | ||||||
54,737,663 | ||||||||
IT Consulting & Other Services–0.9% | ||||||||
Amdocs Ltd. (Guernsey)(a) | 607,222 | 18,453,477 | ||||||
Life & Health Insurance–0.8% | ||||||||
Principal Financial Group, Inc. | 493,306 | 15,006,369 | ||||||
Managed Health Care–2.5% | ||||||||
UnitedHealth Group, Inc. | 954,918 | 49,254,670 | ||||||
Movies & Entertainment–3.9% | ||||||||
Time Warner, Inc. | 872,475 | 31,731,916 | ||||||
Viacom, Inc., Class B | 864,818 | 44,105,718 | ||||||
75,837,634 | ||||||||
Office Services & Supplies–0.6% | ||||||||
Avery Dennison Corp. | 289,903 | 11,198,953 | ||||||
Oil & Gas Equipment & Services–2.3% | ||||||||
Baker Hughes, Inc. | 176,202 | 12,785,217 | ||||||
Cameron International Corp.(a) | 142,909 | 7,186,894 | ||||||
Schlumberger Ltd. (Netherlands Antilles) | 302,596 | 26,144,294 | ||||||
46,116,405 | ||||||||
Oil & Gas Exploration & Production–3.6% | ||||||||
Anadarko Petroleum Corp. | 614,640 | 47,179,766 | ||||||
Devon Energy Corp. | 255,214 | 20,113,415 | ||||||
Noble Energy, Inc. | 41,231 | 3,695,535 | ||||||
70,988,716 | ||||||||
Oil & Gas Storage & Transportation–0.5% | ||||||||
Williams Cos., Inc. | 339,248 | 10,262,252 | ||||||
Other Diversified Financial Services–7.9% | ||||||||
Bank of America Corp. | 2,689,300 | 29,474,728 | ||||||
Citigroup, Inc. | 942,274 | 39,236,289 | ||||||
JPMorgan Chase & Co. | 2,102,727 | 86,085,644 | ||||||
154,796,661 | ||||||||
Packaged Foods & Meats–2.8% | ||||||||
Kraft Foods, Inc., Class A | 836,747 | 29,478,597 | ||||||
Unilever NV (Netherlands) | 756,060 | 24,836,571 | ||||||
54,315,168 | ||||||||
Personal Products–1.6% | ||||||||
Avon Products, Inc. | 1,097,223 | 30,722,244 | ||||||
Pharmaceuticals–6.0% | ||||||||
Abbott Laboratories | 259,760 | 13,668,571 | ||||||
Bristol-Myers Squibb Co. | 1,107,367 | 32,069,348 | ||||||
Merck & Co., Inc. | 703,052 | 24,810,705 | ||||||
Pfizer, Inc. | 2,296,113 | 47,299,928 | ||||||
117,848,552 | ||||||||
Property & Casualty Insurance–0.7% | ||||||||
Chubb Corp. | 227,324 | 14,232,756 | ||||||
Regional Banks–3.7% | ||||||||
BB&T Corp. | 550,276 | 14,769,408 | ||||||
Fifth Third Bancorp | 775,971 | 9,893,630 | ||||||
PNC Financial Services Group, Inc. | 572,220 | 34,110,034 | ||||||
Regions Financial Corp. | 2,194,297 | 13,604,642 | ||||||
72,377,714 | ||||||||
Semiconductors–0.8% | ||||||||
Intel Corp. | 677,961 | 15,023,616 | ||||||
Soft Drinks–1.3% | ||||||||
Coca-Cola Co. | 295,072 | 19,855,395 | ||||||
Coca-Cola Enterprises, Inc. | 165,886 | 4,840,553 | ||||||
24,695,948 | ||||||||
Systems Software–1.7% | ||||||||
Microsoft Corp. | 1,322,543 | 34,386,118 | ||||||
Wireless Telecommunication Services–1.6% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 1,196,749 | 31,977,133 | ||||||
Total Common Stocks–94.1% (Cost $1,647,171,708) | 1,847,865,300 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Growth and Income Fund
Number of | ||||||||
Description | Shares | Value | ||||||
Money Market Funds–6.5% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 63,297,936 | $ | 63,297,936 | |||||
Premier Portfolio–Institutional Class(b) | 63,297,935 | 63,297,935 | ||||||
Total Money Market Funds–6.5% (Cost $126,595,871) | 126,595,871 | |||||||
TOTAL INVESTMENTS–100.6% (Cost $1,773,767,579) | 1,974,461,171 | |||||||
LIABILITIES IN EXCESS OF OTHER ASSETS–(0.6%) | (11,013,369 | ) | ||||||
NET ASSETS–100.0% | $ | 1,963,447,802 | ||||||
Investment Abbreviation:
ADR | – American Depositary Receipt |
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. |
Foreign currency contracts outstanding as of June 30, 2011:
Unrealized | ||||||||||||
Appreciation/ | ||||||||||||
Counterparty | In Exchange for | Current Value | Depreciation | |||||||||
Short Contracts: | ||||||||||||
Euro | ||||||||||||
10,702,592 expiring 08/15/11 | State Street Bank & Trust | US | $ | 15,502,597 | $ | (321,078 | ) | |||||
6,695,141 expiring 08/15/11 | Mellon Bank NA | US | 9,697,844 | (225,225 | ) | |||||||
3,587,543 expiring 08/15/11 | Morgan Stanley Capital | US | 5,196,521 | (115,752 | ) | |||||||
10,744,102 expiring 08/15/11 | BNP Paribas SA | US | 15,562,725 | (361,915 | ) | |||||||
Pound Sterling | ||||||||||||
3,075,544 expiring 08/15/11 | State Street Bank & Trust | US | 4,933,616 | (12,407 | ) | |||||||
3,082,643 expiring 08/15/11 | Mellon Bank NA | US | 4,945,004 | (23,795 | ) | |||||||
6,153,394 expiring 08/15/11 | BNP Paribas SA | US | 9,870,931 | (51,283 | ) | |||||||
Japanese Yen | ||||||||||||
403,964,035 expiring 08/15/11 | Morgan Stanley Capital | US | 5,018,911 | 8,644 | ||||||||
406,965,537 expiring 08/15/11 | Mellon Bank NA | US | 5,056,202 | 10,096 | ||||||||
Total Foreign Currency Contracts | $ | (1,092,715 | ) | |||||||||
By sector, based on Net Assets
as of June 30, 2011
as of June 30, 2011
Financials | 22.1 | % | ||
Energy | 12.9 | |||
Information technology | 10.9 | |||
Health care | 10.8 | |||
Consumer staples | 10.4 | |||
Consumer discretionary | 9.8 | |||
Industrials | 9.2 | |||
Utilities | 4.0 | |||
Telecommunication services | 2.8 | |||
Materials | 1.2 | |||
Money Market Funds and Liabilities in Excess of Other Assets | 5.9 | |||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $1,647,171,708) | $ | 1,847,865,300 | ||
Investment in affiliated money market funds, at value and cost | 126,595,871 | |||
Total investments, at value (Cost $1,773,767,579) | 1,974,461,171 | |||
Receivables: | ||||
Investments sold | 12,748,930 | |||
Dividends | 4,163,646 | |||
Fund shares sold | 3,971,988 | |||
Expense reimbursement from advisor | 64,837 | |||
Investment for trustee deferred compensation and retirement plan | 4,414 | |||
Other assets | 4,661 | |||
Total assets | 1,995,419,647 | |||
Liabilities: | ||||
Payables: | ||||
Investments purchased | 26,017,759 | |||
Distributor and affiliates | 4,236,232 | |||
Fund shares repurchased | 561,370 | |||
Foreign currency contracts outstanding | 1,092,715 | |||
Trustees’ deferred compensation and retirement plans | 26,463 | |||
Accrued expenses | 37,306 | |||
Total liabilities | 31,971,845 | |||
Net assets | $ | 1,963,447,802 | ||
Net assets consist of: | ||||
Capital (par value of $0.001 per share with an unlimited number of shares authorized) | $ | 1,766,622,886 | ||
Net unrealized appreciation | 199,600,877 | |||
Accumulated undistributed net investment income | 32,434,961 | |||
Accumulated net realized gain (loss) | (35,210,922 | ) | ||
Net assets | $ | 1,963,447,802 | ||
Net asset value, offering price and redemption price per share: | ||||
Series I shares (based on net assets of $152,382,500 and 7,915,337 shares of beneficial interest issued and outstanding) | $ | 19.25 | ||
Series II shares (based on net assets of $1,811,065,302 and 94,346,870 shares of beneficial interest issued and outstanding) | $ | 19.20 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $300,513) | $ | 20,614,631 | ||
Dividends from affiliated money market funds | 38,853 | |||
Total income | 20,653,484 | |||
Expenses: | ||||
Investment advisory fee | 5,470,952 | |||
Distribution fees — Series II | 2,236,232 | |||
Administrative services fees | 2,638,620 | |||
Custody | 61,700 | |||
Trustees and officers’ fees and benefits | 40,273 | |||
Transfer agent fees | 15,860 | |||
Other | (10,609 | ) | ||
Total expenses | 10,453,028 | |||
Less: Fees waived | (2,245,841 | ) | ||
Net expenses | 8,207,187 | |||
Net investment income | 12,446,297 | |||
Realized and unrealized gain (loss): | ||||
Realized gain: | ||||
Investment securities | 71,346,515 | |||
Foreign currency contracts | 342,929 | |||
Net realized gain | 71,689,444 | |||
Unrealized appreciation (depreciation): | ||||
Beginning of the period | 198,731,509 | |||
End of the period: | ||||
Investment securities | 200,693,592 | |||
Foreign currency contracts | (1,092,715 | ) | ||
199,600,877 | ||||
Net unrealized appreciation during the period | 869,368 | |||
Net realized and unrealized gain | 72,558,812 | |||
Net increase in net assets from operations | $ | 85,005,109 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
From investment activities: | ||||||||
Operations: | ||||||||
Net investment income | $ | 12,446,297 | $ | 20,300,526 | ||||
Net realized gain | 71,689,444 | 91,837,578 | ||||||
Net unrealized appreciation during the period | 869,368 | 96,268,684 | ||||||
Change in net assets from operations | 85,005,109 | 208,406,788 | ||||||
Distributions from net investment income: | ||||||||
Series I shares | -0- | (156,262 | ) | |||||
Series II shares | -0- | (1,556,159 | ) | |||||
Total distributions | -0- | (1,712,421 | ) | |||||
Net change in net assets from investment activities | 85,005,109 | 206,694,367 | ||||||
From capital transactions: | ||||||||
Proceeds from shares sold | 106,158,514 | 191,122,516 | ||||||
Net assets value of shares issued through dividend reinvestment | -0- | 1,712,421 | ||||||
Cost of shares repurchased | (107,582,856 | ) | (188,006,478 | ) | ||||
Net change in net assets from capital transactions | (1,424,342 | ) | 4,828,459 | |||||
Total increase in net assets | 83,580,767 | 211,522,826 | ||||||
Net assets: | ||||||||
Beginning of the period | 1,879,867,035 | 1,668,344,209 | ||||||
End of the period (including accumulated undistributed net investment income of $32,434,961 and $19,988,664, respectively) | $ | 1,963,447,802 | $ | 1,879,867,035 | ||||
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
The following schedules present financial highlights for one share of the Fund outstanding throughout the periods indicated.
Class I Sharesˆ | ||||||||||||||||||||||||
Six months ended | Year ended December 31, | |||||||||||||||||||||||
June 30, 2011 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 18.40 | $ | 16.37 | $ | 13.74 | $ | 21.36 | $ | 22.00 | $ | 20.49 | ||||||||||||
Net investment income(a) | 0.14 | 0.24 | 0.24 | 0.36 | 0.39 | 0.38 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.71 | 1.81 | 2.98 | (6.95 | ) | 0.16 | 2.75 | |||||||||||||||||
Total from investment operations | 0.85 | 2.05 | 3.22 | (6.59 | ) | 0.55 | 3.13 | |||||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | -0- | 0.02 | 0.59 | 0.38 | 0.36 | 0.25 | ||||||||||||||||||
Distributions from net realized gains | -0- | -0- | -0- | 0.65 | 0.83 | 1.37 | ||||||||||||||||||
Total distributions | -0- | 0.02 | 0.59 | 1.03 | 1.19 | 1.62 | ||||||||||||||||||
Net asset value, end of the period | $ | 19.25 | $ | 18.40 | $ | 16.37 | $ | 13.74 | $ | 21.36 | $ | 22.00 | ||||||||||||
Total return* | 4.62 | %(b) | 12.51 | %(b) | 24.37 | % | (32.03 | )% | 2.80 | % | 16.23 | % | ||||||||||||
Net assets at end of the period (000’s omitted) | $ | 152,383 | $ | 154,489 | $ | 153,653 | $ | 146,013 | $ | 263,473 | $ | 307,704 | ||||||||||||
Ratio of expenses to average net assets* | 0.61 | %(d) | 0.61 | % | 0.62 | % | 0.61 | % | 0.60 | % | 0.60 | % | ||||||||||||
Ratio of net investment income to average net assets* | 1.51 | %(d) | 1.42 | % | 1.72 | % | 2.06 | % | 1.80 | % | 1.85 | % | ||||||||||||
Portfolio turnover(e) | 12 | % | 30 | % | 55 | % | 50 | % | 28 | % | 28 | % | ||||||||||||
* If certain expenses had not been 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 | 0.85 | % | 0.74 | % | N/A | N/A | N/A | N/A | ||||||||||||||||
Ratio of net investment income to average net assets | N/A | 1.55 | % | N/A | N/A | N/A | N/A | |||||||||||||||||
Series II Sharesˆ | ||||||||||||||||||||||||
Six months ended | Year ended December 31, | |||||||||||||||||||||||
June 30, 2011 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||
Net asset value, beginning of the period | $ | 18.37 | $ | 16.39 | $ | 13.71 | $ | 21.31 | $ | 21.96 | $ | 20.46 | ||||||||||||
Net investment income(a) | 0.12 | 0.20 | 0.20 | 0.32 | 0.34 | 0.32 | ||||||||||||||||||
Net realized and unrealized gain (loss) | 0.71 | 1.80 | 2.99 | (6.94 | ) | 0.15 | 2.76 | |||||||||||||||||
Total from investment operations | 0.83 | 2.00 | 3.19 | (6.62 | ) | 0.49 | 3.08 | |||||||||||||||||
Less: | ||||||||||||||||||||||||
Distributions from net investment income | -0- | 0.02 | 0.51 | 0.33 | 0.31 | 0.21 | ||||||||||||||||||
Distributions from net realized gain | -0- | -0- | -0- | 0.65 | 0.83 | 1.37 | ||||||||||||||||||
Total distributions | -0- | 0.02 | 0.51 | 0.98 | 1.14 | 1.58 | ||||||||||||||||||
Net asset value, end of the period | $ | 19.20 | $ | 18.37 | $ | 16.39 | $ | 13.71 | $ | 21.31 | $ | 21.96 | ||||||||||||
Total return* | 4.52 | %(b) | 12.19 | %(b) | 24.11 | %(c) | (32.21 | )%(c) | 2.52 | %(c) | 15.97 | %(c) | ||||||||||||
Net assets at end of the period (000’s omitted) | $ | 1,811,065 | $ | 1,725,378 | $ | 1,514,691 | $ | 1,236,160 | $ | 1,843,682 | $ | 1,661,720 | ||||||||||||
Ratio of expenses to average net assets* | 0.86 | %(d) | 0.86 | % | 0.87 | % | 0.86 | % | 0.85 | % | 0.85 | % | ||||||||||||
Ratio of net investment income to average net assets* | 1.26 | %(d) | 1.17 | % | 1.45 | % | 1.82 | % | 1.54 | % | 1.59 | % | ||||||||||||
Portfolio turnover(e) | 12 | % | 30 | % | 55 | % | 50 | % | 28 | % | 28 | % | ||||||||||||
* If certain expenses had not been 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 | 1.10 | % | 0.99 | % | N/A | N/A | N/A | N/A | ||||||||||||||||
Ratio of net investment income to average net assets | N/A | 1.30 | % | N/A | N/A | N/A | N/A | |||||||||||||||||
(a) | Based on 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 with connection with a variable product, which if included would reduce total returns and is not annualized for periods less than one year, if applicable. | |
(c) | These returns include combined Rule 12b-1 fees and services fees of up to 0.25%. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $156,658 and $1,803,812 for Series I and Series II Shares, respectively. | |
(e) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
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. |
N/A=Not Applicable
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, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. Growth and Income Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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 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 trade 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. |
Invesco Van Kampen V.I. Growth And Income Fund
Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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 (“GAAP”) 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, |
Invesco Van Kampen V.I. Growth And Income Fund
realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
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 Daily Net Assets | Rate | |||
First $500 million | 0 | .60% | ||
Over $500 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 Canada Ltd. (formerly 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 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 0.62% and Series II shares to 0.87% of average daily net assets, through at least June 30, 2012. 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 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 the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012.
Further, the Adviser has contractually agreed, through at least June 30, 2012, 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, 2011, the Adviser waived advisory fees of $2,245,841.
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, 2011, Invesco was paid $205,726 for accounting and fund administrative services and reimbursed $2,432,894 for services provided by insurance companies.
Also, the Trust has entered into service agreements whereby State Street Bank & Trust Company (“SSB”) serves as custodian and 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. For the six months ended June 30, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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. |
Invesco Van Kampen V.I. Growth And Income Fund
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investments in an Asset Position | ||||||||||||||||
Equity Securities | $ | 1,974,461,171 | $ | — | $ | — | $ | 1,974,461,171 | ||||||||
Foreign Currency Contracts* | — | 18,740 | — | 18,740 | ||||||||||||
Total Investments in an Asset Position | $ | 1,974,461,171 | $ | 18,740 | $ | — | $ | 1,974,479,911 | ||||||||
Investments in a Liability Position | ||||||||||||||||
Foreign Currency Contracts* | $ | — | $ | (1,111,455 | ) | $ | — | $ | (1,111,455 | ) | ||||||
* | 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, 2011:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign currency contracts(a) | $ | 18,740 | $ | (1,111,455 | ) | |||
(a) | Values are disclosed on the Statement of Assets and Liabilities under the foreign currency contracts outstanding. |
Effect of Derivative Instruments for the six months ended June 30, 2011
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on Statement of Operations | ||||
Foreign Currency Contracts* | ||||
Realized Gain (Loss) | ||||
Currency risk | $ | 342,929 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Currency risk | (1,092,715 | ) | ||
Total | $ | (749,786 | ) | |
* | The cost of purchases and the proceeds from sales of foreign currency contracts were $104,632,801 and $104,904,005, respectively. |
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, 2011, the Fund paid legal fees of $1,960 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner of that firm is a Trustee of the Trust.
Invesco Van Kampen V.I. Growth And Income 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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2017 | $ | 104,664,620 | ||
* | 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, 2011 was $228,924,578 and $286,726,973, 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 | $ | 244,014,346 | ||
Aggregate unrealized (depreciation) of investment securities | (45,602,051 | ) | ||
Net unrealized appreciation of investment securities | $ | 198,412,295 | ||
Cost of investments for tax purposes is $1,776,048,876. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year Ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sales: | ||||||||||||||||
Series I | 518,503 | $ | 9,994,684 | 836,015 | $ | 13,995,298 | ||||||||||
Series II | 5,005,134 | 96,163,830 | 10,759,774 | 177,127,218 | ||||||||||||
Total sales | 5,523,637 | $ | 106,158,514 | 11,595,789 | $ | 191,122,516 | ||||||||||
Dividend reinvestment: | ||||||||||||||||
Series I | -0- | $ | -0- | 9,138 | $ | 156,262 | ||||||||||
Series II | -0- | -0- | 91,003 | 1,556,159 | ||||||||||||
Total dividend reinvestment | -0- | $ | -0- | 100,141 | $ | 1,712,421 | ||||||||||
Repurchases: | ||||||||||||||||
Series I | (1,000,371 | ) | $ | (19,222,956 | ) | (1,831,877 | ) | $ | (30,656,787 | ) | ||||||
Series II | (4,605,746 | ) | (88,359,900 | ) | (9,338,871 | ) | (157,349,691 | ) | ||||||||
Total repurchases | (5,606,117 | ) | $ | (107,582,856 | ) | (11,170,748 | ) | $ | (188,006,478 | ) | ||||||
(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. 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, less than 1% of the outstanding shares of the fund are owned by Invesco or an investment advisor under common control. |
Invesco Van Kampen V.I. Growth 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. 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,046.20 | $ | 3.09 | $ | 1,021.77 | $ | 3.06 | 0.61 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,044.60 | 4.36 | 1,020.53 | 4.31 | 0.86 | ||||||||||||||||||||||||
1 The actual ending account value is based on the actual total return of the Fund for the period January 1, 2011 through June 30, 2011, 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. Growth and 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 Van Kampen V.I. Growth and 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
Invesco Van Kampen V.I. Growth and 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 funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Large Cap Value Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile of the performance universe for the one year period, the first 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 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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. The Board noted that the Fund’s rate was above the rate of one mutual fund advised by Invesco Advisers and below the total account level fee of two mutual funds sub-advised by Invesco Advisers with comparable investment strategies.
Other than the mutual funds 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 June 30, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Invesco Van Kampen V.I. Mid Cap Growth Fund
Semiannual Report to Shareholders § June 30, 2011
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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 800 959 4246 or at 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, 2011, is available at 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.
VK-VIMCG-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 7.16 | % | ||
Series II Shares | 6.90 | |||
S&P 500 Index▼ (Broad Market Index) | 6.01 | |||
Russell Midcap Growth Index▼ (Style-Specific Index) | 9.59 | |||
Lipper VUF Mid-Cap Growth Funds Index▼ (Peer Group Index) | 8.38 | |||
▼Lipper Inc.
The Fund recently adopted a three-tier benchmark structure to compare its performance to broad market, style-specific and peer group market measures.
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 index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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.
Effective June 1, 2010, Class II shares of the predecessor fund, Van Kampen Life Investment Trust Mid Cap Growth Portfolio, 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.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 1.21% and 1.46%, 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
Average Annual Total Returns | ||||
As of 6/30/11 | ||||
Series I Shares | ||||
10 Years | 3.64 | % | ||
5 Years | 6.36 | |||
1 Year | 38.22 | |||
Series II Shares | ||||
Inception (9/25/00) | -2.42 | % | ||
10 Years | 3.64 | |||
5 Years | 6.36 | |||
1 Year | 37.78 | |||
(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, 2012. See current prospectus for more information. |
Invesco Van Kampen V.I. Mid Cap Growth Fund
Schedule of Investments
June 30, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.00%(a) | ||||||||
Aerospace & Defense–1.51% | ||||||||
BE Aerospace, Inc.(b) | 29,490 | $ | 1,203,487 | |||||
Air Freight & Logistics–1.02% | ||||||||
UTI Worldwide, Inc. | 41,501 | 817,155 | ||||||
Apparel Retail–1.37% | ||||||||
Abercrombie & Fitch Co.–Class A | 16,335 | 1,093,138 | ||||||
Apparel, Accessories & Luxury Goods–2.95% | ||||||||
Coach, Inc. | 36,790 | 2,351,985 | ||||||
Application Software–2.89% | ||||||||
Citrix Systems, Inc.(b) | 7,312 | 584,960 | ||||||
Salesforce.com, Inc.(b) | 5,458 | 813,133 | ||||||
TIBCO Software, Inc.(b) | 31,450 | 912,679 | ||||||
2,310,772 | ||||||||
Asset Management & Custody Banks–1.73% | ||||||||
Affiliated Managers Group, Inc.(b) | 13,604 | 1,380,126 | ||||||
Auto Parts & Equipment–3.45% | ||||||||
BorgWarner, Inc.(b) | 17,477 | 1,411,967 | ||||||
Gentex Corp. | 44,485 | 1,344,781 | ||||||
2,756,748 | ||||||||
Biotechnology–1.05% | ||||||||
United Therapeutics Corp.(b) | 15,192 | 837,079 | ||||||
Broadcasting–1.56% | ||||||||
Discovery Communications, Inc.–Class A(b) | 30,457 | 1,247,519 | ||||||
Communications Equipment–4.59% | ||||||||
Acme Packet, Inc.(b) | 13,935 | 977,261 | ||||||
F5 Networks, Inc.(b) | 11,875 | 1,309,219 | ||||||
Riverbed Technology, Inc.(b) | 22,415 | 887,410 | ||||||
Sycamore Networks, Inc. | 21,940 | 487,946 | ||||||
3,661,836 | ||||||||
Computer Storage & Peripherals–2.02% | ||||||||
NetApp, Inc.(b) | 30,501 | 1,609,843 | ||||||
Construction & Engineering–1.30% | ||||||||
Foster Wheeler AG (Switzerland)(b) | 34,192 | 1,038,753 | ||||||
Construction & Farm Machinery & Heavy Trucks–4.46% | ||||||||
AGCO Corp.(b) | 23,043 | 1,137,403 | ||||||
Navistar International Corp.(b) | 27,253 | 1,538,704 | ||||||
Terex Corp.(b) | 31,182 | 887,128 | ||||||
3,563,235 | ||||||||
Consumer Finance–1.41% | ||||||||
Discover Financial Services | 42,170 | 1,128,047 | ||||||
Department Stores–1.97% | ||||||||
Nordstrom, Inc. | 33,490 | 1,572,021 | ||||||
Electrical Components & Equipment–1.38% | ||||||||
Cooper Industries PLC–Class A (Ireland) | 18,491 | 1,103,358 | ||||||
Electronic Components–1.48% | ||||||||
Amphenol Corp.–Class A | 21,899 | 1,182,327 | ||||||
Fertilizers & Agricultural Chemicals–0.63% | ||||||||
Intrepid Potash, Inc.(b) | 15,399 | 500,467 | ||||||
Footwear–1.37% | ||||||||
Crocs, Inc.(b) | 42,423 | 1,092,392 | ||||||
Health Care Equipment–1.15% | ||||||||
CareFusion Corp.(b) | 33,836 | 919,324 | ||||||
Health Care Facilities–2.83% | ||||||||
Brookdale Senior Living Inc.(b) | 31,351 | 760,262 | ||||||
Universal Health Services, Inc.–Class B | 29,132 | 1,501,172 | ||||||
2,261,434 | ||||||||
Health Care Services–3.60% | ||||||||
DaVita, Inc.(b) | 14,929 | 1,293,001 | ||||||
Quest Diagnostics Inc. | 26,715 | 1,578,856 | ||||||
2,871,857 | ||||||||
Health Care Technology–1.18% | ||||||||
Allscripts Healthcare Solutions, Inc.(b) | 48,315 | 938,277 | ||||||
Hotels, Resorts & Cruise Lines–2.52% | ||||||||
Starwood Hotels & Resorts Worldwide, Inc. | 35,915 | 2,012,677 | ||||||
Human Resource & Employment Services–1.21% | ||||||||
Robert Half International, Inc. | 35,674 | 964,268 | ||||||
Industrial Gases–1.70% | ||||||||
Airgas, Inc. | 19,343 | 1,354,784 | ||||||
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 | |||||||
Industrial Machinery–2.83% | ||||||||
Flowserve Corp. | 9,777 | $ | 1,074,395 | |||||
Gardner Denver Inc. | 14,086 | 1,183,928 | ||||||
2,258,323 | ||||||||
Internet Retail–1.04% | ||||||||
Netflix Inc.(b) | 1,703 | 447,361 | ||||||
Priceline.com Inc.(b) | 754 | 385,995 | ||||||
833,356 | ||||||||
IT Consulting & Other Services–3.38% | ||||||||
Cognizant Technology Solutions Corp.–Class A(b) | 16,730 | 1,226,978 | ||||||
Teradata Corp.(b) | 24,443 | 1,471,469 | ||||||
2,698,447 | ||||||||
Managed Health Care–1.50% | ||||||||
Aetna Inc. | 27,232 | 1,200,659 | ||||||
Movies & Entertainment–1.15% | ||||||||
Cinemark Holdings, Inc. | 44,189 | 915,154 | ||||||
Oil & Gas Drilling–0.38% | ||||||||
Patterson-UTI Energy, Inc. | 9,618 | 304,025 | ||||||
Oil & Gas Equipment & Services–3.96% | ||||||||
Cameron International Corp.(b) | 21,627 | 1,087,622 | ||||||
Oil States International, Inc.(b) | 13,899 | 1,110,669 | ||||||
Superior Energy Services, Inc.(b) | 25,883 | 961,295 | ||||||
3,159,586 | ||||||||
Oil & Gas Exploration & Production–4.22% | ||||||||
Petrohawk Energy Corp.(b) | 35,833 | 884,000 | ||||||
Pioneer Natural Resources Co. | 15,465 | 1,385,200 | ||||||
Plains Exploration & Production Co.(b) | 28,936 | 1,103,040 | ||||||
3,372,240 | ||||||||
Pharmaceuticals–2.10% | ||||||||
Hospira, Inc.(b) | 29,544 | 1,673,963 | ||||||
Precious Metals & Minerals–1.05% | ||||||||
Stillwater Mining Co.(b) | 38,091 | 838,383 | ||||||
Railroads–0.37% | ||||||||
Kansas City Southern(b) | 4,947 | 293,505 | ||||||
Real Estate Services–1.25% | ||||||||
Jones Lang LaSalle Inc. | 10,581 | 997,788 | ||||||
Semiconductors–5.21% | ||||||||
Altera Corp. | 38,575 | 1,787,951 | ||||||
Avago Technologies Ltd. (Singapore) | 30,177 | 1,146,726 | ||||||
Cavium Inc.(b) | 28,161 | 1,227,538 | ||||||
4,162,215 | ||||||||
Specialized Finance–1.75% | ||||||||
Moody’s Corp. | 36,386 | 1,395,403 | ||||||
Specialty Chemicals–3.82% | ||||||||
Albemarle Corp. | 17,669 | 1,222,695 | ||||||
LyondellBasell Industries N.V.–Class A (Netherlands) | 20,583 | 792,857 | ||||||
Nalco Holding Co. | 37,132 | 1,032,641 | ||||||
3,048,193 | ||||||||
Specialty Stores–3.14% | ||||||||
Dick’s Sporting Goods, Inc.(b) | 30,712 | 1,180,877 | ||||||
Ulta Salon, Cosmetics & Fragrance, Inc.(b) | 20,573 | 1,328,604 | ||||||
2,509,481 | ||||||||
Systems Software–1.76% | ||||||||
Check Point Software Technologies Ltd. (Israel)(b) | 24,677 | 1,402,887 | ||||||
Trucking–2.84% | ||||||||
Hertz Global Holdings, Inc.(b) | 72,613 | 1,153,094 | ||||||
J.B. Hunt Transport Services, Inc. | 23,573 | 1,110,053 | ||||||
2,263,147 | ||||||||
Wireless Telecommunication Services–3.92% | ||||||||
NII Holdings Inc.(b) | 45,371 | 1,922,823 | ||||||
SBA Communications Corp.–Class A(b) | 31,668 | 1,209,401 | ||||||
3,132,224 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $67,929,914) | 78,231,888 | |||||||
Money Market Funds–0.87% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 349,169 | 349,169 | ||||||
Premier Portfolio–Institutional Class(c) | 349,169 | 349,169 | ||||||
Total Money Market Funds (Cost $698,338) | 698,338 | |||||||
TOTAL INVESTMENTS–98.87% (Cost $68,628,252) | 78,930,226 | |||||||
OTHER ASSETS LESS LIABILITIES–1.13% | 899,150 | |||||||
NET ASSETS–100.00% | $ | 79,829,376 | ||||||
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 advisor. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Mid Cap Growth Fund
By sector, based on Net Assets
as of June 30, 2011
Information Technology | 21.3 | % | ||
Consumer Discretionary | 20.5 | |||
Industrials | 16.9 | |||
Health Care | 13.4 | |||
Energy | 8.6 | |||
Materials | 7.2 | |||
Financials | 6.2 | |||
Telecommunication Services | 3.9 | |||
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. Mid Cap Growth Fund
Statement of Assets and Liabilities
June 30, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $67,929,914) | $ | 78,231,888 | ||
Investments in affiliated money market funds, at value and cost | 698,338 | |||
Total investments, at value (Cost $68,628,252) | 78,930,226 | |||
Receivable for: | ||||
Investments sold | 2,089,808 | |||
Fund shares sold | 105,518 | |||
Dividends | 27,437 | |||
Fund expenses absorbed | 5,448 | |||
Investment for trustee deferred compensation and retirement plans | 2,344 | |||
Total assets | 81,160,781 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 954,802 | |||
Fund shares reacquired | 146,016 | |||
Accrued fees to affiliates | 198,152 | |||
Accrued other operating expenses | 29,356 | |||
Trustee deferred compensation and retirement plans | 3,079 | |||
Total liabilities | 1,331,405 | |||
Net assets applicable to shares outstanding | $ | 79,829,376 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 62,365,205 | ||
Undistributed net investment income (loss) | (330,775 | ) | ||
Undistributed net realized gain | 7,492,972 | |||
Unrealized appreciation | 10,301,974 | |||
$ | 79,829,376 | |||
Net Assets: | ||||
Series I | $ | 13,154 | ||
Series II | $ | 79,816,222 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 3,030 | |||
Series II | 18,403,925 | |||
Series I: | ||||
Net asset value per share | $ | 4.34 | ||
Series II: | ||||
Net asset value per share | $ | 4.34 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $440) | $ | 172,993 | ||
Dividends from affiliated money market funds (includes securities lending income of $3,871) | 5,254 | |||
Total investment income | 178,247 | |||
Expenses: | ||||
Advisory fees | 303,639 | |||
Administrative services fees | 126,008 | |||
Custodian fees | 5,818 | |||
Distribution fees: | ||||
Series II | 101,205 | |||
Transfer agent fees | 3,459 | |||
Trustees’ and officers’ fees and benefits | 8,885 | |||
Other | 34,432 | |||
Total expenses | 583,446 | |||
Less: Fees waived | (75,732 | ) | ||
Net expenses | 507,714 | |||
Net investment income (loss) | (329,467 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from investment securities (includes net gains from securities sold to affiliates of $422,495) | 9,756,384 | |||
Change in net unrealized appreciation (depreciation) of investment securities | (4,022,730 | ) | ||
Net realized and unrealized gain | 5,733,654 | |||
Net increase in net assets resulting from operations | $ | 5,404,187 | ||
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 Changes in Net Assets
For the six months ended June 30, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (329,467 | ) | $ | (330,427 | ) | ||
Net realized gain | 9,756,384 | 3,962,128 | ||||||
Change in net unrealized appreciation (depreciation) | (4,022,730 | ) | 12,689,878 | |||||
Net increase in net assets resulting from operations | 5,404,187 | 16,321,579 | ||||||
Share transactions–net: | ||||||||
Series I | — | 10,000 | ||||||
Series II | (5,048,495 | ) | 17,691,401 | |||||
Net increase (decrease) in net assets resulting from share transactions | (5,048,495 | ) | 17,701,401 | |||||
Net increase in net assets | 355,692 | 34,022,980 | ||||||
Net assets: | ||||||||
Beginning of period | 79,473,684 | 45,450,704 | ||||||
End of period (includes undistributed net investment income (loss) of $(330,775) and $(1,308), respectively) | $ | 79,829,376 | $ | 79,473,684 | ||||
Notes to Financial Statements
June 30, 2011
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. Mid Cap Growth Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco 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-eight 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 seek capital growth.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations, including commercial paper, having 60 days or less to maturity |
Invesco Van Kampen V.I. Mid Cap Growth 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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 (“GAAP”) 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 |
Invesco Van Kampen V.I. Mid Cap Growth Fund
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 Daily Net Assets | Rate | |||
First $500 million | 0 | .75% | ||
Next $500 million | 0 | .70% | ||
Over $1 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 Canada Ltd. (formerly 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 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 and/or expense reimbursement (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 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 the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2012.
Further, the Adviser has contractually agreed, through at least June 30, 2012, 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, 2011, the Adviser waived advisory fees of $75,732.
Invesco Van Kampen V.I. Mid Cap Growth 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, 2011, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $101,213 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, 2011, 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, 2011, 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 the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 78,930,226 | $ | — | $ | — | $ | 78,930,226 | ||||||||
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, 2011, the Fund engaged in securities purchases of $1,696,283 and securities sales of $2,397,342, which resulted in net realized gains of $422,495.
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. Mid Cap Growth Fund
During the six months ended June 30, 2011, the Fund paid legal fees of $852 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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 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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 593,897 | ||
December 31, 2017 | 1,382,661 | |||
Total capital loss carryforward | $ | 1,976,558 | ||
* | 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, 2011 was $60,297,274 and $65,516,208, 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 | $ | 10,965,832 | ||
Aggregate unrealized (depreciation) of investment securities | (950,712 | ) | ||
Net unrealized appreciation of investment securities | $ | 10,015,120 | ||
Cost of investments for tax purposes is $68,915,106. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | — | $ | — | 3,030 | $ | 10,000 | ||||||||||
Series II | 985,724 | 4,180,023 | 8,162,383 | 27,538,493 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | — | — | — | — | ||||||||||||
Series II | (2,172,890 | ) | (9,228,518 | ) | (2,832,428 | ) | (9,847,092 | ) | ||||||||
Net increase (decrease) in share activity | (1,187,166 | ) | $ | (5,048,495 | ) | 5,332,985 | $ | 17,701,401 | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 88% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. In addition, less than 1% of the outstanding shares of the Fund are owned by Invesco or an investment advisor under common control. |
Invesco Van Kampen V.I. Mid 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) | ||||||||||||||||||||||||||||||||||||||||||||||
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 06/30/11 | $ | 4.05 | $ | (0.01 | ) | $ | 0.30 | $ | 0.29 | $ | — | $ | — | $ | — | $ | 4.34 | 7.16 | % | $ | 13 | 1.00 | %(d) | 1.19 | %(d) | (0.56 | )%(d) | 73 | % | |||||||||||||||||||||||||||
Year ended 12/31/10(e) | 3.30 | (0.00 | )(f) | 0.75 | 0.75 | — | — | — | 4.05 | 22.73 | 12 | 1.01 | 1.12 | (0.18 | ) | 105 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | 4.06 | (0.02 | ) | 0.30 | 0.28 | — | — | — | 4.34 | 6.90 | 79,816 | 1.25 | (d) | 1.44 | (d) | (0.81 | )(d) | 73 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 3.19 | (0.02 | ) | 0.89 | 0.87 | — | — | — | 4.06 | 27.27 | 79,461 | 1.26 | 1.37 | (0.53 | ) | 105 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 2.04 | (0.01 | ) | 1.16 | 1.15 | — | — | — | 3.19 | 56.37 | 45,451 | 1.26 | 1.52 | (0.36 | ) | 42 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 5.72 | (0.02 | ) | (2.01 | ) | (2.03 | ) | — | (1.65 | ) | (1.65 | ) | 2.04 | (46.83 | ) | 22,603 | 1.26 | 1.61 | (0.66 | ) | 42 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 5.24 | (0.02 | ) | 0.88 | 0.86 | — | (0.38 | ) | (0.38 | ) | 5.72 | 17.60 | 43,316 | 1.26 | 1.39 | (0.37 | ) | 201 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/06 | 5.40 | (0.03 | ) | 0.31 | 0.28 | — | (0.44 | ) | (0.44 | ) | 5.24 | 4.92 | 42,547 | 1.26 | 1.45 | (0.61 | ) | 154 | ||||||||||||||||||||||||||||||||||||||
(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 and is not annualized for periods less than one year, if applicable. | |
(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) of $13 and $81,629 for Series I and Series II, respectively. | |
(e) | Commencement date of June 1, 2010. | |
(f) | Amount is less than $0.01 per share. |
Invesco Van Kampen V.I. Mid 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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,071.60 | $ | 5.14 | $ | 1,019.84 | $ | 5.01 | 1.00 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,069.00 | 6.41 | 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, 2011 through June 30, 2011, 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 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 Van Kampen V.I. Mid 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
Invesco Van Kampen V.I. Mid Cap Growth 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 funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Mid-Cap Growth Funds Index. The Board noted that performance of Series II shares of the Fund was in the third quintile of the 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 performance of Series II shares of the Fund was below the performance of the Index for the one and five year periods and above the performance of the Index for the three year period. 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 at a common asset level. The Board noted that the contractual advisory fee rate for Series II shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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. The Board noted that the Fund’s rate was above the rates of the other mutual funds.
Other than the mutual funds 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 June 30, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
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Invesco Van Kampen V.I. Mid Cap Value Fund
Semiannual Report to Shareholders § June 30, 2011
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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 800 959 4246 or at 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, 2011, is available at 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.
VK-VIMCV-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/10 to 6/30/11, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 7.35 | % | ||
Series II Shares | 7.23 | |||
S&P 500 Index▼ (Broad Market Index) | 6.01 | |||
Russell Midcap Value Index▼ (Style-Specific Index) | 6.69 | |||
Lipper VUF Mid-Cap Value Funds Index▼ (Peer Group Index) | 5.09 | |||
▼Lipper Inc.
The Fund recently adopted a three-tier benchmark structure to compare its performance to broad market, style-specific and peer group market measures.
The S&P 500® Index is an unmanaged index considered representative of the U.S. stock market.
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 Lipper VUF Mid-Cap Value Funds Index is an unmanaged index considered representative of mid-cap value variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
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.
Effective June 1, 2010, Class I and Class II shares of the predecessor fund, Universal Institutional Funds Mid Cap Value Portfolio, advised by Morgan Stanley Investment Management Inc. 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 1.04% and 1.14%, 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 1.04% and 1.29%, 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 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
Average Annual Total Returns | ||||
As of 6/30/11 | ||||
Series I Shares | ||||
Inception (1/2/97) | 9.75 | % | ||
10 Years | 5.79 | |||
5 Years | 5.97 | |||
1 Year | 31.39 | |||
Series II Shares | ||||
Inception (5/5/03) | 11.12 | % | ||
5 Years | 5.85 | |||
1 Year | 31.28 |
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 by the distributor 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
June 30, 2011
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–95.30%(a) | ||||||||
Aerospace & Defense–2.86% | ||||||||
Goodrich Corp. | 96,129 | $ | 9,180,319 | |||||
Alternative Carriers–2.63% | ||||||||
TW Telecom, Inc.(b) | 410,133 | 8,420,030 | ||||||
Asset Management & Custody Banks–2.03% | ||||||||
Northern Trust Corp. | 141,835 | 6,518,737 | ||||||
Auto Parts & Equipment–0.72% | ||||||||
Visteon Corp.(b) | 33,700 | 2,305,417 | ||||||
Computer Hardware–1.90% | ||||||||
Diebold, Inc. | 196,098 | 6,080,999 | ||||||
Data Processing & Outsourced Services–2.43% | ||||||||
Fidelity National Information Services, Inc. | 253,261 | 7,797,906 | ||||||
Diversified Banks–1.75% | ||||||||
Comerica, Inc. | 161,917 | 5,597,471 | ||||||
Electric Utilities–4.70% | ||||||||
Edison International | 245,877 | 9,527,734 | ||||||
Great Plains Energy, Inc. | 266,657 | 5,527,799 | ||||||
15,055,533 | ||||||||
Electronic Manufacturing Services–1.13% | ||||||||
Flextronics International Ltd. (Singapore)(b) | 562,485 | 3,611,154 | ||||||
Food Distributors–1.81% | ||||||||
Sysco Corp. | 186,446 | 5,813,386 | ||||||
Food Retail–2.60% | ||||||||
Safeway, Inc. | 356,372 | 8,328,414 | ||||||
Health Care Facilities–4.66% | ||||||||
Brookdale Senior Living, Inc.(b) | 315,945 | 7,661,666 | ||||||
HealthSouth Corp.(b) | 276,460 | 7,257,075 | ||||||
14,918,741 | ||||||||
Heavy Electrical Equipment–1.85% | ||||||||
Babcock & Wilcox Co.(b) | 213,785 | 5,923,982 | ||||||
Home Furnishings–1.83% | ||||||||
Mohawk Industries, Inc.(b) | 97,574 | 5,853,464 | ||||||
Household Appliances–1.71% | ||||||||
Whirlpool Corp. | 67,439 | 5,484,139 | ||||||
Housewares & Specialties–2.69% | ||||||||
Newell Rubbermaid, Inc. | 546,438 | 8,622,792 | ||||||
Industrial Machinery–3.22% | ||||||||
Snap-On, Inc. | 165,303 | 10,328,131 | ||||||
Insurance Brokers–4.45% | ||||||||
Marsh & McLennan Cos., Inc. | 230,843 | 7,199,993 | ||||||
Willis Group Holdings PLC (Ireland) | 171,393 | 7,045,966 | ||||||
14,245,959 | ||||||||
Integrated Oil & Gas–1.39% | ||||||||
Murphy Oil Corp. | 67,713 | 4,446,036 | ||||||
Investment Banking & Brokerage–2.07% | ||||||||
Charles Schwab Corp. (The) | 402,601 | 6,622,786 | ||||||
Motorcycle Manufacturers–3.18% | ||||||||
Harley-Davidson, Inc. | 248,476 | 10,180,062 | ||||||
Multi-Utilities–3.67% | ||||||||
CenterPoint Energy, Inc. | 328,378 | 6,354,115 | ||||||
Wisconsin Energy Corp. | 172,078 | 5,394,645 | ||||||
11,748,760 | ||||||||
Office Electronics–2.90% | ||||||||
Zebra Technologies Corp.–Class A(b) | 220,057 | 9,279,804 | ||||||
Office Services & Supplies–2.46% | ||||||||
Avery Dennison Corp. | 203,799 | 7,872,755 | ||||||
Oil & Gas Exploration & Production–1.96% | ||||||||
Pioneer Natural Resources Co. | 70,101 | 6,278,947 | ||||||
Oil & Gas Storage & Transportation–6.30% | ||||||||
El Paso Corp.(c) | 626,217 | 12,649,583 | ||||||
Williams Cos., Inc. (The) | 249,278 | 7,540,660 | ||||||
20,190,243 | ||||||||
Packaged Foods & Meats–2.85% | ||||||||
ConAgra Foods, Inc. | 354,192 | 9,141,696 | ||||||
Paper Packaging–2.06% | ||||||||
Sonoco Products Co. | 185,976 | 6,609,587 | ||||||
Personal Products–1.64% | ||||||||
Avon Products, Inc. | 188,289 | 5,272,092 | ||||||
Property & Casualty Insurance–2.20% | ||||||||
ACE Ltd. (Switzerland) | 107,111 | 7,050,046 | ||||||
Regional Banks–5.36% | ||||||||
BB&T Corp. | 236,012 | 6,334,562 | ||||||
First Horizon National Corp. | 94,287 | 899,498 | ||||||
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 | |||||||
Regional Banks–(continued) | ||||||||
Wintrust Financial Corp. | 198,377 | $ | 6,383,772 | |||||
Zions Bancorp. | 148,663 | 3,569,399 | ||||||
17,187,231 | ||||||||
Restaurants–2.54% | ||||||||
Darden Restaurants, Inc. | 163,808 | 8,151,086 | ||||||
Retail REIT’s–1.57% | ||||||||
Weingarten Realty Investors | 200,600 | 5,047,096 | ||||||
Specialty Chemicals–5.14% | ||||||||
Valspar Corp. (The) | 180,420 | 6,505,945 | ||||||
W.R. Grace & Co.(b) | 218,626 | 9,975,905 | ||||||
16,481,850 | ||||||||
Specialty Stores–1.91% | ||||||||
Staples, Inc. | 387,045 | 6,115,311 | ||||||
Trucking–1.13% | ||||||||
Swift Transportation Co.(b) | 267,024 | 3,618,175 | ||||||
Total Common Stocks & Other Equity Interests (Cost $257,882,324) | 305,380,137 | |||||||
Money Market Funds–4.62% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 7,395,621 | 7,395,621 | ||||||
Premier Portfolio–Institutional Class(d) | 7,395,621 | 7,395,621 | ||||||
Total Money Market Funds (Cost $14,791,242) | 14,791,242 | |||||||
TOTAL INVESTMENTS–99.92% (Cost $272,673,566) | 320,171,379 | |||||||
OTHER ASSETS LESS LIABILITIES–0.08% | 250,076 | |||||||
NET ASSETS–100.00% | $ | 320,421,455 | ||||||
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) | A portion of this security is subject to call options written. See Note 1J 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, 2011
Financials | 19.4 | % | ||
Consumer Discretionary | 14.6 | |||
Industrials | 11.5 | |||
Energy | 9.6 | |||
Consumer Staples | 8.9 | |||
Information Technology | 8.4 | |||
Utilities | 8.4 | |||
Materials | 7.2 | |||
Health Care | 4.7 | |||
Telecommunication Services | 2.6 | |||
Money Market Funds Plus Other Assets Less Liabilities | 4.7 | |||
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, 2011
(Unaudited)
Assets: | ||||
Investments, at value (Cost $257,882,324) | $ | 305,380,137 | ||
Investments in affiliated money market funds, at value and cost | 14,791,242 | |||
Total investments, at value (Cost $272,673,566) | 320,171,379 | |||
Receivable for: | ||||
Investments sold | 1,445,457 | |||
Fund shares sold | 398,898 | |||
Dividends | 423,465 | |||
Fund expenses absorbed | 62,935 | |||
Investment for trustee deferred compensation and retirement plans | 2,884 | |||
Other assets | 6,382 | |||
Total assets | 322,511,400 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 770,360 | |||
Fund shares reacquired | 123,984 | |||
Options written, at value (premiums received $298,595) | 303,000 | |||
Accrued fees to affiliates | 853,237 | |||
Accrued other operating expenses | 33,345 | |||
Trustee deferred compensation and retirement plans | 6,019 | |||
Total liabilities | 2,089,945 | |||
Net assets applicable to shares outstanding | $ | 320,421,455 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 311,189,572 | ||
Undistributed net investment income | 2,932,903 | |||
Undistributed net realized gain (loss) | (41,194,428 | ) | ||
Unrealized appreciation | 47,493,408 | |||
$ | 320,421,455 | |||
Net Assets: | ||||
Series I | $ | 152,858,763 | ||
Series II | $ | 167,562,692 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 11,135,726 | |||
Series II | 12,282,191 | |||
Series I: | ||||
Net asset value per share | $ | 13.73 | ||
Series II: | ||||
Net asset value per share | $ | 13.64 | ||
Statement of Operations
For the six months ended June 30, 2011
(Unaudited)
Investment income: | ||||
Dividends | $ | 2,702,011 | ||
Dividends from affiliated money market funds (includes securities lending income of $840) | 11,021 | |||
Total investment income | 2,713,032 | |||
Expenses: | ||||
Advisory fees | 1,161,998 | |||
Administrative services fees | 445,550 | |||
Custodian fees | 5,359 | |||
Distribution fees — Series II | 203,407 | |||
Transfer agent fees | 6,889 | |||
Trustees’ and officers’ fees and benefits | 12,285 | |||
Other | 35,910 | |||
Total expenses | 1,871,398 | |||
Less: Fees waived | (135,564 | ) | ||
Net expenses | 1,735,834 | |||
Net investment income | 977,198 | |||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $240,949) | 12,905,904 | |||
Option contracts written | 70,827 | |||
12,976,731 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 8,669,053 | |||
Option contracts written | 19,850 | |||
8,688,903 | ||||
Net realized and unrealized gain | 21,665,634 | |||
Net increase in net assets resulting from operations | $ | 22,642,832 | ||
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, 2011 and the year ended December 31, 2010
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Operations: | ||||||||
Net investment income | $ | 977,198 | $ | 1,977,012 | ||||
Net realized gain | 12,976,731 | 15,581,654 | ||||||
Change in net unrealized appreciation | 8,688,903 | 42,000,250 | ||||||
Net increase in net assets resulting from operations | 22,642,832 | 59,558,916 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (1,468,515 | ) | |||||
Series II | — | (1,117,364 | ) | |||||
Total distributions from net investment income | — | (2,585,879 | ) | |||||
Share transactions–net: | ||||||||
Series I | (21,169,461 | ) | (26,790,802 | ) | ||||
Series II | 4,491,620 | 4,375,683 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (16,677,841 | ) | (22,415,119 | ) | ||||
Net increase in net assets | 5,964,991 | 34,557,918 | ||||||
Net assets: | ||||||||
Beginning of period | 314,456,464 | 279,898,546 | ||||||
End of period (includes undistributed net investment income of $2,932,903 and $1,955,705, respectively) | $ | 320,421,455 | $ | 314,456,464 | ||||
Notes to Financial Statements
June 30, 2011
(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) (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-eight 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 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. Mid Cap 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 trade 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 (net of withholding tax, if any) 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 net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized 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. Mid Cap 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 (“GAAP”) 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. | Call Options Written and Purchased — The Fund may write and/or buy call options. A call option gives the purchaser of such option the right to buy, and the writer the obligation to sell, the underlying security at the stated exercise price during the option period. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. | |
When the Fund writes a call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent 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 and unrealized gains and losses on these contracts are included in the Statement of Operation. 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. | ||
When the Fund buys a call option, an amount equal to the premium paid by the Fund is recorded as an investment on the Statement of Assets and Liabilities. The amount of the investment is subsequently “marked-to-market” to reflect the current value of the option purchased. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. A risk in buying an option is that the Fund pays a premium whether or not the option is exercised. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased. | ||
K. | Put Options Purchased — The Fund may purchase put options including options on securities indexes and/or futures contracts. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the option’s underlying instrument at a fixed strike price. In return for this right, the Fund pays an option premium. The option’s underlying instrument may be a security, securities index, or a futures contract. Put options may be used by the Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund’s resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. A risk in buying an option is that the Fund pays a premium whether or not the option is exercised. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco 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 | Rate | |||
First $1 billion | 0 | .72% | ||
Over $1 billion | 0 | .65% | ||
Invesco Van Kampen V.I. Mid Cap Value 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 Canada Ltd. (formerly 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 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 and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.18% and Series II shares to 1.28% (after 12b-1 fee waivers) 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 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 the 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 reimbursed expenses during the period under this limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2012, 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, 2011, the Adviser waived advisory fees of $13,512.
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, 2011, Invesco was paid $42,078 for accounting and fund administrative services and reimbursed $403,472 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, 2011, 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. IDI has contractually agreed to waive 0.15% of Rule 12b-1 Plan fees on Series II shares through at least June 30, 2012. 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, 2011, fees incurred after fee waivers for Series II shares were $81,355.
Certain officers and trustees of the Trust are officers and directors of the Adviser, Invesco Ltd., IIS and/or IDI.
NOTE 3—Additional Valuation Information
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, 2011. 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, 2011, there were no significant transfers between investment levels.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 320,171,379 | $ | — | $ | — | $ | 320,171,379 | ||||||||
Invesco Van Kampen V.I. Mid Cap Value 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, 2011:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Equity risk/options written | $ | 0 | $ | (303,000 | ) | |||
Effect of Derivative Instruments for the six months ended June 30, 2011
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 | ||||
Options* | ||||
Realized Gain | ||||
Equity risk | $ | 70,827 | ||
Change in Unrealized Appreciation | ||||
Equity risk | $ | 19,850 | ||
Total | $ | 90,677 | ||
* | The average value of options outstanding during the period was $(408,809). |
Transactions During the Period | ||||||||||||||||
Call Option Contracts | Put Option Contracts | |||||||||||||||
Number of | Premiums | Number of | Premiums | |||||||||||||
Contracts | Received | Contracts | Received | |||||||||||||
Beginning of period | 215 | $ | 67,120 | 215 | $ | 47,436 | ||||||||||
Written | 4,100 | 721,216 | 1,400 | 62,705 | ||||||||||||
Closed | (1,900 | ) | (325,189 | ) | (6 | ) | (286 | ) | ||||||||
Expired | (915 | ) | (164,552 | ) | (1,609 | ) | (109,855 | ) | ||||||||
End of period | 1,500 | $ | 298,595 | 0 | $ | 0 | ||||||||||
Open Options Written | ||||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||
Contract | Strike | Number of | Premiums | Appreciation | ||||||||||||||||||||
Month | Price | Contracts | Received | Value | (Depreciation) | |||||||||||||||||||
Calls | ||||||||||||||||||||||||
El Paso Corp. | Jan-12 | $ | 20 | 1,500 | $ | 298,595 | $ | 303,000 | $ | (4,405 | ) | |||||||||||||
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, 2011, the Fund engaged in securities purchases of $267,941 and securities sales of $1,933,421, which resulted in net realized gains of $240,949.
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
Invesco Van Kampen V.I. Mid Cap Value Fund
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, 2011, the Fund paid legal fees of $852 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner 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 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, 2010 which expires as follows:
Capital Loss | ||||
Expiration | Carryforward* | |||
December 31, 2016 | $ | 18,692,646 | ||
December 31, 2017 | 34,527,033 | |||
Total capital loss carryforward | $ | 53,219,679 | ||
* | 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, 2011 was $51,135,210 and $66,349,766, 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 | $ | 55,886,396 | ||
Aggregate unrealized (depreciation) of investment securities | (9,340,063 | ) | ||
Net unrealized appreciation of investment securities | $ | 46,546,333 | ||
Cost of investments for tax purposes is $273,625,046. |
Invesco Van Kampen V.I. Mid Cap Value Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2011(a) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 156,573 | $ | 2,121,500 | 735,988 | $ | 8,422,816 | ||||||||||
Series II | 1,697,477 | 22,807,155 | 2,861,100 | 32,148,812 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 130,767 | 1,468,515 | ||||||||||||
Series II | — | — | 100,033 | 1,117,364 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,721,228 | ) | (23,290,961 | ) | (3,211,388 | ) | (36,682,133 | ) | ||||||||
Series II | (1,363,313 | ) | (18,315,535 | ) | (2,538,804 | ) | (28,890,493 | ) | ||||||||
Net increase (decrease) in share activity | (1,230,491 | ) | $ | (16,677,841 | ) | (1,922,304 | ) | $ | (22,415,119 | ) | ||||||
(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 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 | 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) | (000’s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/11 | $ | 12.79 | $ | 0.04 | $ | 0.90 | $ | 0.94 | $ | — | $ | — | $ | — | $ | 13.73 | 7.35 | % | $ | 152,859 | 1.02 | %(d) | 1.03 | %(d) | 0.66 | %(d) | 17 | % | ||||||||||||||||||||||||||||
Year ended 12/31/10 | 10.56 | 0.08 | 2.25 | 2.33 | (0.10 | ) | — | (0.10 | ) | 12.79 | 22.24 | 162,472 | 1.02 | 1.03 | 0.72 | 40 | ||||||||||||||||||||||||||||||||||||||||
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 06/30/11 | 12.72 | 0.04 | 0.88 | 0.92 | — | — | — | 13.64 | 7.23 | 167,563 | 1.12 | (d) | 1.28 | (d) | 0.56 | (d) | 17 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 10.50 | 0.07 | 2.25 | 2.32 | (0.10 | ) | — | (0.10 | ) | 12.72 | 22.18 | 151,985 | 1.12 | 1.32 | 0.62 | 40 | ||||||||||||||||||||||||||||||||||||||||
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 $161,394 and $164,058 for Series I and Series II shares, respectively. |
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, 2011 through June 30, 2011.
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 | (01/01/11) | (06/30/11)1 | Period2 | (06/30/11) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,073.50 | $ | 5.24 | $ | 1,019.74 | $ | 5.11 | 1.02 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,072.30 | 5.75 | 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, 2011 through June 30, 2011, 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 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 Van Kampen V.I. Mid Cap 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 Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 14-15, 2011, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% 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, 2011. 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. The Board 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 the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements 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 Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies and limitations and investment risks 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 their assigned Invesco 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 Invesco Advisers and an independent company, Lipper, Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation 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 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 Trustees also considered information provided in connection with fund acquisitions approved by the Trustees to rationalize the Invesco Funds product range following the acquisition of the retail mutual fund business of Morgan Stanley (the Morgan Stanley Transaction). The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees inherited from Morgan Stanley and Van Kampen funds acquired in the Morgan Stanley Transaction. 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. One Trustee may have weighed a particular piece of information differently than another Trustee.
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 15, 2011, 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, including the Fund’s portfolio manager or managers, with whom the Board met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ performance and investment process oversight, independent credit analysis and investment risk management.
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 services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and the advisory services are provided in accordance with the terms 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 noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers 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. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and in accordance with the terms of the Fund’s sub-advisory contracts.
Invesco Van Kampen V.I. Mid Cap Value 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 funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Mid Cap Value Funds Index. The Board noted that performance of Series I shares of the Fund was in the third quintile of the performance universe for the one year period, the fourth 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 performance of Series I shares of the Fund was above the performance of the Index for the one and five year periods and below the performance of the Index for the three year period. 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 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 the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, 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 and including only one fund per investment adviser. 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 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. The Board noted that the Fund’s rate was the same as the rate of two other mutual funds advised by Invesco Advisers and below the total account level fee of two mutual funds 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 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 June 30, 2012 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 Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also 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.
Based upon the information and considerations described above, 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 economies of scale through contractual breakpoints in the Fund’s advisory fee schedule. 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 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 from services Invesco Advisers and its subsidiaries provide to the Fund and the Invesco Funds. The Board concluded that the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund is not excessive given the nature, quality and extent of the services 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. The Board 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 from the relationship with the Fund, including the fees received 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 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; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
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 Invesco 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 receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is 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
ITEM 2. | CODE OF ETHICS. |
There were no amendments to the Code of Ethics (the “Code”) that applies to the Registrant’s Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”) during the period covered by the report. The Registrant did not grant any waivers, including implicit waivers, from any provisions of the Code to the PEO or PFO during the period covered by this report.
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
Not applicable.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Not applicable.
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable.
ITEM 6. | SCHEDULE OF INVESTMENTS. |
Investments in securities of unaffiliated issuers is included as part of the reports to stockholders filed under Item 1 of this Form. |
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 11. CONTROLS AND PROCEDURES.
(a) | As of June 10, 2011, 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 10, 2011, 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 | |||
Philip A. Taylor | ||||
Principal Executive Officer | ||||
Date: August 25, 2011
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: | /s/ Philip A. Taylor | |||
Philip A. Taylor | ||||
Principal Executive Officer | ||||
Date: August 25, 2011
By: | /s/ Sheri Morris | |||
Sheri Morris | ||||
Principal Financial Officer | ||||
Date: August 25, 2011
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. |